China’s Trade Policy for the Global Economy

Introduction

The presented paper aims to analyze the implications of China’s trade policy for the global economy. The significance of the topic is determined by the fact that China has become one of the largest trading powers within several decades and plays a vital role in the world’s economy. The study is designed to provide insight into current China’s trade policy, its aspects, and its impact on global economic trends. The research features detailed information on the history of the country’s development to provide an understanding of its rapid economic rise.

We will write a
custom essay
specifically for you

for only $16.05 $11/page
308 certified writers online
Learn More

Moreover, the study is aimed to analyze the possible benefits and limitations of the country’s current trade policy and their effect on the global economy. The paper features the existing studies on China’s trade, as well as the country’s economic growth. It also uses the Sustainable China Trade framework to analyze the impact of the current trade policy on international economics along with its sustainability. The paper seeks to prove that the country presents an outstanding example of rapid economic growth and has affected the development of the global economy significantly.

History of China’s Economy

While the Chinese economy is considered one of the largest drivers of international economic growth, it has not always been this way. To study the implications of China’s trade policy for the global economy, it is vital to address the history of the country’s economic development and the issues that led to its current state. The country started to follow the Soviet Union’s style of industrialization in 1949; one of the primary elements of its economy was import substitution (Bin, 2015).

Such a strategy was implemented through the fostering from the sectors in which China did not have similar capacities. Notably, this economic path was different from the one of other East Asian countries that concentrated on labor-intensive industries. Consequently, such a strategy led to the initial economic inefficiency of China, as well as poor international relationships, low wages, and the shortage of goods.

It is necessary to mention, that, before 1979, China had maintained a centrally planned economy, which output was primarily directed by the government (Morrison, 2018). Only during the 1960s and 1970s, the country’s government took measures to support the rapid process of industrialization by investing in the workforce. The aim of the Chinese government at that time was to create a self-sufficient economy and limiting foreign trade to only buying the goods that could not be produced in the country. As a result, the sources were not allocated efficiently, and there was a lack of incentives for employees, which contributed to the low quality of their work.

Between the 1950s and the end of the 1970s, China’s gross domestic product (GDP) grew by around 4.5% (Morrison, 2018). It is necessary to mention that there were several drops of the country’s economy at that time as well, including the one that occurred during the Great Leap Forward and the downfall associated with the Cultural Revolution. These events resulted in the government’s decision to adjust the existing economy to the principles of a free market in 1978 (Morrison, 2018).

Moreover, the decision to establish trade with the West was taken to ensure economic growth and improve living standards. Such an action allowed for the important changes and improvements in the future.

Get your
100% original paper
on any topic

done in as little as
3 hours
Learn More

The year 1979 was associated with several economic reforms in China (Morrison, 2018). The government tried to decentralize the policies related to economy, especially in the trade sector. It ensured that local and provincial authorities could control organizations’ economy; the enterprises, in turn, were allowed to operate on the principles of the free market. Moreover, individuals were encouraged to start their businesses. To establish the connection with foreign customers, the government organized economic zones in the coastal area; it allowed for the increase in export and the import of technology into the country.

Chinese coasts began to be experimental zones for free-market reforms and international trade. With time, these areas attracted a growing number of workforce, which resulted in the establishment of various manufacturing enterprises. Moreover, it is vital to note that the period was also determined by trade liberalization, which contributed to the success of the country’s economy. It ensured competition between Chinese companies and international ones, as well as allowed for the identification of effective economic policies.

Significant changes in China’s trade policies are dated 1991 (Bin, 2015). By that time, the country’s competitive capacities had been increasing rapidly, which allowed for the reduction of the tariff rates, and the elimination of import substitution measures and adjusting duty. However, that period was still determined by the high level of trade protection compared to the global rate. For export, such restrictiveness of the system was unfavorable.

This issue was later resolved by the establishment of the market system that was designed to incorporate the socialist approach combined with the Chinese perspective. As a result, the country made market-oriented reforms possible and developed several adjustments to the existing economy associated with banking, budget, state-owned organizations, finance, and taxation. It is necessary to mention that in 2001, China became a member of the World Trade Organization (WTO), promoting trade liberalization and market-oriented economy (Bin, 2015). Consequently, many laws related to trade were revised to meet the regulations and measures of the WTO. It allowed for the establishment of the coherent, transparent, and consistent trade policy.

