As Dani Rodrik explains it, China’s export structure changed greatly in the 1970’s by adopting “its own brand of experimental gradualism” which relied upon markets and price signals while also working within the “boundaries of a highly unorthodox set of institutions” that had been around for many decades. This gradual movement also depended on a “complex and highly restrictive set of tariffs, non-tariff barriers, and licenses” that remained in effect until the early 1990’s (1-3). Surprisingly, China’s export sector has become both specialized and diversified via “labor intensive exports (toys, garments, and simple electronics assembly)” and a “wide range of highly-sophisticated products” that appeal to a special niche of foreign consumers (Rodrik, 4).
As might be suspected, China’s utilization of tariffs, non-barrier tariffs, and its specialization and diversification related to exports has made it one of the most competitive nations in today’s Asia, alongside Japan, South Korea, Taiwan, and Malaysia. As noted by Van Assche, Hong, and Slootmaekers, China’s export performance has become quite exceptional with an annual growth rate of more than 18%, “more than twice the growth rate of world exports.” Thus, China’s world export share rose from 2.4% in 1992 to 7.7% in 2005 which helped to make China the third largest exporter behind the United States and Germany (2008, p. 3).
One main reason for this explosive growth is China’s current focus on exporting high-tech products as opposed to the past when exports like toys, garments, and other basic consumer items were the norm. Of course, competition-wise, this growth pattern has recently “raised concerns that China is rapidly moving up the technology ladder” to eventually become a high-tech leader “in industries that have traditionally been comparative advantage sectors for Western economies” like the U.S. and Great Britain (Van Assche, Hong, and Slootmaekers, 2008, p. 4). However, the quality of these high-tech products currently pales in comparison to those exported by other Asian nations, especially Japan and Taiwan.
As noted in Table 2, some of the products exported by China in 2003 included video recording equipment ($48.00 per unit); audio and video parts and accessories ($9.00 per unit); radio and TV transmitters and TV cameras ($62.00 per unit); TV receivers and video monitors ($72.00 per unit); electronic printed circuits ($1.70 per unit); and electronic integrated circuits ($1.00 per unit). In contrast, audio and video parts and accessories from South Korea were $26.00 per unit, while electronic printed circuits were $65.00 per unit (Rodrik, 13).
Also, as Rodrik points out, China’s export bundle or “basket” of products is consistent with its per-capita income levels. For example, in 1992, China’s EXPY or exports appears to have been quite stable “relative to per-capita GDP (gross domestic product). Thus, “per-capita GDP has been rapidly converging to the productivity level of the country’s export basket,” due to increasing from 15% of EXPY to 35% in 2003 (15). Rodrik also maintains that China’s large factor endowment, being the human labor, capital/funding, and amount of land that a nation exploits for production, and its economic fundamentals, being “low labor and materials costs” and “outward orientation” in relation to large market size, helps to explain China’s trade patterns (21-22).
Currently, the dual trade regimes in China are composed of firms or businesses that trade under the “ordinary” regime that pays tariffs and under the “processing” regime which is exempt from paying taxes” (Bas & Strauss-Kahn, 2). The reasons for adopting this dual trading system is 1), for firms or business that pay a tariff, “the unilateral input-trade liberalization induces an increase in export prices at the firm-product level;” and 2), as a result of being exempt from paying tariffs, “the export prices fall following trade liberalization” (Bas & Strauss-Kahn, 3). Thus, this dual trading regime system “reflects an improvement in product quality” and allows firms and businesses to “upgrade their inputs at low cost in view of a quality upgrade of their exported products” (Bas & Strauss-Kahn, 3).
As discussed in-depth by Barry Naughton, China’s dual trade regime framework “helps to explain the differential performance of different ownership systems,” not to mention the great support by Chinese businesses for joint ventures and investments via the city of Hong Kong. In many ways, this framework is superior to entrepreneurialism via the “combination of import restrictions and export promotion” which shows that the Chinese government is very concerned about protecting China’s “strategic domestic industries,” especially those related to high-tech electronic products (1996, p. 2).
In regards to possible alternative explanations for Dani Rodrik’s views on China’s success and the composition of its exports, it appears that the Chinese government’s support of the entrepreneurial spirit which involves taking risks may have created a “more suitable environment for entrepreneurial experimentation and cost discovery” as contrasted with an environment that was and remains to this day somewhat “centralized, top-down, and overly coordinated” by the Chinese government and its numerous state-controlled bureaucracies (Rodrik, 21).
Bas, Maria, and Vanessa Strauss-Kahn. Trade Liberalization and Export Prices: The Case of China. 2013. Web. 9 September, 2013.
Naughton, B. “China’s Dual Trading Regimes: Implications for Growth and Reform.” CIES Seminar Paper 96-20 (1996), 1-21.
Rodrik, Dani. “What’s So Special About China’s Exports?” China and World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences (14)5 (2006), 1-19.
Van Assche, A., Hong, C., and Slootmaekers, V. “China’s International Competitiveness: Reassessing the Evidence.” LICOS Discussion Paper Series (2008), 1-19.