China (CHN) Exports, Imports, and Trade

Trade Rationale

In the example above, four countries with similar endowments (e.g. population, area, resources) each produce four different goods.

Trade Rationale

Domestic markets tend to be smaller, reducing potential economies of scale and leading to higher prices for the end consumer. Product diversity is also often limited due to different market sizes and standards.

The potential economic benefits of international or interregional trade are numerous and well known since the seminal works of Adam Smith (1776) and David Ricardo (1817).

As trade develops, competition intensifies, and production tends to be rationalized as comparative advantages are exploited. Greater economies of scale through specialization lead to lower prices and higher profits.

Therefore, even if output remains the same, each country benefits because the same quantity of the good can be obtained at a lower price. This increases purchasing power, allowing the same level of income to consume more goods.

Different added values will bring different economic results and opportunities. Some industries, such as toys and apparel, have experienced a high degree of specialization and geographic clustering.

Export-Oriented China Trade

  • Before 1970. Until the 1970s, growth in trade, GDP and production were very similar, underscoring that globalization was still in its early stages and involved mostly manufactured goods and raw materials.
  • Between 1970 and 1985. The first major divergence occurred in the 1970s and was primarily related to the first two oil crises, which led to sharp increases in energy prices and a corresponding surge in total merchandise trade. Therefore, this difference is driven by commodity prices.
  • After 1985. The second differentiation occurred after 1985 and was mainly related to the emergence of the international division of production and the emergence of manufacturing activities in developing countries. This difference is caused by the set-up of global production networks and supply chains.

The common economic growth strategy followed by East Asian economies (including China, Japan and South Korea) is an export-oriented model. It can be divided into three stages:

Ⅰ The first stage (developing comparative advantage).

A set of conditions are in place to make the host country attractive in terms of comparative advantage.

For countries with relatively close ties to transnational interests, this involves some form of opening, such as the establishment of special economic zones where foreign direct investment can occur, or, more generally, financial and trade reforms that facilitate a trading environment. The domestic currency depreciates, especially relative to major importing countries.

Initial production sectors tend to be labor-intensive because they are less risky and have the highest returns from comparative advantage.

Exports will grow slowly, and after an initial phase of capital equipment imports, the import-export balance will begin to expand.

Ⅱ The second stage (exploiting comparative advantage).

The comparative advantage induced in the first stage was fully realized, which meant that foreign direct investment and national capital surged as savings accumulation became new economic opportunities.

There is a gradual shift towards value-added production as national economies become more integrated into the global economy and local expertise develops.

Import and export imbalances have worsened.

Ⅲ The third stage (Rebalancing).

The export-led development strategy appears to be a transitional phase as it cannot be sustained indefinitely.

Mainly due to related trade imbalances, the currencies of exporting countries are under intense pressure to revalue. State capital provides the dominant share of investment, and the state becomes a net provider of foreign direct investment to other markets.

Due to improvements in living standards, production costs in many labor-intensive industries are losing their comparative advantage, while the domestic market accounts for an increasing share of production.

Trade rebalancing occurs as the share of exports relative to imports declines.

China’s Special Economic Zones

China Special Economic Zones

China’s extraordinary process of achieving economic growth through globalization began with the implementation of the “Open Door Policy” in 1978.

It achieved partial liberalization of factors of production and allowed private and corporate capital accumulation. What followed was massive investment and rapid expansion in China’s infrastructure, such as real estate, utilities, transportation and communications.

Since the 1980s, special economic zones have played an important role in China’s integration into the global economy and economic development. They are set up to attract foreign investment and technology (many through the establishment of joint ventures), provide employment, tap Chinese and imported resources, and support capital formation.

The majority of output will be exported to foreign markets, underscoring the SEZs’ role as part of the export-oriented strategy that has characterized many Asian economies since World War II (Japan was the first country to develop such a strategy in the region).

The following incentives are offered to foreign investors:

  • Labor. The ability to tap into China’s vast pool of low-cost labor is a powerful incentive to locate in a SEZ. Foreign enterprises also had the right to hire and fire labor, which was different from the tenure system of public or collective enterprises that was prevalent in China at the time.
  • Land use. Special economic zones were developed as planning entities with infrastructure and access to a container port complex (the airport later played a more important role) so that components and raw materials could be easily imported for processing and products shipped to foreign markets . Some degree of protection of private property is also important.
  • Tax benefits. Special economic zones reduce corporate income tax rates, including exemptions from income tax for foreigners working in special economic zones. Imported materials and parts are not subject to duties as long as they are re-exported.

Coastal Special Economic Zone

The development of SEZs has gone through several stages, which are related to the setting up and expansion of the main container port infrastructure:

In 1980, the first four special economic zones were established near Hong Kong (Shenzhen), Macau (Zhuhai) and Taiwan (Shantou and Xiamen). Their locations are designed to attract “overseas” Chinese capital and demonstrate the potential impact of such reforms. The SEZs were also close to Hong Kong, which at the time was the only modern port facility with efficient access to global shipping networks.