The economic reforms and effective strategic decisions of the Chinese government led to the sustainable growth of the country’s economy; possible major disruptions were prevented. Annual China’s GDP increased up to more than 9.5% by 2016 (Morrison, 2018). It is vital to mention that the global economic crisis of 2008 affected the country’s economy significantly and resulted in more than 20,000,000 migrant employees losing their jobs.

However, the government responded to this event rapidly by implementing an economic stimulus of around $585 billion (Morrison, 2018). With it, monetary policies and the funding infrastructure were developed in correspondence with economic needs, and the adverse effects of the world’s economic fall were moderated. In addition, China canceled several tariff rates temporarily and established regulations aimed to protect the country’s industries. Notably, the process of trade liberalization was not stopped during the crisis. Conversely, the government took measures to improve services in the field of tourism and financial information, as well as offered national treatment in procurement for international companies.

Causes of China’s Economic Rise

To understand the implications of China’s trade policy for the global economy, it is also necessary to analyze the factors that led to the country’s economic rise. Morrison (2018) notes that two primary factors have contributed to economic development significantly. These are the rapid growth of productivity and large-scale financial investment. Together, these aspects led to high economic efficiency, which increased output and allowed for the investment of more resources in the economy. Another significant cause of China’s economic growth is a high rate of savings, which constituted more than 30% during economic reforms of 1979 (Morrison, 2018). Notably, the changes resulted in both household and corporate savings. Currently, China’s gross savings are at the highest level among the countries with major economies.

We will write a custom
essays
specifically
for you!
Get your first paper with
15% OFF
Learn More

It is necessary to mention that productivity gains contributed to China’s economic rise as well. Increases in efficiency were primarily the results of reallocation of resources, which allowed using them more productively. The main sectors affected by this change were trade, agriculture, and public services. For example, decentralization led to the establishment of private organizations that were more productive than the ones controlled by the state, as well as more market-oriented because there was no interference from the government. Moreover, productivity gains allowed for competition between organizations, which resulted in the enhanced quality of their services and products.

Another cause that played a vital role in China’s economic growth is labor supply in industrial areas. Individuals migrated from rural locations in search of work, which allowed for steady growth in the workforce. Evidently, other countries were unable to ensure a similar increase in labor power, which was beneficial for China. As a result, the government was able to produce a large number of goods in a shorter time compared to its international competitors.

Notably, this factor also contributed to the increased revenue for local and foreign companies, as employees did not receive high payment due to the high job demand. This factor can be considered a limitation of the government’s policies related to labor; however, it had a vital impact on China’s economy.

Women’s participation in the workforce may also be considered the reason for rapid economic growth. The one-child policy allowed women to be involved in work, while in many other countries, they were engaged in child raising for longer periods. As a result, female participation in China was very high compared to Western countries, which, along with the other factors, played a significant role in the rise of the economy.

It is necessary to mention the country’s geographical location due to its proximity to international trading partners. China is located close to the major trade routes of South Korea, Japan, Hong Kong, and Taiwan. The government used this advantage to establish its first special economic zones in the locations that were easily accessible from those countries. The mentioned zones were designed to offer reduced tax rates and create a positive environment for business. The rapid growth of the population is also one of the causes of the significant growth of China’s economy. Despite the one-child policy, the country had a large group of economically active individuals, which affected the development of urbanization and industrialization.

It is vital to summarize the country’s economic achievements on the example of 2013’s statistics to show the rapidness of its growth. Moak and Lee (2016) report that the growth rate for that year constituted more than 7.5%; China became the largest trading partner for more than 120 countries, including South Korea, Russia, Japan, and Australia. In addition, almost $4 trillion were accumulated in foreign reserves. The government also managed to contribute to around 35% of global economic growth, while having less than 10% of the population living under the poverty line (Moak & Lee, 2016). These facts reveal that China’s economic growth presents an outstanding example in the global economy.

Current China’s Trade Policy

The country’s trade policy is considered contradictory and requires in-depth analysis (Hilpert, 2014). It involves both economic liberalization and mercantilist trade policies. China’s trade policy is regulated by several legal documents, such as the Five Year Plan for Economic and Social Development of the People’s Republic of China (World Trade Organization, 2018). Such documents regulate the policies related to import and export taxes and licenses and sectors associated with the investment.

