Download China’s Old and New Trade Patterns

China’s Old and New Trade Patterns
ZHU Zhongdi1 LI Na2 ZHAO Jing2 ∗
1
Shanghai Institute of Foreign Trade
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Shanghai University of Finance and Economics
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Abstract: China’s foreign trade volume has reached more than US 1,422 billion by 2005. But behind
the rapid growth there exist serious structural problems we call “three high and one low”—— the trade
expansion is highly resource-consuming, causes highly environmental pollutions and china’s economy
relies highly on the external markets; “one low” refers to low level of added-value and technique
contained in China’s exports. Though FDI and processing trade contribute to china’s economic growth
in recent years, they also bring weaknesses to our trading structure. It is pervasive for china to embark
on industrial upgrading and transform the trade pattern into a more energy efficient advanced one and
capital and technique. The government should also make efforts in encouraging domestic demand to
reduce reliance on the external market. We put forward some positive suggestions in this paper.
Keyword: trade pattern three high plus one low processing trade reliance on foreign trade
industry upgrading FDI
1 Introduction
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According to official statistics, china’s foreign trade has reached more than US 1,422 billion by 2005
and amounted to US 179.46billion in the first 2 months of 2005, up by 21.7 compared to the same
period of last year. As we all know, china is rich in labor and FDI keeps flowing in which makes china
the “world factory”. But the trend of globalization presents not only opportunities but risks for all the
developing countries. How to benefit from the prosperous world trade and efficiently promote the
favorable economic development of our country? To answer this question we have to solve the strategic
problem of perfecting our trading structure and transforming the labor-intensity trading advantage into a
more competitive one with more capital and technique contained in our exports.
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2 China’s old trade pattern
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China’s old trade pattern features “Three High plus one low”
1 High consumption of resources. Like all the developing countries primary goods and processing
industry play a big role in China’s exports and high growth rate is actually supported by inefficient use
of materials in some way. Because resources are crucial elements and also limits in an economy,
moreover, average resources per person in china is low despite our rich total quantity, temporary coarse
and unconstrained pattern of economic growth is unsustainable in the long term.
Oil price has been keeping running at a historic high level for a certain time. This deteriorate china’s
external environment for economic growth. Primary goods’ prices directly affect china’s development to
a great degree at present just because china is at a junior level of industrialization and owns an
inefficient trade pattern.
2 High pollution is becoming a big trouble in many cities in china because of blindly pursuit of
economic growth without enough care to the environment we are living in. We have to learn the lessons
of “pollute first, and then correct” of western countries which used to make them suffering from serious
environmental problems. Sustainable trade has become an important topic of the day due to the more
and more attention the international community pays to environmental problems. China should take
cautious steps to protect environment when carrying out industrialization.
3 High reliance on external markets. In recent years, china’s dependence upon foreign trade keeps
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Zhu Zhongdi is a professor at Shanghai Institute of Foreign Trade (SHIFT), Li Na and Zhao Jing are post
graduates at Shanghai University of Finance and Economics (SHUFE).
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increasing from 62 in 2003 to 70 in 2004 to about 80 this year and this is one of the main
reasons for china’s highest growth rate in the world. For such a big country like china this is not a good
sign for long run development because healthy economic growth should be based on more inherent and
perpetual factors.
4 Low value added. This is resulted from china’s exporting structure which is mainly composed of
primary goods and manufactory goods. Although the processing trade has the advantage of zero tariff, it
is actually labor intensity and without much technique. Moreover, because processing is short of brand
value and creation intension, it produces little added value. China’s high-tech industry has improved a
little, but it is still not big in the terms of total amount. It is a common phenomenon that china exports
goods while imports techniques which reflects china’s high reliance on foreign science and technology
progress. In such circumstances, trade terms is unfavorable for china because primary products have less
elasticity than high-tech ones. Along with the science and technology progress, developing countries are
facing deterioration of trade terms.
Thus, China needs a new trade pattern we called “Three low plus one high”;
Low consumption of resources;
Low pollution;
Low reliance on external markets;
High value added.
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3 Analysis of the main causes of
“three high plus one low”
1. China’s rapidly economic growth causes three high and one low.
The graphs above reveal that china has been expanding its economy scale at a very high rate which is
more than twice the world average level for successional years since 2000’s, and at about 8-9 in
recent years.
