The Impact Of Factor Market Distortion On The Imported Intermediates

Nowadays, foreign trade has become one of the most contributive industries to the GDP index of China, which makes China to be the world’s biggest foreign trade body, surpassing the US and greatly boosts China’s international status and influence.With its strength and cheap labor, China has developed its process trade rapidly,during which, trade of intermediates has surpassed the traditional trade, replaced the trade mode that is based on exchanging end products and become the main trade pattern of China. Taken China’s importation of intermediates as the research background, and the Factor Market Distortion as the cutting point, this paper aims to analyze the motives of China’s intermediates-importing companies, which enriches the aspects of Factor market Distortion theory and also provides theoretical support and practical meaning of the trade of intermediates.With the researches of Factor Market Distortion and theories on intermediates trade; combination of China’s domestic features and trajectory of China’s market development; comparison of the data from China’s industrial companies with the data form custom, build the corresponded multivariable linear regression model of intermediates import, and then analyze the influence to incentive of companies’ import on intermediates, this paper explains relations between factor distortion and intermediates import in different types of companies, as well as whether the low-cost profits generated by factor distortion is gained by local enterprises. The research finds out that factor distortion has indeed had positive impact on the importation of intermediates; in terms of the types of trades, the degree of factor distortion has moreencouraging impact on companies based on processing trade than those involved in traditional trade; in terms of types of company’s ownership, factor distortion greatly boosts the import demand of intermediates from foreign-fund processing companies.However, it has no great impact on domestic companies—it does stimulate import of intermediates from domestic companies that do traditional trade, but it does not affect the import activities of these companies. As the existence of factor distortion, this paper finds out that China’s policy-makers should re-evaluate the future of intermediates trade, consider the stimulating effect that processing trade can do to foreign trade, develop the industry of intermediate input products that owned by China itself and enhance the market competitive power of the domestic companies.