BOOK REVIEWS

Thomas Chan, Noel Tracy and Zhu Wenhui, China’s Export Miracle—Origins, Results and Prospects

In China’s Export Miracle, the authors trace China’s development into one of the world’s leading trading nations. By 1995 China’s international trade was worth more than US$280 billion, a figure that might have seemed preposterous to the architects of the economic reform process in the late 1970s when the same figure was barely US$20 billion. The authors argue that this is a kind of miracle that no one could have expected. They then move on to explain how it happened. The following two chapters discuss the extraordinary trade performance of Guangdong province and the potential of other regions to become major sources of foreign trade. The next chapter examines the destinations of China’s exports and hurdles for continued expansion. A final chapter analyses China’s future prospects for expanding its role as one of the world’s major trading nations even further.

In the late 1970s China emerged from its cocoon of primarily self-imposed self-sufficiency that had lasted for two decades and transformed the majority of its industrial sectors into obsolete and antiquated structures that could neither meet domestic needs nor compete in international markets. Petroleum made up almost half of its export volume and much of the rest was foodstuffs. China needed to modernise its economy and required huge amounts of technology, particularly machinery and equipment, and would only be able to pay for it by greatly increasing its exports. This prompted a two-pronged strategy of implementing major changes in its trading regime and in the hitherto planned economy. This involved giving foreign investors a central role by allowing them to establish foreign-invested-enterprises (FIEs). This strategy also included the creation of Special Economic Zones (SEZs) and eventually the opening of the Pearl River Delta, central to the symbiotic relationship between Hong Kong and Guangdong, and from which Guangdong emerged as China’s primary source of foreign trade. Some 20 years later China had become a key player in global trade, manufactured goods making up a major proportion of its exports, a substantial portion of which was machinery and electrical/electronic equipment.

The authors conclude by stating that the “miracle” will continue but argue that there are still many hurdles to overcome, not to mention some key issues related to Sino-US relations. The improvement of human rights and working conditions have strong advocates in the US, as has the desire to see trade relations made subject to stringent requirements. Another key Sino-US predicament is the US’s large trade deficit with the Asia Pacific. China itself has created a part, but traders and manufacturers based in Hong Kong and Taiwan are responsible for the large proportion. The authors suggest that China should not be responsible for the trade deficit that Hong Kong businesses are accumulating in the US, although Hong Kong is now a part of the PRC. The book clearly explains the extraordinary role that Hong Kong has played not only in raising Guangdong’s export potential in particular, but of China in general. However, the authors show that trade statistics indicate that China’s trade relations with Korea and Japan are now very significant and that inter-regional trade may become even more important in the future, partly defusing the trade deficit issue with the US.

More fundamental problems exist in the dominance of FIEs in the fuelling of China’s exports, which are primarily products of a massive processing industry in the coastal areas. The value-added amounts only to some 25% of the value of the exports, which is only 13% in FIEs while 43% in domestic companies. This is due to a large share of the input coming from outside China and because China’s export growth primarily depends on foreign direct investment (FDI) with weak backward linkages, and township and village enterprises scarcely figure. Thus, the grand trade expansion has not yet benefited China by means of efficient and far-reaching technology transfers. Also a factor are the statistics from the SEZs, which lump together imports and exports, which exaggerates China’s trade volume. This is common international practice but the bias is stronger in China’s case because of the large share of FDI in its processing industry.

Will it continue? Yes, the authors say. They give the following reasons. China still has an extremely large pool of labour released from agriculture that is willing to work for low or very low wages and this situation exists nowhere else in the world. At the same time Chinese labourers are used to the form of discipline that existed in the people’s communes before they were abolished. China also benefits from an industrial base that at an early stage was supported by the then Soviet Union and later on through forced industrialisation based on self-sufficiency. The past 20 years have seen a modernisation in China very different to that in Southeast Asia. However, the size of China and the pool of manpower inland may provide the basis for the flying-geese approach inside China in the coming couple of decades. However, the advantages of having at hand a large pool of semi-skilled and semi-disciplined labour is partly offset by the poor infrastructure that locations away from the favoured coastal locations are suffering from.

Most of the work for this book was completed during the Asian financial crisis in the Asia Pacific, and which also had consequences for China, in the latter half of 1997. However, the facts and analysis are still valid and offer an excellent introduction to China’s transition from a self-sufficient economy to a trading nation of growing importance.