CHINESE TRADE: WORLD ECONOMY, CONTAINER SHIPS AND THE WTO

CHINESE TRADE

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Shanghai port
The total value of China’s exports and imports in 2010 was $3 trillion, with about 13 percent of that trade between China and the U.S. China recently surpassed Germany as the world’s No. 2 trading nation. Total foreign trade in 2007 was $2.17 trillion, up from $1.4 trillion in 2005, $289 billion in 1995 and $21 billion in 1978. Trade has been growing at a rate of around 30 percent a year since 2001 (2006). The World Bank calculated that China contributed 21 percent to global trade growth in 2001.

As of 2009, Shanghai was the world’s busiest port by total cargo volume. It has experienced 20 percent growth through much of the 2000s. It aims to become a full-service, world-class shipping center by 2020 complete with “software” that it lack now such as ship financing, reinsurance of ships and arbitration. The centerpiece of the expansion will be the Yangshan Deepwater Port, which is connected to the mainland via a 32.5-kilometer bridge.

China has been accused of running a predatory trade policy based on keeping the value of the yuan artificially low to stimulate export-led growth.

While China is send Europe and North America a wide variety of products, Europe and North America are sending back only scrap metal and waste paper in return. The surplus would be even higher were it not that China imports so much oil, natural gas, raw materials, grains, and soy beans.

No country has come so far so fast in terms of trade. When, Japan was growing, it doubled its foreign trade in 20 years. China has managed to quintuple its foreign trade in the same amount of time. Between 1978 and 2006, China managed to increase trade 70 fold.

Websites and Resources

Good Websites and Sources on Foreign Trade: China Today (Chinese Government site) Trade, Export and Import Info chinatoday.com/trade ; IMF Report on Chinese Trade and the WTO pdf file ppl.nl/bibliographies ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china ; Office of the U.S. Trade Representative ustr.gov ; Foreign Companies: Foreign Investment in China, Rules, Regulations, Procedures escapeartist.com ; Foreign Direct Investments, What the Figures Don’t Tell Us dur.ac.uk/resources ; China Today (Chinese Government site) Investments Info and Links chinatoday.com ; 2008 Library of Congress Report on Sovereign Wealth Funds pdf file fas.org/sgp/crs ; Wikipedia article on China Investment Corporation Wikipedia ; New Bureau of Asia Report in Understanding China’s Sovereign Wealth Funds pdf file nbr.org/publications

Business and Economics: Business Directory for China business-china.com ; U.S. China Business Council uschina.org ; China Business Services Blog chinabusinessservices.com/blog ; Economic and Business News Related to China jlmpacificepoch.com ; Small and Mid Size Businesses in China english.sme.gov.cn ; Asian Development Bank adb.org/PRC ; World Bank China worldbank.org ; International Monetary Fund (IMF) on China imf.org/external/country/CHN ; China Economic Information Office cei.gov.cn ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china ; Statistics: China’s National Bureau of Statistics stats.gov.cn/english ; Chinability Blog chinability.com/ ; Nationmaster nationmaster.com ; Economic and Business News The Economist on China economist.com ; China Economic Net en.ce.cn ; China Economic Review chinaeconomicreview.com ; Far East Economic Review feer.com ; Economic and Business News Related to China jlmpacificepoch.com ; China Daily Coverage of Economic Issues chinadaily.com.cn ; Financial Times China ft.com/world/asiapacific/china ; China Perspective thechinaperspective.com ; China Economics Blog china-economics-blog.blogspot.com

Links in this Website: CHINESE BUSINESS Factsanddetails.com/China ; CHINESE STOCK MARKET Factsanddetails.com/China ; CHINESE BANKS Factsanddetails.com/China ; CHINESE RETAIL BUSINESSES Factsanddetails.com/China ; Factsanddetails.com/China ; CHINESE TOURISM BUSINESS Factsanddetails.com/China ;CHINESE TRADE Factsanddetails.com/China ; CHINESE TRADE WITH THE U.S., EUROPE AND JAPAN Factsanddetails.com/China ; FOREIGN COMPANIES AND INVESTMENT IN CHINA Factsanddetails.com/China ; BUSINESS CUSTOMS IN CHINA No. 1 Factsanddetails.com/China ; BUSINESS CUSTOMS IN CHINA No. 2 Factsanddetails.com/China ; GLOBAL ECONOMIC CRISIS OF 2008 AND 2009 IN CHINA Factsanddetails.com/China ; BASIC ECONOMIC INFORMATION ON CHINA Factsanddetails.com/China ; MACROECONOMICS AND ECONOMIC POLICY IN CHINA Factsanddetails.com/China ; THE YUAN, FOREIGN RESERVES AND SOVEREIGN WEALTH FUNDS IN CHINA Factsanddetails.com/China ; CHINESE REGIONAL ECONOMICS Factsanddetails.com/China

China’s Trade Surplus

China trade surplus in 2010 was $183.1 billion, down from $196.1 billion in 2009 and that was a big drop from a peak of nearly $300 billion---before the Lehman shock---in 2008. The trade gap between China and the United States was $181.3 billion in 2010, up 26 percent from 2009.