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Net trade and world price (selected primary commodities, China and India)
According the graph above, China is still at a junior phase of industrialization which is usually
characteristic of unconstrained and inefficient us of natural resources. We can see that USA and Japan
are at the sloping down period of the curve which means they have already stepped into an energy
efficient stage of economic growth following transformation of industrial structure from manufacturing
to tertiary and intellectual industry. As for the intensity of energy use, this picture show that developed
countries like Japan and USA have a sloping down curve while countries being industrialized like
Republic Korea and India are still increasing energy use intensity. China has made some improvement
but is still unsteady in energy saving and we have to take further steps.
2. China’s rapidly growth of foreign trade also causes three high and one low.
Despite of the rapid economic growth and unchanged price index, china’s companies and consumers
still keep investing in producing great number of goods for exporting. According to statistics of General
Customs administration of PRC, in the first two month of 2005, total imports and exports of china
amounted to US 179.46billion, up by 21.7 compared to the same period of last year. Of which
exports are US 95.28billion and imports US 84.18billion, up by 36.6 and 8.3 respectively. And
trade surplus reached US 11.1billion.
High economic growth rate of china is most supported by foreign trade and domestic prosperous
investment. Moreover, trade structure of china is unreasonable in terms of energy, environment and
trading status. Such a growth pattern is unsustainable because firstly protectionism is springing up
around the world especially in rich countries when they find developing countries’ rising producing
ability and cheap labor conquer their domestic market and affect the relevant industries; secondly prices
of raw materials are expected to be still rising in the future; thirdly overproducing leads to decreasing
profit rate and prices of goods, thus may causes deflation pressure.
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4 Specific analysis of high reliance on external market
China’s degree of dependence upon foreign trade, including commodity and service trade, is as high as
71.5 in 2004. For such a big country like china, keeping high level of reliance on external market is
not a permanent way of keeping growth and does harm to development in the future. The drawbacks are
listed as follows:
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Processing trade play a major role in our exports, thus foreign firms get most of the profits while
china’s companies only earn a little processing revenue. China’s Commerce Administrator Bo Xilai once
reckoned that by processing shirts for Europe and US firms in the pattern of OEM, china’s producers
only get 30-40 cents per piece while more than 90 of the profit is taken by the investors, importers
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and retailers.
2 Great trade surplus aggravates conflictions between china and its major trade partners.
Bilateral trade between china and its major trading partners in the first 2 months increased rapidly .In the
first eight months of 2005, china has experienced unprecedented trade surplus, but the import keeps a
lower growth rate than export. This worsens RMB appreciation pressure and causes severe trade
conflicts between china and its trading partners.
It is becoming a common understanding around the world that “Made in China” equals cheap products
with low quality. This not only ruins china’s brand name value but also has brought about numerous
anti-dumping cases towards china’s products and there are constant hostile emotions even extreme
behaviors in many areas because local people believe that cheap imports from china like textile products
or shoes ruin their own relevant industries and cause them out of work. Foreign governments have taken
actions to set up non tariff barriers to china’s textile and some light industry products which affect our
exports to a certain degree. In addition, in accordance with the rule of origin of WTO, a big volume of
export by processing trade which should not be regarded as from china is calculated in; Exports from
Hong Kong are also added up on china’s account by USA and some European countries. These further
expand the trade surplus and intensify trading frictions.
3 Constraint in international market. Whether it is import or export, we have to face violent influence of
the international market when the prices fluctuate. For example, the high price of oil recently will
absolutely affect china’s economic growth rate to some degree this year. Over reliance on foreign
technology is even more harmful for china’s development in the long run because intelligent property
rights have already become a barrier for many Chinese companies to carry out business.
4 Appreciation pressure of RMB. China’s large volume of trade surplus ignites protectionism in major
trading countries like USA, etc. Recently voices forcing RMB’s revaluation rises. China’s government
declares 2 appreciation of RMB and there is even a unofficial saying that RMB has taken the way of
appreciation little by little.
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5 China’s rapidly growth benefits others, not Chinese——a deep research on
processing trade in China
Statistic indicated that in the first two month of this year, china’s imports and exports by conventional
trade reached US 78.51billion, up by20.7 and accounting for 43.7 of total imports and exports.
