Trade Patterns in China and Hong Kong - Research Paper Example

? Trade Patterns in China and Hong Kong 05-17 Trade Patterns in China and Hong Kong Countries all around the globe traded with each other since the pre-historic period. Why do they do so? All the countries have varying capital, human, and natural resources and also they have diverse ways of combining these resources. Not every country is self-sufficient in producing everything that its population needs. Every good has its opportunity cost, which is the cost of that good in terms of any other good or service that would other have been produced. Each country thus produces the goods which have lower opportunity cost as compared to other goods and hence trade with other countries for goods that bears high cost of production for the country. (National Council on Economic Education) But some countries like Hong Kong plays an intermediation role for the trade of land lock countries such as China. Hong Kong acts as an entrepot for China. Hong Kong supplies semi-manufacturing goods as well as raw materials to Mainland China by importing from rest of the world. In exchange, it re-exports the manufactured goods from China to rest of the countries of the world. (Schoen, 2010) The two basic theories of trade flows are the absolute advantage and comparative advantage. Absolute advantage believes that a country should only produce those things which it can by using least possible resources. The absolute advantage China has in comparison to Hong Kong is China’s low-paid workers who are very beneficial in production of labor-intensive goods. Hong Kong comparatively have high cost of living due to which people of Hong Kong are hardworking. However, sometimes the effects of comparative advantage theory outweigh Absolute advantage as countries focus on goods with least opportunity goods as mentioned above. In this situation, a country with a comparative advantage can export same goods to a country in which the later country have an absolute advantage. Hong Kong does have a major comparative advantage over Mainland China in Publishing Industry, Demonstration Industry, Cultural Experience tourism industry and Child rearing industry. (Liu) China, being the leader of low-priced manufactured goods obviously does have a comparative advantage over Hong Kong because of its cheap labor. These labor-intensive processed goods allow China to produce almost anything from house hold products to daily usage goods, and clothing, electronic items etc. Almost all day to day products are manufactured by China today. (Oblad, 2009) Both the governments of Hong Kong and China should encourage the development of those industries in which they have a comparative advantage so that their exports should flourish and trade among them would increase. China should rely on its clothing industry, low cost electronic items and daily products from battery cells to laptops to sell them at a cheap rate to Hong Kong and attract people from there as Hong Kong relatively has a high cost of living as compared to Mainland China. (China Global Trade). The Government of Hong should play a proactive role in development of Demonstration Industry as Hong Kong does have an advantage over China in this sector. People from China can visit Hong Kong for Demonstrations for human rights, etc. and in exchange Hong Kong can take rent from Chinese people for these demonstrations. There are a lot of books which are not allowed to be published in Mainland China and thus Hong Kong can produce these books with its growing Publishing Industry. Also, the people of China can have as many children they want in Hong Kong as there is no restriction as such one-child-policy of China in Hong Kong. The Government of Hong Kong will take care of raising the child but Chinese do have to pay fees obviously.  The cultural experience tourism industry also offers to Chinese the books, newspapers, movies, and websites that are banned in China. Thus both the countries could benefit by focusing on their comparative advantages (Xanga. 2012). The Government of China signed CEPA (Closer Economic Partnership Arrangement) with Special Administrative Region of Hong Kong in 2003. It allowed for free and unrestricted trade between the two nations. Further, supplements were added to it; in 2004, Supplement I was added; in 2005 Supplement II was added; Supplement III was added to this agreement in 2006; Supplement IV in 2007; Supplement V in 2008, and the last Supplement VI was finally added in 2009. The Closer Economic Partnership Arrangement also called for established cooperation between Hong Kong, mainland China and Macao. This agreement is a trademark of trade and economic exchange and collaboration between mainland China and Hong Kong. This agreement is a Free and unrestricted trade agreement which is now completely integrated into Chinese mainland (the first FTA to be completely executed in China), and in the separate territories of Macao and Hong Kong. This agreement allowed for zero tariffs for goods of Hong Kong in China and also for Chinese goods in Hong Kong markets. (China FTA Netwrok, 2012) The World Trading system is increasingly becoming globalized with countries like Hong Kong and China signing agreements as “One Country, Two Systems”, the world today seeks a tariff free world. Each country is becoming concerned about tariffs on trade and is trying to reduce or most importantly, abolish tariffs in trade. As a manager, one should study the patterns of these drastically changing patterns of international trade as countries not only trade for exchange of goods but also trade as intermediaries just as the case with Hong Kong and China.( People’s Daily, 2002). Most of the coastal countries are becoming free ports such as Malaysia, Singapore, Dubai, etc. These free ports allow for tariff free trade for all the countries of the world and have led to an augment in trade and development of the world. Today, managers should bear in mind all the possibilities and outcomes of this rapidly altering pattern of trade and thus should focus their attention likewise. If one will study the economic conditions and trade developments comprehensively, he or she will improvise enhanced business opportunities for the world. Managers should have a comprehensive knowledge of world trade system to prosper in the business arena. Bibliography Xanga. 7th May 2012. Industries which Hong Kong has comparative advantage. [ONLINE] Available at: http://climbuptreestolookforfish.xanga.com/716091610/industries-which-hong-kong-has-comparative-advantage/ People’s Daily. November 7. 2002. Researcher: China Enjoys Comparative Advantage in Labor Cost. [ONLINE] Available at: http://english.peopledaily.com.cn/200211/07/eng20021107_106425.shtml China Global Trade. What are the U.S and China’s current Comparative Advantages? ChinaGlobalTrade.com [ONLINE] Available at: http://english.peopledaily.com.cn/200211/07/eng20021107_106425.shtml China FTA Netwrok. May 17, 2012. Economic and Partnership Agreement. China Free Trade Agreements: Mainland and Hong Kong closer. [ONLINE] Available at: http://fta.mofcom.gov.cn/topic/enhongkong.shtml National Council on Economic Education. Why Nations Trade .  National Council on Economic Education, New York, NY. From Geography: Focus on Economics, Lesson 3. [ONLINE] Available at: http://ecedweb.unomaha.edu/lessons/feog1.htm Oblad, Mark. November 9, 2009. Theories of Trade Flows. [ONLINE] Available at: http://www.markoblad.com/index.php?option=com_content&view=article&id=59:theories-of-trade-flows&catid=36:economic-models&Itemid=54 Liu, Li-gang., Fan, Kelvin., Shek, Jimmy.Hong Kong's Trade Patterns and Trade Elasticities. Ideas. [ONLINE] Available at: http://ideas.repec.org/p/hkg/wpaper/0618.html Schoen, John W. October 20. 2010. Hong Kong thrives as gateway to China trade. China 2.0 on msnbc.com.[ONLINE] Available at: http://www.msnbc.msn.com/id/39546755/ns/business-world_business/t/hong-kong-thrives-gateway-china-trade/#.T7TR8esthYA Read More