China reported a trade deficit in March 2010, its first in six years. The deficit of $7.24 million was the first since April 2004 and was attributed to energy and raw material imports and a slow down of domestic production following the Chinese New Year. Some questioned the veracity of the data as the its announcement came just as the United States was ratcheting up pressure on China to devalue the yuan.

China’s global trade surplus in 2007 was $262 billion, an increase of 47.7 percent than 2006. The trade surplus in 2006 was $177.47 billion. 74 percent higher than the trade surplus in 2005 ($102 billion), which in was almost triple what it was the previous year China had a record one-month trade surplus of $27.05 billion in October 2007. It was the largest ever recorded by any country. China’s trade surplus fell for the first time in three years in the first quarter of 2008. It declined 10.2 percent to $41.6 billion in three months to March 31, 2008. Inflation and slowing of the global economy because of the subprime mortgage crisis in the United States were seem as the main reasons why.

During the economic crisis in 2008 and 2009 the trade surplus shrank and exports fell. Much of the decline was attributed to uncertainty generated by the U.S. subprime crisis, the rising value of yuan and the global economic slowdown. To boost exports China gave out tax rebates on all sorts of exported items and stopped letting the yuan rise against the dollar.

There are suspicions that the figures for China’s trade surplus may be inflated, namely through Chinese exporters reporting fictitious export record to illegally receive tax refunds,

China and the World Economy

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Congestion outside Shanghai port
China is a major player in the world economy. In 2004, it accounted for 8 percent of the trade deficit in the United States, 26 percent of the trade deficit in the European Union, 21 percent of the trade deficit in Japan and 19 the percent of the trade deficit in the rest of Asia. In 2001, The World Bank calculated that China contributed 29 percent to global economic growth and 21 percent to global economic trade.

China’s presence is now felt in almost every corners of the world; the oil fields in Nigeria and Angola; the copper mines of Zambia and Peru; the soy bean fields in Brazil; river towns on the Mekong in Laos and Thailand; the coal fields and uranium mines of Australia; the oil sands of Canada; rail cars on the Trans-Siberian railroads; and the Silk Road markets in Uzbekistan.

China is developing natural gas fields in Iran, rebuilding the railway blown up by Lawrence of Arabia in Jordan, selling low-cost generators to merchants in Liberia, purchasing 30 percent of the tropical wood in Amazon sawmills, and drilling for oil in Sudan and Ethiopia.

China is dependent on trade and exports to keep its economy rolling. In the mid 2000s, 45 percent of China’s growth came from exports. This means that the Chinese economy it some ways depends on the demand and good will of the United States, Japan and Europe to keep up economic growth.

The outsourcing of jobs, pirating, counterfeiting and the loss of manufacturing jobs to China has become political issues in many countries. China’s exports and cheap labor have caused companies to go bankrupt and hundreds of thousands to people to lose their jobs in the United States, Europe, Asia and the developing world. See Asia, Southeast Asia, Villages.

China sometimes gets around quotas by shipping goods to a third country or territory. Most notably Hong Kong and Macao, and re-exporting them.

Global Impact of Chinese Trade

David Wessel and Paulo Prada wrote in the Wall Street Journal, “China's growth is felt in nearly every corner of the globe---in ways not always welcome. Its rise as a trading power is reshaping other economies, shifting national business models from manufacturing back to raw materials, pushing currencies in sometimes unwanted directions and prompting worries about wages in the U.S.” [Source: David Wessel and Paulo Prada, Wall Street Journal, March 11, 2011]

“In Japan, the largest maker of construction equipment, Komatsu Ltd., drew 2.3 percent of revenue from China a decade ago; today it gets 19 percent. Newly hired college graduates take a two-week quickie Chinese course, replacing English classes the company used to require.In South Africa, China now supplies half the imported clothes and more than two-thirds of the toys. In exchange, Chinese consumers enjoy oranges from Egypt, cocoa from Ghana and wine from South Africa.” [Ibid]

“In Brazil, China's unquenchable appetite for raw materials is changing the landscape---literally. Brazil's richest man, Eike Batista, is building a $2.6 billion superport north of Rio de Janeiro for massive tankers headed for China. Brazil and Peru have nearly completed a highway to carry goods from Brazilian farms through the Amazon and over the Andes to Peru's Pacific ports.” [Ibid]

“For emerging markets, the boost to incomes that comes from selling to China is welcome, but there are worries about unwelcome side effects. For years, Brazil and neighbors sought to reduce dependence on the U.S. by fortifying local industries and nurturing a regional market to supply each other with everything from energy to washing machines. Now a boom in exports to China is pushing Brazil away from high-value manufactures and back toward commodities. In 2000, less than 2 percent of Brazil's exports of goods went to China; by 2009, 12.5 percent did, according to the International Monetary Fund.” [Ibid]

“According to Brazilian government data, about 80 percent of Brazil's exports to China are agricultural and mineral commodities; about 90 percent of its imports from China are manufactured goods, many of them things that Brazil can't make as cheaply as China because wages are higher in Brazil. Brazilian officials argue with increasing vehemence that China is giving its exports an extra advantage by undervaluing the yuan.” [Ibid]

“In South Africa, under pressure from trade unions, the government last year asked China to voluntarily limit textile exports, resuming quotas that were lifted in 2008. China refused. If Chinese firms aren't selling to South Africa, it will be other countries who take our place," China's ambassador, Zhong Jianhua, said in an interview.”

