China’s Emergence as a Major Importer

In November 2018, the first China International Import Expo (CIIE) will be held in Shanghai. The event is considered a milestone in the history of the economic interaction between China and the outside world and a major turning point in China’s relations with the world.

In the era of mercantilism, policymakers believed that exports made greater contributions to a nation’s economy than imports. Then, classical economics theory advocating trade balance dominated. In this new historical period, alongside the further increase in China’s overall national strength and per capita income, imports are playing an increasingly important role in the country. As the globalization trend once led by the United States undergoes tremendous changes, new drivers are needed to revitalize the world economy. China’s strides towards becoming a major importer will fire up global economic growth.

Data from the World Bank shows that if calculated in RMB, China’s GDP was 367.9 billion yuan in 1978, and the figure reached 82.7 trillion yuan in 2017, increasing 225 times over. If calculated in U.S. dollars, China’s GDP multiplied 80-fold and its per capita GDP about 30-fold during the period, while global GDP increased nearly tenfold and the world’s per capita GDP quintupled. Such remarkable economic growth is unprecedented not only throughout Chinese history, but also globally across the 20th century.

Considering the first 30 years since the founding of the People’s Republic of China in 1949, the country’s economic miracle after 1978 has been attributed to opening up. For example, China’s simplified average tax rate for all products dropped from 39.7 percent in 1992 to 7.9 percent in 2016, while the weighted average tax rate for industrial products decreased from 36.4 percent to 4.3 percent. The sharply lowered tax rates encourage domestic and foreign economic factors to flow in a wider manner, not only accelerating the exchange of economic factors but also enhancing the efficiency of factor allocation, expanding producers’ profitability space and providing more options for consumers. More importantly, lower tax rates foster further economic openness, which has enabled China to integrate deeper into the global economy and carry out mutual beneficially interaction with the outside world.

For a major economic power, an increase in people’s incomes makes the importance of trade gradually decline, and domestic reform starts playing an increasingly significant role in driving economic growth. In the early days of China’s reform and opening up that started in the late 1970s, the country’s economic aggregate accounted for less than two percent of the global total, and its foreign trade lacked competitiveness and exerted very limited influence on the global landscape of international trade. Back then, China’s foreign trade had barely lifted off and focused on the export of resource products. With the continuous introduction of foreign capital, China developed an export-oriented strategy. Consequently, its foreign trade, characterized by labor-intensive products trade and export-oriented processing trade, boomed. By the 2008 worldwide financial crisis, however, the core driving forces of China’s economic growth began to shift from exports to domestic consumption. This is evidenced by the following figures: In 1978, China’s degree of dependence on foreign trade was 14.1 percent, which maxed out at 64 percent in 2006 before dropping significantly to 33.5 percent by 2017. The ratio of goods trade to GDP is 20 percent in the United States and 28.2 percent in Japan, to name a couple of top-ranking economic powers.

Major economic powers have walked different roads along with the evolution of foreign trade. Take the United States as an example: Since 1972, its import volume has exceeded export volume, resulting in an increasing trade deficit. This eventually resulted in the collapse of the Bretton Woods system and sharp adjustments of the foreign exchange rate systems of various countries. Although the United States canceled the direct international convertibility of the U.S. dollar to gold, the dollar still retains its position as an international currency, which, to some extent, has been even further solidified. The expansion of the international market has increased financialization of the United States, and its domestic economy has become increasingly reliant on the financial services industry.

Japan took a different path. From the mid-1970s, with the enhancement of their foreign exchange rate independence, some East Asian economies gradually turned to export-oriented development policies, which enabled them to quickly merge into the international market. Since the 1980s, Japan’s trade-to-GDP ratio has undergone U-shaped development. It is noteworthy that the different paths taken by the United States and Japan closely correlate to their respective development stages and cross-border economic collaboration situations. Indeed, the drop of Japan’s trade-to-GDP ratio is partly due to expanded domestic demand. However, the primary reason is that Japanese transnational companies formed an Asian production network, shifting parts of Japan’s production capacity to Southeast Asian countries and forging a U.S.-Japan-East Asia triangle trade relationship.

A noteworthy historical fact is that the ratio of Japan’s GDP to that of the United States witnessed reversed U-shaped development, rocketing from 10 percent in the early 1960s to 71 percent in 1995 and then turning back to today’s 25 percent. For a long time, China’s economic aggregate accounted for less than one-tenth of that of the United States. Since the 1990s, China has witnessed rapid economic growth. The ratio of its GDP to that of the United States doubled from 1990 to 2001 and then redoubled twice from 2001 to 2007 and from 2008 to 2017, respectively. Currently, the ratio is stable at 63 percent. Nevertheless, the current ratio of China’s per capita GDP to that of the United States only compares to Japan’s level in the 1960s. This means that theoretically, there is still a huge space for China to catch up with the United States.

The China-U.S. relationship is entering a crucial stage, and China’s opening up has entered a “deep-water zone.” China has ranked as the world’s second largest economy for eight consecutive years. If measured by purchasing power parity according to the International Monetary Fund, China has been the world’s largest economy for five straight years. China has played a vital role in the development of the world economy. Over the past few years, it has contributed more than 30 percent of global economic growth. Moreover, the main component of China’s economic structure has shifted from agriculture in the 1980s to industry and services. Since 2014, the ratio of employees in the service industry to the country’s total working population has exceeded 50 percent. Research shows that China will soon become a high-income country as defined by the World Bank. In this crucial period, China particularly needs to actively expand opening up to promote reform and prompt common development of other countries in the world. Hosting the CIIE provides an important opportunity for the country to press ahead with a brand-new globalization and fulfill its responsibilities to the world.

The author is director and research fellow of the Major Countries Relationship Research Department under the Institute of Asian-Pacific and Global Strategy, Chinese Academy of Social Sciences.