China’s Foreign Trade And Urban-rural Income Gap

As the reform and opening policy’s deeply and smoothly processing andChina’s export-oriented economy continuously developing, foreign trade is booming.China has become the biggest exporting country in the world for many years.Foreign trade plays a crucial role in China’s economy development. It is the engineof China’s economy growth. In the recent thirty years, China has got great success indeveloping its economy and surpassed Japan in GDP to become the second largesteconomy in the world. People’s material life has changed significantly, and livingstandard has improved unprecedented.However, with the rapid development of gross economy, some problemsexposed at the same time. At the present stage, the gap of income distribution is amain issue. In2012, National Bureau of Statistics published the Gini coefficient ofChina for the first time. China’s Gini coefficient is on a high level and overpasses thewarning line of0.4. For the latest data, namely in2012, this number is0.474. It isparticularly the gap between urban and rural areas that needs us to pay moreattention to, since it is an important index reflecting the general status of gap ofincome distribution. In recent thirty years, China’s urban and rural incomedistribution gap is widening. In1978, the ratio of urban-rural income was only2.5,while by the end of the year2011, this ratio has reached3.2. The widening gapbetween urban and rural is an issue that cannot be ignored. It is vital for a country’seconomy security, society stability and people’s peaceful life and work. If thisincome distribution issue, especially the urban-rural income distribution issue, is notwell solved, it will affect the long-term development of China’s economy.By listing the data and charts, we can find out that the opening policy doesstimulate the economic growth, but meanwhile, the gap between urban and rural income distribution is widening. Therefore, by using related international economicstheories coupled with academic research findings, we analyzed the relationshipbetween China’s foreign trade development and gap between urban and rural incomedistribution generally. We find stable correlation between these two economyvariables through empirical tests. After that, through foreign trade decomposition,we use export trade and import trade data to see each variable’s effect on the gap. Inthis paper, we have targeted analyses towards time periods. As China had a foreignexchange system reform in1994, and in2001, China finally became a member ofWTO, the development of foreign trade apparently has its period feature. Therefore,we prove that this feature has affected the urban-rural income gap as well. Byresearching into the relationship, some new inspirations on optimizing foreign tradestructure and narrowing the gap between urban and rural areas are obtained. Thesecan provide a basis for future theoretical research and policy analysis.From the outcome of econometrics analysis, we discovered a significantpositive relationship between foreign trade and the gap between urban and ruralareas. In order to get a reasonable solution, China has to reform the structure offoreign trade and improve the proportion of strategic emerging industries, and adjustthe structure of income distribution between urban and rural, and the individualincome tax has to be optimized as well. Government should give more support torural areas and make more effective measures on foreign trade to serve the ruralareas’ development.