Social Economy Development China’s Foreign Trade —— Structure, issues and Future

Structure of China's foreign trade Controversial issues in China’s foreign trade Future of China’s foreign trade Outline

3.1 Narrowness of export areas – Nearly 50% flow to EU, the USA, and Japan – The rate is overdue – African, South Asia, South America markets need exploration 3.2 Dual surplus – Surplus in current account and capital account – Too much trade surplus induces frictions, huge amount of foreign exchange reserves, pressure for RMB to appreciate. In simple terms, China has developed industries which we should not have done, has imported goods which should have been produced by China itself. 3. Structure of China's foreign trade

3.3 Export structure is irrational – Poor service trade: too poor in financial services, insurance, consulting and telecommunication, all of which have high added value – Export of high-tech products: Seemingly increasing fast, but 90% of high-tech exports are made by joint venture or solely foreign-owned enterprises. Only 2% of high tech exports have independent original core technology. Even in these high-tech exports, key components and vital technologies are from abroad. 3. Structure of China's foreign trade

3.4 Trade patterns are not desirable – Although total trade volume keeps going up in China, the contribution of trade to the accumulation of national wealth is rather limited because much of the trade is completed through processing trade, a form of trade which brings China very little added value. – Forms of processing trade: processing with supplied material assembling parts supplied by clients processing with customer's samples compensation trade (Party A provides credit to Part B to purchase production equipment, and Party B compensates Party A through manufactured goods) – Irrational price competition: domestic producers compete irrationally for getting the business to earn some processing fees 3. Structure of China's foreign trade

[1] Feenstra Reintegration of Trade and Disintegration of Production in the Global Economy[J].Journal of Economic Perspectives,1998,(Fall): Factory value $ 1 Processing value $ Structure of China's foreign trade Price $ 9.9

Foxconn “12 consecutive jumps”. 127 hours Overtime in April 3. Structure of China's foreign trade

Gee M.Made in China?[J]. Wednesday’s Globe and,2008,(February 6) $ 300 $ Structure of China's foreign trade $ 3.6

Smiling Curve Design Raw material procurement Wholesale Retail Manufacturing Storage and transportation, Order processing Value 3. Structure of China's foreign trade

Percentage processing trade in total export 3. Structure of China's foreign trade

Exporters: Proportion of export to the total 3. Structure of China's foreign trade

3.5 Exporters: – Most of them are foreign-invested companies such as JVs, cooperative businesses, and solely foreign-funded companies. Parent companies with established brands get the largest share of total profit. 3.6 Poor terms of trade 3. Structure of China's foreign trade

4. Controversial issues 4.1 Trade surpluses: – Basic reasons for surplus: cheap labor FDI international labor division comparative advantage – Surplus in merchandise trade, but deficit in service trade – Restrictions in importing tech-intensive products 4.2 Intellectual property rights

4. Controversial issues 4.3 Anti-dumping investigations – Increasing anti-dumping investigations in textile products, shoes, television – Since 1979, more than 40 countries have launched over 640 anti-dumping investigations against Chinese products, most among all WTO members. – Reasons for large-scale anti-dumping investigations: Trade protectionism China’s non-market economy status irrational price competition among domestic exporters unable to cope with such investigations by Chinese exporters accounting system not conforming to international standards poor foundation for trade growth (based on labor, land, and other resources

5. Future trend Cheap made-in-China products benefit all people globally, so Chinese products will remain competitive China has to refresh our concept of international trade: improve efficiency and quality, not quantity Controversies will remain, but China can avoid most of those controversies by conforming to international standards, and improve domestic management Take measures to reduce trade surplus: – Boost domestic demand by having social security system in place – Take measures to turn domestic savings into domestic investment – Takes measures to avoid irrational competition among Chinese regional governments and domestic exporters – Loosen control on capital – Strengthen government guidance – Enhance domestic R&D expenditure