History of trade for the People's Republic of China
Encyclopedia
Trade has been a very significant factor of the People's Republic of China
's economy
. In the twenty-five years that followed the founding of the People's Republic of China in 1949, China's trade institutions were built into a partially modern but somewhat inefficient system. The drive to modernize
the economy that began in 1978 required a sharp acceleration in commodity flows and greatly improved efficiency in economic transaction
s. In the ensuing years economic reforms were adopted by the government to develop a "socialist planned commodity economy" that combined central planning with market mechanism
s. These changes resulted in the decentralization
and expansion of domestic
and foreign trade institutions, a greatly enlarged role for free market
s in the distribution of goods, and a prominent role for foreign trade and investment in economic development.
s.
Approximately 63 percent of the population was located in rural areas, where the majority of the people worked in agriculture and rural industries. Under the responsibility system for agriculture instituted in 1981, the household replaced the production team
as the basic production unit. Families contracted with the economic collective
to farm a plot of land, delivered a set amount of grain or other produce and the agricultural tax to the state, and paid a fee to the collective. After meeting these obligations, the household was free to retain its surplus produce or sell it in free markets. Restrictions on private plots and household sideline production were lifted, and much of the production from these was also sold on free markets.
Distribution of food and other agricultural goods to urban consumers, industry, and rural areas deficient in food was carried out primarily by the state and secondarily by producers or cooperatives. The state procured agricultural goods by means of taxes in kind and by purchases by state commercial departments (state trading companies) under the Ministry of Commerce
. The agricultural tax was not large, falling from 12 percent of the total value of agricultural output in 1952 to 5 percent in 1979. In 1984 the number of agricultural and sideline products subject to state planning and purchasing quotas was reduced from twenty-nine to ten and included cereal grains, edible oil, cured tobacco
, jute
, hemp
, and pig
s. In 1985 the system of state purchasing quotas for agricultural products was abolished. Instead, the state purchased grain and cotton under contract at a set price. Once contracted quotas were met, the grain and cotton were sold on the market at floating prices. If market prices fell below the listed state price, the state purchased all available market grain at the state price to protect the interests of producers. Vegetables, pigs, and aquatic products sold to urban, mining, and industrial areas were traded in local markets according to demand. Local commercial departments set the prices of these goods according to quality to protect the interests of urban consumers. All other agricultural goods were sold on the market to the state, to cooperatives, or to other producers. Restrictions on private business activities were greatly reduced, permitting peasants as well as cooperatives to transport agricultural goods to rural and urban markets and allowing a rapid expansion of free markets in the countryside and in cities. The number of wholesale produce markets increased by 450 percent between 1983 and 1986, reaching a total of 1,100 and easing pressure on the state produce distribution network, which had been strained by the burgeoning agricultural production engendered by rural reforms. In 1986 free markets, called "commodity fairs," numbered 61,000 nationwide.
Once food was procured and transported to urban areas, it was sold to consumers by state-owned stores and restaurants. In the mid-1980s food items were also available in free markets, where peasants sold their produce, and in privately owned restaurants. As noted previously, the prices of pigs, aquatic products, and vegetables were determined by local authorities according to quality and demand
; prices of other products floated freely on the market. Except for grain, edible oil, and a few other rationed items, food items were in good supply.
Industrial goods used in agricultural production were sold to agricultural units in the 1980s. Local cooperatives or state supply and marketing bureaus sold most agricultural producer goods, including chemical fertilizer
s and insecticide
s, to households at set prices. The state also offered preferential prices for agricultural inputs to grain farmers to encourage grain production. Households were permitted to purchase agricultural machinery and vehicles to transport goods to market. In order to ensure that rural units could cover the costs of the increasing quantities of industrial inputs required for higher yields, the government periodically reduced the prices of the industrial goods sold to farmers, while raising the procurement prices for agricultural products. In the mid-1980s, however, the price gap between agricultural and industrial products was widening to the disadvantage of farmers.
based on mandatory planning
, guidance planning (use of economic levers such as taxes, prices, and credit
instead of administrative fiat), and the free market
. In late 1984 further reforms of the urban industrial economy and commerce
reduced the scope of mandatory planning, increased enterprise autonomy and the authority of professional managers, loosened price controls to rationalize prices, and cut subsidies to enterprises. These changes created a "socialist planned commodity economy," essentially a dual economy in which planned allocation and distribution are supplemented by market exchanges based on floating or free prices.
As a result of these reforms, the distribution of goods used in industrial production was based on mandatory planning with fixed prices, guidance planning with floating prices, and the free market. Mandatory planning covered sixty industrial products, including coal
, crude oil, rolled steel
, nonferrous metals, timber
, cement
, electricity
, basic industrial chemicals, chemical fertilizers, major machines and electrical equipment, chemical fibers, newsprint
, cigarette
s, and defense industry
products. Once enterprises under mandatory planning had met the state's mandatory plans and supply contracts, they could sell surplus production to commercial departments or other enterprises. Prices of surplus industrial producer goods floated within limits set by the state. The state also had a planned distribution system for important materials such as coal, iron
and steel
, timber
, and cement
. Enterprise managers who chose to exceed planned production goals purchased additional materials on the market. Major cities established wholesale
markets for industrial producer goods to supplement the state's allocation
system.
Under guidance planning, enterprises try to meet the state's planned goals but make their own arrangements for production and sales based on the orientation of the state's plans, the availability of raw and unfinished materials and energy supplies, and the demands on the market. Prices of products under guidance planning either are unified prices or floating prices set by the state or prices negotiated between buyers and suppliers. Production and distribution of products not included in the state's plans are regulated by market conditions.
had encouraged regional and organizational autarky
, whereby enterprises controlled by a local authority found it almost impossible to do business with other enterprises not controlled by the same institution, a practice that resulted in economic waste and inefficiency. Lateral economic cooperation broke down some barriers in the sectors of personnel, resources, capital, technical expertise, and procurement
and marketing
of commodities. In order to promote increased and more efficient production and distribution of goods among regions and across institutional divisions, ties were encouraged among producers of raw and semi-finished materials and processing enterprises, production enterprises and research units (including colleges and universities), civilian and military enterprises, various transportation entities, and industrial, agricultural, commercial, and foreign trade enterprises.
A multitiered network of transregional economic cooperation associations also was established. The Seventh Five-Year Plan (1986–90) divided China into three regions — eastern, central, and western, each with its own economic development
plans. In addition to the three major regions, three echelons of economic cooperation zones were created. The first echelon — national-level economic development zones — cut across several provincial-level boundaries and linked major economic areas. Among these were the Shanghai
Economic Zone, the Northeastern Economic Zone, the energy production bases centering on Shanxi
Province, the Beijing
-Tianjin
-Tangshan
Economic Zone, and the Southwestern Economic Zone. The second-echelon network linked provincial-level capitals with designated ports and cities along vital communication lines and included the Huaihai Economic Zone (consisting of fifteen coastal prefectures and cities in Jiangsu
, Anhui
, Henan
, and Shandong
provinces) and the Pearl River Delta
Economic Zone centered on the southern city of Guangzhou
. The third tier of zones centered on provincial-level capitals and included the Nanjing
Regional Economic Cooperation Association. Smaller-scale lateral economic ties below the provincial level, among prefectures, counties, and cities, also were formed.
, service, and catering
trades in rural and urban areas. Retail sales increased 300 percent from 1977 to 1985, rising at an average yearly rate of 13.9 percent — 10.5 percent when adjusted for inflation
. In the 1980s retail sales to rural areas increased at an annual rate of 15.6 percent, outpacing the 9.7 percent increase in retail sales to urban areas and reflecting the more rapid rise in rural incomes. In 1977 sales to rural areas comprised 52 percent of total retail sales; in 1984 rural sales accounted for 59.2 percent of the total. Consumer goods comprised approximately 88 percent of retail sales in 1985, the remaining 12 percent consisting of farming materials and equipment.
The number of retail sales enterprises also expanded rapidly in the 1980s. In 1985 there were 10.7 million retail, catering, and service establishments, a rise of 850 percent over 1976. Most remarkable in the expansion of retail sales was the rapid rise of collective and individually owned retail establishments. Individuals engaged in businesses numbered 12.2 million in 1985, more than 40 times the 1976 figure. Furthermore, as state-owned businesses either were leased or turned over to collective ownership or were leased to individuals, the share of state-owned commerce in total retail sales dropped from 90.3 percent in 1976 to 40.5 percent in 1985.
In 1987 most urban retail and service establishments, including state, collective, and private businesses or vendors, were located either in major downtown commercial districts or in small neighborhood shopping areas. The neighborhood shopping areas were numerous and were situated so that at least one was within easy walking distance of almost every household. They were able to supply nearly all the daily needs of their customers. A typical neighborhood shopping area in Beijing would contain a one-story department store, bookstore, hardware store, bicycle repair shop, combined tea shop and bakery, restaurant, theater, laundry, bank, post office, barbershop, photography studio, and electrical appliance repair shop. The department stores had small pharmacies and carried a substantial range of housewares, appliances, bicycles, toys, sporting goods, fabrics, and clothing. Major shopping districts in big cities contained larger versions of the neighborhood stores as well as numerous specialty shops, selling such items as musical instruments, sporting goods, hats, stationery, handicrafts, cameras, and clocks.
Supplementing these retail establishments were free markets in which private and collective businesses provided services, hawked wares, or sold food and drinks. Peasants from surrounding rural areas marketed their surplus produce or sideline production in these markets. In the 1980s urban areas also saw a revival of "night markets," free markets that operated in the evening and offered extended service hours that more formal establishments could not match.
