China: Trade Regimes and Export Structure, Essay Example

In view of extensive research on China’s trade regime, exports and export structure, this paper expresses my opinions on these issues. China’s export structure has changed such that in the early 1990s its exports were dominated by agriculture and apparel goods while in the mid-2000s it became dominated by manufactured goods. However, unlike other countries whose exports are dominated by manufactured goods, most of these goods arise fromexport processing trade. Export processing trade means that goods were imported then assembled or slightly added value then exported. Hence, in as much as China’s export structure may have shifted from low value goods to high value goods, there is little evidence to show significant increase in utilization of skilled labour.

Between the early 1990s and the mid-2000s, China’s export sector became more specialized but in a unique sense. Ina larger view of the export bundle, we observe that exports have become more diversified. The exports now include a significant proportion of manufactured goods that was previously negligible. Nevertheless, within this leading proportion of the export bundle, manufacturing, we are witnessing specialization. This specialization is attributed to the export processing trade that has allowed it to manufacture increasingly high value goods. This has also seen the unit export valueof China’s goods rise significantly over time. China’s goods are exported at considerably lower prices than the world average prices of the same goods.

According to Daniel Rodrik in his research titled What’s So Special about China’s Exports, he pointed out that the sophistication of China’sexport bundle is similar to a country three times its income per capita level. However, he attributes this to export processing trade that occupies by far the largest segment in the manufactured goods. China’s trade policy to attract foreigners to special economic zones and encourage them to outsource manufacturing contributed to this situation.

China’s factor endowments and economic fundamentals explain this trade pattern but only to certain extent. A significant extent of the trade pattern is attributed to the country’s dual trade regimes. China’s factor endowments and economic fundamentals include abundant labour, scarcity in skills, and abundant land among others. In order to utilize its comparative advantage, China introduced dual trade regimes. The dual trade regimes were the export promotion regime and the import substitution regime. The export promotion regime created special economic zones mostly in the southeast region of the country and enacted strong ownership regulations in these areas. The aim of the export regime was to attract foreigners to invest in export oriented manufacturing enterprises. The contrasting trade regime focused on realigning, decentralizing and reforming the old centralized monopoly and most firms oriented towards the domestic economy. In this regime, high tariff and non-tariff barriers on imports were put in place to protect the domestic economy from foreign competition.

The dual trade regime was adopted by China to enable the country utilise appropriately its factor endowments all the while ensuring that it aggressively build up it’sunder developed factor endowments. It could be viewed that China tried maximising utility of its comparative advantage while accelerating the neutralisation of its comparative disadvantage. The export promotion regime encouraged the utilisation of its massive cheap labour pool through the export processing manufacturing facilities all the while bringing badly needed capital and entrepreneurship into the country’s economy. The import substitution regime protected domestic enterprises from foreign competition as they were still in their infancy and/or inefficient. Nonetheless, owing to the country’s immense population, foreigners were still attracted to country as they viewed it as a massive untapped market. China allowed foreign participation in the domestic economy primarily via joint ventures with local enterprises. This arrangement allowed technology transfer and led to the emergence of strong domestic players.

The export promotion trade regime contributed most to the sophistication of the export bundle. China was aware that for this regime to work, it would have to give the foreign investors considerable leeway in their operations as opposed to domestic oriented firms. These firms were allowed to import raw materials with ease as the country’s domestic supply system did not have the capacity to adapt to the foreigners’ needs and were unreliable. This policy enabled the country to quickly export more sophisticated goods.

China also gave considerable leeway to localities to custom their own policies in an effort to attract investments to their areas. These efforts led to the emergence of industrial clusters in certain areas of the country. Another biased factor that aided China’s success, albeit fiendish, is the lacklustre enforcement of intellectual protection laws. This encouraged domestic players to reverse engineer and mimic foreign products in rampant disregard of the law.

Works Cited

Amiti, Mary, and Caroline Freund. “The Anatomy of China’s Export Growth.” China’s Growing Role in World Trade (2010): 35-56. Print.

Naughton, Barry. “CHINA’S DUAL TRADING REGIMES: IMPLICATIONS FOR GROWTH AND REFORM.” CIES SEMINAR PAPER 96-20 (1996): 1-21. Print.

Rodrik, Dani. “What’s so Special about China’s exports?” Harvard University (2006): 1-27. Print.

Van Assche, Ari, Chang Hong, and Veerle Slootmaekers. “China’s International Competitiveness: Reassessing the Evidence.” LICOS Discussion Paper Series (2008): 1-19. Print.