According to Bin (2015), three primary goals of current China’s trade policy are to accelerate the economy’s optimization and improve trade, to develop the strategy for the utilization of foreign capital, and to ensure steady development of outward investment. To meet these objectives, Chinese government aims to improve the procedures related to customs, enhance technological capabilities of the country and improve its industrial structure, ensure the growth in export, increase industrial value added, as well as encourage local organizations to invest in foreign trade.

Need a
100% original paper
written from scratch

by professional
specifically for you?
308 certified writers online
Learn More

It is necessary to mention the significant change in China’s economic development that is represented in the current trade policy and determined by the shift from the focus on speed to quality. The significant parts of the current trade policy are the Multilateral Trading System (MTS) and the regional trade agreements (RTAs) (World Trade Organization, 2018). The government is planning to continue liberalizing the market to achieve sustainable economic development.

To do so, the country intends to modernize its existing industries, improve the services sector, as well as develop new knowledge-based industries. It is vital to note that overcapacity that is present in several areas remains a significant China’s concern. To manage this problem, the government encourages foreign investment in the sectors that comply with its manufacturing strategy and the current adjustments of the industrial structures.

It is evident that, currently, the country’s trade policy is outward-oriented. China is analyzing the possibility of establishing a regulatory framework for foreign investment, which will be based on granting pre-establishment national treatment to outside investors (World Trade Organization, 2018). The government has also developed the Going Abroad policy that aims to integrate the country into the global production and logistics chains.

The Belt and Road Initiative is another measure China has taken to establish cooperation with foreign nations; the goal of the initiative is to develop a single infrastructure among the countries of West and Central Asia, as well as Europe and the Middle East (World Trade Organization, 2018). In addition, this measure allowed for the intergovernmental cooperation, the elimination of barriers to trade and investment, enhanced financial integration, cultural and educational exchanges between the populations, increased tourism, and facilities connectivity.

One of the most recent changes in China’s trade policy is the development of priority tasks aimed to enhance economic reforms. The country intends to establish a supply-side structural reform in various fields, including state-owned companies and assets, the delegation of power, taxation, fiscal policy, streamlining administration, and finance. Moreover, China aims to develop a strategy that will allow attracting more foreign technologies and assets into the country.

The country has a large number of official trading partners, including the European Union, the Association of Southeast Asian Nations, the United States, South Korea, Hong Kong, Japan, and Taiwan (Morrison, 2018). China has also established free trade agreements with 22 countries. Its trade commodities mostly include manufactured products due to a large number of companies specialized in low-cost products.

The majority of import is comprised of the components that are used to create finished products, which are then exported. Most of them are associated with computers and other electronic products. According to Morrison’s (2018) list of China’s primary imports and exports, imported products mostly include electrical devises and machinery, medical and surgical instruments, and optical and photographic devices. The exported products are the same types of goods, as well as apparel, bedding, and furniture.

Benefits and Limitations of the Current Trade Policy

The primary advantage of current China’s trade policy is that it has made the country one of the leading manufacturing and export powers in the world. Moreover, the trade policy is beneficial for foreign organizations as it allows them to establish manufacturing plants, providing support by foreign direct investment (FDI). Another significant benefit of the trade policy is that it resulted in reduced poverty by creating employment opportunities.

It is vital to mention that China’s expertise in technology has increased significantly due to international trade; the country’s companies have become more competitive and started to offer broad varieties of products to the customer. The growth of technology allowed for the implementation of innovations into businesses and services, as well as the investment in renewable sources. Another benefit of the current trade policy is that Chinese suppliers gained an opportunity to work with large multinational companies, which resulted in high revenues that can be invested in the country’s social infrastructure.

The limitations of the current trade policy may be reflected in the challenges that the country encounters. For example, China’s economic model depends on export significantly, which resulted in high pollution costs and low yields. Moreover, the country experiences major financial losses due to the accumulation of foreign assets that are held in dollars, which results in the enhanced diversification of China’s investments.

Another limitation of the current trade policy is that it has led to significant inequality between the developed and underdeveloped regions. The country’s coastal areas are the largest trade zones; many people migrate from the countryside to work there. It results in poor living conditions and high costs of accommodation and food. Moreover, towns in rural areas become to experience the shortage of labor due to the population’s migration to trade areas.

One of the other limitations of the current trade policy is the diminishment of China’s resources due to urbanization, and the extensive use of energy by the industries. As mentioned above, the country contributes to a large percent of the consumption of global resources. This situation leads to an increased country’s dependence on import as well, forcing China to rely on international suppliers.

