The Great Opening up and the Roadmap for the Future: The Story of China's International Trade

• Author: Yan Du,Yi Lu
• DOI: http://doi.org/10.1111/cwe.12237
• Published date: 01 March 2018
• Date: 01 March 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 68–93, Vol. 26, No. 2, 2018

68

*Yan Du, Lecturer, Business School, Sichuan Agricultural University, China. Email: yandu_swufe@126.com;

Yi Lu (corresponding author), Professor, School of Economics and Management, Tsinghua University, China.

Email: luyi@sem.tsinghua.edu.cn. The authors thank the National Natural Science Foundation of China for

nancial support through research No. 71703130.

1In this paper, China refers to the Chinese mainland.

The Great Opening up and the Roadmap for the

Future: The Story of China’s International Trade

Yan Du, Yi Lu*

Abstract

The astonishing surge in China’s international trade is the result of comprehensive

economic reforms in the 1980s and 1990s. Trade was further bolstered by China’s

accession to the World Trade Organization (WTO) in 2001. We examine several aspects

of China’s international trade that might help to explain its surprisingly fast growth

and its ever-growing role in the global economy. A large number of studies have

analyzed how trade liberalization, the WTO accession in particular, has profoundly

changed the Chinese economy. We survey notable contributions to this literature that

analyze the effects of trade liberalization on Chinese rms, individuals and households.

Meanwhile, China’s exports have had various effects on importing countries and the

enormous growth of China’s exports is seen by some observers as posing a threat to

China’s trading partners. Therefore, we discuss the emerging literature on the effects of

China’s spectacular export growth on consumers, labor markets, innovation, media and

politics in foreign countries. Given the new domestic and external circumstances, the

Chinese Government is determined to push for the formation of a new trade structure

characterized by broad opening up to transform China into a strong trading powerhouse.

Key words: China, international trade, opening up, reform

JEL codes: F13, O19, P11, P33

I. Introduction

Over the past 40 years of reform and opening up, China’s economy has experienced

rapid growth.1 China’s role in world trade is perhaps the most prominent manifestation

of the country’s growth. In 1978, the total value of China’s imports and exports was

only US$20.6bn, equivalent to less than 1 percent of world trade. Since 2009, China has

been the world’s largest exporter, and in 2013 China rst overtook the USA to become

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

The Story of China’s International Trade 69

the largest trading nation of goods. Although the data released by the World Trade

Organization (WTO) in April 2017 revealed that the USA reclaimed the spot of the top

trading nation in 2016, China continues to maintain a clear lead in exports.

The surge of China’s international trade is the outcome of a series of international

trade system reforms that were made in the 1980s and 1990s, which were bolstered by

its accession to the WTO in 2001. Since China’s reform and opening up, its international

trade system has been gradually liberalized. Following continued modernization, China

has completed the transition from a mandatory planning to a market-based international

trade system. Its commitment to resuming its status as a GATT contracting party and

to joining the WTO has meant that China has adopted international trade practices and

established a unified, open international trade system that complies with multilateral

trade rules. After its accession to the WTO in 2001, China substantially reduced its

import tariffs to fulll its tariff reduction responsibility as a WTO member.

The nature of China’s international trade has changed fundamentally over the past

40 years. China has promoted international trade on all fronts and it has strengthened its

trade relations with most countries and regions. China’s trade partners have increased

from a small number of countries and regions in 1978 to 231 countries and regions in

2017. Meanwhile, China’s export structure has changed from mainly agriculture and

raw materials in the 1980s to machinery and electronics in the 2000s. Foreign-invested

enterprises and processing trade have played significant roles in the development of

China’s international trade.

China’s trade liberalization has had a profound impact on its economy. China’s

comparative advantage in terms of an abundant labor force has helped to accelerate

the country’s modernization, industrialization and urbanization. As China is opening

up to allow the entry of foreign products, the greater import competition has forced

Chinese rms to make changes in regards to their management, productivity, innovation

and market competitiveness (Brandt et al., 2012; Liu et al., 2015; Lu and Yu, 2015).

Furthermore, international trade has directly affected the welfare of Chinese individuals

and households by impacting their income and also through the changes in product

prices (Han et al., 2012; Han et al., 2016).

China’s exports have had various effects on importing countries and the

enormous growth of China’s exports is seen by some observers as posing a threat to

China’s trading partners. On the one hand, cheap Chinese products have helped to

raise the real purchasing power of the consumers of its trading partners (Khandelwal

et al., 2013; Amiti et al., 2017; Handley and Limão, 2017). On the other hand,

imports from China have been shown to have adverse effects on manufacturing

employmen t (Autor et a l., 2013; Acemoglu et al., 2016; Pierce and Schott, 2016)