GROWTH and reform are the basic factors for the seven-decade-long development and growth of China's foreign trade. After the founding of the People’s Republic of China, an independent socialist economic and trade system with highly centralized planning management was established, which is considered a big progress in its history. During the 40 years of reform and opening-up, China's exported commodities have become more diversified, and the export structure has become increasingly similar to that of developed economies. The structure of imported goods shows the in-depth development of China's industrialization process, the improvement of domestic processing and manufacturing capabilities and industrial systems, as well as the improvement of people's living standards.
1949-1978: Establishing an Independent Foreign Trade System
Before 1949, China's economic foundation was very weak, lacking a complete industrial system. Foreign trade was dominated by agricultural products, raw materials, and natural resources, and was short of an independent foreign trade system. For example, prior to 1949, there were only about 4,600 domestic foreign trade businesses at various ports in China, employing about 35,000 people, with their capital only RMB 130 million, and the number of large businesses with the capital of more than RMB 100,000 was very small.
From 1950 to 1959, China's national economy and industrial production gradually recovered and developed, so did its foreign trade. The nascent PRC strived to establish an independent foreign trade system. In November 1949, China established the Ministry of Trade, which included the Department of Foreign Trade. In December of 1950, China promulgated the Interim Regulations on Foreign Trade, and later promulgated the Interim Customs Law. In 1952, China set up the Foreign Trade Ministry to centrally and uniformly manage foreign trade, uniformly examine and approve the registration of various foreign trade enterprises, and implement classified management of import and export commodities.
From Table 1, it can be seen that from 1950 to 1959, China's total import and export volume increased from US $1.13 billion to US $4.38 billion, total exports increased from US $550 million to US $2.26 billion, and total imports increased from US$ 580 million to US $2.12 billion. The substantial growth of foreign trade played a vital role in the recovery and development of China's economy.
From 1960 to 1969, due to various unfavorable factors at home and abroad, China's economic development was affected to a certain extent. Foreign trade developed through ups and downs, and the growth of import and export volume was slow.
After entering the 1970s, the international environment began to undergo positive changes in favor of China, and developed countries began to establish diplomatic relations with the country. In 1971, China resumed its lawful seat in the UN; in 1972, China and the U.S. established diplomatic relations; in 1975, China established formal economic and trade relations with the European Community. As can be seen from Table 1, between 1970 and 1978, China's foreign trade growth rate increased substantially. The total volume of import and export increased from US $4.59 billion to US $20.64 billion, an increase of five times, with an average annual growth rate of 10.91 percent. The total export value increased from US $2.26 billion to US $9.75 billion, an increase of five times, with an average annual growth rate of 10.79 percent; the total import value increased from US $2.33 billion to US $10.89 billion, an increase of five times, with an average annual growth rate of 11.02 percent.
Foreign trade played a key role in promoting China's industrial production. China imported a large amount of machinery and equipment, introduced many advanced technologies, and imported many industrial raw materials and parts, which played a significant role in the establishment and restoration of China's industrial system. As can be seen from Table 1, from 1953 to 1962, the proportion of machinery and equipment in imports was as high as 40 percent. From 1972 to 1977, China introduced 222 items of technology, machinery, and equipment from more than 10 developed countries such as the U.S. and Japan, equivalent to US $3.96 billion. Industrial raw materials accounted for a high proportion of China's imports, and there was a trend of year-by-year increments. Starting in the early 1960s, industrial raw materials replaced machinery and equipment to occupy the largest proportion in China’s imports. After the 1960s, their share further rose to an overwhelming 50 percent.
With the improvement of the industrial system, the comparative advantages of China's exports also changed, and the export structure was continuously optimized. As can be seen from Figure 1, from 1953 to 1970, the proportion of industrial manufactured goods in China’s exports rose from 2.11 percent to 10.5 percent. In the 1970s, this proportion continued to grow, and reached 45.3 percent in 1978.
Overall, China's foreign trade in the 30 years before reform and opening-up achieved remarkable results in recovery, development, and structural optimization. It guaranteed the basic equilibrium in China's balance of payments and a balanced budget, and promoted the stable development of the national economy.
1979-2019: High-speed Growth and Structural Upgrading
In 1978, the Third Plenary Session of the Eleventh Central Committee of the Communist Party of China (CPC) decided to shift its focus to economic construction. China entered a new era of reform and opening-up, and foreign trade entered a fast lane of growth and structural upgrading. To promote foreign trade development, China gradually implemented the policy of opening up to the outside world from coastal areas to the inland. In May 1980, the CPC Central Committee and the State Council decided to establish four special economic zones in Shenzhen, Zhuhai, Shantou, and Xiamen. In April 1988, Hainan Province was added as a special economic zone. Since then, China has approved the establishment of 15 coastal open cities that have certain autonomy in foreign trade. In the coastal open cities, from 1984 to 1986, China established 14 national economic and technological development zones. After that, the number of such zones continued to grow. As of September 2015, China had established 219 national economic and technological development zones.
Since the 18th CPC National Congress, China has accelerated opening up to the outside world. In order to comply with international trade rules and standards, China approved the establishment of 12 free trade pilot zones between 2013 and 2018. In October 2017, Chinese President Xi Jinping pointed out in the report to the 19th CPC National Congress that China would grant more powers to pilot free trade zones to conduct reform, and explore the opening of free trade ports. Theses reform measures have significantly promoted the development of China's foreign trade.
