The Asia Recovery

The Asia Recovery

Issues and Aspects of Development, Growth, Trade and Investment

Edited by Tran Van Hoa

This book explores in-depth the major issues and important aspects of this economic recovery and its potential impact on growth, development, trade and investment. Expert contributors also discuss the global directions in international economic and financial relations, corporate and public governance and the challenges to be met and managed in the 21st century.

Chapter 8: China: aspects of trade and investment in a globalized economy

Yanyun Zhao and Jingping Li

Subjects: asian studies, asian economics, economics and finance, asian economics

Extract

Yanyun Zhao and Jinping Li INTRODUCTION 1 China’s trade and investment have two significant characteristics: the services trade share in total trade is very small, and direct investment abroad is relatively small compared to total foreign direct investment (FDI). The export of services accounted for 13 per cent in China’s total exports, and direct investment abroad was only 6·25 per cent of FDI in 1998. Therefore trade in this chapter refers to trade of goods, and investment refers to FDI. The rest of this chapter consists of three parts. Section 2 describes the general situation of exports and FDI in China. In section 3, exports and FDI after the Southeast Asian Financial Crisis are analysed. Section 4 provides a quantitative analysis of China’s trade and investment by constructing and estimating a cointegration and error-correction model to scrutinize the influence of exports and FDI on the growth of GDP in China. 2 THE GENERAL SITUATION OF TRADE AND INVESTMENT IN CHINA The General Situation of Trade in China The year 1978 represents an important line of demarcation in China’s foreign trade, which can be seen from increases in exports and imports in Figure 8.1. (See also Appendixes.) For quite a long period after the foundation of the People’s Republic of China (PRC) in 1949, China, under a closed-door policy, regarded foreign trade as complementary to domestic production. The purpose of trade was mainly to adjust the domestic economy’s surplus and deficiency, and not to take advantage of specialization of the...

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