China’s Foreign Trade
Information Office of the State Council
The People’s Republic of China
December 2011, Beijing
I. Historic Progress in China’s Foreign Trade
II. Reform of and Improvements to China’s Foreign Trade System
III. The Development of China’s Foreign Trade Contributes to the World Economy
IV. Promoting Basically Balanced Growth of Foreign Trade
V. Constructing All-round Economic and Trade Partnerships with Mutually Beneficial Cooperation
VI. Realizing Sustainable Development of Foreign Trade
Peace, development and cooperation are the trends in today’s world. Since the adoption of the reform and opening up policy more than 30 years ago, China has conformed to the trend of economic globalization by opening wider to the outside world and promoting economic and trade cooperation with other countries on the basis of equality and mutual benefit. Through years of development, foreign trade has become one of China’s most dynamic and fastest-growing sectors, placing China among the world’s largest trade countries. China’s foreign trade development has strengthened the nation’s ties with the rest of the world, effectively pushed forward the country’s modernization, and promoted world prosperity and progress.
China entered the World Trade Organization (WTO) in 2001. During the past decade, China has quickened its integration into the global economy while its foreign trade has been further invigorated. On the 10th anniversary of China’s accession to the WTO, the Chinese government issues this White Paper to give a comprehensive introduction to China’s foreign trade development.
I. Historic Progress in China’s Foreign Trade
After the founding of the People’s Republic of China (PRC) in 1949, China adhered to the principle of independence and self-reliance, and gradually carried out economic and trade exchanges with foreign countries. However, hindered by the international political environment at that time and the country’s planned economic system, China’s foreign trade development was relatively slow.
In 1978 China entered the new period of reform and opening up. Devoting major efforts to the development of foreign trade became an important approach to accelerate modernization, shake off backwardness, promote the growth of economy, and improve comprehensive national strength. Over the past 30 years or so, seizing the opportunity of the world economy’s long-term prosperity and the deepening economic globalization, China has opened wider to the outside world, attracted and utilized foreign investment, introduced advanced technology, transformed and upgraded domestic industries, and achieved rapid development in foreign trade through all-round participation in the international division of labor and competition.
-- China’s total trade volume in goods ranks high globally. In 1978 the total value of China’s import and export was only 20.6 billion U.S. dollars, ranking 32nd in world trade and accounting for less than 1 percent of the world’s total. In 2010 the total value of China’s import and export reached 2.974 trillion U.S. dollars, 144 times as much as that in 1978, averaging an annual growth of 16.8 percent. In 2010 the total value of China’s export was 1.5778 trillion U.S. dollars, showing an a 17.2 percent annual growth on average, and the total value of its import was 1.3962 trillion U.S. dollars, showing a 16.4 percent annual growth on average. In 2010, the total volumes of China’s export and import accounted for 10.4 percent and 9.1 percent of the world’s total, respectively. By the end of 2010 China had been the world’s largest exporter and second-largest importer for two consecutive years.
(Figure 1 China’s Import and Export of Goods 1978-2010)
-- The structure of China’s trade in goods has fundamentally changed. China’s export commodity structure shifted from the primary products dominated to manufactured goods dominated in the 1980s, and from mainly light industrial and textile products to mainly mechanical and electronic products in the 1990s. In the new century, China’s export of high-tech products, led by electronics and information technology commodities, has been increasingly expanded. In addition to state-owned enterprises, foreign-invested enterprises and private enterprises also engage in foreign trade, and their total value of import and export has each exceeded that of the state-owned enterprises. From the 1980s to the early 21st century, China’s processing trade flourished, accounting for half of the country’s foreign trade volume. Throughout China’s foreign trade development, foreign-invested enterprises and processing trade have played very significant roles.
(Table 1 China’s Export Commodity Structure 1980-2010)
-- China has formed an all-round and diversified import and export market. Since the adoption of the reform and opening up policy, China has been promoting foreign trade on all fronts, and established trade relations with the vast majority of the world’s countries and regions. China’s trade partners have increased from a small number of countries and regions in 1978 to 231 countries and regions now. The European Union (EU), the United States, the Association of Southeast Asian Nations (ASEAN), Japan, and the other BRIC countries have become China’s major trade partners. In this new century China’s trade with newly emerging markets and developing countries has maintained sustained and relatively rapid growth. In China’s total trade in goods from 2005 to 2010 the proportion of trade with ASEAN increased from 9.2 percent to 9.8 percent, with other BRIC countries from 4.9 percent to 6.9 percent, with Latin America from 3.5 percent to 6.2 percent, and with Africa from 2.8 percent to 4.3 percent.
(Figure 2 China’s Top 10 Cargo Trade Partners in 2010)
-- China’s international competitiveness in services trade has been enhanced. With its WTO entry, China’s trade in services entered a new stage of development. With its scale rapidly enlarged and its pattern gradually optimized, China’s trade in services now ranks among the top in the world. China’s trade in tourism, transport and other fields has maintained a steady growth momentum. China’s cross-border services in construction, communications, insurance, finance, computers and information, royalties and license fees, consultation and related fields, as well as service outsourcing, have been growing rapidly. From 2001 to 2010 China’s total services trade value (excluding government services) witnessed a more-than-five-fold growth from 71.9 billion U.S. dollars to 362.4 billion U.S. dollars. China’s proportion in world services trade exports rose from 2.4 percent to 4.6 percent, worth 170.2 billion U.S. dollars in 2010, and jumped from the 12th place in the world to the 4th; China’s proportion in world services trade imports increased from 2.6 percent to 5.5 percent, worth 192.2 billion U.S. dollars in 2010, moving from the 10th place in the world to the 3rd.