“In Indonesia, textile, furniture and electronics manufacturers are shouting about imports from China that followed the lifting of tariffs in a regional free-trade pact. "We are totally outcompeted even though our labor is cheaper than theirs," says Sofjan Wanandi, chairman of the Indonesian Employers Association. Lousy infrastructure and high interest rates boost costs in Indonesia, he argues. “People are going out of business or becoming importers of Chinese goods.” Imports from China rose 50 percent last year, more than offsetting Indonesia's increased commodities exports to China. [Ibid]

About 30 percent of China's trade is with developing countries---up from less than 20 percent in 2000, the IMF says. But the bulk is still with developed countries. China accounts for 25 percent of Australia's exports, up from 4 percent of just a decade ago. Demand for raw materials and the related trade surplus, a surge in the Australian dollar and increase in interest rates are twisting the economy, strengthening western mining regions while undercutting tourism and nonmining industries.

State-Capitalism and the Myth of Free Trade

In response to arguments by Stefan Halper in his book The Beijing Consensus: How China’s Authoritarian Model Will Dominate the Twenty-First Century and Ian Bremmer in his book Uprising: Will Emerging Markets Shape or Skae the World Economy that China unfairly uses “state-driven capitalism” as opposed to playing by the rules of free markets to an a competitive edge, John Cassidy persuasively argues in a New Yorker article that China is far from the first to do this.

In an article entitled Enter the Dragon in the December 12, 2010 issue of The New Yorker Cassidy wrote: “From Lord Palmerston to Secretary of State Hillary Clinton, Western officials have long demanded that countries open their domestic markets to foreign competition. But Britain and the United States embraced free trade as an ideal only after they had built up manufacturing industries that could dominate those of foreign rivals. In 1721, the [British] government of Robert Walpole placed a range of tariffs on all manufactured imports, erecting a protective wall around businesses that created the Industrial Revolution. A century later, while the heirs of Adam Smith were expounding the theoretical virtues of free trade, Britain retained some of the highest import tariffs in the world: more than fifty percent on many manufactured goods. [Source: John Cassidy, The New Yorker, December 13, 2010]

“Those levies stayed high until the eighteen-sixties, when the country’s competitive advantage in textiles, steel and other industries was firmly established. As the late economic historia Paul bairoch stressed, the idea that Britain rose to economic dominance through free trade is nonsense...The same is true of the United States. During the War of 1812, which was precipitated in part by trade disputes, [Congress] doubled import duties on manufactured goods, to twenty-five per cent. A few years later, the levies were raised to an average of forty per cent. Then Abraham Lincoln raised them again, to roughly fifty percent. [Ibid]

Ha-Joon Chang, an economist at the University of Cambridge, has observed that Lincoln, revered as the Great Emancipator, “might have equally be labeled the great protector---of American manufacturing.” Cassidy wrote: “During the half century after Lincoln’s presidency, the business-backed republican part was in power for most of the time, and tariffs on manufactured goods remained at forty to fifty per cent, the highest levels anywhere. It was during these years that the U.S. economy grew to rival the economies of Britain and Germany in industries such as iron and steel and chemicals---all of which benefitted from protection.” [Ibid]

Many have given credit to Japan, followed by South Korea and Taiwan, for pioneering the model of protecting industries and agriculture at home while developing an exports to spur raid economic growth. But as Ha-Joon Chang points out in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (2008), “Policies that many believe, as I myself used, to have been invented by Japanese policy-makers in the 1950s...were actually early British inventions.”

Cassidy goes on to talk about how protectionism still exists in the U.S. in many industries, most notably in the form of agriculture subsidies. He also shows some of the recent fruits of these American protectionist policies; to again use the most notable example, the internet was a product of the Pentagon’s Defense Advanced Research Projects Agency (DARPA).

Cassidy ends the article by saying: “Unfortunately, in policy circles---and among much of the general public---the old mantras about the free market and private enterprises continue to dominate. In seeking to broaden access to private health insurance, the Obama administration was accused of plotting a takeover of the entire health-care industry. In cutting taxes and boosting federal spending to avert a depression, it was accused of embracing socialism. Even supposedly serious economists lend support to these views, arguing that the dysfunctional health-care industry is best left to its own devices, or that the eight-hundred-billion dollar stimulus program has had virtually no impact on jobs and on G.D.P. This is what comes of forgetting the critical role that states have played in nurturing, protecting, and financing their industries, as well as in taxing and taming them. The greatest danger that Western prosperity now faces isn’t posed by any Beijng consensus; it’s posed by the myth of the free market.”

