China's International Trade, Exports, and Economic Issues

Introduction to China's Economy and Trade Context

China, officially the People's Republic of China (PRC), is a sovereign state located in East Asia. It is the world's most populous country, with a population exceeding 1.35 billion. The PRC is a single-party state governed by the Communist Party, with its seat of government in the capital city of Beijing (Naughton, 2012). It administers 22 provinces, five autonomous regions, four directly governed municipalities (Beijing, Tianjin, Shanghai, and Chongqing), and two largely self-governing special administrative regions (Macau and Hong Kong) (Snyder, 2011). The PRC also claims Taiwan — which is governed by the Republic of China (ROC), a distinct political entity — as its 23rd province, a claim that remains controversial given the complex political status of Taiwan and the unresolved Chinese Civil War (Naughton, 2012).

China has a key international trade and finance issue rooted in the nation's past and current economic circumstances. One of its chief trade concerns involves its relationship with the United States. Both China and the United States share one of the most consequential trade and economic relationships in the world. For conditions to improve, some change in policy will be necessary — for instance, strengthening intellectual property rights enforcement in order to protect innovative industries and the jobs they create.

Before 2005, China's rate of domestic spending was extremely high. However, after 2003, investment misallocation created problems for the nation. A large share of spending in China originates from urban areas, while only about 30% comes from rural areas. This reflects uneven development in China, where growth derives mainly from manufacturing concentrated in the coastal south and east, while inland areas still depend heavily on agriculture and remain vulnerable to factors such as weather conditions (Shan-shan, 2012).

In China, international trade has been used to bring in new technologies and equipment to address shortages in the domestic economy and to modernize the country's economic base. Exports have long served as a means of generating foreign currency to pay for imports. Research indicates that the state has sought to maintain a balanced trade position so that the nation can pay for imports rather than purchasing on credit (Naughton, 2012). With 1.2 billion people and the world's fastest-growing major economy, China has been seen as the "market of all markets," attracting enormous investment from around the world. This status has made China the second-largest recipient of foreign capital after the United States. At the same time, it has given the Chinese government additional justification for protecting its domestic market. The question of market access has been an ongoing one, complicating China's negotiations to join the General Agreement on Tariffs and Trade and the World Trade Organization over the preceding decade (Obuah, 2012).

International Trade and Finance Overview

The total volume of China's exports was approximately US$232 billion, according to the CIA World Factbook (Assem Reda, 2012). The country's principal export commodities include machinery and equipment, clothing and textiles, toys, footwear, sporting goods, and mineral fuels. Research shows that the United States purchased 25% of China's exports, Japan 17%, and Hong Kong 19%; South Korea, Germany, the Netherlands, Singapore, the United Kingdom, and Taiwan are among other major export partners (Shan-shan, 2012).

The following table summarizes China's trade figures in billions of U.S. dollars:

Table 1 — International Monetary Fund, International Financial Statistics Yearbook 2011

Exports (billions USD) / Imports (billions USD):
2005: 7.789 / 7.925
2006: 7.726 / 19.851
2007: 18.099 / 43.262
2008: 27.360 / 54.355
2009: 62.092 / —

China exports agricultural commodities (about one-third of total exports) and manufactured goods (about half), along with mineral products such as coal and oil. Foodstuffs account for about 8% of total imports, while manufacturing materials and supplies — including chemicals and crude steel — account for roughly 50%. The remainder consists primarily of capital goods such as precision instruments, machinery, and transportation equipment (Naughton, 2012).

In 2008, transport and machinery equipment ranked first among exports at US$61.2 billion, representing 56.4% of total exports — significantly higher than light and textile industrial goods at 27.5%. The composition of machinery and transport equipment exports has been improving, with the share of technology-intensive products rising and labor-intensive products declining or slowing. Similarly, the structure of traditional export products such as textiles and light industrial goods has shifted, while labor-intensive, resource-dependent, and low-value-added products have seen increased demand (Penn World Tables, 2013).

China's total imports stood at approximately US$200 billion (2000). Principal import commodities include machinery and equipment, plastics, mineral fuels, iron and steel, and chemicals. Japan supplies the largest share (25%) of China's imports, followed by the United States at 15%, Taiwan at 13%, and South Korea at 8% (Assem Reda, 2012). Other trading partners include Russia, Hong Kong, Germany, and Singapore.

China's Exports: Trends and Composition

The five leading import products during the first half of 2009 were: electrical and mechanical products at US$38 billion (up 30% from 2008); plastics in primary form at US$4.1 billion (up 4.8%); steel products at US$4.2 billion (up 15.6%); computer parts at US$2.9 billion (up 20.7%); and crude petroleum oil at US$2.8 billion (down 25.4%). These commodities were largely materials essential to restructuring China's economy and expanding export-oriented industries.

After the People's Republic of China government adopted the Open Door Policy in 1978, its foreign trade grew rapidly as exports were expanded to support economic development and finance increased imports (Naughton, 2012). Among the outcomes of the Open Door Policy was a swift rise in trade volume, a gradual shift in trade composition due to greater Chinese flexibility in financial policy, and a continuing tendency to conduct the bulk of its trade with partners from capitalist nations. The PRC's exports grew from 15.58 billion yuan in 2006 to nearly 200 billion yuan in 2009, while imports grew from just under 15 billion yuan in 2006 to over 300 billion yuan in 2009 (Assem Reda, 2012).

Although exports have grown in volume, their share of GDP has remained relatively stable at approximately 15% since 2005. While exports have been the primary driver of Taiwan's economic growth — contributing an average of 47.3% per year to GDP since 2005 — the same degree of export dependence does not apply to the PRC (Lin, Cai, and Li, The China Miracle, 2003). Compared to other Asian economies, the PRC has not significantly improved upon its ninth-place export ranking from 2005. While other Asian countries have advanced rapidly through export-led growth, the PRC has remained in relative inactivity by comparison (Lin, Cai, and Li, The China Miracle, 2003).

Table 2 — China total exports by trade patterns, 2012

Changes in the commodity composition of China's exports reflect broader shifts in national output (Naughton, 2012). In 2008, approximately 51% of China's total exports consisted of agricultural and mineral products. In subsequent years, this share declined progressively — to 34% in 2005 and 25% in 2009. The declining importance of agricultural products in PRC exports has occurred alongside the rising prominence of minerals and lower-end manufactured goods.

Table 3 — Export trends: China conventional trade and processing trade, 2001–2012

The higher proportion of industrial products among the PRC's exports reflects past industrial expansion. However, the large increases in agricultural output discussed above have been largely consumed domestically and have had minimal impact on China's export market. Rising incomes in the PRC have led to greater domestic spending on food.

Conclusion

The People's Republic of China's government efforts to restart the economy after a period of inactivity led to an increase in the import of capital goods; however, the government's attempts to regulate imports were largely disregarded by the provinces and productive sectors. At present, over 40% of the PRC's imports are capital goods directed toward capital accumulation in the manufacturing sector. As a further consequence of increased agricultural production, the import share of live animals and food products has been gradually declining. However, this is likely a temporary phenomenon, as growth rates in the agricultural sector will probably slow in the future. The initial surge in growth rates was largely a product of improved production incentives. Once farmers are operating at peak capacity, agricultural growth rates will likely decline, and as the population grows and arable land continues to diminish, China's agricultural sector will face increasing pressure.