In rural areas, supply and marketing cooperatives operated general stores
and small shopping complexes near village and township administrative headquarters. These businesses were supplemented by collective and individual businesses and by the free markets that appeared across the countryside in the 1980s as a result of rural reforms. Generally speaking, a smaller variety of consumer goods was available in the countryside than in the cities. But the lack was partially offset by the increased access of some peasants to urban areas where they could purchase consumer goods and market agricultural items.
A number of important consumer goods, including grain, cotton cloth, meat, eggs, edible oil, sugar, and bicycles, were rationed during the 1960s and 1970s. To purchase these items, workers had to use coupon
s they received from their work unit
s. By the mid-1980s rationing of over seventy items had been eliminated; production of consumer goods had increased, and most items were in good supply. Grain, edible oil, and a few other items still required coupons. In 1985 pork rationing was reinstated in twenty-one cities as supplies ran low. Pork was available at higher prices in supermarket
s and free markets.
" through Central Asia
was pioneered by Chinese envoy
s. During later dynasties, Chinese ships traded throughout maritime Asia
, reaching as far as the Africa
n coast, while caravans extended trade contacts in Central Asia and into the Middle East
. Foreign trade was never a major economic activity, however, and Chinese emperors considered the country to be entirely self-sufficient. During parts of the Ming
(1368–1644) and Qing
(1644–1911) dynasties, trade was officially discouraged. In the mid-eighteenth century, the government restricted sea trade by setting up the Canton System
.
In the nineteenth century, Europe
an nations used military force to initiate sustained trade with China. From the time of the Opium War (1839–42) until the founding of the People's Republic in 1949, various Western countries and, starting in the 1890s, Japan
compelled China to agree to a series of unequal treaties
that enabled foreigners to establish essentially autonomous economic bases and operate with privileged status in China. One classic account of this period is Carl Crow
's 400 Million Customers, a humorous but realistic guide which has lasting insights.
Foreign privileges were abolished when the People's Republic came into being.
Foreign trade did not account for a large part of the Chinese economy for the first thirty years of the People's Republic. As in most large, continental countries, the amount of commerce
with other nations was small relative to domestic economic activity. During the 1950s and 1960s, the total value of foreign trade was only about 2 percent of the gross national product (GNP). In the 1970s trade grew rapidly but in 1979 still amounted to only about 6 percent of GNP.
The importance of foreign trade in this period, however, far exceeded its volume. Foreign imports alleviated temporary but critical shortages of food, cotton, and other agricultural products as well as long-term deficiencies in a number of essential items, including raw material
s such as chrome
and manufactured goods such as chemical fertilizer and finished steel products. The acquisition of foreign plants and equipment enabled China to utilize the more advanced technology of developed countries to speed its own technological growth
and economic development
.
During the 1950s China imported Soviet plants and equipment for the development program of the First Five-Year Plan (1953–57). At the same time, the Chinese government expanded exports of agricultural products to repay loans that financed the imports. Total trade peaked at the equivalent of US$4.3 billion in 1959, but a sudden decline in agricultural production in 1959-61 required China's leaders to suspend further imports of machinery to purchase foreign grain. Under a policy of "self-reliance
," in 1962 total trade declined to US$2.7 billion. As the economy revived in the mid-1960s, plants and equipment again were ordered from foreign suppliers, and substantial growth in foreign trade was planned. But in the late 1960s, the activities of the Cultural Revolution
(1966–76) caused trade again to decline.
The pragmatic
modernization
drive led by party leaders Zhou Enlai
and Deng Xiaoping
and China's growing contacts with Western nations resulted in a sharp acceleration of trade in the early 1970s. Imports of modern plants and equipment were particularly emphasized, and after 1973 oil
became an increasingly important export. Trade more than doubled between 1970 and 1975, reaching US$13.9 billion. Growth in this period was about 9 percent a year. As a proportion of GNP, trade grew from 1.7 percent in 1970 to 3.9 percent in 1975. In 1976 the atmosphere of uncertainty resulting from the death of Mao Zedong
and pressure from the Gang of Four
, whose members opposed reliance on foreign technology, brought another decline in trade.
Beginning in the late 1970s, China reversed the Maoist economic development strategy and, by the early 1980s, had committed itself to a policy of being more open to the outside world and widening foreign economic relations and trade. The opening up policy led to the reorganization and decentralization of foreign trade institutions, the adoption of a legal framework to facilitate foreign economic relations and trade, direct foreign investment, the creation of special economic zone
s, the rapid expansion of foreign trade, the importation of foreign technology and management methods, involvement in international financial markets, and participation in international foreign economic organizations. These changes not only benefited the Chinese economy but also integrated China into the world economy
. In 1979 Chinese trade totaled US$27.7 billion - 6 percent of China's GNP but only 0.7 percent of total world trade
. In 1985 Chinese foreign trade rose to US$70.8 billion, representing 20 percent of China's GNP and 2 percent of total world trade and putting China sixteenth in world trade rankings.
The table below shows the average annual growth (in nominal US dollar terms) of China’s foreign trade during the reform era.
were all assigned a role in promoting economic development
. Exports earned foreign currency
, which was used to fund domestic development projects and to purchase advanced foreign technology
and management
expertise. Imports of capital goods and industrial supplies and foreign loan
s and investment were used to improve the infrastructure
in the priority areas of energy
, transportation, and telecommunications and to modernize the machine
-building and electronics
industries. To earn more foreign currency and to conserve foreign exchange reserves
, foreign capital was also used to expand production of export commodities, such as textiles, and of import substitutes, such as consumer goods.
China has adopted a variety of measures to promote its foreign economic relations, maximizing the role of imports, exports, and foreign capital in economic development. Foreign trade organizations were reorganized, and control of imports and exports was relaxed or strengthened depending on the balance of trade
and the level of foreign exchange reserves. Heavy purchases of foreign plants and equipment resulted in import restraint from 1980 to 1983. Because of the expansion of exports in the mid-1980s, a large foreign reserve surplus, and the decentralized management of foreign trade, imports surged. Huge, uncontrolled purchases of consumer goods led to trade deficits in 1984 and 1985, resulting in the introduction of an import and export licensing system, stricter controls on foreign exchange expenditures, and the devaluation
of the yuan
in order to reduce the trade deficit and ensure that machinery, equipment, and semi-finished goods, rather than consumer goods, were imported. In 1985 China had foreign exchange reserves of US$11.9 billion.
China joined a number of international economic organizations, becoming a member of the World Bank
, the International Monetary Fund
, the Asian Development Bank
, the General Agreement on Tariffs and Trade
(GATT), and the Multi-Fiber Agreement. China became an observer of GATT in 1982 and formally applied to participate as a full member in July 1986. China also reversed its aversion to foreign capital, borrowing money from international lending organizations, foreign governments, and foreign commercial banks and consortia and permitting foreign banks to open branches in China. The Chinese government maintained a good credit rating
internationally and did not pile up huge foreign debts like many other communist and developing countries. Between 1979 and 1985, China signed loans totaling US$20.3 billion, US$15.6 billion of which it already had used. Most loans went into infrastructure
projects, such as energy and transportation, and funded raw materials imports. The Bank of China
, the principal foreign exchange bank, established branches overseas and participated in international financial markets in Eurobond
s and loan syndication.
Legal and institutional frameworks
to facilitate foreign investment and trade
also were created. Laws on taxation, joint venture
s, foreign investments, and related areas were promulgated
to encourage foreign investment. In 1979 China created four special economic zones in Shenzhen
, Zhuhai
, Shantou
(in Guangdong Province), and Xiamen
(in Fujian Province). (See Special Economic Zones of the People's Republic of China.) The special economic zones essentially were export-processing zones designed to attract foreign investment, expand exports, and import technology and expertise. In 1984 fourteen coastal cities were designated "open cities." These too were intended to attract foreign funds and technology. But in 1985 the government decided to concentrate resources on only four of the cities: Dalian
, Guangzhou
, Shanghai
, and Tianjin
. Although the special economic zones and open cities had the power to grant investment incentive
s, problems with the red tape
, bureaucratic interference, and lack of basic infrastructure resulted in less foreign investment and fewer high-technology projects than initially envisioned.
