Issues in International Economy - Essay Example

What is the impact and role of International Trade in China’s economic growth in the past twenty years? Introduction China long considered as the sleeping dragon in Asia has awakened. In her awakening after a long slumber from protectionists policy, China has become the epitome of progress and development for developing countries. So much so, that China now is sought for by many countries for her market and feared because of her increasing stake and role in the global market .(Gilbert and Wahl 2002) In lieu with this truism, this paper intends to look at the impact and role of international trade in China’s remarkable economic growth in the past twenty years.

The Theory behind the Actions China’s significant economic growth is brought about not just by one factor but is propelled by a combination of multi-factors which has enabled China to attain its current status in the global market. Being such, this paper recognises that as part of its limitation, it will solely focus on the integral role and impact of international trade in China’s economy. This is done not to discount nor down play the significant internal factors and reforms which have greatly contributed to this economic growth but to provide a focus necessary in answering the query of this paper - What is the impact and role of International Trade in China’s economic growth in the past twenty years?

China’s embarking and opening to international trade is buttressed by the theory of economic liberalisation and decentralisation, “the economic liberalisation of an autarkic, over-regulated developing economy would raise its growth rate. Economic liberalisation integrates a developing economy into the international trade and financial systems” (Woo 1999 p 8). But what is economic liberalisation, decentralisation? Economic liberalism is basically derived from the classical view of liberalism which gives primordial importance to the notions of individual liberty, limited governmental power or rule and the rule of law.

These concepts, in turn, embody the basic principles of free market, profit, private property and economic initiative. (Malanczuk 1997) The influence of classical liberalism is still perceptible in the contemporary understanding; however, economic liberalism as we now know is much influenced by “treaties of friendship, liberal national legislation, bilateral trade and commerce less and less government intervention in the market.” (Killion 2003 p5) With the recognition of economic liberalism as the pillar of China’s policies in international trade, scholars have analysed its impact and role in China’s economic growth in the past twenty years.

LITERATURE REVIEW China’s opening to the world market is not an overnight affair. Lessons are learned from the Chinese experience as it affords the global economy in general and developing countries in particular a paradigm with which they can measure their success and difficulties in the realm of international trade. Fukasaka and Solignac Lecomte (1996) claimed that the opening of China which entailed the liberalisation of trade and decentralisation of control have provided a remarkable increase in export labour-intensive goods.

Although, there is a need for China to balance the international growth vis-a-vis growth in the domestic market, they still see that with the continuous and full implementation of liberalism and decentralisation, both of China’s domestic and international trade will be more competitive. This particular observation is also shared by Liu et al (2002). In their study they have shown that there is a direct co-relation between economic growth, foreign direct investment and trade as seen in China.

They claim that the fact China until now continues to attract foreign investors is in itself an evidence of the strong link or causal relation among GDP, FDI and exports. Likewise, Gilbert & Wahl, also have come up with the conclusion that there is s direct link between economic growth and international trade in China. Using their term, “they confirm” (p 720) the undeniable economic growth that China has experienced as a result of opening her market to international trade. But they have also cautioned other players regarding the possible negative effect of China’s fast track rise to world trade in relation with other developing East Asian and Asian countries.

They have also presented that although there are numerous studies regarding China’s progress as a key player in the world market, there is a further need to delve deeper into China’s domestic policies. Finally, although there is almost a unanimous agreement among the scholars regarding the importance of international trade in China’s economic growth, Woo (1999) and Rawski (nd) hold that beyond the interrelation of international trade and China’s economic growth, the real reason behind this tremendous economic growth is the change in the mental attitude of the people of China.

By embracing the economic principles of liberalism and decentralisation, China is not only implementing economic policies but is also changing the attitude and manner with which Chinese perceive and appreciate their own material condition. DESCRIPTIVE DATA The following data clearly manifest the rapid economic growth that China has achieved as she has embraced open-door policies, liberalisation and decentralisation. The consistent application, though, slow implementation of liberalisation and decentralisation do not deter the economic growth of China. Table 1. Openness of the Chinese Economy, 1970-1994 Chinese Total Trade* Year Percent of World Trade Percent of GDP at current US$ 1970 1.