(Figure 3 China’s Services Trade Imports and Exports 1982-2010)
(Figure 4 The Growth of China’s Total Import and Export Volume in Major Service Sectors 2005-2010)
China’s foreign trade development has greatly pushed forward the country’s modernization drive. China has grown into an open economy. Participation in the international division of labor and competition, introduction of advanced technology, equipment and management methods, and utilization of foreign direct investment have greatly promoted China’s technological progress and industrial upgrading, and also improved the management and market competitiveness of its enterprises. The rapid growth of processing trade has brought into play China’s comparative advantage of an abundant labor force, and accelerated the country’s industrialization and urbanization. Foreign trade has directly contributed to the employment of over 80 million Chinese people, more than 60 percent of whom are from rural areas, and employees’ income and living standards have been remarkably improved. Foreign trade, domestic investment and domestic consumption have become the three major engines propelling China’s economic growth.
The historic progress in China’s foreign trade has been closely connected with the changes in the international and domestic situations. Starting in the 1980s, peace and development became the theme of the times. With the acceleration of economic globalization, the flow and allocation of capital, technology, products, markets, resources, labor force and similar elements became more dynamic around the world. Scientific and technological progress, led by information and communications technology, has greatly improved production efficiency; international industrial transfer has continuously deepened and developed. Economic globalization, scientific and technological progress, international industrial transfer and strengthened cooperation between countries have provided historic opportunities for China’s integration into the world economy. The Chinese government, conforming to the trend of the times and taking economic construction as the central task, has implemented the reform and opening up policy, developed economic and technological cooperation with other countries, vigorously and rationally utilized foreign investment, brought its comparative advantage into full play, promoted the deepening of the division of labor in the international industrial chain, and provided favorable conditions for its own foreign trade development. During this process foreign enterprises, and multinational corporations in particular, have obtained abundant opportunities to invest in China, added value to their capital, technology, management experience, marketing channels and other elements, and shared the fruits of China’s rapid economic growth. China’s foreign trade development benefits greatly from its reform and opening up, from economic globalization, and from taking the path of cooperation and mutual benefit. China cannot develop itself in isolation from the rest of the world, and global prosperity and stability cannot be maintained without China’s participation.
China remains a developing country. Compared with other world trade powers, China’s export industry remains at the low end of the global industrial chain. China’s resource and energy inputs and environmental cost are relatively high, while the international competitiveness of enterprises and the risk-resistance of some industries are relatively weak. China’s transformation from a large trading country to a strong trading power will be a comparatively long-term process requiring arduous efforts.
II. Reform of and Improvements to China’s Foreign Trade System
Before China adopted the reform and opening up policy in 1978, its foreign trade was governed by mandatory planning, and the state absorbed both the profits and the losses of enterprises. Since the reform and opening up policy was initiated, China’s foreign trade system has completed the transformation from mandatory planning to giving full play to the fundamental role of the market - from state monopoly to full openness, and from indiscriminate egalitarianism to giving enterprises discretionary management power and making them responsible for their own profits and losses. During the negotiations over the restoration of its GATT (General Agreement on Tariffs and Trade) membership and entry into the WTO, and after it became a WTO member, China gradually adopted international trade practices, and established a unified, open foreign trade system compatible with multilateral trade rules.
During the initial period of reform and opening up, China’s foreign trade system reform focused on the transformation of its unitary planning, transfer of management and operation power in foreign trade to lower levels, implementation of the system of allowing enterprises to retain a certain portion of foreign exchange earnings, and establishment of a foreign exchange coordination market. China absorbed foreign direct investment to introduce foreign-invested enterprises as new business entities in its foreign trade sector, breaking the monopoly of state-owned foreign trade enterprises. After that, China introduced a responsibility system in doing foreign trade, gradually replacing mandatory planning with guided planning. The state also set up an export tax rebates system in line with the general practice of international trade. In October 1992, China clearly put forward the goal of reform toward a socialist market economy. A comprehensive reform of the systems of finance, taxation, banking, foreign trade and foreign exchange was carried out accordingly. In January 1994, the Chinese government discontinued all export subsidies, making all import and export enterprises fully responsible for their own profits and losses. The official and market-regulated exchange rates of China’s currency, the Renminbi (RMB), coexisted in a unitary and managed floating exchange rate system based on market demand and supply. Foreign trade enterprises were incorporated, and pilot programs for the import and export agency system were carried out. In the same year, the Foreign Trade Law of the People’s Republic of China was promulgated, establishing principles such as safeguarding a foreign trade order of equity and freedom, and a basic legal system for foreign trade. In December 1996, China realized current account convertibility for the RMB. Meanwhile, China voluntarily made significant tariff cuts, and reduced non-tariff measures such as quotas and licenses. These reform measures helped China initially establish a foreign trade administration and regulation system based on the market economy, giving full play to such economic levers as the exchange rate, taxation, tariffs and finance.