Of which exports were US 41.72billion, increasing by 51.1 , and imports were US 36.79billion,
down by 1.7 . in the same period, imports and exports by processing trade maintained a strong growth,
amounting to US 84.27billion in the first 2 months with a growth of 23.9 . of which exports were U
50.26billion and imports US 34.01billion, rising by 27.1 and 19.5 respectively.
Chinese government offers significant inducements to attracting inward investment, motivated by the
expectation of many benefits. FDI, especially multinational-companies, for the sake of the cheap labors
in china, mainly invest in the processing segments. They indeed contribute much to china’s exporting
and economic growth, But that also leads to a potential weakness for china’s economy. We will give a
specific explanation referring to the Processing Trade in china. We list the positive effects as follows: 1,
help promote employment in china; 2, improve international balance of payment; 3, adapt Chinese
companies to global market; 4, introduce in advanced management and technique.
There is no denying the economic phenomenon of obvious structural improvement based on the
large-scale growth of FDI flowing into China and the rapid increase of total volume of foreign trade
since the reform and opening to the outside world, but the effects of the presence of FDI on the host
country are complex. We can conclude the negative effects as follows:
FDI companies are not intimately rooted in our country; they are just searching for relatively low
producing cost. Following china’s economic growth and enhancing of living standard they will
transform to other areas for more cheap labor and this is called “migrant economy” referring to FDI.
Such characteristic decided that they will not make perfect technology spillovers to the local. In some
processing segments, the foreign parties completely control the marketing and distributing channel,
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tightly protect their critical techniques and reserve their abilities of technique and product developing
abroad. China only participates in simple processing and assembling parts.
In addition, some foreign companies even shift their sunset industries which pollution-causing and
contains little technique to china. This commits great burden on china’s environment and brings about
grave consequences.
Processing trade are mostly FDI operating, not china’s state-owned companies, and this can not bring
our previous industrial and technique foundation into full use and delays the upgrading of our industry.
Low profit rate in processing industry in china also leads to relevant workers’ income growth.
The conclusion is that the effects of FDI on domestic economic are dynamic and by no means always
favorable and that FDI policies which are dynamic and based on the indigenous development are to be
optimal.
6 Analysis of the “world factory”
From 1990’s china has been attracting more and more attention in its great foreign trade. China, through
corporations with USA, Japan, EU and the “Asian four tigers”, is establishing an international business
circle which contains multi-level international division of labor. But what’s different from developed
countries in the trade pattern is that china “majors” in processing trade which means that china is at a
low position of industry profit chain.
Nowadays, the world economy is experiencing a tide of international shift of manufactory industry from
developed countries to developing countries like china. In rich countries, simple manufacturing industry
has become perfectly matured and the supply exceeds the demand which result in marginal revenue
diminishing. Along with science and technology progress, tertiary industry, intellectual economy and
financial business have become mainstays in developed countries. The trend of globalization makes
international allocation of resources possible and provides opportunities for developed countries to shift
their sunset industries to newly industrialized areas. China has cheap labor and great commercial
potential with a good investment climate which satisfy the need of FDI , so after the open-up and
economic reform, FDI keeps flowing in and indeed helps make up the shortage of capital and technique
in china in turn.
According to this picture——“smiling curve”, china, being the “world factory”, is at the lowest level of
the added-value curve. China is not origin of new technologies but destination of international industry
shift; china is not the control and managing center in the world but supplying place of low techniques
and processing.
Adam Smith tells us that the “invisible hand”——market can perfectly allocate the resources to its best
use; David Ricardo presents that competitive advantages is the base for a country to participate in
international trade; Heckscher-Ohlin model give a further explanation that comparative advantage is the
born nature of a country and binds its trading status in the world trade. So according to conventional
economic theories, international trade pattern seems sure to be like this: developed countries import
labor or natural resources intensity products and export capital or technique intensity goods while poorer
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countries are just the opposite. But in this way there is a common agreement that trading terms for
developing countries are unfavorable and being deteriorating with technology improvement. The
perspective of nucleus-periphery reflects to some extent the relationship between developed and
developing countries in the midst of open economy.
