China’s Trade Patterns and International Comparative Advantage Xiao-guang Zhang STUDIES ON THE CHINESE ECONOMY General Editors: Peter Nolan, Sinyi Professor of Chinese Management, Judge Institute of Management Studies, University of Cambridge, and Fellow of Jesus College, Cambridge, England; and Dong Fureng, Professor, Chinese Academy of Social Sciences, Beijing, China This series analyses issues in China’s current economic development, and sheds light upon that process by examining China’s economic history It contains a wide range of books on the Chinese economy past and present, and includes not only studies written by leading Western authorities, but also translations of the most important works on the Chinese economy produced within China It intends to make a major contribution towards understanding this immensely important part of the world economy Titles include: Thomas Chan, Noel Tracy and Zhu Wenhui CHINA’S EXPORT MIRACLE Xu Dixin and Wu Chengming (editors) CHINESE CAPITALISM, 1522–1840 Christopher Findlay and Andrew Watson (editors) FOOD SECURITY AND ECONOMIC REFORM Samuel P S Ho and Y Y Kueh SUSTAINABLE ECONOMIC DEVELOPMENT IN SOUTH CHINA Kali P Kalirajan and Yanrui Wu (editors) PRODUCTIVITY AND GROWTH IN CHINESE AGRICULTURE Bozhong Li AGRICULTURAL DEVELOPMENT IN JIANGNAN, 1620–1850 Alfred H Y Lin THE RURAL ECONOMY OF GUANGDONG, 1870–1937 Dic Lo MARKET AND INSTITUTIONAL REGULATION IN CHINESE INDUSTRIALIZATION Jun Ma THE CHINESE ECONOMY IN THE 1990S Guo Rongxing HOW THE CHINESE ECONOMY WORKS Sally Sargeson REWORKING CHINA’S PROLETARIAT Ng Sek Hong and Malcolm Warner CHINA’S TRADE UNIONS AND MANAGEMENT Michael Twohey AUTHORITY AND WELFARE IN CHINA Wang Xiao-qiang CHINA’S PRICE AND ENTERPRISE REFORM Xiaoping Xu CHINA’S FINANCIAL SYSTEM UNDER TRANSITION Yanni Yan INTERNATIONAL JOINT VENTURES IN CHINA Wei-Wei Zhang TRANSFORMING CHINA Xiao-guang Zhang CHINA’S TRADE PATTERNS AND INTERNATIONAL COMPARATIVE ADVANTAGE Studies on the Chinese Economy Series Standing Order ISBN 0–333–71502–0 (outside North America only) You can receive future titles in this series as they are published by placing a standing order Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above Customer Services Department, Macmillan Distribution Ltd Houndmills, Basingstoke, Hampshire RG21 6XS, England China’s Trade Patterns and International Comparative Advantage Xiao-guang Zhang Lecturer in Economics University of Melbourne Australia First published in Great Britain 2000 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library ISBN 0–333–74087–4 First published in the United States of America 2000 by ST MARTIN’S PRESS, INC., Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y 10010 ISBN 0–312–22571–7 Library of Congress Cataloging-in-Publication Data Zhang, Xiaoguang China’s trade patterns and international comparative advantage / Xiao-guang Zhang p cm — (Studies on the Chinese economy) Includes bibliographical references and index ISBN 0–312–22571–7 (cloth) China—Commercial policy—Econometric models China– –Commerce—Econometric models Comparative advantage (International trade) I Title II Series HF1604.Z24 1999 382'.1042'0951—dc21 99–26132 CIP © Xiao-guang Zhang 2000 All rights reserved No reproduction, copy or transmission of this publication may be made without written permission No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 0LP Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources 10 09 08 07 06 05 04 03 02 01 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire 00 To Xinhua, Jing and Bo This page intentionally left blank Contents List of Figures ix List of Tables x Preface xiii List of Acronyms and Abbreviations xv Introduction Key questions Outline of the book 2 Reforming a Centrally Planned Foreign Trade System Foreign trade system reform: an overview Major trade reform measures, 1978±97 Impact of trade reforms Factor Intensity of Chinese Tradable Commodities