Factor Prices, Private Enterprises And The China's Export Growth

China's export has experienced a large increase since its reform and open policy. Private enterprises are growing steadily. The growth of private enterprises and reform in foreign trade system stimulate the gradual evolution of entity substitution in China's export industry. While the state-owned enterprises continue to develop, private enterprises have replaced the state-owned enterprises as the primary contributor in terms of both the share of export growth of private sector in the total and that of the ratio to the total and have gradually functioned as an engine of export growth for China. Therefore, it is only natural that we explore the economic phenomenon of subject substitution in export growth when we seek to explain why China's export develops so rapidly.The viability of enterprises is treated as a specific variable in studying China's export growth. The important economic phenomenon of subject substitution comes to our picture when we approach the export growth problem from the perspective of comparative study of economic systems. Such a study will help and facilitate us in understanding, evaluating and analyzing the different aspects of China's export growth and economic reform.A series of questions appear simultaneously when we begin to spell out from the perspective of entity substitution why China's export is able to develop so rapidly: who is the major decision-maker influencing the rapid growth of export? What are the characteristics of the environment involved? What restrictions have dual-economy structure and segmentation of factor market imposed on the major decision-maker? Are there different major decision-makers influencing the rate of export growth in different periods? If so, how is the role exchange accomplished and how does this role exchange stimulate China's export growth? What is the evolution process of China's export industry and the system environment that affects its development? Can we detect from this evolution process the cause of China's rapid growth in its export industry?The results obtained from this study demonstrate that export growth is the most outstanding economic phenomenon since the reform and open policy. Under the constant world commodity prices and with free trade, this economic phenomenon is determined by the production growth rate of the export and import commodities.Given the demand of commodities and the technology presently available, this is also determined by the supply growth rate of the intensively used factors in export and import merchandise. With the secular factor endowments of scarcity of capital and surplus of labor, China has the comparative advantage of producing labor-intensive products. Exporting these products and importing capital-intensive products is the mode of China's foreign trade. In the meantime, the great surplus of labor in the countryside renders considerable labor absorption possible in the labor-intensive commodities production, consequently, China gains a large potential in these products.Nevertheless, under the traditional economic system with the government's catch-up-and-surpass strategy, factor prices were severely distorted, real interest rate was regulated at a low level and the labor market was segmented artificially. The enterprises produced goods with the capital-intensive techniques, with large surplus labor in the rural areas being idled away, hence slow growth in labor-intensive goods production. All these resulted in low efficiency and lack of commodities in the market.Since the end of 1970s, in order to improve this situation, the central government began the reform and open policy aiming at establishing commodity economy and then gradually transiting to socialist market economy. This, on the one hand, allows the township-run companies, private enterprises and foreign corporations to legally exist and develop, it allows the labor force to flow and renders the factor price system to move toward the equilibrium-relative commodity price on the other. Under the macroeconomic environment of segmentation of labor and capital markets and relatively expensive capital and cheap labor, by adopting the labor-intensive techniques to produce labor-intensive commodities, private enterprises absorbed more and more surplus labor from the countryside, enlarged production scale, increased productivity and ever since volume of labor-intensive commodities has been increased significantly. In contrast, state-owned enterprises proceed with the capital-intensive commodities production under the traditional macroeconomic environment of relatively cheap capital and expensive labor and have maintained or even increased its product quantity. As the leading sector that propelled the trade-oriented economic growth, private enterprises have substituted for the state-owned enterprises as the main contributor to export growth and development.This study provides theoretical research and technical analysis with regard to the following three aspects: the dual-economy structure and price distortion, labor force flow from the countryside and the development of private enterprises, comparative advantage and China's export growth. I attempt to bring together into a closely relatedintegrity within a logical framework the diverse phenomena that take place in the transitional period.This study using the econometric estimation tests the entity substitution mechanism and testifies to its formation. The industrial output value of state-owned enterprises, the influential factor, was partialled out as irrelevant in the redundant variable(s) exclusion test whereas that of the private enterprises remained and proved positive in the coefficient estimation process, which attests to the fact that state-owned enterprises are far less influential than the private ones in terms of their contribution to China's export growth and development. Private enterprises have surpassed the state-owned enterprises in stimulating and promoting export growth.Both capital and labor have turned out positive in this estimation. Given the standard error of sampling, joint hypotheses test techniques are used to test whether capital and labor function the same, with the results indicating that as far as state-owned enterprises are concerned, capital plays more important a role than labor in its export growth, whereas for the private enterprises, it is the opposite. The empirical evidence matches quite well the different current capital-labor ratios that they possess respectively.In addition, labor is the dominant factor propelling the export development of private enterprises, foreign capital and the capital owned by the private enterprises themselves also have a positive effect. However, the capital appropriated by the government and the relevant departments and that raised through other financial channels prove negative, while loans from financial institutions function insignificantly.The main contributions of this study are as follows:(l)This is the first systematic study about entity substitution in export growth in China taking place during the economic transitional period between 1978-2002. Different aspects and the primary causes of China's rapid export growth are revealed via the entity substitution study and from this we have gained valuable experience in promoting China's export growth and development.(2)Before this study, studies about China's rapid export growth are based on the neo-classical economic theoretical foundation which emphasizes on the analysis of the export function, whereas viability of enterprises is treated as a premise in my study. Great importance is attached upon discovering the deep relationships between dual-economy structure and factor price distortion, flow of rural labor and development of private enterprises, lacking of viability in state-owned enterprises andits slow export growth, and the like.(3)Great importance is attached upon logical and empirical analysis. Incorporated into a logical framework are such economic phenomena as viability of enterprises, dual-economy structure, factor price distortion, flow of rural labor, financial resources allocation, economic growth and so on. The diverse economic phenomena during the economic transitional period are attempted to be integrated as a whole in this study.(4)Great importance is attached upon investigation and test of empirical analysis. Basing on vast quantity of statistics and using many quantitative analysis methods such as factor analysis and econometric methods, I attempt to provide quantitative measurement and analysis of the propostions obtained through logical and empirical analysis.