By 1984, the SEZ model was considered successful and could be expanded.

The initial establishment of the four special economic zones only involved southern China. Later, 14 coastal port cities from Dalian to Beihai were selected as special economic zones. This has triggered the development of modern port infrastructure, especially container ports, which are crucial to support export-oriented strategies.

In 1985, the status of special economic zones was extended to the Yangtze River Delta, Pearl River Delta and Minjiang Delta, and the importance of specific economic clusters was recognized. This also provides additional space for an industrial area setting. The development of manufacturing clusters has also been accompanied by the development of port terminal clusters in these delta regions, especially the Yangtze River Delta and the Pearl River Delta.

In 1988, the scope of the special economic zone was expanded to Hainan Province, which mainly focuses on tourism and agribusiness, becoming the fifth special economic zone. By the end of the 1990s, the province will become an important destination for domestic tourism.

Inland Special Economic Zone

Since their inception, SEZs and their positive economic impacts have been an endeavor only in coastal areas, with inland provinces lagging behind. By the late 1980s, there was a massive migration of labor from inland provinces to coastal provinces.

To balance this trend, 6 Yangtze River ports and 11 border cities were granted special economic zone status, in addition to the capital cities of all inland provinces and autonomous regions. However, port infrastructure and access to foreign markets remained dominant factors in SEZ dynamism, with relatively limited development in inland provinces until the 2000s.

Silk Road

As of 1992, China had established 60 special economic zones, including 5 initial special economic zones, 15 coastal port cities, 8 inland port cities, 19 inland cities, and 13 border cities. This process has since been widely adopted, especially in China’s coastal provinces, as many jurisdictions (provincial governments, cities, counties) began to develop and promote their own development zones. Ten years later, by 2005, there were 210 national-level development zones and 1,346 provincial-level development zones.

China’s production geography is therefore closely linked to its proximity to coastal areas and its ability to access global markets through ports and airport terminals.

In order to balance this coastal-oriented development, starting in 2013, the Chinese government began to implement an inland infrastructure investment strategy across Eurasia. The development of road, rail and pipeline corridors across Eurasia is known as the Belt and Road.

2001 China Joined WTO

Global trade has grown in both absolute and relative terms, especially after 1990, when global exports surged with the rapid industrialization of developing economies and the large-scale offshoring of manufacturing, especially from China. In 1977, global exports exceeded US$1 trillion for the first time.

The growth of exports marks a cycle in which trade emerged (until the 1980s), accelerated (1980-2000), and reached peak growth (2000-2008).

Starting in the 1990s, many American, Japanese, Korean and European companies began to move production facilities to China. Coupled with China’s opening up to international trade through economic reforms, its export share surged in the 2000s.

At the end of 2001, China joined the WTO, which had a major impact on global trade. Global trade accelerated due to the expansion of China’s exports.

China has rapidly integrated into the global economy and become one of the world’s leading manufacturing centers. Modern manufacturing and transportation infrastructure have settled in China’s coastal areas, forming large manufacturing clusters (such as the Pearl River Delta and the Yangtze River Delta).

As China integrates into the global economy, its trade participation is increasing in both absolute and relative terms. By 2007, China had become the world’s second-largest trading nation, surpassing the positions held by the United States and Japan for decades.

China NOW

Global production systems are highly integrated, interdependent, and linked through value chains.

  • According to the World Bank, China is the second-largest economy in the world, behind the United States.
  • According to UNCTAD World Investment Report 2023, China was the world’s second-largest recipient of FDI inflows (US$189 billion) for the sixth consecutive year in 2022, second only to the US (US$285 billion).
  • According to the 2022 Statistical Bulletin of China’s Outward Foreign Direct Investment, China was the world’s second-largest source of outward FDI flows (US$163 billion), behind only the US (US$373 billion).
  • According to the World Trade Organisation (WTO), China was the world’s largest exporter of merchandise trade in 2022, reaching US$3,594 billion.
  • According to WTO, China was the world’s third largest exporter of commercial services in 2022, reaching US$422 billion.
  • According to China’s official statistics, Shanghai’s container throughput has ranked first in the world since 2010.

CFC News - Apr. 5, 2024

Disruptions to container shipping and strong demand for cross-border e-commerce shipments continue to boost air export tonnages and rates.

Only $19.99

The ultimate step-by-step ebook about sourcing and importing from China, for Worldwide Importers and Ecommerce Businesses [2024]

Supplier Verification

Check your potential suppliers in China – get the verification report in 24 hours. Protect your business, avoid scams and frauds.

My machine arrived in good order and I am happy with CFC's shipping arrangements. I received quotes from other forwarding companies but they kept changing the amounts. Your quote was exact and there were no hidden charges. I would be happy to recommend CFC to other importers of goods from China.

--- Chris G., Canada
Click for more reviews