China S Trade And Investment Flow

Published Date: 02 Nov 2017

Introduction

Nations have been trading with one another for a long time for the products in which they are not able to produce resourcefully. Trade is an integral part of the world economy. The advent of Globalisation, which is defined as the "process of integrating all economics of the world so that there is a free movement of goods, services, technology, capital and even labour access across national boundaries", gave rise to new era of international competition and trade that has reshaped global production. In addition, this has led to the new growth of new emerging markets from the developing countries, rising incomes, greater taste for variety, and the greater integration of the world economy. Thus, defining that international trade is the flow of intermediates across countries. The need to lay down rules and regulations in order to safe-guide relationships amongst states in the international system is inevitable. World Trade Organisation was established in 1995 to address those issues of trade discrepancies, trade negotiations, and anti-dumping issues amongst a few other issues. The establishment also marks the biggest reform of international trade after the Second World War, a successor to the General Trade and tariff agreement (GATT) and a success after the failed attempt of creating an trade institution in 1945 (Tisdell and Sen, 2004, p. 106; Gereffi and Lee, 2011; WTO, 2013).

The "Made in the World Project" is a WTO initiative established in 2011 with the aim to "support the exchange of projects, experiences and practical approaches in measuring and analysing trade in value added" (WTO, 2013). Some Scholars are of the opinion that trade in value added has some benefits in terms of contributing to the international trade, counter-productive effects of protectionist measures for countries; provision of a more realistic analysis of the bilateral trade balances an regional trade in an economy (Degain, 2011).

According to Lamy (2011), the emergency of new players, globalisation and technology in the 20th century have changed the modus of international trade but not the trade data. Today, a company’s operations is spread across the world, from product design, scouting for new market, administrative and service cost, manufacturing and assembling of components and creation of international production chains, assigning the commercial value to the last country of origin which misrepresents the true economic measurement of the bilateral trade imbalances. For example, in the manufacturing of an iPhone - the single largest portion of the value of the phones is being shipped from China to the US was created in Japan. Germany and South Korea were also responsible for considerably more of the iPhones' value than China. China only accounted for $73.5 million of the $1.9bn value of that trade. Japan accounted for $685m, Germany $341m and South Korea $259m, while the rest of the world accounted for $543m" (WTO OMC: P.6). Such trade is termed as "intermediates" or "trade in value added" (WTO, 2011). The diagram below best explains it.

Source: WTO

In addition, those goods are seen as "Made in the World" goods rather than "Made in US" or "Made in Japan". Also the inaccurate recording of "false recoveries, unpredictable economy growth and growth rates of the global financial crisis of 2007-2008 led to the need to accurately calculate the trade in value added of all the countries involved the production of such good (WTO, 2012). However, in order to calculate accurately the Trade in Value Added from each country. A joint venture was formed amongst the Organisation for Economic Cooperation and Development (OECD), World Trade Organisation (WTO), the Institute of Developing Economies (IDE-JETRO), and the US International Trade Commission (USITC) was established to "help policymakers, academics and the public at large better understand trade in the 21st century" (OECD 2013). This joint venture led to the creation of the World Input-Output Database (WIOD).

The United States International trade Commission rulings and harmonised Tariff schedule (1996), explains "made in United Kingdom or made in France" phrase as having a textile or apparel product made from a single country, territory, or insular possession in which the good was wholly obtained or produced from its country of origin. In addition, the country of origin is required to put a label on such goods. A trade preference rules are used to examine if the goods qualify for favourable tariff treatment in the international system, Schaffer (2009). For example the manufacturing of Tee shirt in which the material, production, finishing is manufactured from a single country.

Lamy (2011), said that the labelling is wrong because it does not represent the whole trade added valve of each countries who had an input in the manufacturing of the goods. Nevertheless, one can say that the need to capture and calculate the true nature of international trade is inevitable for economy growth of a country and international trade. However, my view on the idea of the "made in the world initiative" is much in support with an article written by Michele Nash-Hoff posted on the Huff post business that with all goods labelled made in the world, one would not be able to know the country of origin which infringe on the customer rights.

China’s trade and investment flow.

China was one of the emerging market, but now one of the world’s largest trading nations and as well as one of the four strongest countries in the Brazil, Russia, India, China association (BRIC defined as a group of "powerful emerging economies with a significant growth rates and rising shares in the global trade and investment flows"). The economy is characterised as "having a robust consumption markets, rich and various natural resources, competitive sectors in agricultural and industry, solid foreign exchange reserves and endowed with factors of production". Thus, the economy has enjoyed a real annual gross domestic product (GDP) since the opening of its economy until first quarter of 2012 (Oehler-Şincai, 2011:p.75-76; Morrison, 2012).

The re-entrance into the world economy, through the opening of the economy in 1978, participating in international trade is seen as one of its reforms, which has contributed to its sustained growth; as well as its accession to the WTO in 2001 thus bringing the country into the global light (Pei et al, 2008; Rumbaugh and Blancher, 2004). The table shows the rise of china before it accession into WTO and after until 2009.

China’s integration into the world economy has many positive and negative impacts in term of reallocation of the world’s economy from the West to Asia, which has led to increase in friction in the trade that has generated externalities. Those externalities could be seen in the rise of commodity prices, global economic imbalances, competition and conflict on the demand for the world energy, rise in the greenhouse emissions, and the increase in competition in its low-cost production, which led to the world market rise in the demand for Chinese products. The positive impact could be seen in terms of the adoption of new technologies and in the area of contribution to productivity growth. On another note, great measures were put in place by the Chinese in order to promote foreign economic relations such as reorganisation of foreign trade organisations, controls of imports and exports of customer goods and the devaluation of Yuan severally so as to reduce the trade deficit (Song, 2010; Venables and Yueh, 2006; Bloom et al, 2012).

China