Foreign Trade of China

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Foreign Trade of China
K.C. Fung University of California, Santa Cruz Hitomi Iizaka University of California, Santa Cruz Sarah Tong University of Hong Kong June 2002

Paper prepared for an international conference on “China’s Economy in the 21st Century”, to be held on June 24-25, 2002, Hong Kong. We would like to thank Alan Siu and Richard Wong for their encouragement.

1. Introduction

On December 11, 2001, China officially joined the World Trade Organization (WTO) and became its 143rd member. China’s presence in the world economy will continue to grow and deepen. The foreign trade sector plays an important and

multifaceted role in China’s economic development. At the same time, China’s expanded role in the world economy is beneficial to all its trading partners. Regions that trade with China benefit from cheaper and more varieties of imported consumer goods, raw materials and intermediate products. China is also a large and growing export market. While the entry of any major trading nation in the global trading system can create a process of adjustment, the outcome is fundamentally a win-win situation. In this paper we would like to provide a survey of the various institutions, laws and characteristics of China’s trade. Among some of the findings, we can highlight the following: • • • In 2001, total trade to gross domestic product (GDP) ratio in China is 44% In 2001, 47% of Chinese trade is processed trade1 In 2001, 51% of Chinese trade is conducted by foreign firms in China2

1

We define processed trade to include both trade due to processing and assembly and trade due to processing with imported materials. Processing and assembly refers to the type of inward processing in which foreign suppliers provide raw materials, parts or components under a contractual arrangement for the subsequent re-exportation of the processed products. Both the imported inputs and the finished outputs remain property of the foreign supplier. Processing with imported materials refers to the type of inward processing other than “processing and assembly”. For details, see China’s Customs Statistics Monthly, December, 2001.

• •

In 2001, 36% of Chinese exports originate from Guangdong province In 2001, 39% of China’s exports go through Hong Kong to be re-exported elsewhere3 The organization of this paper is as follows: in the next section, we provide a

general overview of the past institutions and rules governing trade in China. We will also examine the evolution of China’s general trade pattern over time. In section 3, we will study China’s processed trade and trade conducted by foreign firms. In section 4, we study China's trade by province and by regions. In section 5, we focus on China's trade with the world major regions, including Asia, Europe, North America, Latin America and Africa. In section 6, we will examine China's trade with various major trading partners. In section 7, we discuss China's new trade regime with its entry to the World Trade Organization (WTO). In section 8, we analyze in greater details the trade relationships between China and the United States, China and Japan, China and the European Union, and between China and the Association of Southeast Asian Nations (ASEAN). In section 9, we conclude.

2. Evolution of China’s Trade Regime Since the economic reforms and open door policy started in 1978, there has been a strikingly sharp rise in China’s exports and imports. As is shown in Table 1, between 1978 and 2001, the total value of China’s trade grew at an average annual rate of 15.5% and export and imports grew at 16.0% and 15.6% per annum, respectively.

2

Foreign firms include Sino-foreign contractual joint venture, Sino-foreign equity joint venture and foreign-owned enterprises. A substantial portion of trade conducted by foreign firms is processed trade. 3 This is obtained by dividing the value of Hong Kong re-exports that originate from China by the total Chinese exports to the world....
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