China's New Parochialism and Buy China

Fareed Zakaria wrote: “The CEO of General Electric, Jeff Immelt, told the Financial Times in 2011 that it appeared that China did not want Western companies to succeed in that country anymore; he was voicing the feelings of many foreign CEOs. There is growing evidence in many areas that Beijing is favoring locals over Western companies, even violating the rules of market access and trade. The World Trade Organization ruled recently that China's regulations on foreign movies were a form of illegal protectionism and had to end. So far, Beijing has done nothing to abide by that ruling, though it is likely to expand its quotas to mollify the WTO. [Source: Fareed Zakaria, Fareed Zakaria.com July 14, 2011]

In December 2009, during the global economic crisis, China adopted a controversial “Buy China” policy in which Chinese were encouraged to favor domestic products over foreign ones, primarily in the computer, communications, software and energy conservation sectors. The move was loudly criticized by United States, Japan and Europe and had the potential of developing into an international trade issue.

In April 2010, China ended preferential treatment for government IT companies, rescinded “buy China---rules introduced in November 2010, apparently in response to pressure by the United States, Japan and Europe to do so.

Chinese Trade and Shipping

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Loaded container ship
Most of China’s exports are carried by ship. Some is carried to Russia and Europe by the Trans-Siberian Railroad. Shipping costs between Shanghai and New York are double those between Shanghai and Hamburg and ten times those between Shanghai and Osaka. It takes about 14 days for a container ship to travel from Hong Kong to California. Freight carried to Europe takes 40 days by ship and 15 days by the Trans-Siberian Railroad.

Shanghai is set to overtake Singapore and become the world’s busiest port in 2008. It overtook Hong Kong to be come the world’s’s second largest port in 2007. It has been the third largest port since 2003. Singapore and Hong Kong are handling record amounts of cargo but Shanghai is handling even more and growing at after rates, 20 percent a year between 2004 and 2007.

Freight handled by seaports in 2008 (number of containers): 1) Singapore (29.92 million); 2) Shanghai (27.98 million); 3) Hong Kong (24.25 million); 4) Shenzhen (21.41million); 5) Pusan (13.43 million).

Shanghai handled 15 million containers in 2005 up from 6 million in 2001 and compared to around 20 million for Hong Kong and Singapore. Shanghai achieved this even though it lacked deep water facilities and its main facilities along the Yangtze and Huangpu Rivers are only about seven meters deep and prone to silting up.

The first phase of huge new container port---the Yangshan Deep Water port---opened in Shanghai in December 2005 on an island 32 kilometers out to sea and connected to the mainland by a 30-kilometer six-lane bridge, one of the longest in the world. The bridge alone took 2½ years and 6,000 workers to build. When the port is complete it will be the largest container shipping port in the world, able to handle 20 million containers a year. It is expected to be completed in 2010 at a cost of around $20 billion. Many predict when this port is in full operation Shanghai will overtake Hong Kong and Singapore as the world’s largest port.

In the mid 2000s there was a shortage of shipping, causing shipping prices to rise and allowing owners of shipping companies to get very rich. In the late 2000s, numerous very large cargo ships produced by shipbuilders in South Korea, Japan and China were delivered, bringing prices down. Prices are expected to fall by 40 percent by 2010.

Many products are moved by the Chinese shipping company Cosco.

Container Ships and China

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World's largest container ship
Most of the goods exported from China are transported by container ships. The largest of these ships are 397-meter-long, weight 70,000 tons, are 56 meters wide, 61 meters high and 30 meters deep and can carry 11,000 twenty-foot containers, enough to fill a 44-mile-long train. A patented lashing system is used secure the containers. Around a thousand refrigerators containers and their power supply can be accommodated. Although they only need a crew of 13 they often carry up to 30 people. The ships are powered by 14-cylinder diesel engines that produces 80,000 kilowatts of power and can propel the ships to speeds of 25.5 knots. The anchors weigh 29.4 tons.

The first container ship was the Ideal-X, a refurbished World War II tanker that carried 58 metal boxes from New York to Houston in 1956. The boxes were loaded onto trucks and taken to their destinations. The loading costs were $0.16 a ton compared to $5.83 a ton, the usual cost for loading loose cargo.

The development of container ships has made it possible to have factories and distribution centers almost anywhere because almost everywhere can be reached by a trucks. One of the biggest obstacles for the container industry to overcome in the United States was the gangster-supported longshoremen who didn’t want to lose their jobs.

Other obstacles that had to be addressed were creating storage facilities to handle the containers; designing cranes that could efficiently load and unload them; standardizing sizes; and creating a fleet of trucks and trains that could carry them. The first widespread use of containers came during the Vietnam War when the armed forces used containers to carry supplies from the United States to Southeast Asia.

The container ship industry was devastated by the economic crisis in 2008 and 2009. Many firms idled ships and cut their fees to attract customers. Cash flow was such as concern there was talk that a mori shipper company was destined to go under,

Empty Container Ships Returning to China

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Loading a container ship
Ships that leave China fully loaded with containers often return empty or nearly empty. For every 100 containers that cross the Pacific from Asia to North America only 60 return full, compared to 84 in 1996. Those that return often transport goods at a steep discount to get clients to use the service. Some are outfitted with cardboard and wooden planks so they can carry grain. Some shippers find it more profitable to return empty to China quickly rather than taking on cheap, time-wasting cargo.

