The year 2002 became the year of harvest in the development of China’s foreign trade; it was the first year of China’s membership in the World Trade Organization (WTO). Since then, China has quickened its pace in both reforms and opening, especially in imports and exports trade. The total foreign trade import-export value of China reached US$620.8 billion in 2002 with a growth rate of 21.8 percent over the previous year and it exceeded US$600 billion for the first time. The export value reached US$325.6 billion at a growth rate of 22.3 percent over the previous year and exceeded US$300 billion for the first time. The import value increased by 21.2 percent over the previous year and reached US$295.2 billion, while a trade surplus of US$30.35 billion was realized.
There are eight primary reasons for the rapid growth of Chinese trade after WTO accession. First, with rapid economic growth China has stimulated the demand for goods from overseas markets. Second, the strengthening of the export refund policy has promoted the growth of foreign trade exports. Third, the structure of export commodities has improved to meet the demands of the international market. Fourth, the world economy resurged mildly and the depreciation of the U.S. dollar helped the growth of trade. Fifth, the foreign trade environment of China was improved to some extent by its membership in the WTO. Sixth, the policy encouraging foreign trade exports helped the formation of a mutually beneficial foreign trade pattern. Seventh, enterprises invested in directly by foreign capital became the most important economic form of export trade. Finally, disproportionate growth in the export of mechanical and electrical equipment and products represented the largest share of total exports.
This chapter analyzes China’s trade patterns after its WTO accession. We focus on the structure of trade growth and its trading partners. In addition, we shed light on the nature of Chinese trade as well as some of the reasons behind China’s dramatic growth in trade.
Characteristics of China’s Trade in 2002
With the help of the worldwide recovery in 2002, the demand of international markets was strong; import growth was maintained and export growth was much better than expected. Compared with the gross domestic product (GDP), the total of Chinese imports and exports in 2002 was 13 percent higher than the growth of the GDP. The characteristics of trade in 2002 were as follows.
The Positive Effect of Net Export Contributions on Economic Growth
Figure 1.1 shows the 1998–2002 trade figures and Figure 1.2 shows the trade surplus in China. From 1998 to 2002, China’s imports and exports jumped to US$3 billion, comparable to the U.K. and France, thus becoming a major world trade country. Compared with the previous three years, the net exports in 2002 made a positive contribution to China’s economic development. The GDP increased by 8 percent in 2002 with a benefit of US$3 billion and a net increase of US$0.8 billion compared with 2001.1
Trade Growth Benefits from High Export Growth
In its first year of WTO membership, China’s accumulated export growth showed a steady increase after an initial decline of 10 percent in the first quarter. Export growth did not meet the expected 14 percent increase in the second quarter, or the expected 19.4 percent at the end of the third quarter. However, it did increase over 30 percent in the fourth quarter resulting in an overall increase of 22.3 percent for the year. Exports have become an important factor driving the continued growth of GDP in China.
The surplus in 2002 was US$30.4 billion, increasing by US$7.8 billion over the prior year. Imports reached US$28.73 billion, with an increase of 28.3 percent as compared with the same month of the previous year. Although five thousand types of import tariffs were reduced in 2002 and some import quotas abolished, with average tariffs down by 3 percent, the rate of imports fell by 3.6 percent, especially those ordinary imports demanded by the domestic market, which only increased by 4.8 percent, a rate reduction of 18.3 percent over the previous year.2
Figure 1.1 Total Growth of Imports and Exports in China, 1998–2002 (US$ billions)
Figure 1.2 China’s Surplus Trade, 1998–2002 (unit: US$ millions)
Trade in Processing and Assembling Products (PAP) Is Growing More Rapidly Than Ordinary Trade
Open policies for foreign funds has attracted a large amount of FDI into China and more and more multinational enterprises (MNEs) intend to move their manufacturing facilities into China, thereby providing impetus to the import and export growth of the processing and assembling trade. In 2002, the total value of imports and exports in PAP trade was US$302.2 billion in China, comprising 48.8 percent of China’s total value of imports and exports—an increase of 25.2 percent over the previous year. PAP exports alone were US$180 billion, an increase of 22 percent, that is, 55.3 percent of the total value of exports in China, nearly the same as the previous year. The total value of PAP imports was US$122.2 billion, an increase of 30.1 percent over 2001, amounting to 41.4 percent of the total value of China’s imports, an increase of 2.8 percent over the previous year (see Table 1.1).