Developing countries commonly have false view of the conventional theory of “comparative
advantage”. On the basis of this theory, they usually concentrate on labor intensity products in
international division. Although for a short term the benefits is obvious, developing countries have to
face the problems of unsteady trade structure, diminishing trade profit, shortage of material basis for
upgrading and high reliance on conventional pattern of trade, but also remain in a constrained situation
of technology-following as result of lacking creation abilities if they successively depend on foreign
companies when developing high-tech industry.
Also the gains from economic growth will be counteracted by the ever-deteriorating terms of trade is the
problem of "pauperizing growth" nagging developing countries. Empirical analysis shows that the
Chinese economy is also confronted by the danger of "pauperizing growth thanks to the incompleteness
in its reform of foreign trade regime and the divergence of its export commodity structure from its
domestic production structure. The Chinese foreign trade, therefore, must shake off the fetters of
traditional comparative advantage and select the export-oriented development strategy based on
competitive advantage.
Under the trend of information and intelligent economy, only by continuous innovation can a country
get the most share of international trade. This new theory provides a solution for china to promote its
current trading condition. It is very possible that china can diversify its competitive advantages and
create new intelligent competitive advantages through investing in human resources and intelligent
economy. As a developing country, china may undertake a short-term slower growth rate of foreign trade
if it carries out the plan to develop high technologies because this needs a great deal of initiative
investment of time, human resources and material capital, etc, in a long time period. Whether china is
able to endure temporary loss of trade from a long-term view and make untiring efforts to achieve the
transformation of trade pattern or not is critical to grandness and strengthening of china’s foreign trade.
In the international division, China takes a position which is so unfavorable, even harmful to herself.
China pays too much, but receives less. The old trade pattern blindly pursuing exporting quantity
without paying enough attention to environment protection and industry upgrading is unsustainable.
Long term trade interest is base on a strong stamina which lies in a more advanced trade structure.
That’s the reason China needs a new trade pattern for future’s development.
7 How to transit from the old trade pattern to the new one
After analyzing the existing problems and risks, we have recognized that it’s quite meaningful for China
to change its old trade pattern into the new one, which means:
Low resource expenditure, low environmental pollution, low dependence upon export, and High value
added.
How to realize the transition? We will try to give some suggestions.
1. Reduce the dependence upon foreign trade
As being analyzed above, although trade plays a critical role in economic development, countries may
confront risk if the dependence rate upon foreign trade is too much high. Some experts think it’s
necessary for China to keep the dependence level at present, because according to statistic, every 100
million yuan export products could supply job opportunities for 12 thousand people. According to the
export scale in 2003, our export products could provide 52.6 million employees. Otherwise, they argue
that the real high dependence upon foreign trade isn’t as high as the statistic data. They think it has
something to do with the exchange rate of RMB. According to the statistic data, the relative coefficient
between dependence upon foreign trade and the exchange rate is as high as 0.933572. Nowadays, the
Chinese dependence upon foreign trade is measured by the nominal exchange rate of RMB. However,
under the rate-forming mechanism of RMB, the nominal rate does not reflect the real purchase power.
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As for their research fruit, the nominal RMB exchange rate is only about one forth of PPP1. World Bank
ever calculated the proportion of trade volume against GDP (measured by PPP), and found that Chinese
dependence upon foreign trade was lower than the international average level.
However, do we have to depend on the foreign market to solve our employment problem? The answer is
that we ignore our vast domestic market.
China has a vast domestic market which hasn’t been fully exploited or been paid enough attention to. As
a result, in order to reduce the dependence upon foreign trade, China should fully utilize both domestic
and international markets and resources, encourage domestic consumption and investment.
To exploit our potential domestic market, on one hand, China must expand domestic consumption, so
the government should take measures to increase citizen income and national wealth, especially to
narrow the gap between the rich and the poor.
At present, the gap between the rich and the poor is aggravating, and we could anticipate that in a long
period from now on , the gap will continue to be widened. According the statistic results of experts Li
Qiang and Zhao Renwei, Chinese average Gini Coefficient was 0.31in 1979, and rose to 0.392 in 1988.
In 1994, the coefficient jumped to 0.434. According to the data of Sun Liping, Chinese average Gini
Coefficient was 0.457 in1999, and increased to 0.458 in 2000, then further rose to 0.460 in 20022. In
conclusion, Chinese average Gini Coefficient had being past 0.4 since 1994, which is the internationally
accepted alarm level. The reasons for that phenomenon are manifold. Our government should put the
policies for common prosperity onto its agenda.
