Memorandum submitted by Dr Ping Zheng,
Centre for International Business, Leeds University Business School
The market-oriented economic reforms and "opening
up" policy pursued by the Chinese government since 1978 have
resulted in high economic growth and a dramatic transformation
in the economic structure. During the last 25 years, the Chinese
economy has grown strongly at an annual average rate around 9%,
ranking China among the fastest growing economies in the world.
China's economy, the World Bank (1995) argued, is the third largest
one in the world behind the US and Japan after PPP adjustment.
It is affecting the world in every aspect: patterns of trade,
trend of economic growth, foreign investment, resources demand,
international migration, environmental quality, even military
activity. With its entry into WTO, China emerging as a world economic
superpower and super-location for inward FDI (Buckley,
2004), has been becoming the focus of both academic and policy
interests. This article would try to shed some lights on the important
issue of the impact of China on world and UK economy by focusing
on China's role in the world trade.
Over the last two decades, China has been not
only the world fastest growing economy but also an outstanding
exporter. In 1978, China was ranked thirty-second in export volume
in the world. However, as a result of the export-oriented policy
adopted by the Chinese government, two years later in 1980, China
jumped to twenty-sixth. China's exports increased further at an
annual rate of 17% from US$19.9 billion in 1980 to US$266 billion
in 2001, which made China the world's sixth largest exporting
economy (fifth in 2002, fourth in 2003; see China Statistical
Yearbook).
China's merchandise trade balance with the world
turned into surplus in 1990 and peak at US$38 billion in 1998.
The composition of trade shifted drastically from primary to manufacturing
products, which now account for about 90% of China's exports and
80% of its imports.
China has started shifting its macroeconomic
policy from export-oriented to domestic-demand-driven since the
Ninth Five-Year Plan (1996-2000) and continued the policy in the
Tenth Five-Year Plan (2001-2005) as the long-term strategic policy
for its sustainable economic development. Such a shift, with China's
entry into the WTO, is opening up the country's huge domestic
market for imports, thus providing great opportunities for the
regional and the world economies. This will have far-reaching
effect on the trade structure of the world. With the surge of
inward FDI, China has increasingly integrated itself into the
system of global division of labour and the interregional web
of input-output linkages. Its low-cost output can benefit other
countries businesses that share these links along supply chains.
China has now become a manufacturing hub for the rest of the world
in labour-intensive products. The rest of world is becoming a
manufacturing hub for China in capital-intensive products. China's
increasing dual role of two-way participation in world trade will
influence the world economy in coming decades.
As a result of China's new role in the global
supply chain, China is now running trade deficits with eastern
Asia and trade surpluses with North America and Europe. The dramatic
increase of manufactured exports from China to the US, especially
after China's entry into the WTO, increases the US trade deficit
with China. At the same time, China will import more intermediate
and capital inputs from eastern Asia (Taiwan, Hong Kong, Korea,
and Singapore), increasing its trade deficit with these newly
industrialised economies (NIEs). The Asian NIEs are becoming upstream
suppliers of intermediate inputs and market channels for China's
labour-intensive products, while China is becoming a downstream
processing and assembling base for Asian NIEs, thus enabling them
as a whole to become a more efficient producers in the world manufacturing
products market.
With respect to the impact of China's entry
into the WTO, although China will gain the most from it, the rest
of the world especially developed countries and Asian NIEs as
well as least developed countries, would also benefit from the
expansion of world trade and improvement of their international
terms of trade because their factor endowment, export structure,
and stage of technology development are different from China's.
Only certain developing countries with an endowment structure
similar to China, like those in South and Southeast Asia, may
experience more fierce competition in labour-intensive exports
even lower prices for their products.
Joining the WTO enable China to dramatically
increase its production and exports of labour-intensive products,
intensifying competition in the world market. This will turn reduce
export prices in developing countries and import prices in developed
countries, the largest final market for such products. The expansion
of China's production and trade in labour-intensive manufactures
result in higher demand for capital and skill-intensive manufactured
products, thus driving up the world prices for such products,
which are major exports from developed and Asian NIEs. Such a
world price movement would improve international terms of trade
for developed countries relative to developing countries, thus
enabling them to benefit relatively more from China's WTO accession.
Terms of trade may also improve due to China's WTO entry for those
least developed countries whose development stage is behind China.
This is because major exports from those countries are primary
products, which will face a higher world prices because of the
increased world demand, while the expansion of capital and technology-intensive
manufacturing products from China to those countries will lower
their import prices.
China's net exports of labour-intensive products
and net imports of capital-intensive products will continue to
increase because of China's rapid industrialisation, population,
and economic growth. Moreover, WTO accession will accelerate this
trend, although there is a general declining trend in China's
net capital-intensive imports over time because the exports in
some capital-intensive products from China are rising and also
an industrial upgrade is processing as China continues to grow
and industrialise.