In 1996, the number of containers traveling from Asia to North America was roughly equal to those traveling the other way (around 3 million containers a years). By 2007, the number of containers traveling from Asia to North America was almost three times (15 million containers a year) those going the other way (about 5.5 million containers a year). There is nothing new about the phenomena, In the 17th and 18th century, China shippers silk, porcelain and tea to Europe but little was shipped from Europe to China.

The imbalance in container traffic doesn’t necessarily reflect trade between China and other nations. Many of the goods that China exports are finished goods such as clothes, toys and tools that are conducive to being carried in containers while many of the goods that are shipped to China are bulk commodities sch as iron, oil, soy beans and grain that are typically carried by bulk cargo ships not containers.

Large container ships typically dock at a half dozen ports, unloading and picking up containers at each stop. A team of 300 dock workers, six cranes and a computerized loading system can unload around 5,000 containers in a 24 hour period. The cost of transported a 20-foot container from China to the United States is around $1,500. The price can be as little as $400 going the other way.

Profits Foreign Companies Make on Chinese Trade

Manufacturers in China generally receive 20 percent of less of the revenue they export to the United States. Typically American companies design and order their products , receive them at American ports and distribute and market them around the country. For that they take about 80 percent fo the revenue.

Some Chinese businessmen are anxious to eliminate American middlemen to raise their profits. Many have come to America to set up operations there or look for partners they can deal with directly. Some make products for American companies, receiving 20 percent of revenues, and market their own brands, receiving a higher percentage of the revenues.

BRICS

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front of old 1 yuan banknote
China is one of the BRIC nations. BRIC stands for Brazil, Russia, India, China. The term was coined by Goldman Sachs economists in 2003 to describe a new category of emerging market powerhouses that were regarded as good places to invest money because they had stable political leadership and relative international stability.

The four BRIC nations embrace nearly half the world’s population, 20 percent of its land area and are rich in natural resources. It is estimated that the BRIC nations will produce 60 percent of the world’s growth between 2010 and 2014. Some want to South Africa to be included as a member.

In 2000, the BRICs accounted for 16 percent of the local GDP. In 2009 that number rose to 22 percent and is expected to keep getting bigger. There is a key difference between the four nations. Russia and Brazil rely chiefly on commodities export to spur their economies while China and India rely more on trade and are large consumers of commodities rather than producers of them.

In July 2009, the leaders of the four countries held their first meeting, in Yekaterinbrug, Russia, in part to work together and increase their leverage. During their second summit meeting in Brasilia in April 2010 the BRICs discussed ways they could start using local currency for trades instead of relying on the American dollar. In 2011 the BRICs talked about coordination and handling of commodity price fluctuations. In a blow to the dollar they have worked out ways to settle accounts using their own currencies.

China and the Asian Economy

China has become a manufacturing threat to many Asian countries, not only in low tech areas but also in high tech fields and in industries like automobile manufacturing. China has taken away foreign investment from the other Asian countries and takes business away with its unlimited supply of cheap labor. China-bashing books fill bookstore shelves in Asia.

China has been able to undercut is neighbors in key export markets. Many of the sectors that China’s is doing well in---light industry, electronics, chip making---are sectors that other Asian countries had hoped to do well in but aren’t do as well in as they hoped because of China. In the 1990s, China’s exports to the United States tripled while those of Japan fell by half and those of the four tigers’south Korea, Taiwan, Hong Kong and Singapore’shrank by a third.

Thailand and Malaysia took 10 years building the expensive, production base and infrastructure for a precision metalworks that could sell components to Swiss watchmakers. The Chinese took over the business in only a year.

More and more China is seen as a positive force as well as a negative one. It is proving to be a large buyer of goods produced by Asian countries and a source of foreign investment. China ran a trade deficit with Asia in 2003. It imported steel from South Korea and Japan used in construction and car making, imported basic commodities from Malaysia and Indonesia such as palm oil and oil and imported chips from Taiwan used to make products for export such as laptop computers and calculators. Chinese tourist are popping up all over Asia.

China is replacing the United States as the economic engine in Asia. It buys up huge amounts of raw materials, goods and parts and pour in large amounts of foreign investment. into its Asian neighbors. In 2002, China proposed setting up an Asian free-trade zone.

According to United Nations Development Program report issued in 2006: “China’s stunning economic growth, in so many was an inspiration to its Asian-Pacific neighbors isn’t delivering reciprocal benefits to its regional trading partners and in some cases is causing difficulties for them.” The report find that Asians least-developed countries are experiencing a “severe trade imbalance” with China. Cambodia for example imported $452 million worth of goods from China in 2004 but exported just $30 million. Bangladesh imported $1.9 billion worth of goods from China but exported just $57 million the same year. .