On December 11, 2001, China became the 143rd member country of the World Trade Organization after 16 years of negotiations. To honor its commitments upon entry into the WTO, China expanded its opening-up in the fields of industry, agriculture and the services trade, and accelerated trade and investment facilitation and liberalization. Meanwhile, the state deepened the reform of its foreign trade system, improved its foreign trade legal system, reduced trade barriers and administrative intervention, rationalized government responsibilities in foreign trade administration, made government behavior more open, more impartial and more transparent, and promoted the development of an open economy to a new stage.
- Expediting improvements to the legal system for foreign economic relations and trade. After its entry into the WTO, China reviewed over 2,300 laws and regulations, and departmental rules. Those that did not accord with WTO rules and China’s commitments upon entry into the WTO were abolished or revised. Administrative licensing procedures are reduced and regulated in the revised laws and regulations, and a legal system of trade promotion and remedy has been established and improved. In accordance with the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) administered by the WTO, China revised its laws and regulations and judicial interpretations related to intellectual property rights, and thereby constructed a complete legal system that conforms to China’s actual conditions and international practices.
- Taking further measures to lower tariffs and reduce non-tariff measures. During the transitional period following China’s entry into the WTO, the general level of China’s import tariffs was lowered from 15.3 percent in 2001 to 9.9 percent in 2005. By January 2005, the majority of China’s tariff reduction commitments had been fulfilled; China had removed non-tariff barriers, including quota, licensing and designated bidding, measures concerning 424 tariff lines, and only retained licensing administration over imports that are controlled for the sake of public safety and the environment in line with international conventions and WTO rules. By 2010 China’s overall tariff level had dropped to 9.8 percent - 15.2 percent in the case of agricultural products and 8.9 percent in the case of industrial products. Since 2005, China has completely maintained its bound tariff rate.
- Fully liberalizing access to foreign trade operations. According to the Foreign Trade Law of the People’s Republic of China that was revised in 2004, starting from July 2004, foreign trade dealers only need to register with the authority responsible, and no longer have to ask for approval from the Chinese government. This change has facilitated the diversification of China’s foreign trade entities, consisting of state-owned, foreign-invested and private enterprises. The imports and exports of state-owned and foreign-invested enterprises have maintained sustained growth, while private enterprises have seen their foreign trade develop rapidly and their share of China’s import and export market keeps expanding, becoming key players in China’s foreign trade. In 2010 the import and export volume of state-owned enterprises, foreign-invested enterprises and private enterprises in the country’s total was 20.9 percent, 53.8 percent and 25.3 percent, respectively.
- Further opening the services market. China has earnestly fulfilled its commitments upon entry into the WTO by offering market access to international service providers in a wide range of fields, including finance, telecommunications, construction, distribution, logistics, tourism and education. China has opened up 100 of the WTO’s 160 sub-sectors of services trade, approaching the average level of developed countries. In 2010 a total of 13,905 foreign-invested enterprises in the services sector had been set up in China, with 48.7 billion U.S. dollars of foreign investment actually used, accounting for 50.7 percent of the total number of newly founded foreign-invested enterprises in China’s non-financial sectors and 46.1 percent of the total amount of foreign investment actually utilized that year, respectively.
- Creating a level playing field. China has striven to provide a flexible, fair and stable market for domestic and international enterprises by establishing and improving the legal system and the law-enforcement and supervisory mechanism for fair trade, and curbing and cracking down on unfair practices in foreign trade operations, such as infringement of rights, dumping, smuggling and disruption of the market order. Following domestic laws and international trade rules, China has strengthened its efforts in monitoring and early warning, and adopted measures such as trade remedy and antitrust investigation to correct the unfair practices of its trade partners, and to safeguard the legitimate rights and interests of domestic industries and enterprises. Facing the international financial crisis, China worked hand in hand with the international community to firmly oppose all forms of trade protectionism, strictly adhered to relevant WTO rules, and treated domestic and foreign products equally while carrying out the stimulus plan, promoting fair competition between domestic and foreign enterprises.
By 2010, all of China’s commitments made upon entry into the WTO had been fulfilled. China’s earnest efforts are commended by the majority of the WTO members. The Chinese government received three trade policy reviews from the WTO in 2006, 2008 and 2010, respectively. The WTO’s basic principles, such as non-discrimination, transparency and fair competition, have been included in China’s laws, regulations and related systems. A deeper understanding of concepts such as market orientation, opening up, fair competition, the rule of law and intellectual property rights has been achieved among the Chinese people, promoting the further opening up of the national economy and more improvements to the market economy.
III. The Development of China’s Foreign Trade Contributes to the World Economy
The development of China’s foreign trade has accelerated the modernization of the national economy, enhanced the country’s comprehensive strength, and improved the standard of living of more than 1.3 billion Chinese people. It has also helped integrate the Chinese economy into the world economy, and make economic globalization conducive to the common prosperity of all countries and regions.