On the other hand, China's high dependence upon foreign trade is not caused by shortage of investment
but the always high deposits rate, in other words, consuming desire in china does not meet the need of
supporting economic growth. The problem of how to enlarge domestic demand is also the solution to
reducing deposits rate from structural aspects.
Reasons for the high save rate in china are varied. Some experts think it is resulted from special features
when china's economic system is being transforming. For example, the system of social security has not
been perfectly established and expenditure of medical treatment and education cause heavy burden on
citizens, etc. IMF points out recently that china's government should better perform its role in
strengthening social security system to promote consuming rather than saving. This certainly is a
long-term and structural issue that can not be accomplished in one step.
Besides, another critical point is to establish a unified domestic market and to eliminate local
protectionism. The local protectionism restricts resource flow, so that it obstructs the resources from
giving their full play, distorts prices and harms interests of producers of other regions and consumers. It
also may bring dispute among different regions. It sets foot in wrong mind of protecting local interests.
In contrast, the new trade pattern requires coordinating development of society, resources, environment
and economy. As a result, China should establish a unified domestic market in real sense. In detail,
China should make great effort in separating enterprises management from government. Also, it’s
necessary to build a rational and reasonable assessment system for local governments. Furthermore, the
relative laws or regulations should be formulated. If a local government violates those regulations, it
should be punished.
2. Reform of the processing trade
Having a look at the development path of many emerging markets, actually, OEM has being contributed
a lot to their accumulation at primary development stage. However, OEM is only a link in the whole
path, but not the ultimate objective. Stagnating in this link must bring serious problems, even be harmful
for China’s long-term development objective—a well-off society in an all-round way. As a result,
Chinese companies must build their internationalization strategies and competitive advantages if they
want to improve from low-level to high-level or from borderline to core in the system of MNCs global
expansion. Chinese companies should grow their strategies from OEM (Original Equipment
Manufacturer) to ODM (Original Design Manufacturer), then to OBM (Original Brand Manufacturer).
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《 Some problems of Chinese dependence upon foreign trade》from《 Macroeconomics》by Yuan Linya 2005-07
《Thinking of the gap between the poor and the rich in China》from 《Research on Economic》by Zhang Kunlun
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Compared with OEM, ODM requires manufactories to design, research and develop besides
manufacturing, and corporations should have their own brands in OBM pattern.
In order to achieve the improvement, firstly, Chinese companies should keep and make full use of their
advantages in OEM It’s not practical for all companies to establish their own brands, or to develop their
own R&D institutions now, especially for mid-small size companies. They should take their advantages
of cheap labor force and nice manufacturing skills. The government assessment system should include
index measuring achievements of encouraging and supporting individually-run mid-small size
enterprises to provide supporting and processing. It should make preferential policies to solve the
problems of mid-small size enterprises, such as lack of capital-raising capability, of human resource
with international view, of skills and innovational ability, and so on. Only in that way, mid-small size
enterprises would be more active in anticipating into the processing trade system and MNC purchasing
system. Secondly, our companies should be conscious of learning advance skills and management
method in processing trade. Corporations should open their minds, and become more aware of brand,
human resource, R&D, design and management, and develop their abilities on those competitive powers.
Thirdly, it’s the government’s responsibility to provide a fair competitive and investment environment to
help our enterprises to learn experience of running a MNC. The reform of trade involving the processing
of supplied raw materials should be coordinate with the sustainable development of economy, society
and nature.
3. Upgrade industries and optimize industrial structure
China has being optimized industrial structure and export structure for a long time. Because of our
efforts, the unreasonable structure has been improved a lot. However, problems are far away from been
completely solved. In order to optimize the export structure, we must upgrade our industries at first.
To upgrade industries and enhance competitive power of processing trade industry, we need to develop
our own core technology and skills, for example, to build up research center. Then the government
should set up proper mechanism to commercialize research findings. Without research, develop and
commercializing capability for core skills, China could not stand at a high stage in the international
division of labor. Hence, China may make supporting policies for the processing trade of hi-tech
industry and encourage enterprises to participate into international division of labor in hi-tech industry
by processing trade.
