Chinese Progression
Most of China’s increased share of global trade has occurred after a period of reform in 1978. In this paper, I plan to summarise China’s trade liberalisation efforts during the reform period prior to the WTO. To an extent, it is evident that China transformed from what is still widely assumed to be an inclusive economy, to increased transparency and openness, whatever the consequences look like.
Prior to the 1970s, Chinese commodity trading was effectively determined in its entirety by state economic planning, covering short of 90% total imports. A significant portion of exports, furthermore, didn’t enjoy a comparative advantage in production either, meaning that, as theory dictates, exporters had little incentive to monopolise on international sales. This consequently amounted to China’s inability to finance imports embodying advanced technologies, which would have encouraged development and growth. There was a strong manifestation of these inefficiencies as highlighted by how their share of world trade dropped markedly between 1953 and 1977 from 1.5% to 0.6%.
Predictably, with new approaches adopted by reformist Deng Xiao Ping such as encouraging micromanagement within smaller enterprises, the system of marked planning of the economy began to die down in 1974. And while the government still supervised operations via nationalised firms, trade was increasingly decentralised and was greatly focused on by the free-market. As direct-trade controls were phased out, the system was far more subject to natural trade barriers(an expected change due to free market adjustment), and thus the trade system in China was modernised. After a series of reformations, China had managed to shift the trade process toward manufactured goods where the so-called ‘extractive economy’ invested predominantly into cheap labour and efficient processes; China’s share in global transports quadrupled.
Recently, alongside the momentous growth in demand of technology, China has become the important location manufacturer of electronics, popular in the microchip industry, posing a significant threat to the USA (that’s another discussion) and cements the Republic’s public image as the potential for the next superpower.
China’s trade growth has, however, been faced with new competition, which can be measured via the import: GDP ratio. This ratio grew from below 15% in 1990 to 30% in 2003. Given that this is 3 times that of Japan and 2 and a half more than India’s ratio, it is very possible to question their ‘cemented’ status as the trading hegemony. Between 1995 and 2002, employment in the state sector had depleted by 40 million and the shrinkage of the state sector has highly evident. The detrimental effect of competition in China goes hand in hand with the multiply in inventory accumulation (proportion of output unsold) given that it had averaged a frightening high of 6% in the light of the Asia Financial Crisis (1997-1999), but has since returned to shy of 1%. Huge debate also surrounds the ability of the CCP(Chinese Communist Party) to maintain capitalism in a one-party state. As drawn attention to in ‘Why Nations Fail’, Acemoglu and Robinson highlight that the inability of China to foster innovation will prevent them for sustainable future growth.
In conclusion, China can easily be used as an example of the prosperity that follows from rigid state control, and has progressed to open their economy to search for tackle on America. I believe, the benefits of international trade and competition namely the greater efficiency in responding to international demand will manifest itself upon all other ready sectors of the Chinese economy.
Economics Relate 