China’s reform and opening up and its active participation in economic globalization have made the country one of the world’s fastest-growing economies. Over the past more than 10 years, China, along with other emerging economies, has become an increasingly important force propelling world economic growth. According to the World Bank, from 2001 to 2010, China’s GDP increased by 4.6 trillion U.S. dollars, representing 14.7 percent of the increase in the world aggregate, and the share of China’s GDP in the world rose to 9.3 percent over the same period. Data from the WTO shows that from 2000 to 2009, the average annual growth rates of China’s exports and imports were 17 percent and 15 percent, respectively, much higher than the 3 percent annual growth rate of world trade.
During the international financial crisis, China’s foreign trade was among the first to stabilize, promoting the recovery of the world economy. After the crisis broke out in 2008, the Chinese government adopted in time a series of policies and measures to stimulate the economy, expand domestic demand and stabilize imports and exports. In 2009, global goods imports decreased by 12.8 percent, while China’s goods imports increased by 2.9 percent, making it the only country to maintain growth among the world’s largest economies. The China factor sustained the exports of many countries affected by the financial crisis, stimulated demand in the global commodities market, and boosted confidence, giving a new momentum to the world’s economic recovery and growth. During its third review of China’s trade policy, the WTO pointed out that China had played a constructive role in stimulating global demand during the international financial crisis, and had thus made significant contributions to the stability of the world economy.
The development of China’s foreign trade has helped enhance the national welfare of China and its trading partners. As it accelerated its integration into the global division of labor, China has gradually developed into a major producer and exporter of industrial products relying on its labor cost advantage, relatively strong industrial supporting, processing and manufacturing capabilities, and increasing labor productivity. It provides inexpensive and quality commodities to meet the diverse demands of the international market. China’s advantage due to economies of scale and low processing costs in the global manufacturing industry partially offsets the rising prices of upstream factors of production, playing an important role in curbing global inflation and raising the real purchasing power of consumers of its trading partners.
The development of China’s foreign trade has provided a broad market for its trading partners. Since 2001, China’s import of goods has increased by approximately five times, representing an annual growth rate of around 20 percent. China’s rapidly expanding imports have become a major driving force for global economic growth, creating an enormous market for its trading partners to augment their exports. At present, China is the largest export market for Japan, Republic of Korea, Australia, ASEAN, Brazil and South Africa, the second largest for the EU, and the third largest for the US and India. As China’s industrialization and urbanization are moving forward rapidly, and its domestic demand keeps growing, the country’s continuously expanding and opening market will offer increasing opportunities to its trading partners.
Meanwhile, China is one of the developing countries granting the biggest market access to the least-developed countries (LDCs). By July 2010, China had granted zero-tariff treatment to over 4,700 commodities from 36 LDCs which had established diplomatic ties with China. The zero-tariff commodities accounted for 60 percent of the total imports from those countries. China has promised to continue expanding its preferential treatment to the LDCs having diplomatic ties with China until the zero-tariff commodities reach 97 percent of the total imports from those countries. The zero-tariff measure has helped increase the exports of LDCs to China. Since 2008, China has been the largest export market for LDCs. In 2010, China’s import of goods from LDCs accounted for approximately one quarter of those countries’ total exports, an increase of 58 percent over the previous year.
China has participated in and helped push forward the reform of the global economic governance mechanism. The Chinese government actively advocates a “balanced, inclusive and mutually beneficial” multilateral trade system, and strives to establish a fair and equitable new international economic and trade order. As a large developing country with a rapidly growing economy, China plays an active role in the G20 and BRICs summits, Doha Round talks, and other international dialogue and cooperation mechanisms. China does its best to assume international responsibilities that suit its development level and strength. China continuously consolidates its cooperation with emerging countries in the fields of economy, finance, trade and investment, and works toward an equitable and rational international economic order that benefits all countries.
In addition, China strictly fulfills its international obligations regarding export controls. It consistently advocates the complete prohibition and thorough dismantling of all weapons of mass destruction, and firmly opposes the proliferation of such weapons and their carriers. China’s relevant laws clearly prescribe that the state may take necessary measures to restrict the import and export of goods and technologies relating to fissionable materials or the materials from which they are derived, as well as the import and export relating to arms, ammunition or other military supplies. China earnestly abides by international conventions regarding export controls, and fulfills its non-proliferation commitments, actively contributing to world peace and regional stability. Over the past few years, the Chinese government has adopted a wide range of internationally recognized norms and practices, and formed a complete export control system covering nuclear, biological, chemical, missile and other sensitive items and technologies, providing legal grounds and institutional guarantees for the better realization of the goal of non-proliferation.
