Advertisements for international companies line this busy street in Hong Kong. PHOTO BY TOM CHRISTENSEN.

China is the third largest trader in the world; its exports in 2007 were 80 times what they were in 1979. Computer and office equipment, apparel, textiles, and consumer goods are all mainstays of China’s foreign trade, which has led to rapid economic growth in China and increased consumption of Chinese goods worldwide.

China’s rapid ascent from the rank of twenty-seventh-largest world trader in 1979 to third largest in 2004 underscores the nation’s emerging economic and political power. In 2007 China exported $1.2 trillion (an eighty-fold increase compared with 1979) and imported $956 billion (a sixty-three-fold increase compared with 1979) worth of goods. It maintained its record of a consistent surplus in foreign merchandise trade that was set forth in 1994.

Foreign Trade Composition and Regime

In 2007 nearly 43 percent of China’s exports, which comprised primarily the top three export commodities (computer and office equipment, wearing apparel, and textile products), went to the three largest markets—the United States, Hong Kong, and Japan; whereas approximately 35 percent of China’s imports, which comprised primarily the most important import commodities (electronic parts and components consisting mainly of integrated circuits, micro-assemblies, and liquid crystal devices), came from the three largest sources—Japan, the Republic of Korea, and Taiwan. The export of finished goods made of imported bonded materials and intermediate inputs—the processing trade associated mainly with the export production investment from the four Asian Tigers (South Korea, Hong Kong, Singapore, and Taiwan) and Japan—therefore constitutes the primary component of China’s foreign trade. In 2007 this type of trade accounted for approximately 45 percent of China’s total value of merchandise exports and imports. The other major exports in 2007 included steel products, whereas the other major imports included crude petroleum oil and mineral ore.

The Foreign Trade Law of the People’s Republic of China and the Customs Law of the People’s Republic of China form the base of China’s policy framework for foreign trade, which has become relatively liberalized in recent years. During the economic opening period prior to China’s entry in the World Trade Organization (WTO) in 2001, China exercised quota and licensing controls over its export and import activities. It largely had a state monopoly on its general foreign trade (import of goods for domestic sale and export of goods made of domestic materials). Foreign investments during that period were permitted to engage only in processing trade and in general import trade in which the investments themselves were the end users of the imports. Following its WTO commitments, China now uses tariffs and exchange rate adjustments to govern most of its foreign trade, and all enterprises and individuals in China are allowed to undertake export and import activities. Thus, now foreign firms can export to China through many channels, including trade agents at home, importers in China, and their trading or commercial investments in China. Foreign firms can also sell the products they make in China in the domestic market there.

In mid-2008 China had an average tariff rate of 9.8 percent on general imports. The average import tariff rate on agricultural products was higher at approximately 15 percent, and that on industrial goods was lower at about 9 percent. China further has a value-added tax up to a maximum of 17 percent on the increased value of most imports made at every stage of domestic sale. Certain general imports, such as equipment for manufacturing uses in innovative industries that have technology and know-how transfer potential, are nevertheless exempt from tariffs or value-added tax or both. With the exception of a limited number of goods such as iron and steel products, China also has zero tariffs on its exports. It further rebates the value-added tax that enterprises paid for their processing imports. However, as a means of moderating its foreign trade surplus, in recent years China has reduced the number of value-added tax rebates extended to merchants.

Foreign Trade Surplus

The import and export of food products, drugs, and a number of genetically modified goods are subject to China’s registration or certification requirements or both. The import of certain mechanical, electrical, and electronic products is subject to the China Compulsory Certification requirement. Information on the latest regulations on China’s import and export trade can be found at the website of the Ministry of Commerce of the People’s Republic of China and that of China Customs.

Free Trade Agreements and International Economic Relations

Given its economic significance, China is at the center of the emerging Asian Free Trade Area, the trading bloc that parallels the European Economic Area and the North American Free Trade Agreement area. In 2008 China already had free trade agreements with several Asian economies, including Hong Kong, Macao, the Republic of Korea, Association of Southeast Asian Nations (ASEAN) member nations, Pakistan, Sri Lanka, and Bangladesh. China has also recently entered into a free trade agreement with New Zealand and is seeking similar arrangements with Australia. In particular, the Closer Economic Partnership Arrangement allows tariff-free flow of a wide range of local-origin goods between China and Hong Kong. It further allows firms in Hong Kong to invest in a number of services sectors that are beyond those committed to by China for its entry to the WTO. As a result, Hong Kong has reinforced its status as the most important gateway for both China’s foreign merchandise and China’s foreign services trade.

Employment and Income Growth

Foreign trade has been a major force in China’s employment and income growth since the economic opening. Such growth has not taken place at the expense of manufacturing jobs in North America and Western Europe, where firms benefit from the export of quality materials and parts, production equipment, and advanced technology products to China. Such growth also did not cause net job losses in the four Asian Tigers and Japan, where firms flourish on China’s processing or services trade or both. The growth of China’s foreign trade has further contributed to a substantial increase in consumption welfare in China, where the population enjoys a wide array of imported goods, and in the rest of the world, where people enjoy affordable Chinese exports. Nevertheless, China’s rapid ascent in the world trade arena has occasionally heightened economic and political tensions between China and its major trading partners, especially the United States and the European Union. Intellectual property protection and labor rights in China, along with the value of Chinese currency, are among the most frequently raised issues that China has faced. Notwithstanding these tensions, as the most populous nation and an active participant in the global economy, China is destined to be the largest world trader.

Further Reading

Cui, Li, & Syed, M. (2007). The shifting structure of China’s trade and production. IMF Working Paper WP/07/214. Washington, DC: International Monetary Fund.

Fang, Tony, Worm, V., & Tung, Rosalie. (2008). Changing success and failure factors in business negotiations wit
h the PRC. International Business Review, 17(2), 159–169.

Hong Kong Trade Development Council. (2005). Practical guide to distribution in China—How to launch product sales? Hong Kong: Hong Kong Trade Development Council.

Hong Kong Trade Development Council. (2008). Guide to doing business in China. Hong Kong: Hong Kong Trade Development Council.

Official Web Site of the Ministry of Commerce of the People’s Republic of China. (2008). Retrieved September 3, 2008 from

Official Web Site of the People’s Republic of China Customs. (2008). Retrieved September 3, 2008, from

Wang, Chengqi, Buckley, P., Clegg, J., & Kafouros, M. (2007). The impact of inward foreign direct investment on the nature and intensity of Chinese manufacturing exports. Transnational Corporations, 16(2), 123–140.

Xing, Yuqing. (2007). Foreign direct investment and China’s bilateral intra-industry trade with Japan and the US. Journal of Asian Economics, 18(4), 685–700.

Source: Leung, Chi Kin. (2009). Foreign Trade. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 860–862. Great Barrington, MA: Berkshire Publishing.

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