From 1979 to 1985, China received US$16.2 billion in foreign investment and used US$4.6 billion of that amount. By 1986 China had over 6,200 foreign-funded businesses, including 2,741 joint ventures, 3,381 cooperatively managed businesses, and 151 enterprises with sole foreign investment. Of the joint ventures, 70 percent were in production enterprises (manufacturing or processing) and 30 percent were service industries (primarily hotels or tourism). Hong Kong
provided 80 percent of the joint venture partners, the United States
7 percent, and Japan
6 percent.
on import and export transaction
s as the industrial ministries were permitted to establish their own foreign trade enterprises. The provincial branch corporations of the state foreign trade corporations were granted more autonomy, and some provinces, notably Fujian
, Guangdong
, and the special municipalities of Beijing
, Tianjin
, and Shanghai
were permitted to set up independent, provincial-level import-export companies. Some selected provincial enterprises were granted autonomy in foreign trade decisions. In 1982 the State Council
's Import-Export Control Commission, Foreign Investment and Control Commission, Ministry of Foreign Trade, and Ministry of Foreign Economic Relations were merged to form the Ministry of Foreign Economic Relations and Trade. In 1984 the foreign trade system underwent further decentralization. Foreign trade corporations under this and other ministries and under provincial-level units became independent of their parent organizations and were responsible for their own profits and losses. An agency system for foreign trade also was established, in which imports and exports were handled by specialized enterprises and corporations acting as agents on a commission
basis.
in setting long-term foreign trade plans and annual quotas for imports and exports; to control imports and exports through license
s and quotas; to supervise the management of foreign trade corporations and enterprises; and to coordinate economic and trade relations with foreign governments and international economic organizations. The ministry also undertook international market research
, led institutes of foreign economic relations and trade, and directed the General Administration of Customs
.
and export
transactions in such areas as arts and crafts, textiles, natural produce and animal byproducts, foodstuffs of various kinds, chemicals, light industrial products, metals and minerals technology, industrial machinery and equipment, petrochemical and petroleum products, scientific instruments, aerospace technology and services, ships, and weapons. Although nominally supervised by the Ministry of Foreign Economic Relations and Trade each of these corporations was responsible for its own profits and losses. Included among these enterprises, for example, was the Great Wall Industrial Corporation, which imported and exported transportation vehicles, satellites and other products associated with aerospace programs, mechanical equipment, electrical products, hardware and tools, medical apparatus, and chemicals. China Northern Industrial Corporation, subordinate to the Ministry of Ordnance Industry, used military production facilities to manufacture civilian products for export. The business activities of China Northern Industrial Corporation included the sale of heavy machinery, hardware and tools, and heavy-duty vehicles; light chemical industry products, such as plastic, paints, and coatings; and high-precision machinery and optical and optical-electronic equipment. Other corporations offered a variety of professional consulting services. One of these, the China International Economic Consultants Corporation, provided economic and legal expertise on investment and other economic activities.
, the central bank. Foreign exchange
allocations to banks, ministries, and enterprises were all approved by the State Administration of Exchange Control. The Bank of China
, the foreign exchange arm of the People's Bank of China, lost its monopoly on all foreign exchange transactions in 1984 when the Agricultural Bank
, People's Construction Bank, China Industrial and Commercial Bank, and China International Trust and Investment Corporation (CITIC) were permitted to deal in foreign currency
. The Bank of China remained China's principal foreign exchange bank and provided loans for production and commercial transactions related to exports, set up branches overseas, maintained correspondent relations with foreign banks, and did research on international monetary trends. The Bank of China also was active in international financial market
s through such activities as loan syndication and issuing of foreign bonds
. CITIC, formed in 1979 to facilitate foreign investment in China, also borrowed and lent internationally and issued foreign bonds in addition to encouraging and participating in joint ventures, importing foreign technology and equipment, and making overseas investments. In 1986 CITIC was renamed CITIC Group and shifted its emphasis to power, metallurgical, and raw materials industries, which had trouble attracting investments. In late 1986 the CITIC Group had set up 47 joint ventures, invested in 114 domestic companies, and issued US$550 million in foreign bonds. The China Investment Bank was established in 1981 as a channel for medium- and long-term loans from international financial institutions such as the World Bank
.
and State Economic Commission were involved in long-term planning for the development of foreign trade, and they developed national priorities for imports and exports. Several other organizations under the State Council were also involved in foreign trade matters: the Special Economic Zones Office, State Import and Export Commodities Inspection Administration, General Administration of Customs, and China Travel and Tourism Bureau. The China Council for the Promotion of International Trade
(CCPIT) assisted the Ministry of Foreign Economic Relations and Trade in foreign trade relations. CCPIT handled trade delegations to and from China, organized foreign trade exhibitions in China and Chinese exhibitions in other countries, and published periodicals promoting Chinese trade. The People's Insurance Company of China
expanded its operations in 1980 for the purpose of encouraging foreign trade. New categories of coverage offered to foreign firms included compensatory trade, satellite launching, nuclear power plant safety, offshore oil development insurance, insurance against contract failure, and insurance against political risk
.
(1958–60), food imports increased from a negligible amount in 1959 to 39 percent of all imports in 1962. At the same time, imports of machinery and equipment dropped from 41 percent to 5 percent of the total. From this time on, food and live animals remained a significant, although declining, share of imports, amounting to 14.8 percent of the total in 1980 but dropping to 4.1 percent in 1985. The pattern also shifted over time as China's industrial sector expanded, gradually increasing the share of exports accounted for by manufactured goods. Manufactures provided only 30 percent of all exports in 1959, 37.9 percent in 1975, and grew to 44.9 percent in 1985.
Important changes occurred in several specific trade categories in the 1970s and 1980s. Imports of textile fibers rose from 5.8 percent in 1975 to 10.7 percent in 1980 as the Chinese textile industry grew faster than domestic cotton supplies but then fell to 4 percent in 1985 as domestic cotton production increased. Imports of unfinished textile products also increased from 1.3 percent in 1975 to 5.3 percent in 1985 as a result of textile industry growth. Iron and steel accounted for approximately 20 percent of imports in the 1970s, fell to 11.6 percent in 1980, then rose to 14.9 percent in 1985. Imports of manufactured goods, machinery, and transportation equipment represented 62.6 percent of total import value in 1975, fell to 53.9 percent in 1980 as imports were cut back during the "period of readjustment" of the economy (1979–81), and rose again to 75.2 percent in 1985. On the export side, the share of foodstuffs fell to 12.5 percent in 1985. The fastest growing export item in the 1970s was petroleum
, which was first exported in 1973. Petroleum rocketed to 12.1 percent of all exports in 1975, 22 percent in 1980, and 21.2 percent in 1985. In the 1980s textile
exports grew rapidly. Although exports of unfinished textiles remained about 14 percent of total exports, all categories of textile exports rose from 5 percent in 1975 to 18.7 percent in 1984. In 1986 textiles replaced petroleum as China's largest single export item.
. In 1959 trade with the Soviet Union accounted for nearly 48 percent of China's total. As relations between the two countries deteriorated
in the early 1960s, the volume of trade fell, decreasing to only just over 7 percent of Chinese trade by 1966. During the 1970s trade with the Soviet Union averaged about 2 percent of China's total, while trade with all communist countries made up about 15 percent. In 1986, despite a trade pact with the Soviet Union, Chinese-Soviet trade, according to Chinese customs
statistics, amounted to only 3.4 percent of China's total trade, while trade with all communist countries fell to 9 percent of the total.
By the mid-1960s Japan
had become China's leading trading partner, accounting for 15 percent of trade in 1966. Japan was China's most natural trading partner; it was closer to China than any other industrial country and had the best transportation links to it. The Japanese economy was highly advanced in those areas where China was weakest, especially heavy industry
and modern technology, while China was well endowed with some of the important natural resources
that Japan lacked, notably coal
and oil
. In the 1980s Japan accounted for over 20 percent of China's foreign trade and in 1986 provided 28.9 percent of China's imports and 15.2 percent of its exports. Starting in the late 1970s, China ran a trade deficit with Japan.
Beginning in the 1960s, Hong Kong
was consistently the leading market for China's exports and its second largest partner in overall trade. In 1986 Hong Kong received 31.6 percent of Chinese goods sold abroad and supplied about 13 percent of China's imports. Hong Kong was a major market for Chinese foodstuffs and served as a trans-shipment port for Chinese goods reexported to other countries.
The United States
banned trade with China until the early 1970s. Thereafter trade grew rapidly, and after the full normalization of diplomatic and commercial relations in 1979, the United States became the second largest importer to China and in 1986 was China's third largest partner in overall trade. Most American goods imported by China were either high-technology industrial products, such as aircraft, or agricultural products, primarily grain and cotton.
Western Europe
has been important in Chinese foreign trade since the mid-1960s. The Federal Republic of Germany, in particular, was second only to Japan in supplying industrial goods to China during most of this period. China followed a policy of shopping widely for its industrial purchases, and it concluded deals of various sizes with nearly all of the West European nations. In 1986 Western Europe accounted for nearly 18 percent of China's foreign trade, with imports exceeding exports.
Third World
countries have long served as a market for Chinese agricultural and light industrial products. In 1986 developing countries purchased about 15 percent of Chinese exports and supplied about 8 percent of China's imports. China has increased trade and investment ties with many African countries such as Chad, the Sudan, and the Democratic Republic of Congo, partly to secure strategic natural resources such as oil and minerals.
Today, China's main export markets, in order of importance, are the European Union (20.4%), United States (17.7%), Hong Kong (13.4%), and Japan (8.1%). China's main import markets, in order of importance, are Japan (13.3%), European Union (11.7%), South Korea (10.9%), Taiwan (9.1%), and the United States (7.2%).
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
's economy
Economy of the People's Republic of China
The People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...
. In the twenty-five years that followed the founding of the People's Republic of China in 1949, China's trade institutions were built into a partially modern but somewhat inefficient system. The drive to modernize
Modernization
In the social sciences, modernization or modernisation refers to a model of an evolutionary transition from a 'pre-modern' or 'traditional' to a 'modern' society. The teleology of modernization is described in social evolutionism theories, existing as a template that has been generally followed by...
the economy that began in 1978 required a sharp acceleration in commodity flows and greatly improved efficiency in economic transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
s. In the ensuing years economic reforms were adopted by the government to develop a "socialist planned commodity economy" that combined central planning with market mechanism
Market mechanism
Market mechanism is a term from economics referring to the use of money exchanged by buyers and sellers with an open and understood system of value and time trade offs to produce the best distribution of goods and services...
s. These changes resulted in the decentralization
Decentralization
__FORCETOC__Decentralization or decentralisation is the process of dispersing decision-making governance closer to the people and/or citizens. It includes the dispersal of administration or governance in sectors or areas like engineering, management science, political science, political economy,...
and expansion of domestic
Domestic trade
Domestic trade, also known as internal trade or home trade, is the exchange of domestic goods within the boundaries of a country. This may be sub-divided into two categories, wholesale and retail. Wholesale trade is concerned with buying goods from manufacturers or dealers in large quantities and...
and foreign trade institutions, a greatly enlarged role for free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
s in the distribution of goods, and a prominent role for foreign trade and investment in economic development.
