Paper 3 Notes - Barry Naughton, The Chinese Economy Notes...

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Barry Naughton, The Chinese Economy Notes Chapter 16: International Trade “In 2005, China’s total goods trade (exports plus imports) amounted to 64% of GDP, far more than other large, continental economies.” (378) Graph on 378 shows exports and imports as share of GDP. Chinese term is (gaige kaifang) “reform and opening” 16.2 International Trade Trade reform in the late 1970s followed Soviet-style command-economy model with the “double air lock.” “The ‘double air lock’ system was designed to insulate the domestic economy from the world economy while allowing a few key commodities to pas through the air-locks.” (380) The air locks were: 1. The central controlled foreign-direct monopoly and 2. The foreign- exchange system. “The socialist price system is an extreme version of the price relationships created by the common ‘import substitution industrialization (ISI) development strategy.” (380) In 1978-1979, new trade channels were opened up in Guangdong and Fujian provinces due to proximity to Hong Kong and to less extent Taiwan and “export processing” (EP) contracts were setup. Special Economic Zones (SEZs) and Export-Processing Zones (EPZs) allowed China to promote exports while pursuing a primarily import substitution strategy. Comprehensive liberalization package for trade was adopted in 1984, but many were scaled back in 1985 as exports surged. The main elements of the initial phases of trade reform include the following: devaluation, demonopolization of the foreign-trade regime, significant changes in pricing principles, creation of a system of tariffs and nontariff barriers, and import substitution and export promotion. (383-385) “The most important such measure was the creation of an entirely separate export- processing trading regime, which allowed exporters to simply bypass the old centralized foreign-trade monopoly.” (386) 16.3 A Dualist Trade Regime: The Export-Processing System After 1986, Chinese policy-makers started supporting the “Coastal Development Strategy.” Foreign Investment Enterprises (FIEs) began to transport their expertise to the mainland 16.4 Toward an Open Economy From the mid-1990s, China began to move in the direction of a genuinely open economy (388). “Membership in the WTO was a powerful motivating factor.” (388) 1994 foreign-exchange reforms increased currency convertibility for trade. “This was exactly the bargain that China was required to make as a condition for WTO membership: granting broader and fairer access to its economy in exchange for greater access for its light manufactured exports to other countries.” (391) “The average nominal tariff was reduced in stages from 43% in 1992 to 17% in 1999, the year when the breakthrough in WTO negotiations finally came. In the actual agreement, China agreed to lower average industrial tariffs to 9.4% by 2005, and this rate was
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actually achieved in 2004.” (391) 16.5 Outcomes: Rapid Growth and Structural Change Between 1985 and 1986, China’s trade grew rapidly due to a dramatic shift to labor-
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Paper 3 Notes - Barry Naughton, The Chinese Economy Notes...

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