Peoples Republic of China (PRC) - Coursework Example

After the formation of Peoples Republic of China (PRC), the ruling party sticks to the principle of independence and self-reliance, with time, the country accepted to carry out trade exchanges with other countries. The foreign trade at that time was quite slows due to barriers resulting from international politics, this barriers was as a result of Chinas planned economic system. In 1978, the ruling party decided to lead the country towards a new period of reforms and openness. Directing a lot of major efforts towards the development of foreign trade becomes a significant approach to accelerate development, remove backwardness, and improve comprehensive national power. The change in China economic policy reforms started with Deng Xiaoping and the leaders who followed him thereafter; Xiaoping new that without a change in china political system, China could get stacked economically because political policies were negative to the rest of the world. Xiang economic reform philosophy gained support from Communist Party of China (CCP) in 1978 and it was accepted later in the year by the Eleventh Central Committee. The policies was cooperation with other countries should be enhanced, efforts should be made to adopt world latest technologies, and scientific and education should be improved to meet the growing demands of modernization. For the last 3 decades, finding the opportunity in the world economy and deepening global economy, the country opened wider to global trade, attracted and makes use of foreign investment, improve their technology, and transform and upgrade local industries to global standard. From the view of import regime, the country became devoted to bringing down the trade barriers and improving its openness to the world. At the begging of 1978, high tariffs on several products were set deliberately so as to stop the flooding of foreign products on Chinese market. In 1980, there was a progress made towards openness to the rest of the world when the government canceled its import substitution list so as to encourage free market mechanism for the country to attain effective resource allocation with minimal intervention from the state. From then onwards, the country launched a massive reduction in tariffs, the tariffs was reduced by at least 10 times, and the average rate by 2000 was reduced by 15 percent. At the same time, several other non-tariffs barriers like licenses and quotas were also slashed massively. Following the reforms, the country total volume of goods in global market is among the highest. In 1978, the country total value of imports and exports was approximately twenty billion dollars, and it was ranked 32 globally, and this accounts to less than one percent of total world trade. Following the rapid economic growth due to foreign trade, in 2010, the total value of imports and exports was 30 trillion dollars; this is approximately 145 times more than the trade volume of 1978, this accounts 17 percent average growth. The total value of exports in 2010 was 1.5 trillion dollars; this is an average of 17 percent annual growth. The value of imports was approximately 1.4 trillion dollars; this was an average growth of 16.5 percent; the total volume of exports and imports in 2010 accounted to around 10 and 9 percent of the world total accordingly. After the easing several restrictions that was imposed on exports and imports, the value of imports surpassed the value of exports, this foster the manufacturing industries since capital goods used in manufacturing was brought in. Large portion of the imported goods that covers energy, raw materials, textile materials and many others originated from Germany, U.S, and Japan. By 1992, the demand for imports drops below that for exports, the liberalization policies taken by Deng Xiaoping during a trip to southern china in 1992 open the door for large number of foreign investors in setting up joint ventures with local companies, these companies imported high tech technology to the country, hence there was great improvement in the manufacture of industrial products. Foreign direct investment (FDI) played a significant role in accumulation of capital wealth, at the same time in transfer of management skills and new technology. The structure of trade in goods and services was greatly changed. The export structure changed from the primary products that were dominating the market to manufactured goods from 1980s and from light industrial products to mechanical and electronics goods in mid 1980s. In the 21st century, china has developed and exported highly developed products such as electronics and IT equipments. Apart from state owned industries, foreign and private investors also take part in foreign trade and their total value of commodities exported and imported have surpassed the total value of imported and exported commodities from state owned enterprises. From 1980 to date, the trade in processed goods flourished and it accounted for about half of china foreign trade volume. In the development of china foreign trade foreign direct investment and processing trade have played an important task. From 1979, china came up with all-round and diversified market. Since the reform and opening up policy was adopted and implemented by CCP, the country has been vigorously promoting foreign trade from all corners, and they have developed trade relations with many countries and regions across the world, the trading partners of china before 1978 was less than 10 countries, and from then to now it has increased to 231 countries and regions. Europe, U.S, ASEAN, Japan, and many other countries are china trading partners. In the 21st century, the foreign trade between china and emerging economies has been growing vigorously. The total volume of trade in importers and exports between china and Association of South Asia Nations (ASEAN) from 2005 to 2012 has grown from 9% to 10%, with BRIC nations had grown from 4% to 7%, and African countries has grown from 2.8% to 4.4%. Following the ongoing reforms, the country competitiveness in the international trade has enhanced. Its entry into the world trade organization (WTO) moved the market into a new development stage. The scale of goods rapidly enlarged and its pattern increasingly optimized, its trade in goods and services is among the top in the world now. The trade in tourism, transport, and several others fields has maintained continuous growth. Cross border services such as construction, communications, royalties, IT services, and outsourcing services has maintained a steady growth. From 2001 to 2012, total services trade value witness a rapid growth from 71 billion dollars to 362 billion dollars, this is above five-fold growth. Its proportion in global trade services in exports grew from 2.5% to 4.8 percent that is worth about 170 billion dollars by the year 2012. China jump from 12th place in the world trade to the 4th position. In terms of services trade in imports, it grew from 2.5% to 6%, the net was worth 193 billion dollars, and it jump from 10th place globally to 3rd place. When countries were negotiating to restore the General Agreement on Tariffs and Trade (GATT), and entry to WTO, China actively participated in it. It later adopted the trade practices and developed an open foreign trade system that fits to the international trade agreements. This gave an opportunity to foreign enterprises and multinational companies to establish business in china, the corporations’ added value to their capital, improved technology, and marketing networks, they also shared the goodness of China fast economic growth. When it started absorbing FDI to introduce foreign invested enterprise as a new form of doing business in foreign business sector, the monopoly of government-owned foreign trade enterprise was done away with. After the state monopoly was done away with, the country introduced a responsibility system in carrying out foreign trade. The government also came up with export tax rebates system as per international practice. In 1994, the government removed all the export subsidies making the companies that import and export goods and services be responsible for own profit or loss. At the same year, foreign trade law for the people of china was put in place; the law contained principles that safeguard the order in which foreign trade is carried out, and it establish a legal framework to be followed while carrying out foreign trade. Apart from removing tariffs after joining the WTO in 2001, the state opened several sectors in which foreign participation was not being allowed. The sectors mainly include telecommunication and financial sectors. Foreign investors were fully guaranteed access to services in those sectors unlike before. The business sectors such as insurance, banking and IT services was flooded by foreign competitors that has well equipped services and better management skills, this entry of new technology and better management skills made the Chinese market very competitive unlike before. The entry into the WTO also made the country access overseas market and the country has now been permanently given most-favored-nation treatment by the organization members, this is significant step towards normalizing its foreign trade relations. Many China trading partners such as U.S have removed restrictions on imports from china; this has boosted china labor-intensive exports in many companies. Under the trade conflict resolution framework laid down by the WTO, china will benefit in future from this framework if they encounter any trade conflict in future. Chinas trade performance since 1978 Read More