IV. Promoting Basically Balanced Growth of Foreign Trade
The primary factors determining whether a country’s foreign trade is in surplus or deficit are its economic structure and the international competitiveness of its products or services. China does not pursue a foreign trade surplus intentionally. There has been a certain amount of deficit in China’s services trade for a long time, and the trade in goods was in deficit for most of the years prior to 1990. After 1990, with large-scale industrial outsourcing and relocation, China enhanced its competitiveness in manufactured goods. Growth in exports overtook that of imports, turning the overall deficit to a surplus in trade in goods. In 2005 China’s surplus in trade in goods reached 100 billion U.S. dollars for the first time, which was followed by vigorous growth for four consecutive years. In 2008 the surplus hit 298.1 billion U.S. dollars, the highest point in history, before slowing down gradually. The surpluses in trade in goods for 2009 and 2010 were 195.7 billion U.S. dollars and 181.6 billion U.S. dollars, down 34.4 percent and 7.2 percent year-on-year respectively. In 2010 China’s surplus in trade in goods accounted for 6.1 percent of the total import and export volume and 3.1 percent of the GDP. Of the nine nations with the largest trade balances (favorable or unfavorable), China was not high up in the league table in terms of the two ratios.
(Table 2 Comparison of the Nine Countries with the Largest Balances in Trade in Goods in 2010)
The fact that China is enjoying a surplus in trade in goods reflects its position in the international division of labor at the current stage. China has now relatively big advantages in the processing and assembling of industrial products, and is the largest producer and exporter of industrial products. The United States, European Union and some other countries and regions are the major end consumer markets. With the transfer of large numbers of labor-intensive processing and assembling sectors to China from Japan, Republic of Korea, Singapore, Taiwan, Hong Kong SAR and other nations and regions, their surpluses with the United States and Europe were also transferred to China. The result is that while China is currently enjoying a surplus in trade in goods primarily with the United States and Europe, it also has long-term trade deficits with Japan, Republic of Korea, ASEAN and other major intermediate producers. In 2010 China’s surpluses in trade in goods with the United States and the European Union were 181.3 billion U.S. dollars and 142.8 billion U.S. dollars, respectively, and its total deficit in trade in goods with Japan, Republic of Korea and ASEAN was 141.6 billion U.S. dollars. The deficit in trade in goods between China’s mainland and Taiwan reached 86 billion U.S. dollars. To produce and export industrial products, China needs to import large quantities of primary goods, thus creating a deficit in trade in goods with certain exporters of primary goods. It is the country’s different level and status of participation in the international division of labor in manufacturing and the services industry that leads to China’s big surplus in trade in goods but a long-term deficit in services trade.
(Figure 5 China’s Trade Balances with Major Trading Partners 2006-2010)
China’s surplus in trade in goods mainly comes from foreign-invested enterprises and processing trade. With the spread of economic globalization as well as the refinement of the division of labor and the development of economies of scale, an increasing amount of international trade - intra-industry trade or processing trade based on value-chain specialization - is predominated by multinationals. Since the adoption of the reform and opening up policy in 1978, China has experienced rapid growth in attraction of foreign direct investment. For a fairly long period of time the import and export business of foreign-invested enterprises and processing trade mainly operated by foreign-invested enterprises accounted for about 50 percent of China’s trade volume in goods, and were also the major source of the country’s surplus in trade in goods. In 2009 and 2010 the surplus in trade in goods created by foreign-invested enterprises reached 127 billion U.S. dollars and 124.3 billion U.S. dollars, respectively, accounting for 64.8 percent and 68.4percent of the total surplus of China’s trade in goods in the two years. Processing trade surplus of foreign-invested enterprises in the same period hit 264.6 billion U.S. dollars and 322.9 billion U.S. dollars, significantly higher than the country’s total trade surplus for 2009 and 2010. While foreign-invested enterprises and processing trade enjoyed a big favorable trade balance, the import and export of China’s state-owned enterprises, general trade and other forms of trade were in deficit.
The limits on certain high-tech trade set by developed countries also affect the trade balance between China and some of its trading partners. As China is currently accelerating its pace of industrialization, it needs to import advanced equipment and technologies from developed countries. Unfortunately, some developed countries, sticking to their old way of thinking, impose various restrictions on the export of high-end equipment and advanced technologies to China, resulting in slow growth in the export of these sectors. To a certain extent such limits hinder China’s imports from these countries, posing an unfavorable impact on bilateral trade balance.
As China turned its trade deficit into a surplus, the country improved its international balance of payments and enhanced its resistance to external risks. However, the sharp increase in surplus also created trouble for the Chinese economy. The large volume of RMB input in export settlement complicates macroeconomic control, and the rapid expansion of China’s surplus in trade in goods also results in more trade frictions between China and its trading partners, as well as persistent pressure on the RMB to appreciate.
The Chinese government attaches great importance to the imbalance in the development of foreign trade, and has adopted a series of policies and measures to curb overheated surplus growth. First, it proactively adjusts the economic structure, strives to expand domestic demand, and especially increases investment in projects to improve the people’s livelihood and stimulate household consumption. Second, it enacts a series of policies to expand imports, simplify the procedures of import administration and import payment, lower the temporary tax rates on certain imported commodities, improve the import promotion system and facilitate import businesses. Third, it has adjusted the export tax rebates policy, lowered or cancelled export tax rebates for some products that consume too much energy and cause serious pollution and certain resource-based products. Fourth, it has amended the prohibited and restricted categories of processing trade, expanding the scope of the prohibited category and promoting this sector’s restructuring and upgrading. Fifth, it has changed the situation of the pegged exchange rate of the yuan against the US dollar since the Asian financial crisis, and adopted the administered floating exchange rate system based on market demand, and adjusted it with reference to a basket of currencies from July 21, 2005. During the period from the exchange rate reform in July 2005 to the end of August 2011, the nominal exchange rate of the yuan against the dollar appreciated by about 30 percent.
