Study Of China's Foreign Trade Surplus

The study attempts to reveal the shift of China's foreign trade pattern from theperspective of development strategy and resource endowments. The economicdevelopment experiences of Japan, India and four Asian Tigers justify the importanceof economic strategy to foreign trade.The first part introduces the basic situation of China's foreign trade since 1949.Contents include: (1) rapid increase of foreign trade mainly composed of industrialgoods;(2) from alternative surplus or deficit to sustainable trade surplus withindustrial goods being the main source;(3) expanded labor-intensive andresource-intensive industries as the biggest contributors to trade surplus;(4) rapiddevelopment of trade involving the processing of supplied raw materialsThe second part focuses on the literature review. With certain kinds of resourceendowments, development strategies and the policy environment a government adoptswill exert some influences on industry structure, and in the final analysis, on foreigntrade pattern. At the beginning period of economic development, the catch-up strategyand the corresponding policy environment will lead to the disproportion amongagriculture, light industry and heavy industry. The strategy also curbs thedevelopment of industries that have comparative advantages and internationalcompetitiveness. As a result, the man-made import pressure leads to a long-time tradedeficit. However, the development strategy in line with the comparative advantagecalls for disparate policy environment from that of the catch-up strategy. Thus,development of industries with comparative advantage and internationalcompetitiveness will be preferred so as to maintain the relatively balanced foreigntrade.The third part centers round China's economic practices since the foundation ofNew China. The readjustment to development strategies and the corresponding shiftof policy environment have played a significant role in China's trade restructuring.From 1949 to the late of 1970s, China had been adopting the catch-up strategyfocusing on heavy industry, the contorted price mechanism, resource allocationmechanism based on plans, and the micro management system characterizing withstate-owned and collective-owned enterprises. As a result, on the one hand,labor-intensive industries with international competitiveness were severely restrained;on the other hand, the capital-intensive technological equipments were heavilyimported, thus leading to slow growth of China's foreign trade volume. The balanceof trade cannot be achieved under the strict trade regulations. Since the 1980s, a rangeof reform measures have gradually corrected the misleading catch-up strategy. Thelabor-intensive industries in consistent with comparative advantage theory have beenunder rapid development, and the foreign trade aggregates has also undergonefast-track expansion. The sustainable surplus pattern was finalized.The fourth part focuses on the research to Japan, Taiwan, Republic of Korea andIndia. The comparison between different economic development strategies has furtherproved the close relationship between development strategy and foreign trade pattern.Taiwan and Japan have well followed the comparative advantage developmentstrategy and promoted the industry upgrading step by step, therefore, a long-terminternational trade surplus was realized through foreign trade expansion. However,Korea and India are in trade deficit since their desperate adoption of catch-updevelopment strategy.Finally, a conclusion can be drawn from the change of China's foreign tradepattern since its reform and opening up, plus the development experiences from Japan,four Asian Tigers and India. The author believes that much effort should be devotedto develop long-time labor-intensive industries in China, and the development oflabor-intensive processing stages involved in capital-intensive industries should alsobe facilitated with the introduction of foreign investment. These strategies help tomaintain China's existing trade surplus, accumulate capital pool and upgrade theresource endowment structure. In a short time period, due to the thriving internationaldemands, China's labor-intensive industries will guarantee the maintenance of itsforeign trade surplus.