The China-ASEAN Fair Trade Agreement wet into affect in January 2010. The pact is expected to boost bilateral trade by $106 billion by lifting tariffs on about 7,000 items, or about 90 percent of all traded commodities.

World Trade Organization and China

China was admitted the World Trade Organization (WTO) in December 2001. It had desperately wanted to become a member for some time to symbolize its stature as an economic superpower and gain full access to markets around world.

The World Trade Association is a 142-member group that makes the rules for global trade. At the vanguard of the globalization movement, it is committed to promotion of free trade by reducing obstacles such as tariffs, quotas and regulations that slow and reduce the movement of goods between different countries.

China spent 15 years trying to gain admittance to the WTO, in the process haggling over issues from life insurance to farm subsidies. The decision to pursue WTO membership was a big political gamble. Many hardliners were appalled by the concessions made to achieve it.

As a member of the WTO China is required to lower tariffs, end its arcane distribution systems, and to open up its economy more to foreign competition by lowering trade barriers and restrictions on foreign companies.

To get into the WTO China promised: 1) to lower average tariffs from 15 percent to 9 percent and eliminate almost all import quotas and regulations that discriminated against foreign companies by 2005. 2) to make the import of computers, telecom equipment and semiconductors duty free; 3) to reduce tariffs on grain, cotton and soybean oil to 1 percent and 17.5 percent for other goods; 4) to eliminate export subsides; 5) to open telecommunications and Internet services to foreign investors; 6) to allow foreign banks to operate anywhere in China and make loans and take deposits in local currency; 6) to drop geographic and ownership restrictions.

WTO, See United States, International, Government and Public Services

Advantages and Disadvantages of the World Trade Organization for Chinese

The advantages of the WTO: 1) China can modernize and improve its banking, telecom and insurance industries; 2) improve trade and make it easier for Chinese exporters to sell their stuff abroad; 3) boost China’s status as an economic power; 4) bring in investment money; and 5) make the economy and companies more efficient.

Chinese entrepreneurs will be able to reduce costs and move goods freely around the country. This benefits companies that do business domestically and internationally. Tariffs, quotas and regulations on raw materials, agricultural products and manufactured goods will either disappear or be significantly reduced. This will reduce the prices of these things in China.

The disadvantages of the WTO: 1) millions of jobs have been lost as inefficient state companies are forced to shut down; 2) farmers could suffer as cheap imported grain floods into the country; 3) new technology will make it harder for Beijing to control information; 4) changes could cause social instability by broadening the gap between haves and have nots.

For poor farmers the WT0 is bad news. They already are suffering as result of low crop prices and the inefficiency of their agricultural methods. Foreign competition will drive down prices further and lower their standard of living further.

According to some estimates 40 million people lose their jobs in the first five years after WTO memberships. Workers in the banking sector and manufacturing are particularly vulnerable.

After China Joined the World Trade Organization

After China joined the World Trade Organization it gained better access to world markets as it had hoped but foreign companies complained they were not given the kind of access to Chinese markets as they had hoped. In its first year of WTO membership China opened markets to foreign companies by lowering port tariffs, ending local content rules.

The full impact of the China’s WTO membership came to head in January 2005 when quotas of Chinese textile exports were lifted and cheap Chinese textiles flooded the market. Textile producers in Europe and North America were unable to compete and thousands of jobs in their own textile industries were threatened. By 2007, China is expect to control 50 percent of the global market for textiles. To stave of some backlash China imposed tariffs on its own exports. See Europe and the United States Below

The developed countries in Europe and North America are making the biggest stink about the changes but it is developing countries that compete with China that suffer the most. In the first quarter of 2005, after the WTO quotas were lifted the production T-shirts in China rose by 164 percent while those in Sri Lanka declined by 25 percent. In Pakistan they declined by 36 percent, in Bangladesh by 9 percent, in Tunisia by 22 percent, in Morocco by 8 percent and in Romania by 29 percent.

See Pirating and Counterfeiting, Industries

In December 2006, the United States issued a 100-page report, accusing China of not complying with rules of WTO, especially in the areas of piracy of foreign goods and blocking imports from other countries, and threatened to seek sanctions against China. The United States and the European Union filed a case with the WTO against China for its high taxes on imported car parts. In the first half of 2006, China was the targets of a third of antidumping probes launched by WTO members. Dumping is generally defined as producing goods below costs in such a way as to cause damage in to substantial part of the industry.

As of 2006, foreign investment poured at a rate of $1 billion a month since China became a member of the WTO.

Achievements After China Joined the World Trade Organization

In 2006, despite battling the United States over car parts and clashing wit Europe over textile quotas China was given high marks by the WTO and, over all, its transition to WTO member had been relatively smooth. Although many trouble spots remain many have given China a lot of credit for coming as far as far as it has in a relatively short period of time. The Chinese have benefitted with a more efficient economy and access to more foreign goods.