Besides, Chinese enterprises should be aware of the necessity and importance to improve their ability of
innovation and exploitation. Nowadays, most Chinese processing companies are only in the area of
processing and manufacture. They don’t have enough capital or capacity to build their own core
technology. First of all, they should open their minds and recognize the competitive business
environment. Then they will feel the importance of improving themselves. On the second step, they
could introduce advance technology and skills, learn and make them as their own advantages. At last,
they could innovate on the basis of what they have learnt. Consequently, they will jump out of the “trap”
of low-profit in processing trade. And China won’t encounter so many anti-dumping charges and trade
frictions.
Last but not the least, the government should formulate series of supporting policies, for example, as the
hi-tech industry is characterized by large investment capital and high risks, the government could
establish a fund for this industry; Also, the government may improve its service for hi-tech industry.
4. Turn the competitive pattern of reducing price
China is famous for its cheap goods, however, the number of anti-dumping investigations keeps on
soaring in recent years. China is a large country in international trade. According to the report of WTO,
our trade volume ranks 4th in the world. Hence, it has a deep influence in the global trade market. As a
large country, China should shoulder the responsibility of reducing trade conflictions. The
microeconomic reason of more and more trade conflictions is that Chinese trade enterprises depend their
discount products for competitive advantages.
An enterprise’s competitive pattern develops through five periods: price, quality, brand, service and
partnering relationship. It’s easy to understand the former five ones. The partnering relationship is a
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win-win relationship, in which several enterprises gain more benefit through cooperation and
coordination than they do business respectively.
Stagnating in the competitive pattern of reducing price won’t bring enough add-value to support
companies’ development, and must at last do bad for their growth in long-term. As a result, enterprises
must be aware of their positions in their industries.
As a result, Chinese companies should change their old competitive method, try to improve their
products’ quality and service, establish reputation in world wide and develop their minds in business.
5. Establish differences among different regions and avoid low-level redundant development
Taking the Yangtse River Delta Zone as an example, the cities in this zone don’t have proper and
rational division of labor, and the phenomenon of low-level redundant development is becoming more
and more serious. Almost every city considers IT, automobile, machinery, chemical engineering and
pharmaceutical as its pole industries: 11 of the 15 cities choose automobile; 8 adopt petrochemical
industry; 12 select communications3. Duplicate structure of manufacturing industry among cities has
brought vicious competition in introducing foreign capital, caused serious waste in recourses, and made
regional advantage useless. It has formed a hurdle to development of the whole zone.
That phenomenon is only one part in the whole country and reflects the unreasonable industrial structure
of China. It’s the direct reason for local protectionism, which weakens economic cooperation among
regions. Because of the unreasonable assessment system for Chinese local governments, many regional
governments are driven by short-time regional interests, and lead their people to diverge from their
original regional development strategic objective. Their unreasonable measures restrain their regions
from giving a full play of regional advantages. Consequently, government functions must be
transformed.
6. Transform the government functions
Generally, a developing country adopts policies of introducing foreign capital and encouraging export
when it pursues modernization. So does China. Those policies have done lots of benefit for China’s
high-level economic growth since its open and reform. However, as for their disadvantages and negative
effect nowadays, it’s time for China to adjust its policies, which means to turn the Mercantilism policies
into enlarging domestic demand, increasing income and developing domestic market. If China doesn’t
grab this opportunity to turn its strategy and policies, it may miss its long-term development.
We should pay more attention on how to increase people’s income, especially the poor’s. China should
change its hyper-national treatment policies, including export rebate, discount loan, tax reference and
low-cost land. Those preferential policies make a unfair competitive environment to our individually-run
enterprises, and are negative to Chinese economy development. Otherwise, those policies transfer
wealth of our country towards foreign countries, but China’s development must set root in the domestic
market but not the foreign market.
Besides, the government should be separated from enterprises management. After the transform of
government function, government will not intervene into enterprises’ trading activities directly, but still
help our companies to expand foreign markets without violating WTO rules, including supporting them
to enlarge export and invest in foreign markets. Government will support them mainly by perfecting
laws, rules and policies.
7. Give full play to industry associations
Industry associations are non-for-profit and self-discipline social and economic organization established
by corporations and institutions in the same industry voluntarily. Their missions are improving common
interests and protecting legal rights and interests. In a country with perfect market mechanism,
government, industry associations and corporations are recognized as three poles of modern society.
