Improving China's International Trade - Essay Example

How to Improve China's International Trade The present research is devoted to the critical evaluating and analyzing international trade of China as one of the decisive factors in its economic growth and development. The work is aimed at giving profound analysis of China's international trade based on the knowledge and theory of economy as a whole, with discovering possible ways for its further improvement. The transition of the China's economy towards openness in the area of external economic ties implies the solution of the set tasks for the account of international trade expansion, attraction of the foreign capital in the productive form and the use of foreign credits. International trade in China nowadays is the most developed form of international contacts. The Chinese international turnover during the years of reforms has grown from $10 billion in 1978 to $325 billion in 1997 (the positive balance equals to more than $40 billion). By the international trade volume China now takes the third place in the world, with its export and import in 2005 equaling to $1422.1 billion. (Lloyd 2006, p. 389) More than 220 countries have international trade relations with China, among which are USA, Japan, European Union, Korea, Taiwan, Russia, Australia and Canada. On July 1st, 2004 China adopted a new law 'About International Trade'. With the aim of stimulating the international trade, this law has replaced the regime of considering and registering the right for carrying out external economic operations for the simple system of registration, and there have been created strict regulations, relating to import and export of goods and technologies, international service trade, international trade order, as well as the protection of copyright according to the abovementioned order. (Garnaut & Song 2005, p. 27) The dependence of Chinese economy on the international trade has grown significantly, which witnesses about its deep involvement into the world international ties and processes. Though China takes the third place in the world economy by the international trade volume, its weight in it can still become higher. The main obstacle for this is the low quality of the bigger portion of the goods, produced by the processing industry, which don't survive the rivalry of the similar products on the world market, and the absence of possibilities for increasing the raw materials export. The main task of the Chinese export policy is the providing of import financing, which is built with the account of the international conjuncture. The main efforts are directed at stimulating predominant growth of finished goods' export with the growing portion of science-heavy products; these processes are accompanied by achieving the quality of goods, which will correspond to the international quality standards. Considerable growth has been achieved in the total volume of finished goods' export, which by the beginning of 90s constituted already 2/3 of the Chinese export. The first place in export (50%) belongs to the consumer goods, among which clothes, shoes, toys, etc. An important place in the international trade of China is taken by the raw materials processing with the further export of the finished products - it constitutes about 50% of the total country's turnover. China is the leader in exporting textiles and silk. Textile industry is the main source of foreign income for China. (Kent 2002, p. 344) Less than 20% of export accounts for machine building and electro technical products. The growth of the specific gravity of these products in the world export is being restricted by the fact, that their quality is not competitive with that of other suppliers. The portion of Chinese machine building in the world export does not exceed 0.3%. (Manilla Bulletin 2005, p. 12) The structure of the international trade in China was described here to decide, what challenges are set in front of Chinese economy and foreign trade as the essential part in its development. The definition and determination of challenges will lead us to the definition of the possible ways for improving international trade. Speaking about the main challenges of the Chinese international trade, it should be mentioned, that there are four main problems, which are to be solved by China to make its economy even more successful and profitable. The export growth has met with the pressure of the saturated world market. China took the third place in 2005 by the volume of export; its index was 7.3% of the total world export, which is 3.4 points more than it had been in 2000. The export growth rates in China were the highest among the rest of the leading countries - 13 percent, but the space for the Chinese export is limited by the international market. (Pei 2006, p. 59) Another challenge lies in the fact that the development of Chinese foreign trade has come into the stage of high cost price; the pressure of labor force and resources cost have increased. Cheap labor force is still a preference in the labor-heavy production. The lack of peasant workers, which has become urgent in some regions, tells that it is necessary to regulate the cost of the labor force and to refuse from the method, when the advantage of the export production cost is achieved for the account of the wellbeing of the working people. The state has increased the dynamics of export regulation relating to the products with high expenditures of energy and serious contamination of resources. The pressure on the side of environment and resources has become the main factor in restricting export growth. (Wong 1999, p. 255) Third, the practice of international trade protectionism has become widely spread, and the external environment is not already so favorable for the development of the Chinese export. The country is meeting with antidumping measures more often, than other countries do. Fourth, there is the misbalance of the foreign trade, and the currency exchange of Yuan has stepped into the period of revaluation; export and import of enterprises meet with the growing risks of currency exchanges. In some sense the pressure on the Yuan is growing towards its revaluation, which sets new claims and throws challenges to the enterprises, oriented at export and import. (Wang 2003, p. 402) One of the important aspects in analyzing international trade of China in the recent years is the fact that in the year 2001 it joined the World Trade Organization (WTO) which now plays major role in defining the external policy and ways of development and improvement not only in the foreign trade, but in the Chinese economy as a whole. Before China had joined WTO in November, 2001, many experts forecast the possible decrease of export volume in China, as after having joined the organization, the country had to take over a number of limitations for the export of its products to other countries - WTO participants for the whole period of its trade economic system' transition in accordance with the WTO rules, and to refuse from allocating investment support for the export goods' production. Before China had become the member of WTO, it was suggested that this participation will unconditionally set negative influence on the export and will restrain its volumes, as well as the volumes of production, especially during the first years after joining the WTO. However, upon the