Agriculture
Agricultural products were distributed in three major ways in China during the 1980s. They were either retained by the household (now the primary production unit) for distribution among its members, procured by the state, or sold in rural or urban free marketFree market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
s.
Approximately 63 percent of the population was located in rural areas, where the majority of the people worked in agriculture and rural industries. Under the responsibility system for agriculture instituted in 1981, the household replaced the production team
Production team
A production team is the group of technical staff who produce a play, television show, recording, or film. Generally the term refers to all individuals responsible for the technical aspects of creating of a particular product, regardless of where in the process their expertize is required, or how...
as the basic production unit. Families contracted with the economic collective
Collective farming
Collective farming and communal farming are types of agricultural production in which the holdings of several farmers are run as a joint enterprise...
to farm a plot of land, delivered a set amount of grain or other produce and the agricultural tax to the state, and paid a fee to the collective. After meeting these obligations, the household was free to retain its surplus produce or sell it in free markets. Restrictions on private plots and household sideline production were lifted, and much of the production from these was also sold on free markets.
Distribution of food and other agricultural goods to urban consumers, industry, and rural areas deficient in food was carried out primarily by the state and secondarily by producers or cooperatives. The state procured agricultural goods by means of taxes in kind and by purchases by state commercial departments (state trading companies) under the Ministry of Commerce
Ministry of Commerce of the People's Republic of China
The Ministry of Commerce of the People's Republic of China , formerly Ministry of Foreign Trade and Economic Co-operation is an executive agency of the State Council of China...
. The agricultural tax was not large, falling from 12 percent of the total value of agricultural output in 1952 to 5 percent in 1979. In 1984 the number of agricultural and sideline products subject to state planning and purchasing quotas was reduced from twenty-nine to ten and included cereal grains, edible oil, cured tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
, jute
Jute
Jute is a long, soft, shiny vegetable fibre that can be spun into coarse, strong threads. It is produced from plants in the genus Corchorus, which has been classified in the family Tiliaceae, or more recently in Malvaceae....
, hemp
Hemp
Hemp is mostly used as a name for low tetrahydrocannabinol strains of the plant Cannabis sativa, of fiber and/or oilseed varieties. In modern times, hemp has been used for industrial purposes including paper, textiles, biodegradable plastics, construction, health food and fuel with modest...
, and pig
Pig
A pig is any of the animals in the genus Sus, within the Suidae family of even-toed ungulates. Pigs include the domestic pig, its ancestor the wild boar, and several other wild relatives...
s. In 1985 the system of state purchasing quotas for agricultural products was abolished. Instead, the state purchased grain and cotton under contract at a set price. Once contracted quotas were met, the grain and cotton were sold on the market at floating prices. If market prices fell below the listed state price, the state purchased all available market grain at the state price to protect the interests of producers. Vegetables, pigs, and aquatic products sold to urban, mining, and industrial areas were traded in local markets according to demand. Local commercial departments set the prices of these goods according to quality to protect the interests of urban consumers. All other agricultural goods were sold on the market to the state, to cooperatives, or to other producers. Restrictions on private business activities were greatly reduced, permitting peasants as well as cooperatives to transport agricultural goods to rural and urban markets and allowing a rapid expansion of free markets in the countryside and in cities. The number of wholesale produce markets increased by 450 percent between 1983 and 1986, reaching a total of 1,100 and easing pressure on the state produce distribution network, which had been strained by the burgeoning agricultural production engendered by rural reforms. In 1986 free markets, called "commodity fairs," numbered 61,000 nationwide.
Once food was procured and transported to urban areas, it was sold to consumers by state-owned stores and restaurants. In the mid-1980s food items were also available in free markets, where peasants sold their produce, and in privately owned restaurants. As noted previously, the prices of pigs, aquatic products, and vegetables were determined by local authorities according to quality and demand
Demand
- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...
; prices of other products floated freely on the market. Except for grain, edible oil, and a few other rationed items, food items were in good supply.
Industrial goods used in agricultural production were sold to agricultural units in the 1980s. Local cooperatives or state supply and marketing bureaus sold most agricultural producer goods, including chemical fertilizer
Fertilizer
Fertilizer is any organic or inorganic material of natural or synthetic origin that is added to a soil to supply one or more plant nutrients essential to the growth of plants. A recent assessment found that about 40 to 60% of crop yields are attributable to commercial fertilizer use...
s and insecticide
Insecticide
An insecticide is a pesticide used against insects. They include ovicides and larvicides used against the eggs and larvae of insects respectively. Insecticides are used in agriculture, medicine, industry and the household. The use of insecticides is believed to be one of the major factors behind...
s, to households at set prices. The state also offered preferential prices for agricultural inputs to grain farmers to encourage grain production. Households were permitted to purchase agricultural machinery and vehicles to transport goods to market. In order to ensure that rural units could cover the costs of the increasing quantities of industrial inputs required for higher yields, the government periodically reduced the prices of the industrial goods sold to farmers, while raising the procurement prices for agricultural products. In the mid-1980s, however, the price gap between agricultural and industrial products was widening to the disadvantage of farmers.
Industry
After 1982, reforms moved China's economy to a mixed systemMixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
based on mandatory planning
Planning
Planning in organizations and public policy is both the organizational process of creating and maintaining a plan; and the psychological process of thinking about the activities required to create a desired goal on some scale. As such, it is a fundamental property of intelligent behavior...
, guidance planning (use of economic levers such as taxes, prices, and credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
instead of administrative fiat), and the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
. In late 1984 further reforms of the urban industrial economy and commerce
Commerce
While business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...
reduced the scope of mandatory planning, increased enterprise autonomy and the authority of professional managers, loosened price controls to rationalize prices, and cut subsidies to enterprises. These changes created a "socialist planned commodity economy," essentially a dual economy in which planned allocation and distribution are supplemented by market exchanges based on floating or free prices.
As a result of these reforms, the distribution of goods used in industrial production was based on mandatory planning with fixed prices, guidance planning with floating prices, and the free market. Mandatory planning covered sixty industrial products, including coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
, crude oil, rolled steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
, nonferrous metals, timber
Timber
Timber may refer to:* Timber, a term common in the United Kingdom and Australia for wood materials * Timber, Oregon, an unincorporated community in the U.S...
, cement
Cement
In the most general sense of the word, a cement is a binder, a substance that sets and hardens independently, and can bind other materials together. The word "cement" traces to the Romans, who used the term opus caementicium to describe masonry resembling modern concrete that was made from crushed...
, electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
, basic industrial chemicals, chemical fertilizers, major machines and electrical equipment, chemical fibers, newsprint
Newsprint
Newsprint is a low-cost, non-archival paper most commonly used to print newspapers, and other publications and advertising material. It usually has an off-white cast and distinctive feel. It is designed for use in printing presses that employ a long web of paper rather than individual sheets of...
, cigarette
Cigarette
A cigarette is a small roll of finely cut tobacco leaves wrapped in a cylinder of thin paper for smoking. The cigarette is ignited at one end and allowed to smoulder; its smoke is inhaled from the other end, which is held in or to the mouth and in some cases a cigarette holder may be used as well...
s, and defense industry
Defense industry
The defense industry, also called the military industry, comprises government and commercial industry involved in research, development, production, and service of military materiel, equipment and facilities...
products. Once enterprises under mandatory planning had met the state's mandatory plans and supply contracts, they could sell surplus production to commercial departments or other enterprises. Prices of surplus industrial producer goods floated within limits set by the state. The state also had a planned distribution system for important materials such as coal, iron
Iron
Iron is a chemical element with the symbol Fe and atomic number 26. It is a metal in the first transition series. It is the most common element forming the planet Earth as a whole, forming much of Earth's outer and inner core. It is the fourth most common element in the Earth's crust...
and steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
, timber
Timber
Timber may refer to:* Timber, a term common in the United Kingdom and Australia for wood materials * Timber, Oregon, an unincorporated community in the U.S...
, and cement
Cement
In the most general sense of the word, a cement is a binder, a substance that sets and hardens independently, and can bind other materials together. The word "cement" traces to the Romans, who used the term opus caementicium to describe masonry resembling modern concrete that was made from crushed...
. Enterprise managers who chose to exceed planned production goals purchased additional materials on the market. Major cities established wholesale
Wholesale
Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...
markets for industrial producer goods to supplement the state's allocation
Allocation
Allocation may refer to:* Computers** Delayed allocation** Block allocation map** FAT** IP address allocation** Memory allocation** C++ allocators** No-write allocation ** Register allocation* Economics** Economic system** Asset allocation...
system.
Under guidance planning, enterprises try to meet the state's planned goals but make their own arrangements for production and sales based on the orientation of the state's plans, the availability of raw and unfinished materials and energy supplies, and the demands on the market. Prices of products under guidance planning either are unified prices or floating prices set by the state or prices negotiated between buyers and suppliers. Production and distribution of products not included in the state's plans are regulated by market conditions.