According to the Ministry of Commerce of China
(www.mofcom.gov.cn), China's trade reached US$851 billion in 2003,
ranked the fourth in the global economy. Exports grew much faster
at 34.6% especially exports of machinery, electrical, and electronic
products grew rapidly at 48.8% (US$172.4 billion), while imports
increasing by 39.9%. China's top 10 trading partners were Japan,
the US, Hong Kong, South Korea, Taiwan, Germany, Malaysia, Singapore,
Russia, and Netherlands. China's trade with these 10 economies
together amounted to US$581.5 billion, 68% of China's total trade
in the year. In 2004, EU, Japan, and the US continued to be China's
top trading partners. In the first seven months of 2004, China's
exports and imports grew by 35.5% and 41.3%, respectively. Exports
of machinery and electronic products continued growth at a high-speed
up 45.3% reached to US$167.53 billion. At the same time, imports
of primary products surged to US$65.9 billion rising of 65.1%,
of which editable oil reached 3.86 million tons up 56.5% and crude
oil 70.63 million up 39.5%.
The China's expansion implied an expansion in
markets for the rest world economies' as well as the UK's exports.
Figure 1 show the UK's exports to China have been booming especially
since 1993, from less than US$0.4 billion in 1980 increased to
US$1.1 billion in 1993 and further reached to US$3.2 billion in
2003. However, comparing to China's whole import market, the UK's
export is still a very small proportion, accounts for just 1%,
while China's main trading partners Germany 6%, the US 9%, and
Japan 19%. For expanding its exports, the UK should shift its
export strategy from Europe to Asia especially to China by setting
China as a key market for the UK products in the coming years.
It is worth to mention that, among the UK's
main export products to China (see Table 1), Crude oil ranked
top one with amount of US$103 million in 2001 increased to US$228
million in 2002 at a growing rate higher than 120%.
Table 1
THE UK'S MAIN EXPORT PRODUCTS TO CHINA 2001-02
|
| US$ millions
|
| 2001 | 2002
|
|
| Textile | 38.4 | 44.4
|
| Paper and kindred products | 36.7
| 52.2 |
| Crude oil | 103.1 | 228.0
|
| Steel | 90.0 | 104.6
|
| Plastic | 78.3 | 92.7
|
| Vehicle and vehicle parts | 36.1
| 40.5 |
| Integrated circuit | 98.9 |
72.8 |
| Machinery | 37.9 | 42.5
|
| Electric generator | 72.4 |
58.0 |
| Computer | 40.4 | 33.7
|
| Communication equipment | 35.4
| 75.0 |
| Source: Almanac of China's Foreign Economic Relation and Trade 2003.
|
| |
|
It might be helpful to understand China's position in the
world energy market, especially its demand for oil. China's emergence
as a major world industrial producer means that its energy security
is now of global concern. China's role in the world energy market
becomes increasingly influential. Alongside the rapid economic
growth over the past two decades, China's energy consumption has
risen from 571 Mt of coal equivalent in 1978 to 1,678 Mt in 2003,
making China the world's second largest consumer only behind the
US. China's share of the world's total final energy consumption
almost doubled from 1973 to 2003, rising from 5.8 to 11.4% (CSA,
2004). By 2020, on current trend, China's energy consumption will
reach around 2,700 Mt, account for 23%of total world consumption,
which equal OECD's total predicted consumption (IEA, 2001, 2003).
By 2050, China's energy consumption will further reach around
4,100 Mt, making China the largest energy consumption economy
in the world.
Due to the manifest inadequacy of domestic oil supplies,
China has been a net importer of oil since the mid 1990's with
more than a third of the oil it consumes coming from abroad. The
share of imports in total oil consumption increased from 6.6%
in 1995 to 35% in 2003 with amount of 91 Mt (CSA, 2004). China
now has overtaken Japan as the second largest importer of oil
in the world just behind the US. It is anticipated that by 2020
the imports will reach 225 Mt, account for one-half of China's
oil consumption.
With more than 1.3 billion inhabitants, China is an energy-scarce
economy with per capita energy endowments far below the world
although China is a global giant in terms of its current energy
output and major reserves. Its average energy consumption per
capita of about 0.5 tonne oil equivalent (TOE) in 2001 is very
small relative to that in the developed economies, eg 5.4 TOE
in USA, 3.0 TOE in Germany, and 2.7 TOE in Japan. China's rapid
economic growth, huge population, low per capita energy consumption,
and its role as world manufacturing hub imply that its strong
growth in energy demand will continue in the future, leading to
a substantial expansion in energy imports, mainly oil. It will
create significant export opportunities for the UK's oil industry
which leads a booming of the industry even the whole economy.
January 2005
REFERENCES
Buckley, P J (2004). The role of China in the global strategy
of multinational enterprises. Journal of Chinese Economic and
Business Studies, 2(1), 1-25.
China State Statistical Bureau (CSSB), China Statistical Yearbook,
various issues.
CSA (2003). China Statistical Abstract. China Statistics Press,
Beijing.
IEA (2001). Oil Supply Security. International Energy Agency,
Paris.
IEA (2003). Key World Energy Statistics. International Energy
Agency, Paris.
IMF, Direction of Trade Statistics.
World Bank (1995). World Development Report. United Nations.
|