Moreover, the current trade policy, especially foreign trade, results in significant water shortages due to the pollution of major water banks. This problem remains acute as the measures taken to eliminate it are insufficient. Finally, the possible limitation of the current trade policy is the shortage of skills related to technology and innovation due to the rapid growth of the industry and the migration of young specialists abroad.

It is vital to mention that China encounters challenges associated with its economy. First, the costs of its rapid growth are high and are presented in the inefficient financial system, economic imbalances, income inequality, and severe pollution. Second, the country’s economy is at a high risk of the middle-income trap, defined by China’s potential inability to overcome stagnation in economic growth. To eliminate these issues, it is crucial for the government to develop strategies for productivity improvement along with the growth management model that will allow for a sustainable economic increase.

Global Implication of China’s Economic Rise and Trade Policy

The country’s economic reforms have resulted not only in the economic growth of China but also in significant changes in international economics. The integration of China into the world economy has both benefits and disadvantages and affects several areas. For example, Loredana and Florentina (2017) report that the country’s trade policies may result in the shift in the world’s political power to the East.

Another significant issue associated with China’s economic growth is that it increased the world’s demand of raw matter, which, consequently, affected international economics as well. The country is considered one of the largest global consumers and has reportedly used more than 30% of the world’s steel, 30% of zinc, and around 20% of nickel (Loredana & Florentina, 2017). At the same time, the extended use of sources allowed for the collaboration between China and other countries aimed to reduce their costs.

Another global implication of China’s economy is that it has influenced global prices for goods by manufacturing low-cost products. Many organizations that make the same products as Chinese ones are forced to change their price policies to remain competitive (Loredana & Florentina, 2017). It results in lower revenues and inadequate costs of manufacturing for many international companies, forcing some of them to become bankrupt. At the same time, this factor allows for finding the means of lowering the costs of products by the use of alternative materials.

It is vital to mention that China’s economic growth and trade policies have made a significant impact on the European Union. For Europe, China is one of the primary sources for import. At the same time, the EU is one of the main markets for the country’s goods (Loredana & Florentina, 2017). China has played a significant role as a global investment destination as well, since it is, currently, the most valuable source of funds after the US (Hilpert, 2014).

Moak and Lee (2016) outline the significant role of China’s economy on the United States’ trade and investment. Chinese imports allowed the US to save thousands of dollars a year, which resulted in low inflation rates and higher standards of living. Moreover, Moak and Lee (2016) state that import allowed America to create more than half a million employment opportunities for its citizens in 2013, despite the opinion that China deprived the country of jobs. China’s effect on international trade and economy is expected to grow.

In conclusion, it is vital to mention that, currently, the major global financial issues cannot be addressed without China’s participation. The country remains the largest holder of global reserves, America’s second largest creditor, and the largest emitter of greenhouse gases (Moak & Lee, 2016). Future global economic reforms will involve China as well since it is the largest trading partner to the majority of countries.

Sustainable China Trade Framework

The Sustainable China Trade Framework, introduced by Cosby (2009), will be used to analyze the impact of the current trade policy on international economics and the possible changes that may be beneficial for the country. The framework is focused on sustainable development, which addresses the needs of present and future generations. The concept features three elements, such as economic, social, and environmental aspects of development. For this research, only the financial aspect of the framework will be analyzed and applied.

Cosby (2009) notes that international trends play a vital role in the establishment of current China’s trade policy and its relation to international economics. The primary one is the global economic crisis, during which the country implemented an effective management strategy. In 2008, China showed a low dependence on exports compared to other Asian countries. Other factors that have influenced the relationships between China’s trade policy and international economy are trends in commodity markets, the multilateral system of trade, and the global natural environment. These facts correspond with the findings of the existing literature on the topic.

The author notes that China is the first country, which trade policies are so powerful. According to Cosby (2009), in the period between 2003 and 2006, the export rate increased by more than 120%, followed by import, which grew by more than 90%. There are several suggestions that can be made within the presented framework to improve the economic sustainability of China’s trade policy. They include ensuring the continuity of supply chains and the quality of exported goods, lowering the amount of energy associated with value added of traded products, and enhancing the country’s participation in international policy-making meetings. These measures would help the country to meet the standards of international buyers and customers and increase China’s positive impact on the global economy.