Lateral economic cooperation
China also undertook measures to develop "lateral economic ties," that is, economic cooperation across regional and institutional boundaries. Until the late 1970s, China's planned economyPlanned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
had encouraged regional and organizational autarky
Autarky
Autarky is the quality of being self-sufficient. Usually the term is applied to political states or their economic policies. Autarky exists whenever an entity can survive or continue its activities without external assistance. Autarky is not necessarily economic. For example, a military autarky...
, whereby enterprises controlled by a local authority found it almost impossible to do business with other enterprises not controlled by the same institution, a practice that resulted in economic waste and inefficiency. Lateral economic cooperation broke down some barriers in the sectors of personnel, resources, capital, technical expertise, and procurement
Procurement
Procurement is the acquisition of goods or services. It is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location...
and marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
of commodities. In order to promote increased and more efficient production and distribution of goods among regions and across institutional divisions, ties were encouraged among producers of raw and semi-finished materials and processing enterprises, production enterprises and research units (including colleges and universities), civilian and military enterprises, various transportation entities, and industrial, agricultural, commercial, and foreign trade enterprises.
A multitiered network of transregional economic cooperation associations also was established. The Seventh Five-Year Plan (1986–90) divided China into three regions — eastern, central, and western, each with its own economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
plans. In addition to the three major regions, three echelons of economic cooperation zones were created. The first echelon — national-level economic development zones — cut across several provincial-level boundaries and linked major economic areas. Among these were the Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
Economic Zone, the Northeastern Economic Zone, the energy production bases centering on Shanxi
Shanxi
' is a province in Northern China. Its one-character abbreviation is "晋" , after the state of Jin that existed here during the Spring and Autumn Period....
Province, the Beijing
Beijing
Beijing , also known as Peking , is the capital of the People's Republic of China and one of the most populous cities in the world, with a population of 19,612,368 as of 2010. The city is the country's political, cultural, and educational center, and home to the headquarters for most of China's...
-Tianjin
Tianjin
' is a metropolis in northern China and one of the five national central cities of the People's Republic of China. It is governed as a direct-controlled municipality, one of four such designations, and is, thus, under direct administration of the central government...
-Tangshan
Tangshan
"唐山"redirects here. For an alternative name of China, see Names of China#TangTangshan is a largely industrial prefecture-level city in Hebei province, People's Republic of China. It has become known for the 1976 Tangshan earthquake which measured 7.8 on the Richter scale and killed at least...
Economic Zone, and the Southwestern Economic Zone. The second-echelon network linked provincial-level capitals with designated ports and cities along vital communication lines and included the Huaihai Economic Zone (consisting of fifteen coastal prefectures and cities in Jiangsu
Jiangsu
' is a province of the People's Republic of China, located along the east coast of the country. The name comes from jiang, short for the city of Jiangning , and su, for the city of Suzhou. The abbreviation for this province is "苏" , the second character of its name...
, Anhui
Anhui
Anhui is a province in the People's Republic of China. Located in eastern China across the basins of the Yangtze River and the Huai River, it borders Jiangsu to the east, Zhejiang to the southeast, Jiangxi to the south, Hubei to the southwest, Henan to the northwest, and Shandong for a tiny...
, Henan
Henan
Henan , is a province of the People's Republic of China, located in the central part of the country. Its one-character abbreviation is "豫" , named after Yuzhou , a Han Dynasty state that included parts of Henan...
, and Shandong
Shandong
' is a Province located on the eastern coast of the People's Republic of China. Shandong has played a major role in Chinese history from the beginning of Chinese civilization along the lower reaches of the Yellow River and served as a pivotal cultural and religious site for Taoism, Chinese...
provinces) and the Pearl River Delta
Pearl River Delta
The Pearl River Delta , Zhujiang Delta or Zhusanjiao in Guangdong province, People's Republic of China is the low-lying area surrounding the Pearl River estuary where the Pearl River flows into the South China Sea...
Economic Zone centered on the southern city of Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
. The third tier of zones centered on provincial-level capitals and included the Nanjing
Nanjing
' is the capital of Jiangsu province in China and has a prominent place in Chinese history and culture, having been the capital of China on several occasions...
Regional Economic Cooperation Association. Smaller-scale lateral economic ties below the provincial level, among prefectures, counties, and cities, also were formed.
Retail sales
Retail sales in China changed dramatically in the late 1970s and early 1980s as economic reforms increased the supply of food items and consumer goods, allowed state retail stores the freedom to purchase goods on their own, and permitted individuals and collectives greater freedom to engage in retailRetail
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
, service, and catering
Catering
Catering is the business of providing foodservice at a remote site or a site such as a hotel, public house , or other location.-Mobile catering:A mobile caterer serves food directly from a vehicle or cart that is designed for the purpose...
trades in rural and urban areas. Retail sales increased 300 percent from 1977 to 1985, rising at an average yearly rate of 13.9 percent — 10.5 percent when adjusted for inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
. In the 1980s retail sales to rural areas increased at an annual rate of 15.6 percent, outpacing the 9.7 percent increase in retail sales to urban areas and reflecting the more rapid rise in rural incomes. In 1977 sales to rural areas comprised 52 percent of total retail sales; in 1984 rural sales accounted for 59.2 percent of the total. Consumer goods comprised approximately 88 percent of retail sales in 1985, the remaining 12 percent consisting of farming materials and equipment.
The number of retail sales enterprises also expanded rapidly in the 1980s. In 1985 there were 10.7 million retail, catering, and service establishments, a rise of 850 percent over 1976. Most remarkable in the expansion of retail sales was the rapid rise of collective and individually owned retail establishments. Individuals engaged in businesses numbered 12.2 million in 1985, more than 40 times the 1976 figure. Furthermore, as state-owned businesses either were leased or turned over to collective ownership or were leased to individuals, the share of state-owned commerce in total retail sales dropped from 90.3 percent in 1976 to 40.5 percent in 1985.
In 1987 most urban retail and service establishments, including state, collective, and private businesses or vendors, were located either in major downtown commercial districts or in small neighborhood shopping areas. The neighborhood shopping areas were numerous and were situated so that at least one was within easy walking distance of almost every household. They were able to supply nearly all the daily needs of their customers. A typical neighborhood shopping area in Beijing would contain a one-story department store, bookstore, hardware store, bicycle repair shop, combined tea shop and bakery, restaurant, theater, laundry, bank, post office, barbershop, photography studio, and electrical appliance repair shop. The department stores had small pharmacies and carried a substantial range of housewares, appliances, bicycles, toys, sporting goods, fabrics, and clothing. Major shopping districts in big cities contained larger versions of the neighborhood stores as well as numerous specialty shops, selling such items as musical instruments, sporting goods, hats, stationery, handicrafts, cameras, and clocks.
Supplementing these retail establishments were free markets in which private and collective businesses provided services, hawked wares, or sold food and drinks. Peasants from surrounding rural areas marketed their surplus produce or sideline production in these markets. In the 1980s urban areas also saw a revival of "night markets," free markets that operated in the evening and offered extended service hours that more formal establishments could not match.
In rural areas, supply and marketing cooperatives operated general stores
Retailing
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
and small shopping complexes near village and township administrative headquarters. These businesses were supplemented by collective and individual businesses and by the free markets that appeared across the countryside in the 1980s as a result of rural reforms. Generally speaking, a smaller variety of consumer goods was available in the countryside than in the cities. But the lack was partially offset by the increased access of some peasants to urban areas where they could purchase consumer goods and market agricultural items.
A number of important consumer goods, including grain, cotton cloth, meat, eggs, edible oil, sugar, and bicycles, were rationed during the 1960s and 1970s. To purchase these items, workers had to use coupon
Coupon
In marketing, a coupon is a ticket or document that can be exchanged for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in retail stores as a part of sales promotions...
s they received from their work unit
Work unit
A work unit or danwei is the name given to a place of employment in the People's Republic of China. While the term danwei remains in use today it is more properly used to refer to a place of employment during the period when the Chinese economy was still more heavily socialist or when used in the...
s. By the mid-1980s rationing of over seventy items had been eliminated; production of consumer goods had increased, and most items were in good supply. Grain, edible oil, and a few other items still required coupons. In 1985 pork rationing was reinstated in twenty-one cities as supplies ran low. Pork was available at higher prices in supermarket
Supermarket
A supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into departments...
s and free markets.
History of Chinese foreign trade
Chinese foreign trade began as early as the Western Han dynasty (206 BCE-9 CE), when the famous "Silk RoadSilk Road
The Silk Road or Silk Route refers to a historical network of interlinking trade routes across the Afro-Eurasian landmass that connected East, South, and Western Asia with the Mediterranean and European world, as well as parts of North and East Africa...
" through Central Asia
Central Asia
Central Asia is a core region of the Asian continent from the Caspian Sea in the west, China in the east, Afghanistan in the south, and Russia in the north...
was pioneered by Chinese envoy
Diplomat
A diplomat is a person appointed by a state to conduct diplomacy with another state or international organization. The main functions of diplomats revolve around the representation and protection of the interests and nationals of the sending state, as well as the promotion of information and...
s. During later dynasties, Chinese ships traded throughout maritime Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
, reaching as far as the Africa
Africa
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
n coast, while caravans extended trade contacts in Central Asia and into the Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
. Foreign trade was never a major economic activity, however, and Chinese emperors considered the country to be entirely self-sufficient. During parts of the Ming
Ming Dynasty
The Ming Dynasty, also Empire of the Great Ming, was the ruling dynasty of China from 1368 to 1644, following the collapse of the Mongol-led Yuan Dynasty. The Ming, "one of the greatest eras of orderly government and social stability in human history", was the last dynasty in China ruled by ethnic...