China’s measures to promote balanced foreign trade growth have achieved obvious effects. The nation’s surplus in trade in goods has been on a steady decline since 2009, and the proportion of surplus in the total import and export trade volume and the GDP also started to drop in 2008, moving toward a balance in foreign trade. China’s efforts not only serve the development of its own economy, but are also practical moves to promote the structural adjustment and the rebalancing of the global economy.
V. Constructing All-round Economic and Trade Partnerships with Mutually Beneficial Cooperation
China stresses all-round development in its foreign trade. China adheres to developing economic and trade partnerships based on practical cooperation and mutual benefit with all countries, no matter they are big or small, rich or poor.
China enjoys steady growth in its trade with developed countries, and realizes complementary advantages as well as reciprocity and mutual benefit. China’ s trade with the European Union has been developing steadily in recent years. The European Union mainly exports manufactured products to China, including advanced mechanical and electronic products, transport vehicles, complete plants, core parts and components, precision components and other high-tech products which are highly competitive in the Chinese market. Foreign trade between China and the United States has a solid development base. China exports a large variety of consumer goods to meet the demands of American consumers, while satisfying its own need for development by constantly expanding imports of electronic, aerospace, biological, medical, agricultural and services trade items from the United States. China and Japan are geographically proximate to each other and this is an advantage in bilateral trade. Sino-Japanese trade promotes continuous cooperation and progress in industry while spurring the development of regional economic comparative advantages and cooperation in East Asia. China’ s trade and investment cooperation with developed countries such as Canada, Australia, Switzerland and New Zealand also maintain a good momentum of development.
China’s trade with emerging economies and developing countries is experiencing robust growth, with huge development potential. With the comprehensive implementation of the China-ASEAN Free Trade Agreement in 2010, tariffs have been cancelled for 90% of the commodities traded between them, vigorously promoting the rapid growth of bilateral trade between China and ASEAN. The free entry of specialties and competitive products into each other’ s market suits the various needs of the two sides. Foreign trade between China and Republic of Korea keeps growing constantly and steadily. Bilateral investment and economic cooperation also present broad prospects. China’ s trade with the other BRIC countries has been enjoying rapid growth in recent years, which promotes the development of the member countries’ respective advantageous industries and shows the broad development prospects of emerging markets. In recent years China has seen relatively fast growth in its trade with other developing countries, further development of trade with its historical trading partners in the Arab world, broadening areas of economic and trade cooperation with Latin American countries, and bilateral trade with African countries, which gives full play to the complementary advantages of the two sides’ resources and economic structures.
China attaches great importance to the institutional set-up of bilateral and regional economic and trade cooperation. Currently over 150 countries and regions have signed agreements on bilateral trade or economic cooperation with China, which has established and maintains high-level economic dialogue mechanisms with the United States, Europe, Japan, Great Britain, Russia and other major economies. China proactively participates in the Asia-Pacific Economic Cooperation, ASEAN (10+3) meetings, which also include Japan and Republic of Korea, the East Asia Summit, Forum on China-Africa Cooperation, Greater Mekong Subregion Economic Cooperation Committee, Central Asia Regional Economic Cooperation Committee, Greater Tumen Initiative, and other regional and subregional economic cooperation mechanisms. China adheres to the principle of “good neighborly friendship and partnership” in establishing and developing various forms of border economic and trade cooperation.
China takes proactive initiatives to participate in and promote regional economic integration. By the end of 2010 China had held 15 rounds of negotiations on free trade or closer economic partnership arrangements with 28 countries and regions on five continents, and signed and implemented 10 free trade agreements or closer economic partnership arrangements. Currently five free trade agreement talks are under way. China advocates the establishment of an East Asia free trade zone. In 2010 the total volume of bilateral trade in goods between China and its trade partners in its ten free trade agreements or closer economic partnership arrangements (ASEAN, Pakistan, Chile, Singapore, New Zealand, Peru, Costa Rica, Hong Kong SAR, Macau SAR and Taiwan) reached US$782.6 billion, accounting for over a quarter of the country’ s total import and export volume.
China has actively participated in and promoted the World Trade Organization’s Doha Round talks, and strives to safeguard the authority of the multilateral trading system. China stresses that the negotiations should be conducive to the implementation of the principle of fairness and justice of the multilateral trading system, and reflect the goal of the Doha Round as a development round. China takes part in the Doha Round’ s talks on agriculture, non-agricultural goods, services, rules and other issues, submitting over 40 negotiating texts on its own and over 100 texts with other members. To promote the Doha Round talks, China repeatedly expressed its wish to make constructive contributions suited to its level of development.