Their purpose is improving industrial development and satisfying corporations. They are playing an
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Three questions about the Yangtze River Delta Zone’s economic development by Li Rong from Journalists’
View 2005 09
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important role in decision of economic policies, expanding international market, enhancing
self-discipline of corporations, driving technological innovation, improving work environment and
coordinating relations between labor and capital.
Industrial association for foreign trade companies is an intermediary agent to rectify competitive order,
to standardize enterprise activities and to create a fair competitive environment.
Nowadays, there are lots of problems with Chinese industry associations:
First, in China, many industry associations are not built for the request of marketization or by
corporations voluntarily, but are organized and appointed for political request. They are not been granted
enough power to serve corporations and often are intervened by government. As a result, they don’t
have much passion and motivation to take responsibility. Second, many of them don’t have enough
funds to serve the corporations. At last, there exists a legislation vacuum in that area bringing disorder.
In one word, Chinese industry associations can’t serve corporations or regular economic order
efficiently at present.
To solve those problems, we should at first finish the legislation. Then the operation model of industry
associations should be changed, which means that industry associations should be established by
corporations in volunteer principle and act as independent market players. Third, industry associations
should enhance their ability to serve. They ought to search for useful information for corporations, help
companies out difficulty and act as intermediary agents between the government and corporations to
create a better economic environment for corporations.
8. Change the business pattern of foreign trade companies
Nowadays, foreign trade enterprises face quite rigorous challenge. As China’s access to WTO, the
original preferential policies are becoming cancelled. Growing number of manufactories gain rights to
engage in foreign trade. It will be more and more difficult for Chinese trading companies to keep on
surviving. At the same time, the old operation pattern of trade enterprises may bring risks in the future.
Chinese trade companies were state-running when they were established. Although most of them have
experienced restructuring, they still haven’t changed their business model, which has a negative effect
on them.
Consequently, at the cross of their development, they should hold the opportunity to optimize their
business model.
First, trade enterprises should expand markets initiatively instead of waiting for opportunities to come.
In the buyer’s market, if they don’t grasp the opportunity, they will fail.
Second, foreign trade enterprises could go abroad to build their own sales channels after investigation.
At last, they should also establish their own brands. The influence power between enterprises with great
fame and without that is quite different. Brand can make an enterprise different from its competitors; as
a result, its products are difficult to be substituted. Because consumers are more sensitive to brand than
to price, companies with brands could become relative monopolist in certain market. As average income
is rising, the demand of famous-brand products decreases too. Otherwise, the price floatation doesn’t
hamper their sales too much. In one word, establishing famous reputation could avoid low price
competition and earn more add-value.
7 Conclusion
In conclusion, China’s old trade pattern is not compatible with the new competitive environment and
Chinese economic development target now. As a result, it’s necessary and urgent for China to rethink its
trade structure and transform it into the new “Three Low and One high” pattern, which means the
economy growth is low resource-consuming, produces less environmental pollutions and low
dependence on external markets, while the “one high” refers to high add-value contained in most of the
commodities China exports.
749
Reference
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[1]. Research for OEM business pattern by Yang Chunsheng&Cui Huanjin from Enterprise Vitality
2005 09
[2]. Transform the relative advantage into competitive advantage by Mi Zengxin from Economic
View 2005-08
[3].
Three questions about the Yangtze River Delta Zone’s economic development by Li Rong from
Journalists’ View 2005 09
[4].
Structural risk in front of China on the basis of analysis of Chinese dependence on foreign trade
by Zhang Huiying from HLJ Foreign Economic relations & trade 2005 06
[5].
Comment on Chinese dependence on foreign trade by Tian Lizhong, etc. from
Reference for
Economy Research 2005 39
[6]. New rules in partnering relationship by Mao Danping from Make-decision reference 2005-06
[7]. The sustainable strategy of trading enterprises on the basis of value chain by Yang Junxiang &
Cheng Shengfang from
Strategy Research 2005 05
[8].
Some problems of Chinese dependence upon foreign trade
by Yuan Linya from
Macroeconomics 2005-07
[9]. Thinking of the gap between the poor and the rich in China by Zhang Kunlun from Research
on Economic 2004-03
[10]. Most charts and tables come from “china in a globalizing world”, “trade and development report,
2005”,UNCTAD.
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750
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