Intra-industry Trade And The Orientation Of The Pattern Of China's Foreign Trade

The pattern of foreign trade can be divided into two types, one isinter-industry trade, and the other is intra-industry trade. Intra-industrytrade is a new trade pattern that rose diffusely after world war two, and itis also the general trend of international trade development for the future.â… .Summarization of the Definition, Measuring Index,Categorization and Development Characteristics of Intra-IndustryTrade."Intra-industry trade"means that a country or a region imports andexports the products of the same industry simultaneously.The internationally universal measuring index of intra-industrytrade is the "Intra-Industry Trade Index "which was given by Grubeland Lioyd in 1975, "G-L index"for short.According to the differentiation of the products, intra-industry tradecan be divided into two types, one is the level intra-industry trade, andthe other is the verdict intra-industry trade. Both the two types ofintra-industry trade are relevant to the multinational foreign directinvestments. Multinational level incorporated investments cause the levelintra-industry trade, while the multinational verdict incorporatedinvestments cause the verdict intra-industry trade.The contemporary development of intra-industry trade has taken onseveral new characteristics: First, Intra-industry trade dominates theforeign trade of the developed countries, especially in their industrialfinished products trade; Second, Intra-industry trade also dominates theforeign trade of the developing countries; Third, intra-industry trade isclosely connected with the dominant industries and high-tech industries.â…¡.The Evolution of the Theory of Intra-Industry TradeAccording to Comparative Advantage Theory and FactorEndowment Theory, the chances of trade between two countries that havethe similar factor endowment are slim, which cannot explain the realityof the booming intra-industry trade between developed countries. Thereason is that those preconditions held by the traditional theories, such asconstant scales to return and perfect competition, are ivory-towered.Under this background, Grubel, Lioyd and other economists, breakingthrough the restriction of the preconditions of traditional trade theories,studied the intra-industry trade widely at the angles of economies ofscale , imperfect competitive market structure , differentiation ofproducts and similarity of demands, and so on, which formed theimportant new branch of contemporary international trade theories --Theory of Intra-Industry Trade. â…¢. Main Contents of Intra-Industry Trade Theory â…°.The Whole Framework of Intra-Industry Trade Theory Intra-industry Trade Theory is supported by three principles, whichare "Differentiation of Products", "Similarity of demands"and"Economies of Scale". The relations among the three stanchions are asfollow: "Differentiation of Products"makes it possible to meet thedemands of consumers with various status and habits, so "Differentiationof Products"is the cause of intra-industry trade. "Similarity of Demands"is in favor of the suppliers to overcome the market segregation caused bythe difference of social political systems, policies and culture, whichmakes it convenient to enter the foreign markets. Therefore, "Similarityof Demands"is the assurance of intra-industry trade. "Economies ofScale"can make the country with the ability to produce in large scale winthe advantage in cost of products and get the chance to occupy foreignmarkets and gain profits. Consequently, "Economies of Scale"is thebenefit source of intra-industry trade. â…±. The Benefit Source of Intra-Industry Trade According to Intra-Industry Trade Theory, Intra-industry trade canmake the two countries with similar factor endowment increase theirwelfare levels. The benefit of intra-industry trade roots in the followaspects: The effect of consumption. Intra-industry trade can expand thevariety range of the products for the consumers of the two countries,thereby it can increase the two countries'consumer surplus. The effect of production. Intra-industry trade makes the suppliers ofthe two countries face the broaden markets and the more variousdemands, therefore, the supplier surplus of the two countries can beaugmented. At the same time, with the effect of the Economies of Scale,the suppliers can decrease their production cost after enlarging theirproduction scales. The effect of technology progressing. What are exchanged inintra-industry trade are usually the industrial products or high-techproducts, which can help the participant countries increase theirtechnology volume and speed up technology innovation. The effect of upgrading industry structure. The development ofintra-industry trade has close connection with the development of acountry's dominant industry and high-tech industry, therefore it canpromote the progresses of technology and the upgrade of the industrystructure of a country. â…£.The Necessity for China to Choose Intra-Industry TradePattern as the New Orientation Since the open policy, China has achieved a great development inforeign trade. But our traditional inter-industry trade pattern is displayingmore and more inelasticity, so it is imperative for China to upgrade itstrade pattern to intra-industry trade. â…°.The Current Characteristics of Foreign Trade Structure inChina The current comparative advantage of China still consists in thelabor-densified industries, and the labor-densified products are still themain exports of China. The weight of products with technology contentand high added value has increased sharply, but most of the machineryand electricity products are still labor-densified products, and theproportion of the high-tech products exports is also much lower than thatof developed and newly-industrialized countries. The fields of FDI(foreign direct investment ) in China also altered, and has begun totransfer from labor-densified products manufacture and assemblyindustries to medication , electricity industry and some other capital andtechnology densified industries with strong relating function, which canboost the development of intra-industry trade between China and otherdeveloped countries. â…±.The Challenges to the Traditional Trade Pattern of China As the international trade situation has changed greatly today, thetraditional inter-industry trade pattern of China is facing more and morechallenges, and comparative advantage strategy becomes in evidenceinappropriate. The traditional advantage of China is becoming weak. Chineseadvantage of labor cost is being weakened, and the international price oflabor-densified products is decreasing, which worsens Chinese TradeConditions. Furthermore, the trade protectionism of the developedcountries makes it more difficult for our labor-densified products to beexported. Chinese increasing scale of export has caused frequent tradefrictions between China and other trade companions, moreover, Chineseincreasing scale of import often resulted in the rising prices of staples ininternational market, and then the rising prices of our import. The lag of industry structure adjustment brings on the inferiorexport commodity structure of China. With the expedited development of world economy, high-techproducts have been playing a more important role in the internationaltrade. Thereby, Chinese traditional comparative advantage can hardlysupport Chinese long-term development. â…².The New Orientation of China's Foreign Trade Pattern With the development of world economy and trade, intra-industrytrade has been replacing inter-industry trade as the main style ofinternational trade, which is an inevitable tendency of the internationaltrade development. In order to participate in international trade anddivision more effectively, we must alter our traditional inter-industrytrade pattern, and endeavor to develop intra-industry trade. â…³.Demonstration Analysis of the Intra-Industry TradeDevelopment in China According to the demonstration analysis of the general IITI(intra-industry trade index) of all sorts of Chinese products, we can seethat since 1990s, our foreign trade has been gradually transformed frominter-industry trade to intra-industry trade. From the analysis of the IITIof our industrial finished products, we can find that the intra-industrytrade of our machinery equipments, vehicles transportation equipmentsand some other capital and technology densified industries has reached ahigh level. But when we make the extensive analysis of the IITI of China,we can see that the whole level of Chinese intra-industry trade is still low.The export of our traditional labor-densified products is still far beyondtheir import, while many high-capital and high-tech densified productsare still mainly imported. Chinese intra-industry trade is still mainly in...