Development in China's Foreign Trade: 2003–2012

• DOI: http://doi.org/10.1111/j.1749-124X.2013.12046.x
• Author: Pingyao Lai,Qingru Li
• Date: 01 November 2013
• Published date: 01 November 2013

58 China & World Economy / 58–78, Vol. 21, No. 6, 2013

©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Development in China’s Foreign Trade: 2003–2012

Pingyao Lai, Qingru Li*

Abstract

China’s foreign trade has entered a new stage, marked by some profound changes since

2003. After 5 years’ consecutive high growth, China’s foreign trade experienced a significant

slowdown in growth following the onset of the global financial crisis in 2008. The purpose

of this article is to present a review of the development in China’s foreign trade over the past

10 years, and to explore important changes that have taken place during this period of time.

A major finding of the present paper is that the traditional forces driving the high export

growth in China, that is, low-cost labor, low-cost resources and low-cost money, have been

disappearing. The policy implication is that over the next 10–15 years, the most important

conditions for sustaining high export growth will be promoting the development and export

of private enterprises in traditional heavy industries and high-technology industries, and

relying on technological progress and high productivity to propel export expansion.

Key words: export environment, export structure, flying geese pattern, foreign trade

JEL codes: F14, F16, O53

I. Introduction

In the past decade, China’s foreign trade has entered a new stage, a fundamental change

being that the export structure has shifted from labor-intensive goods dominating to capital-

intensive goods dominating. During this period, total export value has increased, from

US$325.60bn in 2002 to US$2048.95bn in 2012, and total import value has increased, from

US$295.17bn in 2002 to US$1817.83bn in 2012 (WTO, 2012a,b; General Administration of

Customs, 2013). The share of manufactured goods in total exports has also increased, from

*Pingyao Lai, Professor, School of International Trade and Economics, University of International

Business and Economics, Beijing, China. Email: pi_lai@hotmail.com; Qingru Li, PhD student,

School of International Trade and Economics, University of International Business and Economics,

Beijing, China. Email: liqingruru@163.com.

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Development in China’s Foreign Trade: 2003–2012

©2013 Institute of World Economics and Politics, Chinese Academy of Social Sciences

89.86 percent in 2002 to 93.34 percent in 2011. Moreover, the share of capital-intensive

goods in China’s total manufactured exports has witnessed a significant increase.

Specifically, the share of steel, chemicals, and machinery and transport equipment in total

manufactured exports increased from 49.77 percent in 2002 to 60.55 percent in 2011 (WTO,

2012a,b). Meanwhile, there have been significant changes in the types of enterprises

participating in export activity, with private enterprises replacing previous township and

village enterprises to become a new force in the export market, along with the state-owned

enterprises and foreign-invested enterprises. The export share of private enterprises in

total exports increased 10.07 percent in 2002 to 37.58 percent in 2012 (NBS,1996–2012;

General Administration of Customs, 2013).

During 2003–2007, China’s foreign trade experienced the fastest growth of the 34 years

of the reform and opening-up period. During these 5 years the annual growth rates for

exports and imports were as high as 30.31 and 26.83 percent, respectively. In the meantime,

the trade surplus increased at an astonishing pace, from US$30.43bn in 2002 to US$ 264.34bn

in 2007 (WTO, 2012a,b; General Administration of Customs, 2013). As in the 1990s, cheap

labor, resources and money proved major driving forces of exports. Foreign-owned

enterprises still played an important role in both exporting and importing, with their trade

share remaining above 55 percent during the 5-year period. Hence, changes in China’s

foreign trade during this period were mainly structural ones, such as the continuous increase

of the share of capital-intensive manufactures in total exports. However, after the global

financial crisis hit in 2008, China’s trade expansion slowed considerably. Between 2008 and

2012, annual growth rates of exports and imports dropped to 12.15 and 15.05 percent,

respectively. While trade growth slowed down, labor costs increased sharply. Cheap labor,

resources and money, the fundamentals that have supported China’s persistent high export

growth, have been disappearing.

The purpose of this article is to present a review of the development of China’s foreign

trade over the past 10 years, and to explore important changes that have taken place during

this period of time. The rest of this paper is organized as follows. Section II provides an

examination of the growth of and structural changes in China’s foreign trade over the past

10 years. Section III investigates the changes in China’s domestic export environment.

Section IV discusses the future prospects for and policy options relating to China’s foreign

trade in the face of new domestic as well as international economic circumstances.

II. Growth and Structural Changes

After the Asian financial crisis of 1997, there was a significant slowdown in the growth of