(1368–1644) and Qing
Qing Dynasty
The Qing Dynasty was the last dynasty of China, ruling from 1644 to 1912 with a brief, abortive restoration in 1917. It was preceded by the Ming Dynasty and followed by the Republic of China....
(1644–1911) dynasties, trade was officially discouraged. In the mid-eighteenth century, the government restricted sea trade by setting up the Canton System
Canton System
The Canton System served as a means for China to control trade with the west within its own country. Seen from the European view, it was a complement to the Old China Trade.-History:...
.
In the nineteenth century, Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an nations used military force to initiate sustained trade with China. From the time of the Opium War (1839–42) until the founding of the People's Republic in 1949, various Western countries and, starting in the 1890s, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
compelled China to agree to a series of unequal treaties
Unequal Treaties
“Unequal treaty” is a term used in specific reference to a number of treaties imposed by Western powers, during the 19th and early 20th centuries, on Qing Dynasty China and late Tokugawa Japan...
that enabled foreigners to establish essentially autonomous economic bases and operate with privileged status in China. One classic account of this period is Carl Crow
Carl Crow
Carl Crow was a Missouri-born newspaperman, businessman, and author who managed several newspapers and then opened the first Western advertising agency in Shanghai, China, which he ran for 19 years, creating much of what is thought of today as the sexy China Girl poster and calendar ads...
's 400 Million Customers, a humorous but realistic guide which has lasting insights.
Foreign privileges were abolished when the People's Republic came into being.
Foreign trade did not account for a large part of the Chinese economy for the first thirty years of the People's Republic. As in most large, continental countries, the amount of commerce
Commerce
While business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...
with other nations was small relative to domestic economic activity. During the 1950s and 1960s, the total value of foreign trade was only about 2 percent of the gross national product (GNP). In the 1970s trade grew rapidly but in 1979 still amounted to only about 6 percent of GNP.
The importance of foreign trade in this period, however, far exceeded its volume. Foreign imports alleviated temporary but critical shortages of food, cotton, and other agricultural products as well as long-term deficiencies in a number of essential items, including raw material
Raw material
A raw material or feedstock is the basic material from which a product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Latex, iron ore, logs, and crude...
s such as chrome
Chromium
Chromium is a chemical element which has the symbol Cr and atomic number 24. It is the first element in Group 6. It is a steely-gray, lustrous, hard metal that takes a high polish and has a high melting point. It is also odorless, tasteless, and malleable...
and manufactured goods such as chemical fertilizer and finished steel products. The acquisition of foreign plants and equipment enabled China to utilize the more advanced technology of developed countries to speed its own technological growth
History of technology
The history of technology is the history of the invention of tools and techniques, and is similar in many ways to the history of humanity. Background knowledge has enabled people to create new things, and conversely, many scientific endeavors have become possible through technologies which assist...
and economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
.
During the 1950s China imported Soviet plants and equipment for the development program of the First Five-Year Plan (1953–57). At the same time, the Chinese government expanded exports of agricultural products to repay loans that financed the imports. Total trade peaked at the equivalent of US$4.3 billion in 1959, but a sudden decline in agricultural production in 1959-61 required China's leaders to suspend further imports of machinery to purchase foreign grain. Under a policy of "self-reliance
Self-Reliance
Self-Reliance is an essay written by American Transcendentalist philosopher and essayist, Ralph Waldo Emerson. It contains the most thorough statement of one of Emerson's repeating themes, the need for each individual to avoid conformity and false consistency, and follow his or her own instincts...
," in 1962 total trade declined to US$2.7 billion. As the economy revived in the mid-1960s, plants and equipment again were ordered from foreign suppliers, and substantial growth in foreign trade was planned. But in the late 1960s, the activities of the Cultural Revolution
Cultural Revolution
The Great Proletarian Cultural Revolution, commonly known as the Cultural Revolution , was a socio-political movement that took place in the People's Republic of China from 1966 through 1976...
(1966–76) caused trade again to decline.
The pragmatic
Pragmatism
Pragmatism is a philosophical tradition centered on the linking of practice and theory. It describes a process where theory is extracted from practice, and applied back to practice to form what is called intelligent practice...
modernization
Modernization
In the social sciences, modernization or modernisation refers to a model of an evolutionary transition from a 'pre-modern' or 'traditional' to a 'modern' society. The teleology of modernization is described in social evolutionism theories, existing as a template that has been generally followed by...
drive led by party leaders Zhou Enlai
Zhou Enlai
Zhou Enlai was the first Premier of the People's Republic of China, serving from October 1949 until his death in January 1976...
and Deng Xiaoping
Deng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
and China's growing contacts with Western nations resulted in a sharp acceleration of trade in the early 1970s. Imports of modern plants and equipment were particularly emphasized, and after 1973 oil
Oil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
became an increasingly important export. Trade more than doubled between 1970 and 1975, reaching US$13.9 billion. Growth in this period was about 9 percent a year. As a proportion of GNP, trade grew from 1.7 percent in 1970 to 3.9 percent in 1975. In 1976 the atmosphere of uncertainty resulting from the death of Mao Zedong
Mao Zedong
Mao Zedong, also transliterated as Mao Tse-tung , and commonly referred to as Chairman Mao , was a Chinese Communist revolutionary, guerrilla warfare strategist, Marxist political philosopher, and leader of the Chinese Revolution...
and pressure from the Gang of Four
Gang of Four
The Gang of Four was the name given to a political faction composed of four Chinese Communist Party officials. They came to prominence during the Cultural Revolution and were subsequently charged with a series of treasonous crimes...
, whose members opposed reliance on foreign technology, brought another decline in trade.
Beginning in the late 1970s, China reversed the Maoist economic development strategy and, by the early 1980s, had committed itself to a policy of being more open to the outside world and widening foreign economic relations and trade. The opening up policy led to the reorganization and decentralization of foreign trade institutions, the adoption of a legal framework to facilitate foreign economic relations and trade, direct foreign investment, the creation of special economic zone
Special Economic Zone
A Special Economic Zone is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws...
s, the rapid expansion of foreign trade, the importation of foreign technology and management methods, involvement in international financial markets, and participation in international foreign economic organizations. These changes not only benefited the Chinese economy but also integrated China into the world economy
World economy
The world economy, or global economy, generally refers to the economy, which is based on economies of all of the world's countries, national economies. Also global economy can be seen as the economy of global society and national economies – as economies of local societies, making the global one....
. In 1979 Chinese trade totaled US$27.7 billion - 6 percent of China's GNP but only 0.7 percent of total world trade
World Trade
World Trade can refer to:*International trade*International finance*World Trade Organization*World Trade, a progressive rock band*World Trade Center...
. In 1985 Chinese foreign trade rose to US$70.8 billion, representing 20 percent of China's GNP and 2 percent of total world trade and putting China sixteenth in world trade rankings.
The table below shows the average annual growth (in nominal US dollar terms) of China’s foreign trade during the reform era.
| Period | Two-way trade | Exports | Imports |
|---|---|---|---|
| 1981-85 | +12.8% | +8.6% | +16.1% |
| 1986-90 | +10.6% | +17.8% | +4.8% |
| 1991-95 | +19.5% | +19.1% | +19.9% |
| 1996–2000 | +11.0% | +10.9% | +11.3% |
| 2000-05 | +24.6% | +25.0% | +24.0% |
| 2006 | +27.2% | +19.9% | +23.8% |
| 2007 | +25.6% | +20.8% | +23.4% |
| 2008 | +17.9% | +17.4% | +18.5% |
Trade policy in the 1980s
Under the policy of opening up to the outside world, exports, imports, and foreign capitalCapital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
were all assigned a role in promoting economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
. Exports earned foreign currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
, which was used to fund domestic development projects and to purchase advanced foreign technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
and management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
expertise. Imports of capital goods and industrial supplies and foreign loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s and investment were used to improve the infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
in the priority areas of energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
, transportation, and telecommunications and to modernize the machine
Machine
A machine manages power to accomplish a task, examples include, a mechanical system, a computing system, an electronic system, and a molecular machine. In common usage, the meaning is that of a device having parts that perform or assist in performing any type of work...
-building and electronics
Electronics
Electronics is the branch of science, engineering and technology that deals with electrical circuits involving active electrical components such as vacuum tubes, transistors, diodes and integrated circuits, and associated passive interconnection technologies...
industries. To earn more foreign currency and to conserve foreign exchange reserves
Foreign exchange reserves
Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
, foreign capital was also used to expand production of export commodities, such as textiles, and of import substitutes, such as consumer goods.
China has adopted a variety of measures to promote its foreign economic relations, maximizing the role of imports, exports, and foreign capital in economic development. Foreign trade organizations were reorganized, and control of imports and exports was relaxed or strengthened depending on the balance of trade
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
and the level of foreign exchange reserves. Heavy purchases of foreign plants and equipment resulted in import restraint from 1980 to 1983. Because of the expansion of exports in the mid-1980s, a large foreign reserve surplus, and the decentralized management of foreign trade, imports surged. Huge, uncontrolled purchases of consumer goods led to trade deficits in 1984 and 1985, resulting in the introduction of an import and export licensing system, stricter controls on foreign exchange expenditures, and the devaluation
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
of the yuan
Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
in order to reduce the trade deficit and ensure that machinery, equipment, and semi-finished goods, rather than consumer goods, were imported. In 1985 China had foreign exchange reserves of US$11.9 billion.
China joined a number of international economic organizations, becoming a member of the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, the Asian Development Bank
Asian Development Bank
The Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
, the General Agreement on Tariffs and Trade
General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization . GATT was signed in 1947 and lasted until 1993, when it was replaced by the World...