In settling disputes with its trading partners, China gives consideration to the interests of all parties, and seeks common ground while shelving differences. Since China’ s entry into the WTO and with the continuous growth of its imports and exports, the number of trade disputes and frictions between China and its trading partners has increased. These cases mainly involved textile products, shoes, tires, car parts and components, steel and chemical products, and mainly covered the issues of IPR, trade balance, fair trade, food safety, environmental protection and other areas of concern. China has always preferred dialogue to confrontation, and cooperation to pressure, and chooses to settle disputes between trading partners through consultation and negotiation. China adheres to giving consideration to and balancing the interests of all parties and settling disputes through dialogue, consultation and negotiation by utilizing bilateral and multilateral channels and following the rules and under the framework of the WTO. In recent years China has adopted various measures to further open up its market, protect IPR, promote trade balance, reform the exchange rate formation mechanism of the RMB and standardize the operational order of imports and exports, among other areas, fully taking into account the concerns of its trading partners. When consultations fail to settle a dispute, China appropriately handles the issue with its trading partners through the WTO dispute settlement mechanism, in order to maintain the stability of the multilateral trading system.
VI. Realizing Sustainable Development of Foreign Trade
At present, unbalanced, inconsistent and unsustainable development factors persist in China’s foreign trade. They are manifested in the following ways: Export growth mainly relies on the input and consumption of resources, energy, land, manpower, environment, etc., while the input of science and technology, management, innovation and other factors are insufficient, resulting in an ever more conspicuous contradiction between foreign trade development and the constraint on resource supply and environmental carrying capacity; enterprises are not competitive enough in R&D, design, marketing and services, and products with their own intellectual property rights and with their own brands account for only a small proportion of the exports; the contribution of foreign trade to China’s primary, secondary and tertiary industries is unbalanced; central and western China falls behind other regions in the scale and level of foreign trade; and foreign trade needs improvement in terms of the quality of its products and profits. The Chinese government is clearly aware of these problems and has taken active measures to accelerate the change of the development pattern of foreign trade, and achieve sustainable development.
Fostering comprehensive competitive edge of foreign trade development. In recent years, with the rising labor cost and spiraling prices of resources, energy and other production factors, the low-cost advantage of export-oriented industries has been greatly weakened. In the face of these new conditions, the Chinese government has set the strategic goal of turning the mode of foreign trade from extensive to intensive development. During the 11th Five-year Plan period (2006-2010) the Chinese government adjusted import and export taxation policies and implemented the strategies of fostering foreign trade by science and technology, market diversification and putting quality first. It launched pilot projects for transforming and upgrading processing trade, improved financial and insurance services for import and export enterprises, and encouraged enterprises to accelerate technical progress and optimize product structure. With these measures, China enhanced the comprehensive competitiveness of its foreign trade. Most import and export enterprises withstood challenges of the international financial crisis, and China’s foreign trade recovered soon after the crisis. During the 12th Five-year Plan period (2011-2015) China will make efforts to maintain its current competitive edge in exports, foster new advantages centering on technology, branding, quality and services at a faster pace, promote industrial transformation and upgrading, extend the value-added chain of processing trade, and the competitiveness and added value of enterprises and products. It will vigorously develop trade in services to promote balanced development between it and trade in goods. It will open the services trade wider to the outside world, promote service outsourcing, and try to expand the export of new services. It will improve and implement state policies in the fields of finance and taxation, banking and insurance, foreign currency management, customs clearance, inspection and quarantine, and logistics and transportation, in a bid to speed up trade and investment facilitation for the stable and healthy development of foreign trade.
Promoting energy conservation and emission reduction in foreign trade development. As early as in 1994, the Chinese government published China’s Agenda 21 - White Paper on China’s Population, Environment and Development in the 21st Century, setting goals on energy conservation and emission reduction for national economic and social development. In both the 11th and 12th five-year plans, the government made the reduction of energy consumption and CO2 emission intensity two obligatory targets. Since 2004 the Chinese government has lowered and even abolished export tax rebates for some energy-intensive, heavily-polluting and resource-based products, banned or limited the processing trade in some such products, and encouraged import and export enterprises to keep up with the world’s advanced environmental standards. As a result, in recent years such products have seen their proportion in exports decreasing, while the export of new-energy, energy-conserving and environmental-friendly products has grown by a big margin. Most import and export enterprises above a designated scale have obtained ISO14000 certification or other environmental standard certifications. China will try to readjust its economic and industrial structure, accelerate the application of advanced energy-conserving and environmental technologies, and promote more balanced development between foreign trade and resource conservation and environmental protection.
Strengthening trade-related intellectual property protection. Strengthening intellectual property protection is necessary for China to comply with its international obligations. It is also an essential move if China seeks to transform its economic growth mode and build an innovative country. The Chinese government has made tremendous efforts in this regard, and made significant progress in legislation, law enforcement, publicity, training and enhancing the social awareness of IPR protection. In 2008 China promulgated the Outline of the National Intellectual Property Strategy, making IPR protection a national strategy. From 2006 to 2011, China published the Action Plan on Intellectual Property Protection for six consecutive years, putting in place over 1,000 concrete measures covering the fields of legislation, law enforcement, education and training, cultural communication and exchanges with the outside world. In 2010 China filed 12,295 applications for international patents in accordance with the Patent Cooperation Treaty, registering a growth rate of 55.6percent over 2009, which was the fastest increase in the world. China also rose from the fifth to the fourth place in terms of patent application in the world. At present, it is a common challenge facing all countries to strengthen foreign trade-related intellectual property protection, and a world trend to strengthen dialogue and cooperation in this area. The Chinese government will, under related international conventions and within its own legislative framework, strengthen exchanges and cooperation with other countries and regions for the healthy development of intellectual property.
