International trade as results of globalization and trade liberalization had made a significant contribution to economic growth. The introduction of economy reforms and an open door policy by Deng Xiaoping in 1978 had resulted in a rapid expansion in China’s international trade together with dramatic economy growth which has made China emerged as a key player in global economy. China is the fastest growing economy in the world with its Gross Domestic Production (GDP) growing at nearly 10 per cent a year and turned it into the second largest economy after United State. (Agarwal & Wu, 2004)
China’s stable political system, vast natural resources and abundant skilled and ...view middle of the document...
Thus, making it as the world’s largest exporter which accounted for 10.4% of world’s export (shown in Figure 2) and the world’s second largest importer which accounted for 12.3% of world’s imports as in 2011 (shown in Figure 3).
Figure 2: Leading exporters in world merchandise trade, 2011
Figure 3: Leading importers in world merchandise trade, 2011
During 1980s, exports of goods and services rose from 10.65% to 13.90% of GDP while imports of goods and services rose from 11.01% to 15.34% of GDP. It’s mainly due to decollectivization of agriculture and the opening up of the country to foreign investment. China’s export structure shifted from primary products denominated to manufacture goods denominated in 1980s. (China.org.cn, 2011) As China committed to economy reforms, heavy purchase of capital goods, industrial supplies and foreign plant were imported to equip manufacturing industry resulted in import restraints in early 1980s. Along with open door policy, China experience trade surpluses of 2.37% and 1.12% as in GDP in 1982 and 1983 respectively. However, Imports surged due to the huge and uncontrollable consumer goods, decentralized management of foreign trade and expansion of foreign trade in 1985 lead to trade deficit where import exceed export by 4.08% of GDP. In order to reduce trade deficit, Chinese government introduced import and export licensing system, stricter controls on foreign exchange expenditures, and the devaluation of the renminbi.
In 1990s, China’s trade grew gradually where import rose from 13.09% to 17.52% and export rose from 16.07% to 20.17% as in GDP due to broader trade reforms, including significant reductions in tariff, trade barriers and regulations, and reformed the banking system. (Wikipedia, 2014) With the changes of export from mainly light industrial and textile products to mainly mechanical and electronic products in the early 1990s, China experienced trade surpluses and entered trade deficit of 2.68% in term of GDP in 1993 when Chinese government temporarily loosen the control on imports. Since the unification of dual-track exchange rate system in 1994, the exchange rate for renminbi depreciated and remain stable which granting a competitive edge to China’s export. This resulted in trade surpluses from 1994 to recent. However, the imports of fall from 19.95% in 1994 to 16.05% in 1998 due to the expensive imported goods. With the reduction of tariff in 1999, resulted in an increase in import by 1.47% in 1999. (XiaoJun, 2012)
From 2000 to 2006, the...