(GATT), and the Multi-Fiber Agreement. China became an observer of GATT in 1982 and formally applied to participate as a full member in July 1986. China also reversed its aversion to foreign capital, borrowing money from international lending organizations, foreign governments, and foreign commercial banks and consortia and permitting foreign banks to open branches in China. The Chinese government maintained a good credit rating
Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...
internationally and did not pile up huge foreign debts like many other communist and developing countries. Between 1979 and 1985, China signed loans totaling US$20.3 billion, US$15.6 billion of which it already had used. Most loans went into infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
projects, such as energy and transportation, and funded raw materials imports. The Bank of China
Bank of China
Bank of China Limited is one of the big four state-owned commercial banks of the People's Republic of China. It was founded in 1912 by the Government of the Republic of China, to replace the Government Bank of Imperial China. It is the oldest bank in China...
, the principal foreign exchange bank, established branches overseas and participated in international financial markets in Eurobond
Eurobond
A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. It can be categorised according to the currency in which it is issued. London is one of the centers of the Eurobond market, but Eurobonds may be traded throughout the world - for...
s and loan syndication.
Legal and institutional frameworks
Conceptual framework
A conceptual framework is used in research to outline possible courses of action or to present a preferred approach to an idea or thought. For example, the philosopher Isaiah Berlin used the "hedgehogs" versus "foxes" approach; a "hedgehog" might approach the world in terms of a single organizing...
to facilitate foreign investment and trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
also were created. Laws on taxation, joint venture
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
s, foreign investments, and related areas were promulgated
Promulgation
Promulgation is the act of formally proclaiming or declaring a new statutory or administrative law after its enactment. In some jurisdictions this additional step is necessary before the law can take effect....
to encourage foreign investment. In 1979 China created four special economic zones in Shenzhen
Shenzhen
Shenzhen is a major city in the south of Southern China's Guangdong Province, situated immediately north of Hong Kong. The area became China's first—and one of the most successful—Special Economic Zones...
, Zhuhai
Zhuhai
Zhuhai is a prefecture-level city on the southern coast of Guangdong province in the People's Republic of China. Located in the Pearl River Delta, Zhuhai borders Jiangmen to the northwest, Zhongshan to the north, and Macau to the south. Zhuhai was one of the original Special Economic Zones...
, Shantou
Shantou
Shantou , historically known as Swatow or Suátao, is a prefecture-level city on the eastern coast of Guangdong province, People's Republic of China, with a total population of 5,391,028 as of 2010 and an administrative area of...
(in Guangdong Province), and Xiamen
Xiamen
Xiamen , also known as Amoy , is a major city on the southeast coast of the People's Republic of China. It is administered as a sub-provincial city of Fujian province with an area of and population of 3.53 million...
(in Fujian Province). (See Special Economic Zones of the People's Republic of China.) The special economic zones essentially were export-processing zones designed to attract foreign investment, expand exports, and import technology and expertise. In 1984 fourteen coastal cities were designated "open cities." These too were intended to attract foreign funds and technology. But in 1985 the government decided to concentrate resources on only four of the cities: Dalian
Dalian
Dalian is a major city and seaport in the south of Liaoning province, Northeast China. It faces Shandong to the south, the Yellow Sea to the east and the Bohai Sea to the west and south. Holding sub-provincial administrative status, Dalian is the southernmost city of Northeast China and China's...
, Guangzhou
Guangzhou
Guangzhou , known historically as Canton or Kwangchow, is the capital and largest city of the Guangdong province in the People's Republic of China. Located in southern China on the Pearl River, about north-northwest of Hong Kong, Guangzhou is a key national transportation hub and trading port...
, Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
, and Tianjin
Tianjin
' is a metropolis in northern China and one of the five national central cities of the People's Republic of China. It is governed as a direct-controlled municipality, one of four such designations, and is, thus, under direct administration of the central government...
. Although the special economic zones and open cities had the power to grant investment incentive
Incentive
In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...
s, problems with the red tape
Red tape
Red tape is excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making...
, bureaucratic interference, and lack of basic infrastructure resulted in less foreign investment and fewer high-technology projects than initially envisioned.
From 1979 to 1985, China received US$16.2 billion in foreign investment and used US$4.6 billion of that amount. By 1986 China had over 6,200 foreign-funded businesses, including 2,741 joint ventures, 3,381 cooperatively managed businesses, and 151 enterprises with sole foreign investment. Of the joint ventures, 70 percent were in production enterprises (manufacturing or processing) and 30 percent were service industries (primarily hotels or tourism). Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
provided 80 percent of the joint venture partners, the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
7 percent, and Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
6 percent.
Organization of foreign trade
The increasingly complex foreign trade system underwent expansion and decentralization in the late 1970s and 1980s. In 1979 the Ministry of Foreign Trade's nine foreign trade corporations lost their monopolyMonopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
on import and export transaction
Financial transaction
A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...
s as the industrial ministries were permitted to establish their own foreign trade enterprises. The provincial branch corporations of the state foreign trade corporations were granted more autonomy, and some provinces, notably Fujian
Fujian
' , formerly romanised as Fukien or Huguing or Foukien, is a province on the southeast coast of mainland China. Fujian is bordered by Zhejiang to the north, Jiangxi to the west, and Guangdong to the south. Taiwan lies to the east, across the Taiwan Strait...
, Guangdong
Guangdong
Guangdong is a province on the South China Sea coast of the People's Republic of China. The province was previously often written with the alternative English name Kwangtung Province...
, and the special municipalities of Beijing
Beijing
Beijing , also known as Peking , is the capital of the People's Republic of China and one of the most populous cities in the world, with a population of 19,612,368 as of 2010. The city is the country's political, cultural, and educational center, and home to the headquarters for most of China's...
, Tianjin
Tianjin
' is a metropolis in northern China and one of the five national central cities of the People's Republic of China. It is governed as a direct-controlled municipality, one of four such designations, and is, thus, under direct administration of the central government...
, and Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
were permitted to set up independent, provincial-level import-export companies. Some selected provincial enterprises were granted autonomy in foreign trade decisions. In 1982 the State Council
State Council of the People's Republic of China
The State Council of the People's Republic of China , which is largely synonymous with the Central People's Government after 1954, is the chief administrative authority of the People's Republic of China. It is chaired by the Premier and includes the heads of each governmental department and agency...
's Import-Export Control Commission, Foreign Investment and Control Commission, Ministry of Foreign Trade, and Ministry of Foreign Economic Relations were merged to form the Ministry of Foreign Economic Relations and Trade. In 1984 the foreign trade system underwent further decentralization. Foreign trade corporations under this and other ministries and under provincial-level units became independent of their parent organizations and were responsible for their own profits and losses. An agency system for foreign trade also was established, in which imports and exports were handled by specialized enterprises and corporations acting as agents on a commission
Commission (remuneration)
The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold...
basis.
Ministry of Foreign Economic Relations and Trade
The main functions of the Ministry of Foreign Economic Relations and Trade were to establish and supervise foreign trade policies; to work with the State Planning CommissionState Planning Commission
State Planning Commission may refer to:# Gosplan, ministry of Soviet Union# State Planning Commission of China, former name of the National Development and Reform Commission of the People's Republic of China....
in setting long-term foreign trade plans and annual quotas for imports and exports; to control imports and exports through license
License
The verb license or grant licence means to give permission. The noun license or licence refers to that permission as well as to the document recording that permission.A license may be granted by a party to another party as an element of an agreement...
s and quotas; to supervise the management of foreign trade corporations and enterprises; and to coordinate economic and trade relations with foreign governments and international economic organizations. The ministry also undertook international market research
Research
Research can be defined as the scientific search for knowledge, or as any systematic investigation, to establish novel facts, solve new or existing problems, prove new ideas, or develop new theories, usually using a scientific method...
, led institutes of foreign economic relations and trade, and directed the General Administration of Customs
General Administration of Customs
The General Administration of Customs is an administrative agency within the government of the People's Republic of China...
.
Foreign trade corporations and enterprises
In the late 1980s China had numerous specialized national corporations handling importImport
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
and export
Export
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
transactions in such areas as arts and crafts, textiles, natural produce and animal byproducts, foodstuffs of various kinds, chemicals, light industrial products, metals and minerals technology, industrial machinery and equipment, petrochemical and petroleum products, scientific instruments, aerospace technology and services, ships, and weapons. Although nominally supervised by the Ministry of Foreign Economic Relations and Trade each of these corporations was responsible for its own profits and losses. Included among these enterprises, for example, was the Great Wall Industrial Corporation, which imported and exported transportation vehicles, satellites and other products associated with aerospace programs, mechanical equipment, electrical products, hardware and tools, medical apparatus, and chemicals. China Northern Industrial Corporation, subordinate to the Ministry of Ordnance Industry, used military production facilities to manufacture civilian products for export. The business activities of China Northern Industrial Corporation included the sale of heavy machinery, hardware and tools, and heavy-duty vehicles; light chemical industry products, such as plastic, paints, and coatings; and high-precision machinery and optical and optical-electronic equipment. Other corporations offered a variety of professional consulting services. One of these, the China International Economic Consultants Corporation, provided economic and legal expertise on investment and other economic activities.
Financial transactions and investment
Foreign exchange and reserves were controlled in the mid-1980s by the State Administration of Exchange Control under the People's Bank of ChinaPeople's Bank of China
The People's Bank of China is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China...
