An Analysis Of China's Net Barter Terms Of Trade And Income Terms Of Trade

Terms of trade and their changes are of great guiding significance to comprehend one country's international trade pattern, and this thesis mainly focus on the analysis of Net Barter Terms of Trade (NBTT) and Income Terms of Trade (ITT). As for China, her NBTT is deteriorating while ITT is improving, this thesis desires to find out the true reasons which brought about such opposite changing trends and the guiding significance to China's foreign trade scheme which lie implicitly behind such trends. Thus empirical measurement such as Granger causality tests and variance decomposition have been applied to analyze the factors that might have impact on China's terms of trade using the data of 1980 to 2005. The results show that exports of industrial manufactured goods and exports of foreign enterprises are the two most important reasons deteriorating China's NBTT while export quantities and trade surplus are the two most important reasons improving China's ITT. Furthermore, imports of preliminary goods exert a impact on terms of trade accompany industrial manufactured goods, and the exacerbating effect that foreign enterprises' exports have on terms of trade is bigger than its ameliorating effect. Base on the above analysis this thesis arrives the conclusion that China's present trade pattern is indeed not good for ameliorating of her NBTT, but the reality is that it is impossible for China to contribute nothing to the world as a big country. Because the import demand nowadays is not only for own consumption but rather for the exports to trade partners; and the exports are not only based on own resources but also include a great deal of import ingredient, especially the machining and assembling trade together with the transnational corporations that invest in China with their products sold to the world market. It is surely exacerbates NBTT to participate in international specialization and carry on the middle machining and assembling process in the value-add chain through intra-product trade, yet it is possible to climb up to higher value-added processes which consist of key factors to the persistive economic growth. So it is hard for the traditional definition of terms of trade to evaluate the ability to gain profit in today's various trade activities.