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International Trade After 1978

Andrew Papadimos
 

This articles is from Chinese Business Center

Exports

After the PRC government adopted the open door policy in 1978, its foreign trade grew rapidly as exports rose to promote economic growth and pay for the increased volume of imports. Among the results of the open door policy, therefore, was a rapid increase in trade volume, a gradual shift in trade composition due to greater Chinese flexibility in economic policy and a continuing tendency to conduct the overwhelming majority of its trade with partners from capitalist countries. The PRC's exports have climbed from 13.48 billion yuan in 1976 to almost 200 billion yuan in 1989, while imports have grown from just under 13 billion yuan in 1976 to over 220 billion yuan in 1989.

Although exports have been increasing in volume, since 1985 their share of GDP as remained relatively constant at about 10%. Whereas exports have been the major contributor to Taiwan's 'miracle growth' - constituting an average of 45.5% per year to GDP since 1985 - the same dependency on exports does not apply for the PRC. In fact, compared to other Asian nations, the PRC has not improved upon its ranking of ninth in 1985. While other Asian nations have been forging ahead with exports therefore, the PRC was in relative stagnation.

The changes in China's commodity composition of exports have been a reflection of changes in the country's national output. In 1978, about 51% of China total exports were mineral and agricultural products. In the ensuing years, their share has gradually decreased to 44% in 1985 and 27% in 1989. The decrease in importance of agricultural products in the PRC's exports has occurred as a result of the increase in importance of minerals and lower-end manufactures.

The higher proportion of industrial products amongst the PRC's exports is an indication of past industrial development. Graph 3 illustrates, however, that the large increases in agricultural output discussed previously have been largely consumed domestically, and have hardly made a dent on the PRC's export market. The rapid increase in income in the PRC has subsequently led to more being spent domestically on food.

The PRC's major export commodities today are textile related, constituting approximately 25% of total exports. While there has also occurred a substantial increase in the PRC's export of electronics and electrical machinery, their standing still remains very low in comparison to clothing and petroleum. Middle and higher-end manufactures - such as electronic goods, telecommunications and sound recording equipment, and miscellaneous manufactures - which dominate Taiwan's exports, are still lagging far behind in the PRC. Lower-end manufactures - such as clothing and yarn - and primary commodities - such as petroleum and vegetables - are still the mainstay of the PRC's exports.

Imports

In contrast to Taiwan, where imports form an average of 32.5% of GDP, imports constitute an average of only 11.8% of the PRC's GDP. Obviously, the reason behind the difference in figures is that the PRC - being much more well endowed with natural resources than Taiwan - does not have to import the same amount of raw materials for remanufacture.

The PRC has an abundant supply of most metals and minerals. It possesses huge deposits of ferrous and Ferro-alloy minerals that supply a major iron and steel industry. However, its iron ore deposits consist mainly of low-grade ore and requires substantial investments in benefaction. Metal production in the PRC has increased sharply during the past four years, and has the potential to become a major player on the world metal market. At the moment, the PRC is a significant exporter of tungsten, antimony, tin and mercury, and amongst its major metal imports are copper and aluminium.

The PRC is also the world's fourth largest fuel producer, after the US, the (ex) Soviet Union and Saudi Arabia, and supplies are also adequate for domestic consumption. The location of coal and oil reserves though present major tactical problems, in that they are positioned mainly in Western China - particularly Xinjiang and Qinghai provinces - far away from the major cities in Eastern China.

Coal is still the major source of energy in the PRC, and provides over 70% of its needs. The PRC is the world's largest coal producer, and is likely to dominate the world's future coal trade. Despite the large reserves, production and manufacturing has been hindered by a scarcity of modern mining equipment and a lack of expertise. This problem has also led to the situation where output is still expected to lag demand by more than 120 million tonnes by the end of the century. Therefore, while the PRC has the potential to dominate world coal trade, this may not occur for quite a long time.

Since the inception of the Open Door Policy, the PRC government has placed highest priority on the import of capital goods and advanced technology. The PRC's imports today are concerned with economic development and are mainly composed of raw materials - such as iron and steel, industrial machinery, or semi-finished products required in the manufacturing process.

Although China's foreign trade has grown quickly, it has been a rough journey with many swings and fluctuations in import purchases, leading to constant threats of balance of payment deficits. The main cause of such wild swings in the PRC's imports can be attributed to the government's inability to regulate foreign trade, mainly in reference to its poor planning and the decentralisation of import purchasing.

Just after the introduction of the open door policy, imports of advanced technology and equipment were very important, and a large number of complete sets of plant equipment were purchased. However, during the early 1980s, as the government became increasingly aware of huge trade deficits, imports of such commodities and consumer items were cut. In the mid-1980s though, another blow-out in imports was greeted with further cutbacks in the import of industrial and manufactured goods. Graph 4 illustrates this up and down trend of the commodity composition of PRC's imports.

Since the mid-1980s, the government has continued to place restrictions on consumer imports while placing major emphasis on increasing its productive capacity with foreign capital and technology. Within the category of capital goods, the importation of machinery has grown faster than any other material - booming so much that the austerity measures of the late 1980s called for a cutbacks on their importation.

However - as previously mentioned - the PRC government's efforts to get the economy moving again after a period of stagnation has led to another blow-out in the import of capital goods, but the government's efforts to control yet again their importation has been largely ignored by the provinces, and the blow-out continues. Today, over 30% of the PRC's imports are capital goods devoted to capital investments in the manufacturing sector. Also as a result of increased production in the agricultural sector, the import share of food and live animals has been decreasing steadily. However, it is likely that this is only a temporary phenomenon, as growth rates in the agricultural sector will probably decline in the future. The initial increase in growth rates was mainly a result of an increase in incentives to produce more. Once farmers are producing at their maximum, growth rates for agriculture will probably decline, and as population increases and arable land continues to disappear, agriculture in China will dwindle even further.

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