16 - 1975 1.37 - 1977 1.01 - 1978 1.22 4.73 1980 1.43 6.10 1982 1.78 7.17 1984 2.08 8.25 1986 2.58 12.70 1988 2.13 13.00 1990 2.49 14.81 1992 3.09 17.28 1993 3.69 17.03 1994 3.85 22.13 Sources: IMF; Statistical Survey of China * (Exports + Imports)/2 as cited in Fukasaka & Soligna Lecomte (2002) Table 2. Chinese FDI and exports structure, 1978–2001 Actual Total Exports of Manufactured foreign FDI Exports Invested firms Exports as Year ($billion) ($billion) as % of total % of total 1980 0.4_ 18. 2 0.0 49.7 1985 1.7 27. 4 1.1 49.4 1986 2.0 30.9 1.6 63.6 1987 2.4 39.4 3.0 66.5 1988 2.8 47.5 5.2 69.7 1989 3.1 52.5 8.3 71.3 1990 3.5 62.1 12.5 74.4 1991 4.4 71.8 16.8 77.5 1992 11.0 85.0 20.4 79.9 1993 27.5 91.8 27.5 81.8 1994 33.8 121.0 28.7 83.7 1995 37.5 148.8 31.7 85.6 1996 41.7 151.1 40.7 85.5 1997 45.3 182.7 41.0 86.9 1998 45.5 183.7 44.1 88.8 1999 40.3 194.9 45.5 89.8 2000 40.7 249.2 47.9 89.9 2001 46.9 266.2 49.0 90.2 *as cited in S.

Yao Applied Economics 2006 Analysis The impact of international trade in China’s economic growth in the past twenty years has been a source of inspiration and dread for most, if not all, countries in the world, especially now that we are in the era of globalization. At this point, what is important is that results of various studies on China’s experience points and affirm the seeming direct correlation between international trade and economic growth. And this is the central theme which this paper will try to analyse.

China’s Policy The reform and opening movement which has started in the late seventies propelled China in the international scene. China’s opening of its market entailed the acceptance of liberalisation and decentralisation as necessary and fundamental principles and policies for actions undertaken within the international market. (Medeiros & Fravel 2003; Chen & Feng 2000) The opening of China’s doors to foreign trade demands China’s more active participation in the realm of international cooperation.

Being such, the economic policies of liberalisation and decentralisation which supports China’s open-door policy also creates for China an expanded international profile. Conclusion The direct link between international trade and economic growth of China in the past twenty years has been accepted by the world community as undeniable and remarkable. Although much has been written regarding the’ phenomenon’, there is still a large need to further understand and elucidate the impact and role of international trade in China’s economic growth in the past twenty years.

REFERENCES Chen, Baizhu & Feng, Yi. (2000). “Determinants of economic growth in China: Private enterprise, education and openness”, China Economic Review, 11, p 1 – 15. Fukasaka, Kiichiro & Soligna Lecomte, Henri Bernard. (1996). “Economic transition and trade –policy reform: Lessons from China”, Research Programme on reform and Growth of Large Developing Countries, OCDE/GD, (96), 52. Gilbert, John & Wahl, Thomas. (2002). “Applied General Equilibrium Assessments of Trade Liberalisation in China”,Trade Liberalisation in China.

UK: Oxford. Killion,M. Ulric. (2003). “China and Neo-Liberal Constitutionalism”, Global Jurist Frontiers, Vol 3., Is 2, p 1 - 49. Lui, Xiaohui.,Burridge, Peter.& Sinclair P.J.N. (2002). ‘Relationship between economic growth foreign direct investment and trade: Evidence from China”, Applied Economics, 34, p 1433 – 1440. Malanczuk, Peter. (1997). Akehurst’s Modern Introduction to International Law, 7 rev. ed., :Routledge. Medeiros, Evan & Fravel, M. Taylor. (2003). “China’s new diplomacy,” Foreign Affairs, Vol.

82, Iss 6, p 22 – 35. Rawski, Thomas. (nd) “Reforming China’s economy: What have we learned?” China Journal, Iss No 41. Woo, Wing Thye. (1999). “The real reason for China’s growth,” The China Journal, Vol. 4, p 115 – 137. Yao, Shujie. (2006). “On economic growth, FDI and exports in China”, Applied Economics,38, p 339 – 351. Bibliography Krugman, Paul & Obstfeld, Maurice. (1997) International Economics: Theory and Polic, 7th ed. Massachusetts: Addison-Wesley Longman, Inc.