Summary and Conclusion

The presented research paper aimed to analyze the implications of China’s trade policy for the global economy. It featured the history of the country’s economic development, outlining that China experienced significant reforms at the end of the 1970s, which allowed for the rapid rise of its economy. Decentralization, urbanization, and the implementation of free-market principles were some of the factors contributing to the country’s development.

There are several other reasons for China’s economic rise, which include the rapid growth of productivity and the large-scale financial investment, productivity gains, labor supply, female participation in the workforce, and fast population growth. The research paper reveals that the country’s economy is oriented on international relationships and trade and based on investment.

Clearly, there are advantages and limitations of current Chinese trade policy. For example, foreign organizations benefit from it significantly, as they receive FDI and have an opportunity to establish manufacturing plants within the positive business environment of the country.

Moreover, Chinese trade policy has allowed for job opportunities both for Chinese people and the citizens of other countries. One of the evident benefits of the current trade policy is the enhancement of China’s expertise in technology, which has made its products competitive in the global market. Today, most of the devices we use every day, as well as our clothes, are manufactured or designed in China. The limitations of the country’s trade policy are high dependence on export, enhanced diversification of investments, and significant inequality between the economically developed and under-developed regions.

The most significant issue that is vital to address is the global implications of China’s trade policy. The study shows that the country has strong relationships with its foreign partners and has become one of the largest economic powers in the world. For decades, China has been known for both high-quality technologies and low-price goods, which resulted in its competitive advantage and forced many global companies to revise their price policies.

The country has affected some areas in particular, specifically, the United States and the European Union. For the latter, China is the primary source of import, which makes the EU dependent on their trading relationships. Its impact on the US economy is also significant since the relationships between the countries resulted in the establishment of around 500,000 job opportunities, as well as enhanced savings.

The discussed issues reveal that the implications of China’s trade policies on the international market and economy are significant. From its first economic reforms, the country strived to develop strong relationships with its global partners. At the same time, China has managed to become a leading power and not a dependent country, which outlines its vital role in global economic development. It is essential to mention that the country’s savings and investments affected international economies significantly, which means that the global economy cannot be analyzed without China’s contribution to it.

References

Bin, S. (2015). China’s trade development strategy and trade policy reforms: Overview and prospect. Web.

Cosby, A. (2009). Sustainable China trade: A conceptual framework. Web.

Hilpert, H. G. (2014). China’s trade policy: Dominance without the will to lead. Web.

Loredana, J., & Florentina, P. L. (2017). China’s rise and its implications for the global economy. Ovidius University Annals, Economic Sciences Series, 17(1), 46-50.

Moak, K., & Lee, M. W. N. (2015). China’s economic rise and its global impact. New York, NY: Palgrave Macmillan.

Morrison, W. M. (2018). China’s economic rise: History, trends, challenges, and implications for the United States. Web.

World Trade Organization. (2018). Trade policy review. Web.

Print Сite this

Cite this paper

Select style

Reference

StudyCorgi. (2021, July 15). China’s Trade Policy for the Global Economy. Retrieved from https://studycorgi.com/chinas-trade-policy-for-the-global-economy/

Work Cited

"China’s Trade Policy for the Global Economy." StudyCorgi, 15 July 2021, studycorgi.com/chinas-trade-policy-for-the-global-economy/.

1. StudyCorgi. "China’s Trade Policy for the Global Economy." July 15, 2021. https://studycorgi.com/chinas-trade-policy-for-the-global-economy/.


Bibliography


StudyCorgi. "China’s Trade Policy for the Global Economy." July 15, 2021. https://studycorgi.com/chinas-trade-policy-for-the-global-economy/.

References

StudyCorgi. 2021. "China’s Trade Policy for the Global Economy." July 15, 2021. https://studycorgi.com/chinas-trade-policy-for-the-global-economy/.

References

StudyCorgi. (2021) 'China’s Trade Policy for the Global Economy'. 15 July.

Copy to clipboard

This paper was written and submitted to our database by a student to assist your with your own studies. You are free to use it to write your own assignment, however you must reference it properly.

If you are the original creator of this paper and no longer wish to have it published on StudyCorgi, request the removal.

Psst... Stuck with your
assignment? 😱
Susan
Online
Psst... Stuck with your assignment? 😱
Do you need an essay to be done?
Yes
What type of assignment 📝 do you need?
Yes
How many pages (words) do you need? Let's see if we can help you!
Yes