Aggregation of tradable commodities and their description Commodity classification criteria Methods of measuring factor intensity Applicability to China Factor intensity of Chinese tradable commodities Conclusion 5 30 33 33 33 36 39 39 46 China's Foreign Trade Patterns and Performance 51 Commodity composition of China's foreign trade Measuring trade performance China's foreign trade performance, 1978±96 Conclusions 53 58 64 66 Measuring Comparative Advantage 75 Expressions of comparative advantage 76 Empirical measurement of a country's comparative advantage 79 Domestic resource cost (DRC) method 83 Interpretation and comparison of DRC results 86 Conclusion 89 vii viii Contents Tradable Goods Price Structure in China, 1978±95 Estimating relative prices China's commodity price system and its reforms Changes in China's domestic prices for agricultural products Changes in China's domestic prices for industrial products Border price trends Direct price comparisons An analysis of relative prices for tradables Conclusion Shadow Prices of Primary Factors of Production, 1978±95 Primary-factor shadow pricing Input±output coefficients: skilled and unskilled labour Factors' marginal-product estimation Shadow prices for non-tradable goods and primary factors Conclusion China's International Comparative Advantage, 1978±95: DRP Results 91 93 97 104 118 119 126 135 143 143 145 148 161 164 169 Method and data issues DRP estimates of China's international comparative advantage Sources of changes in DRP measures Conclusion 169 China's Trade Patterns and Comparative Advantage 207 Comparative advantage and trade patterns: the DRP and the NEPR China's trade patterns and comparative advantage Conclusion 10 91 Summary and Conclusion Trade reforms Trade efficiency Policy implications 174 200 204 207 212 222 223 223 225 226 Notes and References 229 Bibliography 235 Index 248 List of Figures 2.1 3.1 3.2 Renminbi foreign exchange rate, 1950±96 Factor intensity classification of manufactured goods Factor intensity estimation of Chinese manufactured goods: industry approach 3.3 Factor intensity estimation of Chinese manufactured goods: commodity approach 4.1 China's exports, imports and trade balance, 1950±96 4.2 Export and import shares in China's GDP, 1952±96 4.3 Commodity compositions of China's exports and imports, 1953±89 4.4 China's exports, 1978±96 4.5 China's imports, 1978±96 4.6 China's export performance ratio (EPR), 1978±96 4.7 China's net export ratio (NER), 1978±96 4.8 China's net export performance ratio (NEPR), 1978±96 6.1 China's relative price structure for tradable goods, 1978, 1987 and 1995 6A.1 Effective exchange rates for China's tradable goods, 1978, 1987 and 1995 6A.2 China's nominal and effective exchange rates, 1978±95 8.1 DRP estimates for China's comparative advantage, 1978 8.2 DRP estimates for China's comparative advantage, 1987 8.3 DRP estimates for China's comparative advantage, 1995 9.1 Relationship between comparative advantage, trade patterns and the structure of production 9.2 Relationship between DRP and NEPR 9.3 DRP and NEPR estimates for China's tradable goods, 1978 9.4 DRP and NEPR estimates for China's tradable goods, 1987 9.5 DRP and NEPR estimates for China's tradable goods, 1995 ix 26 41 42 43 51 52 53 54 56 62 62 63 127 140 141 176 178 180 208 210 212 214 214 ... Comparative advantage and trade patterns: the DRP and the NEPR China's trade patterns and comparative advantage Conclusion 10 91 Summary and Conclusion Trade reforms Trade efficiency Policy implications... Lin THE RURAL ECONOMY OF GUANGDONG, 1870–1937 Dic Lo MARKET AND INSTITUTIONAL REGULATION IN CHINESE INDUSTRIALIZATION Jun Ma THE CHINESE ECONOMY IN THE 1990S Guo Rongxing HOW THE CHINESE ECONOMY... Method and data issues DRP estimates of China's international comparative advantage Sources of changes in DRP measures Conclusion 169 China's Trade Patterns and Comparative Advantage 207 Comparative