From 1979 to 2018, China’s total import and export volume increased from US $29.34 billion to US $4.62 trillion, at an average annual growth rate of 14 percent, and its ranking in global trade in goods jumped from the 30th to first. Since 2009, China has maintained the status of the world's largest exporter of goods and the second largest importer for 10 consecutive years. China's total export value increased from US $13.66 billion to US $2.49 trillion, an increase of 182 times; its total import value increased from US $15.67 billion to US $2.14 trillion, an increase of 136 times. Before the start of reform and opening-up, China in most of the years was a trade deficit country. Later, China gradually turned into a trade surplus country.
From 1990 to 2018, China maintained a trade surplus. Foreign trade enabled China to accumulate foreign exchange reserves, thus funding its import of advanced technology and equipment as well as outstanding foreign professionals and technical personnel, which strongly supported China's economic development. The accumulated foreign exchange also enables China to invest overseas. With these overseas investments, on the one hand, China can learn from foreign advanced technology and management experience. On the other hand, it can also help underdeveloped countries and regions to improve infrastructure, accelerate economic development, and create employment. For example, Chinese investment in Africa has helped 100,000 Africans find jobs.
In addition to trade in goods, China's trade in services has also developed rapidly. According to China’s statistics, the total import and export of services in 2018 was RMB 5.24 trillion, an increase of 11.5 percent over the previous year. Among them, service exports were RMB 1.77 trillion, up 14.6 percent; service imports were RMB 3.47 billion, up 10 percent.
In 2001, China joined the World Trade Organization (WTO). The share of China's import and export in the world’s total has since increased steadily. As can be seen from Figure 2, in 1979, China's imports and exports of goods accounted for only 0.87 percent of the world's total, exports accounted for 0.82 percent of the world's total, and imports accounted for 0.92 percent of the world's total. However, by 2018, the proportion of China's imports and exports of goods to the world had risen to 11.77 percent, with exports accounting for 12.77 percent of the world's total, and exports accounting for 10.79 percent of the world's total. China has become the world's largest trading nation.
While the total volume of foreign trade has grown rapidly, the structure of China's import and export has also been continuously optimized. In this transformation, foreign-funded businesses have played a role that cannot be ignored.
First, as for export structure, China has shifted from primary products to industrial manufactured products. Moreover, the export structure of industrial manufactured goods is also improving: The proportion of machinery and transportation equipment that are capital- and technology-intensive is increasing, while the proportion of textile and rubber products is declining. Specifically, as can be seen from Figure 3, in the initial stage of reform and opening-up, China's exports of primary products and industrial manufactured goods were evenly matched, accounting for about 50 percent. Since then, the proportion of primary product exports declined. In 2018, it only accounted for 5.4 percent of China’s total exports, while the proportion of industrial manufactured goods increased sharply. In 2018, it reached 94.6 percent, indicating that China’s industrialization had reached a fairly high level. Furthermore, among exported industrial manufactured goods, the share of machinery and transportation equipment has been growing rapidly, rising from 4.7 percent in 1979 to 48.6 percent in 2018. The share of textiles and other light industrial goods, rubber products, mining and metallurgical products shows a downward trend, from 22.1 percent of total exports in 1979 to 16.3 percent in 2018. The proportion of chemicals and related products has remained basically stable.
In terms of the import structure, primary products account for a moderate proportion, and industrial manufactured goods account for a relatively high proportion. Among them, imports of machinery and transportation equipment are the mainstay. As can be seen from Figure 4, at the beginning of reform and opening-up, China's imports of primary products fell sharply, from 39.6 percent of its total imports in 1982 to 12.5 percent in 1985. After that, the proportion rebounded rapidly and continued to rise to 32.9 percent in 2018. The increase in imports of primary products is mainly due to China's huge demand for raw materials and energy to maintain industrial production and export-oriented manufacturing. On the contrary, China's imports of manufactured goods rose first, from 60.4 percent of its total imports in 1982 to 80.75 percent in 1985, mainly because China needed large quantities of machinery and equipment to increase industrial production capacity in the early days of reform and opening-up. Such imports then began to fall down, to 67.1 percent in 2018. The decline in this period was mainly due to the continuous improvement of China's manufacturing system and the substantial increase in the self-sufficiency of machinery and equipment and manufacturing parts.
Finally, it should be emphasized that foreign direct investment has played a decisive role in promoting the rapid recovery and development of China's foreign trade. As can be seen from Figure 5, the export of foreign-funded companies in China has increased rapidly since the start of reform and opening-up: its share in China's total exports increased from 0.044 percent in 1980 to 58.3 percent in 2005. Since 2006, the proportion of foreign-funded companies' export to China's total exports has been declining, but the proportion is still high. In 2018, it still reached 41.7 percent. Foreign-funded enterprises have brought with them advanced machinery and equipment, as well as management concepts and technical talents, which enable China to quickly integrate into the global production system, and contribute to the rapid growth of China's foreign trade.
China has become a major global trading nation in 70 years, yet it is not a trade power. In the future, China will continue to expand opening-up and international economic cooperation, participate in economic globalization, and achieve mutual benefit and win-win outcomes with trading partners.
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LIU HONGKUI is an associate researcher at the Institute of Economics of the Chinese Academy of Social Sciences.
