History of Trade of The People's Republic of China - Foreign Trade - History of Chinese Foreign Trade

History of Chinese Foreign Trade

Chinese foreign trade began as early as the Western Han dynasty (206 BCE-9 CE), when the famous "Silk Road" through Central Asia was pioneered by Chinese envoys. During later dynasties, Chinese ships traded throughout maritime Asia, reaching as far as the African 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, European 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 materials 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 zones, 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.

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%

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