Expand Domestic Demand And Optimize China's Manufacturing Export Structure

Since the reform and opening up, China's sustained and rapid economic growth was largely driven by exports. However, as the changes in the pattern of the global economy, especially the recent outbreak of the global financial crisis, export-led growth is facing more and more problems. When we reduce dependence on exports and shift the pattern of economic growth from driven by the external demand to domestic demand, is the Chinese export-led economic growth policie out of date? What impact for Chinese manufacturing exports quantity and structure when expansion of domestic demand? Where Chinese manufacturing export advantage come from when facing difficulties in the export and the labor costs will be higher has become an inevitable trend? In this paper, we will use the trade theory especially the home market effects theory to study the relationship between domestic demand and exports to answer these questions.As part of new tade theory, the home market effects refer to when bilateral trade, and the industry show increasing returns to scale and there are transportation costs, the country which have stronger domestic demand for the differentiated products will be a net exporter. The home market effects demonstrate a positive correlation between domestic demand and exports in the industry,and also means the market size have decision role on the pattern of trade, which is an important supplement to the traditional comparative advantage theory.Firstly, we analyze China's current policy of expanding domestic demand and the policy of export-led growth to explore the problems China's manufacturing exports facing and put forward the question that what impacts will expanding the domestic demand to china's manufacturing exports and its structure and introduce the home market effects theory to analyze the relationship between domestic demand and exports to find new advantages of Chinese manufacturing exports.Then we studied the existence and strength of the home market effects in theory to find the necessary condition depended on which it exists,and introduce the empirical path of its testing.Then we focus on the existence of the home market effects of chinese manufacturing foreign trade,not only study the overall manufacturing, but also specific to the manufacturing sub sectors.In the end, we conclude and discuss some supporting policy. Conclusions of this study are as follows:China's economic growth should be depended on both inside and outside, and domestic demand-led growth and export-led growth does not contradict,the policy of export-led economic growth is not out of date, the economic policy of expanding domestic demand wil optimize the export structure of China and find out a new comparative advantage orignated in the market size for China's manufacturing export.The home market effects will exist in very general circumstances.A necessary condition for its existence is that the industry show increasing returns to scale and there are transportation costs in trade and it must be bilateral trade situation.The trade barriers between countries and industry characteristics will influence the strength of the home maket effects,the lower trade barriers will lead to stronger home market effects,and in the sense of comparison of static,if the industry have greater relative market,higher transportation costs,higher degree of product differentiation and higher degree of economies of scale, it will exhibit stronger home market effects.China's manufacturing exist significant home market effects, china's foreign trade patterns are decided by home market effects and the comparative advantage effects, in a world which the advantage of market size and the advantage of factor endowment are coexistence, the comparative advantage which originated by factor endowments plays a more crucial role on promoting manufacturing exports.At the same time,due to the difference of the industry characteristics in the chinese manufacturing sub sectors,the existence and the strength of the home market effects in these sectors are also quite different.Through the empirical study of chinese manufacturing HS two-digit products, we found that such sectors as iron and steel, inorganic chemicals and vehicles showed strong home market effects, and such sectors as textiles, precision instruments showed weaker home market effects, China's exports are mainly labor-intensive products, free trade agreements have significant role on promoting chinese manufactured goods exports.The empirical study which relax the assumption that representative consumer in two country have same share of expenditures on the same product in bilateral trade showed that eight out of twelve industries exhibit significant home market effects, which are the paper products and printing industry,machinery and equipment, wood products,food, basic metals and fabricated metal products,transport equipment,other non-metallic mineral products, chemical products, miscellaneous products and waste resources recycling industry. While these industry including the rubber and plastics, textile, clothing and leather manufacturing, food,beverage and tobacco,oil refining and nuclear fuel manufacturing, does not exhibit the home market effects.And food,beverage and tobacco, oil refining and nuclear fuel manufacturing, even show significant reverse home market effect.China's domestic demand structure is unreasonable, the proportion between consumption and investment are long-term imbalance.The policy of expanding domestic demand should focus on stimulating consumption and increasing incomes of urban and rural people and on increasing government spending on agriculture. At the same time we should promote the upgrading of industrial structure and accelerate the capital accumulation of manufacturing to maximize the role of home market effects.