Enhancing the quality and safety requirements of export products. Generally speaking, the quality of China’s export products is constantly improving, and they are becoming more and more popular among consumers around the world. In 2009 and 2010, 11.032 million batches and 13.054 million batches, respectively, of China’s export products were examined by inspection and quarantine authorities, with only 0.15 percent and 0.14 percent being substandard; the export values totaled 429.27 billion U.S. dollars and 552.18 billion U.S. dollars, respectively, with 0.12 percent and 0.13 percent, respectively, found substandard. In 2010 China exported 127,000 batches of food to the United States, with 99.53 percent up to standard, and 138,000 batches to the European Union, with 99.78 percent up to standard. According to a report from the Ministry of Health, Labor and Welfare of Japan on imported food, in 2010 tests on 20 percent of food imported from China found that 99.74 percent was up to standard, higher than that of food imported from the United States and European Union in the same period. However, a small number of Chinese enterprises still ignore product quality and safety to bring down cost, while some foreign importers turn a blind eye to quality and credibility, and try every means to bring down the price or even authorize Chinese producers to use substandard materials. All this harms the image of “made-in-China” products. To tackle these problems, in recent years, the Chinese government has improved laws and regulations on product quality and safety, strengthened supervision at every link, and strictly investigated and punished the few enterprises that had violated laws and regulations and caused quality problems. In March 2011, China launched the Year of Improving the Quality of Foreign Trade Products, through which it aimed to improve the mechanism of approval, certification and supervision of the quality and safety of foreign trade products, thereby enhancing the quality and safety of export products.
Raising import and export enterprises’ sense of social responsibility. As China opens wider to the outside world, more and more enterprises have come to realize that along with development and expansion they should shoulder their corresponding social responsibilities. This can not only help promote social harmony and progress, but also enhance enterprises’ competitiveness and capacity for sustainable development. Advocating the Scientific Outlook on Development and the idea of a harmonious society, Chinese governments at all levels encourage enterprises to enhance their sense of social responsibility, respect labor rights, safeguard consumers’ rights and protect the ecological environment. In the meantime, the Chinese government encourages enterprises to accept relevant social responsibilities in the field of foreign trade and try to get necessary certifications. Since the new Law on Labor Contracts and its implementation regulations took effect in 2008, import and export enterprises have established the system of “five insurances” (old-age insurance, medical insurance, unemployment insurance, work injury insurance and maternity insurance), as well as a housing fund. The Chinese government regards it as an important task in the course of promoting foreign trade transformation and upgrading to enhance enterprises’ sense of social responsibility. It is therefore determined to strengthen publicity and training in this regard, establish and improve a management system marked by integrity for import and export enterprises, improve public supervision on enterprises to make sure they fulfill their social responsibilities, carry out international cooperation in fostering and managing enterprises’ sense of social responsibility, and call on import and export enterprises to constantly enhance their performance in this regard.
Promoting international cooperation in emerging industries of strategic importance. To develop new strategic industries is of great significance for China to realize foreign trade transformation and upgrading, and sustainable development. After over 30 years of reform and opening up, China has seen its overall strength grow remarkably, its science and technology advancing and its industrial system improving markedly, laying a solid foundation for the development of emerging industries of strategic importance. However, compared to developed countries, these industries in China are still in their infancy. In the wake of the 2008 international financial crisis, all the world’s major economies have been developing emerging industries at a faster pace, and China has taken the development of these industries as an important task in the course of its industrial rejuvenation. To promote the priority areas, while giving play to the basic role of the market in allocating resources, the Chinese government has strengthened its policy guidance, regulated market order, improved its investment environment and encouraged enterprises to enhance their technological innovation capabilities. This basic policy of supporting emerging industries of strategic importance conforms to international trade rules. China is willing to strengthen communication with other countries in scientific research, technological development and capacity building, and work with them to create a new situation for international cooperation and development in emerging industries.
At present, the underlying impact of the international financial crisis, the protracted, arduous and complicated nature of the world economic recovery is manifesting itself, and the global economic structure and trade layout face in-depth readjustment. China will make new adjustments to its foreign trade, in an effort to turn foreign trade from scale expansion to quality and profit improvement, and from mainly relying on its low-cost advantage to enhancing its comprehensive competitive edge, thereby turning China from a big trading country to a strong trading power.
China’s foreign trade is still hampered by many uncertainties and is bound to meet new difficulties and challenges. During the 12th Five-year Plan period China will open itself wider to the outside world as a driver for further reform, development and innovation, make full use of its advantages, strengthen international cooperation in all respects, and integrate itself into the world economy on a wider scale and at a higher level. China is willing to work with its trading partners to cope with the various challenges facing the world economy and trade, and promote its foreign trade to realize a more balanced, coordinated and sustainable development, and share prosperity and mutually-beneficial results with its trading partners.