, the central bank. Foreign exchange
Foreign exchange reserves
Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
allocations to banks, ministries, and enterprises were all approved by the State Administration of Exchange Control. The Bank of China
Bank of China
Bank of China Limited is one of the big four state-owned commercial banks of the People's Republic of China. It was founded in 1912 by the Government of the Republic of China, to replace the Government Bank of Imperial China. It is the oldest bank in China...
, the foreign exchange arm of the People's Bank of China, lost its monopoly on all foreign exchange transactions in 1984 when the Agricultural Bank
Agricultural Bank of China
Agricultural Bank of China Limited , also known as AgBank, is one of the "Big Four" banks in the People's Republic of China. It was founded in 1951, and has its headquarters in Beijing...
, People's Construction Bank, China Industrial and Commercial Bank, and China International Trust and Investment Corporation (CITIC) were permitted to deal in foreign currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
. The Bank of China remained China's principal foreign exchange bank and provided loans for production and commercial transactions related to exports, set up branches overseas, maintained correspondent relations with foreign banks, and did research on international monetary trends. The Bank of China also was active in international financial market
Financial market
In economics, a financial market is a mechanism that allows people and entities to buy and sell financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand.Both general markets and...
s through such activities as loan syndication and issuing of foreign bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. CITIC, formed in 1979 to facilitate foreign investment in China, also borrowed and lent internationally and issued foreign bonds in addition to encouraging and participating in joint ventures, importing foreign technology and equipment, and making overseas investments. In 1986 CITIC was renamed CITIC Group and shifted its emphasis to power, metallurgical, and raw materials industries, which had trouble attracting investments. In late 1986 the CITIC Group had set up 47 joint ventures, invested in 114 domestic companies, and issued US$550 million in foreign bonds. The China Investment Bank was established in 1981 as a channel for medium- and long-term loans from international financial institutions such as the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
.
Other organizations involved in trade
The State Council's State Planning CommissionState Planning Commission
State Planning Commission may refer to:# Gosplan, ministry of Soviet Union# State Planning Commission of China, former name of the National Development and Reform Commission of the People's Republic of China....
and State Economic Commission were involved in long-term planning for the development of foreign trade, and they developed national priorities for imports and exports. Several other organizations under the State Council were also involved in foreign trade matters: the Special Economic Zones Office, State Import and Export Commodities Inspection Administration, General Administration of Customs, and China Travel and Tourism Bureau. The China Council for the Promotion of International Trade
China Council for the Promotion of International Trade
The China Council for the Promotion of International Trade is a trade body of the Chinese government founded in 1952. It also goes by the name of the China Chamber of International Commerce ....
(CCPIT) assisted the Ministry of Foreign Economic Relations and Trade in foreign trade relations. CCPIT handled trade delegations to and from China, organized foreign trade exhibitions in China and Chinese exhibitions in other countries, and published periodicals promoting Chinese trade. The People's Insurance Company of China
People's Insurance Company of China
People's Insurance Company of China Holdings Company is a state-owned company in the People's Republic of China. The holding company promotes its subsidiaries, PICC Asset Management Company Limited and PICC Property and Casualty Company Limited .PICC P&C is China's largest insurer of casualty...
expanded its operations in 1980 for the purpose of encouraging foreign trade. New categories of coverage offered to foreign firms included compensatory trade, satellite launching, nuclear power plant safety, offshore oil development insurance, insurance against contract failure, and insurance against political risk
Political risk
Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that can be understood and managed with reasoned foresight and investment....
.
Composition of foreign trade
The dominant pattern of foreign trade after 1949 was to import industrial producer goods from developed countries and to pay for them with exports of food, crude materials, and light manufactures, especially textiles. The pattern was altered as circumstances demanded; in the period of economic collapse following the Great Leap ForwardGreat Leap Forward
The Great Leap Forward of the People's Republic of China was an economic and social campaign of the Communist Party of China , reflected in planning decisions from 1958 to 1961, which aimed to use China's vast population to rapidly transform the country from an agrarian economy into a modern...
(1958–60), food imports increased from a negligible amount in 1959 to 39 percent of all imports in 1962. At the same time, imports of machinery and equipment dropped from 41 percent to 5 percent of the total. From this time on, food and live animals remained a significant, although declining, share of imports, amounting to 14.8 percent of the total in 1980 but dropping to 4.1 percent in 1985. The pattern also shifted over time as China's industrial sector expanded, gradually increasing the share of exports accounted for by manufactured goods. Manufactures provided only 30 percent of all exports in 1959, 37.9 percent in 1975, and grew to 44.9 percent in 1985.
Important changes occurred in several specific trade categories in the 1970s and 1980s. Imports of textile fibers rose from 5.8 percent in 1975 to 10.7 percent in 1980 as the Chinese textile industry grew faster than domestic cotton supplies but then fell to 4 percent in 1985 as domestic cotton production increased. Imports of unfinished textile products also increased from 1.3 percent in 1975 to 5.3 percent in 1985 as a result of textile industry growth. Iron and steel accounted for approximately 20 percent of imports in the 1970s, fell to 11.6 percent in 1980, then rose to 14.9 percent in 1985. Imports of manufactured goods, machinery, and transportation equipment represented 62.6 percent of total import value in 1975, fell to 53.9 percent in 1980 as imports were cut back during the "period of readjustment" of the economy (1979–81), and rose again to 75.2 percent in 1985. On the export side, the share of foodstuffs fell to 12.5 percent in 1985. The fastest growing export item in the 1970s was petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
, which was first exported in 1973. Petroleum rocketed to 12.1 percent of all exports in 1975, 22 percent in 1980, and 21.2 percent in 1985. In the 1980s textile
Textile
A textile or cloth is a flexible woven material consisting of a network of natural or artificial fibres often referred to as thread or yarn. Yarn is produced by spinning raw fibres of wool, flax, cotton, or other material to produce long strands...
exports grew rapidly. Although exports of unfinished textiles remained about 14 percent of total exports, all categories of textile exports rose from 5 percent in 1975 to 18.7 percent in 1984. In 1986 textiles replaced petroleum as China's largest single export item.
Trading partners
During the 1950s China's primary foreign trading partner was the Soviet UnionSoviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
. In 1959 trade with the Soviet Union accounted for nearly 48 percent of China's total. As relations between the two countries deteriorated
Sino-Soviet split
In political science, the term Sino–Soviet split denotes the worsening of political and ideologic relations between the People's Republic of China and the Union of Soviet Socialist Republics during the Cold War...
in the early 1960s, the volume of trade fell, decreasing to only just over 7 percent of Chinese trade by 1966. During the 1970s trade with the Soviet Union averaged about 2 percent of China's total, while trade with all communist countries made up about 15 percent. In 1986, despite a trade pact with the Soviet Union, Chinese-Soviet trade, according to Chinese customs
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, transports, personal effects and hazardous items in and out of a country...
statistics, amounted to only 3.4 percent of China's total trade, while trade with all communist countries fell to 9 percent of the total.
By the mid-1960s Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
had become China's leading trading partner, accounting for 15 percent of trade in 1966. Japan was China's most natural trading partner; it was closer to China than any other industrial country and had the best transportation links to it. The Japanese economy was highly advanced in those areas where China was weakest, especially heavy industry
Heavy industry
Heavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. In general, it is a popular term used within the name of many Japanese and Korean firms, meaning...
and modern technology, while China was well endowed with some of the important natural resources
Natural Resources
Natural Resources is a soul album released by Motown girl group Martha Reeves and the Vandellas in 1970 on the Gordy label. The album is significant for the Vietnam War ballad "I Should Be Proud" and the slow jam, "Love Guess Who"...
that Japan lacked, notably coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
and oil
Oil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
. In the 1980s Japan accounted for over 20 percent of China's foreign trade and in 1986 provided 28.9 percent of China's imports and 15.2 percent of its exports. Starting in the late 1970s, China ran a trade deficit with Japan.
Beginning in the 1960s, Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
was consistently the leading market for China's exports and its second largest partner in overall trade. In 1986 Hong Kong received 31.6 percent of Chinese goods sold abroad and supplied about 13 percent of China's imports. Hong Kong was a major market for Chinese foodstuffs and served as a trans-shipment port for Chinese goods reexported to other countries.
The United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
banned trade with China until the early 1970s. Thereafter trade grew rapidly, and after the full normalization of diplomatic and commercial relations in 1979, the United States became the second largest importer to China and in 1986 was China's third largest partner in overall trade. Most American goods imported by China were either high-technology industrial products, such as aircraft, or agricultural products, primarily grain and cotton.
Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...
has been important in Chinese foreign trade since the mid-1960s. The Federal Republic of Germany, in particular, was second only to Japan in supplying industrial goods to China during most of this period. China followed a policy of shopping widely for its industrial purchases, and it concluded deals of various sizes with nearly all of the West European nations. In 1986 Western Europe accounted for nearly 18 percent of China's foreign trade, with imports exceeding exports.
Third World
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...
countries have long served as a market for Chinese agricultural and light industrial products. In 1986 developing countries purchased about 15 percent of Chinese exports and supplied about 8 percent of China's imports. China has increased trade and investment ties with many African countries such as Chad, the Sudan, and the Democratic Republic of Congo, partly to secure strategic natural resources such as oil and minerals.
Today, China's main export markets, in order of importance, are the European Union (20.4%), United States (17.7%), Hong Kong (13.4%), and Japan (8.1%). China's main import markets, in order of importance, are Japan (13.3%), European Union (11.7%), South Korea (10.9%), Taiwan (9.1%), and the United States (7.2%).