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China’s Old and New Trade Patterns ZHU Zhongdi1 LI Na2 ZHAO Jing2 ∗ 1 Shanghai Institute of Foreign Trade 2 Shanghai University of Finance and Economics $ 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 $ % 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. $ 2 China’s old trade pattern : 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 、 、 、 ∗ 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). 740 % % % 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. 、 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. % 741 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. $ $ $ % $ % % 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: 1 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 % 、 % 742 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. 、 、 、 % 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, $ % $ $ % $ % $ % 743 % % % $ 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 744 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. 745 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). 1 2 《 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 746 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 747 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 3 《 》 《 Three questions about the Yangtze River Delta Zone’s economic development by Li Rong from Journalists’ View 2005 09 》 - 748 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 《 - 《 》 《 《 《 《 《 《 《 《 《 》 《 》 [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. 》 》 - 《 》 - 》 》 《 》 》 》 - 》 - 《 》 750 》 》 《 》 《 》 》 《