Lec 11 Openness: international trade and FDI

trade from 1949-1960

china’s trade was reoriented away from the pacific and toward the soviet union

imported materials such as steel and diesel fuel, and machinery

export : textiles and processes foods

trade 1970s

up through 70s chinese trade took place within the context of a planned economy, nearly all trade was subject to very exacting quantitative guidelines

foreign trade monopoly prior to 79 : a handful of foreign trad ecompanies FTCs owned and controlled by the Ministry of Foreign Trade were responsible for carrying out the import and export plans

1970s purpose of foreign trade

import

• goods that could not be produced by domestric firms and that would resolve domestic shortages or bottlenecks

• bring in modern technology

export

• not fundamental, but necessaryto pay for imports

initial reform steps 1978

export-processing trade

• HK businessmen were allowed ro sign export processing contracts with chinese froms in the pearl river delta

special economic zones

• 4 special zones : shenzhen, shuhai, shantou, xiamen (Guangdong and fujian)

• signal of commitment to economic opening

• then Hainan, then Pudong and then everywhere by 1999

main roles of Special economic zones

foreign investment was encourages in these regions by

• lower tax rates, fewer and simplified administrative and custom procedures and duty free import of components and supplies

served as a test bed for domestic economic reforms

partial tade reforms 1980-1990s

• de-monopolization (exports were liberalized much more rapidly than imports)

• devaluation of the currency

• system of tarrifs and non-tarrif barrriers (protection of the domestic market)

adter 1986 : coastal development strategy : all types of firms in the coastal princiunces, including the TVEs were allowed to engage in processing and assembly contracts → export processing was the motor of china’s export expansion

WTO membership

chine needed to open up its ordinary trade regime to extend trading rights without restructions to domestic and foreign private companies

lower tarrifs (to 9.4% by 2004)

after the WTO accession

china’s export increased

import lagged after 2004

very large trade surplus

export goods basket

1985-1995 :

• labor intensive commodities export increased

• light, labor intensive manufactures = chinas comparative advantage

1995

• all of china’s top export commodities were labor intensive manufactured goods → textiles and garment exports, footwear, sporting goods,

exports upgrading : as development continued, the xport bundle broadened smoothly to include goods that embodied increasing capital and technology

imports goods basket

concentrated

• resources and capital and technology intensive products

steel, chemicals, synthetic fibers, plastic raw materials

capital and land intensive products : oil and gas, metallic ores (iron and copper), beverages and oilseed

then skill intensive commodities : machinery, transport machinery, electronics,

foreign trade and regional changes

foreign trade benefits the coastal region of China a lot

grew significantly more rapidly than inland provinces

trade and regional changes coastal provinces

guangdong, fujian, hainan

→ benefited the most from preferential policies during the 80s and from the growth of foreign trade investement and export processing trade

trade and regional changes Lower Yangtze

rises after the mid 90s

received significant inflows of FDI

trade and regional changes : inland provinces

rising in recent years

after 2010 several large exporters began to move inland in search of lower labor cost and wages

FDI formats

most foreign firms were required to form a joint venture with a local chinese firm, usually state owned entreprise

later not anymore

the impact of FDI

contributed to China’s economic growth in several aspects

• contributed to aggregate saving and investemnt

• contribution to foreign trade → brought sophisticated

• technology transfer

• spillover and upgrading → supplier relations

• competition and emulation