By 2005, the average tariff had been slashed to 9.9 percent from 15.3 percent in 2001, 3,000 rules regulations has been scrapped, China had adopted standardized economic and administrative operation principals, and huge swaths of the economy had been opened up to foreigners. The tariffs on some products such as industrial goods dropped from 43.9 percent to 9 percent. Farm products dropped from 54 percent to 15.3 percent.

Ten Years of China in the WTO

The Economist reported: China’s efforts to join the World Trade Organisation (WTO) dragged on for 15 years, long enough to “turn black hair white”, as Zhu Rongji, China’s former prime minister, put it. (His own hair remained Politburo-black throughout.) Even after membership was granted, ten years ago this week, Mr Zhu expected many “headaches”, including the loss of customs duties and the distress of farmers exposed to foreign competition. [Source: The Economist, December 10 2011]

Yet the bet paid off for China. It has blossomed into the world’s greatest exporter and second-biggest importer. The marriage of foreign know-how, Chinese labour and the open, global market has succeeded beyond anyone’s predictions. It is instead China’s trading partners who now contemplate its WTO membership with furrowed brows. They have a variety of complaints: that China exports too much, swamping their markets with cheap manufactured goods, subsidised by an undervalued currency; that it hoards essential inputs, such as rare earths, for its own firms; and that it still skews its own market against foreign companies, in some cases by being slow to implement WTO rules (notably on piracy), in others by suddenly imposing unwritten rules that are unfavourable or unknowable to foreigners. The meddling state lets multinationals in, only to squeeze them dry of their valuable technologies and then push them out.

Much of this criticism is right. China made heroic reforms in the years around its WTO entry. That raised expectations that it has conspicuously failed to meet. It signed up for multilateral rules, but neglected the rule of law at home. Free trade did not bring wider freedoms, and even the trade was not exactly free. It is in China’s interest to liberalise its exchange rate further, to prevent local officials from discriminating against foreigners and above all to do far more to support the global trading system. The WTO is undermined when any member flouts the rules, never mind one as big as China.

But China’s sins should be put into perspective. In terms of global trade consumers everywhere have gained from cheap Chinese goods. Chinese growth has created a huge market for other countries’ exports. And China’s remaining barriers are often exaggerated. It is more open to imports than Japan was at the same stage of development, more open to foreign direct investment than South Korea was until the 1990s. Its tariffs are capped at 10 percent on average; Brazil’s at over 30 percent. And in China, unlike India, you can shop at Walmart, most of the time.

As for the hurdles foreign firms face in China, they are disgraceful---but sadly no worse than in other developing countries. The grumbles are louder in China chiefly because the stakes are higher. Foreigners may have won a smaller slice of China’s market than they had hoped, but China is a bigger pie than anyone dared to expect. Had China been kept out of the WTO, there would have been less growth for everybody. And the WTO still provides the best means to discipline and cajole. Rather than delivering congressional ultimatums, America and others could make more use of the WTO’s rules to curb China’s worst infractions.

So celebrate China’s ten years in the WTO: we are all richer because of it. But, when it comes to trade, China’s rulers now badly need to grow up. Their cheating is harming their own consumers and stoking up protectionism abroad. That could prove to be economic self-harm on an epic scale.

Benefits of WTO Membership According to the China Daily

In December 2011, the China Daily reported: “Ten years ago, when China officially became the 143rd member of the World Trade Organization (WTO), wolf crying was pervasive. The one conspicuous fact, acknowledged by leaders of the world's major trade establishments and reiterated by President Hu Jintao yesterday at the forum commemorating the 10th anniversary of the country's WTO membership, is that China committed far more for its admittance than other emerging economies. This was hardly mentioned at home then. [Source: China Daily, December 12, 2011]

And it was not clear at the time whether China's industries, which were believed to be weak and inadequately prepared, would be able to survive the immediate head-to-head encounters with overseas competitors. But instead of the vulnerable victim some pessimistically anticipated, China has benefited tremendously from its integration with the rest of the world. It is now the world's second largest economy, the largest exporter and second largest importer. Beyond such indicators, the palpable symbols in everyday life - from automobiles to iPhones - show WTO membership has been a life-changer for the country and its citizens.

But it has not all been a bed of roses. The domestic cosmetics industry, for one, received a fatal blow. Many of the once popular domestic brands were acquired by overseas competitors and then faded away. Indigenous soybeans, once the country's most competitive agricultural product, have nearly disappeared. In the northeast, many local oil processors have suspended production or closed down. Yet nothing has compromised the country's commitment to playing by the WTO rulebook, and it has committed to more than was anticipated and has fulfilled all its obligations.

And its accession to the WTO has not just benefited China. While Chinese exports are to be found in retail outlets across the world, this has never been a one-sided game in China's favor. Putting aside the benefits overseas consumers have drawn from reasonably priced Chinese commodities, the world at large has profited from the opening-up of the Chinese market.

According to the International Monetary Fund China has imported $750 billion worth of commodities on average every year in the past 10 years, equivalent to creating more than 14 million jobs for its trading partners. And the scale of imports is expected to surpass $8 trillion in the next five years. Meanwhile, overseas Chinese-invested firms have employed almost 800,000 local workers, contributing over $10 billion in taxes each year.