expiry of the first three years it became clear, that during this period there has occurred fast growth of all macroeconomic indices together with the international trade of the country. (Xie 2006, p. 47) 1990 1998 2001 2002 2003 2004 2005 GNP (billion Yuan) 1854.8 7834.5 9731.5 10517 11690 15988 18232 International trade ($ billion) 115.4 324.0 509.6 620.8 851.0 1154.8 1422.1 Export 62.1 183.7 266.1 325.6 438.2 593.4 762.0 Import 53.3 140.2 243.5 295.2 412.8 516.4 660.1 Investment ($ billion) 10.3 58.6 49.7 55.0 56.1 60.6 60.3 Table 1. The growth of macroeconomic indices after joining WTO by China in 2001. (Lloyd 2006, p. 390) As it can be seen from the table, the quick growth of Chinese economy continues. It is displayed not only through the high GNP growth rates, but international trade and attracted foreign investments' volumes. The main inner factor of development is the deliberate economic policy, which is directed not at fast privatization of the state enterprises and the total liberalization of prices in the country, but at the inner demand expansion and the transition to the active financial and moderate monetary policies. While developing economic policy in the recent years, the main attention was paid to the changes in the aggregate demand, which was the main factor of forming tendencies in social and economic development of the country. As a result of such theoretical approach, the average annual GNP growth rates in comparable prices since 1975 until 2005 equaled to 9.9%, which is considerably higher than average annual growth rates of the world economy as a whole - 3.8%. Thus, at the beginning of the 21st century China was able to reach a new economic line - 18.232 trillion Yuan in 2005, which is much higher than $1 billion according to the currency exchange at the time. (Xie 2006, p. 46) The main external factor of Chinese international trade growth has become the drastic export increase as a result of joining WTO in 2001. The volumes of international trade have grown 3 times during the period of 2001-2005. Simultaneously, export growth rates were higher than these of import. These processes were taking place on the background of the constant GNP growth (8-10% annually), together with the growth of international trade portion in the GNP, which constituted only 43.3% in 2001, having grown to 63% in 2005. (Lloyd 2006, p. 392) It is also possible to speak about the constant increase of investment into Chinese economy. Direct investments constitute the bigger portion of the whole investments' amount, and the considerable part of Chinese investments is also made into foreign economies. Investments here serve as a part of international trade structure, as the object of trade here is capital. Thus, the economic growth of China at the beginning of 21st century is not accidental. It has been well designed and based on theoretical economic knowledge with excellent practical realization of the created ideas. The model of reforms in China allowed providing steady and stable growth of economic indices, the increasing standards of living and the growth of demand for the goods produced inside the country. To achieve this success there have been used not only inner factors, related to the presence of natural resources and a big amount of excessive labor force, but also external factors, connected with creating the privileged export regime for the Chinese products, competitive on the world market after joining WTO in 2001. In these conditions there is a question, which stands for Europe and the whole world - how to respond to the challenges thrown by the growing Chinese economy: either to enclose from it or to develop the cooperation with it in various forms. Conclusion The policy of international trade development witnesses that China is denying the autarkist course, which has existed in the country before, having replaced it for the policy of active foreign ties' expanding and attraction of foreign capital. The development of the Chinese economy should be performed on the base of its own efforts combined with the international organizations' cooperation. To improve the Chinese international trade there should be followed three principles, based on the economic theory and knowledge of economic processes: the development of various forms of ownership and forms of entrepreneurship, with the privileged condition for those, who deal with external economic relations; state (planned) management over the forming and development of market relations and strict government control over all macroeconomic indices, as this policy has proved itself to be effective; the open door policy should be kept as the leading one, because it fosters the inflow of foreign capital. Foreign trade and economic policy of China can be characterized by the following disadvantages, which should be eliminated: 1. Significant extent of state involvement into entrepreneurship; 2. Too many priorities in different economic and foreign policies; 3. The absence of national currency convertibility; 4. The absence of the right for land sale. These disadvantages should be softened and compensated step by step, without any drastic changes, through the thorough development of the state policy which will be aimed at expansion and support of international trade as an essential part of the Chinese GNP, as well as the support of enterprises which deal with export or import. To keep the growth rates of international trade high, there should be created and saved the following conditions: the state should not have any big external debts; the state must provide inner social and political stability, the integral system of foreign investments' stimulation, and privileged tax regime in particular; economic transformations should go evolutional way, and not take the form of 'shock' therapy; any policy should be directed at finding rational balance between export and import, which should lead to the equilibrium in economy and thus make the country attractive for potential investment and partnership. Works cited (1) Bhagwati, Jagdish. "Should China Be Allowed to Join the World Trade Organization" Insight on the News 1 December 1997: 24-26 (2) Garnaut, Ross & Song, Ligang. China's Third Economic Transformation: The Rise of the Private Economy. New York: Routledge, 2005 (3) Kent, Ann. "China's International Socialization: The Role of International Organizations." Global Governance vol. 8, issue 3 (2002): 343-347 (4) Lloyd, Peter. "Economic Theory and International Trade". Economic Record vol. 79, issue 246 (2006): 387-395 (5) Newspaper article. "China's Growth Seen as Positive Influence'. Manilla Bulletin 8 March 2005: 11-12 (6) Pei, Minxin. "Dangerous Denials: China's Economy Is Blinding the World to Its Political Risks". Foreign Policy January 2006: 56-62 (7) Wang, Xiaojun. "Banking Reforms and Monetary Policy in the People's Republic of China". China Review International vol. 10, issue 2 (2003): 399-404 (8) Wang, Shaoguang. "Learning by Debating: The Changing Role of the State in China's Economy and Economic Theories". Policy Studies Journal vol. 23, issue 1 (2002): 11-12 (9) Wong, John. "The Chinese Economy in Transition: From Plan to Market". Pacific Affairs vol. 72, issue 2 (1999): 253-256 (10) Xie, Andy. "Measuring China's Economy: An Inside Glimpse of Capital Investment, Deflation and Foreign Trade". International Economy 2006: 46-49 Read More