The total value of imports and exports of ordinary trade was US$265.3, or 42.7 percent of the total value of China’s import and export value, an increase over the previous year of 17.7 percent. Ordinary exports amounted to US$136.2 billion, 41.8 percent of the total, an increase over the previous year of 21.7 percent. In 2002, China’s ordinary imports and exports totaled US$129.1 billion—43.8 percent of the total value of China’s imports and exports, maintaining a growth rate of 13.8 percent.3
Rapid Growth of Trade by Non-State-Owned Enterprises (SOEs)
According to Chinese customs statistics, while imports and exports by foreign investment enterprises (FIEs) experienced stronger growth, the imports and exports of other non-state-owned enterprises increased more rapidly. In 2002, the processing foreign investment enterprises maintained strong growth with a total value of US$330.2 in imports and exports, an increase of 27.5 percent. Exports were US$170 billion, an increase of 27.6 percent, and imports totaled US$160.28, an increase of 27.4 percent. In the same year, the total value of imports and exports by SOEs was US$237.4 billion, an increase of 9.5 percent. SOE exports were US$122.9, an increase of 8.5 percent, while imports were US$114.5 billion, an increase of 10.6 percent.
The collective-owned enterprises, individual private enterprises, and other types of non-SOEs now have fewer obstacles to their import and export activities. The growth trend of imports and exports for collective-owned and individual enterprises has become stronger. In 2002, the total value of imports and exports reached 53.2 billion, an increase of 57.1 percent. Total exports were 32.8 percent, an increase of 66.5 percent, while total imports were US$204.5 billion, an increase of 43.9 percent.4
Asian Countries Rise in Importance Among Major Trade Partners
In 2002, trade development between China and its trading partners showed a strong trend over 2001. With the exception of Canada, bilateral trade
Table 1.1 Import and Export of Processing and Assembling Products (PAP) as a Percentage of China’s Total Imports and Exports (US$ billion)
with top ten countries grew to two digit numbers, amounting to 85.2 percent of China’s total imports and exports. Among them, Japan is China’s largest trade partner with a bilateral trade volume of US$101.9 billion, breaking a US$100 billion record, and amounting to 16.4 percent of total volume of imports and exports, an increase of 16.2 percent. The second-and third-highest trade partners are the United States and the EU. China-U.S. trade totaled US$97.2 billion in volume, and China-EU trade totaled US$86.8 billion. Examining trading partners by country and region, it can be seen that China’s Asian partners are playing an increasingly important role (see Figure 1.3)
Figure 1.3 China’s Top Ten Trade Partners (Unit: US$ millions)
The bilateral trade with Asian countries has been developing quickly. The value of imports and exports with Asian countries reached US$54.8 billion, an increase of 31.7 percent, while the total of trade with the EU increased by only 13.2 percent. The export volume to ASEAN members, South Korea, and Taiwan increased 400 percent (see Figure 1.3).5
Trade Surplus Comes Mainly from the United States and Hong Kong
China’s top ten export markets are the United States, Hong Kong, Japan, South Korea, Germany, the Netherlands, the U.K., Taiwan, Malaysia, and Italy (see Figure 1.4). Figure 1.4 shows China’s exports to different countries. China’s trade surplus is mainly with the United States (US$42.7 billion), Hong Kong (US$47.7 billion), and as well as Japan, Russia, and Germany (US$5 billion each). China’s trade showed a deficit in the amount of US$32 billion with Taiwan and US$13 billion with South Korea.
Figure 1.4 China’s Exports (unit: US$ billions)
The Eastern Area, Coastal Provinces, and Cities Remain Important Players
If examined according to resource locations, we see that the eastern areas, border provinces, and cities continued to play an important role in the general trade growth of 2002. But the growth in western areas was also fast; for instance, Sichuan’s exports increased by 56.1 percent and those of Xinjiang by 93.1 percent in (see Figure 1.5).
The Importance of Trade in Machine Tools and Electronics
The export value of machine tools and electronics was US$157.1 billion, constituting 48.2 percent of the total export volume. Exports of machine tools and electronics wer...