And an often-ignored fact is that since 2005, more than 50 percent of "Chinese exports" originate from firms with overseas capital, and foreign-funded supermarkets now account for 47 percent of retailing in China. With the aggregate retail sales of consumer goods in this country expected to reach 32 trillion yuan ($5 trillion) by 2015, that is good news not just for Chinese companies, but also other WTO members.

U.S.-China Rivalry Dominates Start of WTO Meeting

In December 2011, Reuters reported: “sparring between China and the United States dominated the start of the World Trade Organization biennial conference, with each obliquely blaming the other for deadlock in the Doha round of trade talks which has all but paralysed the WTO. Without mentioning each other by name, China's Commerce Minister Chen Deming and U.S. Trade Representative Ron Kirk each suggested the other was to blame. [Source: Tom Miles, Reuters. December 16, 2011]

Kirk said the current impasse in negotiations came down to "one single, vexing quandary: the WTO has not come to terms over core questions of shared responsibilities among its biggest and most successful members. "The world has changed profoundly since this negotiation began a decade ago, most obviously in the rise of the emerging economies. The results of our negotiations thus far do not reflect this change, and yet they must if we are to be successful," he said in a speech at the opening of the meeting.

The rise of developing countries, chief among them China, has tied the Doha negotiations in knots. The trade liberalisation effort was originally meant to help developing countries, but those same countries are now trading giants, calling into question the need to give them special help. But China and other developing countries have refused to give up on Doha. Chen suggested the negotiations were being held up by U.S. politics and could be resumed after the presidential and congressional elections next year.

Any hope for unity was shattered even before the meeting began. China slapped anti-dumping duties on U.S. exports of large cars and SUVs, widely seen as the latest volley in a trade war with the United States. Chen said the duties conformed with WTO rules and were not protectionist, adding anyone who thought they were could use the WTO system to challenge them. "We have to draw a clear line between protectionist measures and normal trade remedies," he said.

China and the Doha Global Trade Talks

It was thought that China might take a leadership position in the developing world in global trade talks but that has not happened because the developing countries do not endorses free trade with same enthusiasm as China because they are afraid of opening their markets to anymore cheap Chinese goods than they already are and being overwhelmed by them.

China was blamed for the breakdown of the Doha global trade talks---the effort by the WTO to forge a global trade agreement that began in 2001---by acting on the behalf of its farmers and its own self interest as other nations have. The talks broke down in 2008 over the insistence of China and India to protect their farmers and the unwillingness of the United States to makes concessions on the issue as it had in the past.

The negotiations stalled on the right of India and other developing countries to protect critical agricultural products in exchange for cutting tariffs on imported industrial goods. At the last minute China changed its position, citing concerns about food safety, and abandoned it pro-free-trade position and sided with India. The bottom line for China was that it still has hundreds of million of relatively poor peasant farmers and they are vulnerable to competition from cheap imports.

China took the position that it did not oppose free trade but because it has more economic clout than it used because of its strong economy it wanted to use that clout to pursue its interests and not follow the wishes of the traditional industrialized powers in Europe, North America and Japan.

China's Trade with Hong Kong

In the 1990s Chinese goods shipped through Hong Kong (re-exports) accounted for 80 percent of Hong Kong’s total exports. More than 90 percent of Hong Kong's re-exports come from mainland China.

In the 1990s Hong Kong imported 91 percent of its footwear, 89 percent of its clothing and 88 percent of its toys from China while Hong Kong exported 76 percent of its telecommunications equipment, 46 percent of its textiles and 37 percent of its tobacco products to China.

China imports 56 percent of its handbags, 23 percent of its furniture and 18 percent of its pre-fab buildings from Hong Kong. China exports 87 percent of its live animals; 63 percent of its beverages and 58 percent of its dairy products to Hong Kong.

About 23,000 truckers ply the routes between Hong Kong and the economic zones in southern China. They pick up raw materials at Hong Kong harbor and take them to the factories in southern China and then return to Hong Kong with finished products in sealed containers. Much of their day is spent waiting in customs, in traffic or for cargo to be loaded or unloaded. Many truckers earn over $200 a day.

Chinese Exports

In 2009 China surpassed Germany to become the world’s largest exporter. It exported $1.2 trillion worth of goods compared to $1.17 trillion by Germany. China became the No. 2 exporter in the world in 2007 with exports rising 19.5 percent from the previous year to $1.22 trillion. It moved ahead of the United States but remained behind Germany.

Exports increased from about $10 billion in 1978 to $184 billion in 1998. Exports as a share of GDP has doubled between the mid 1990s to the mid 2000s to 40 percent--- more than twice that of the United States and Japan. When China joined the World Trade Organisation (WTO) in late 2001, its share of world exports stood at 4.3 percent. By 2010 that share had soared to 10.6 percent, and the country had become the world’s biggest exporter. China’s share of the world's exports rose from two percent in 1990 to four percent in 2000 to 10 percent in 2010.

Exports: $969.7 billion in 2006, compared to $150 billion in 1995. Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated April 2012


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