Impact of Chinese international trade on global economy

Abstract

China, with its exports and imports totalling to US$ 3.6 trillion, contributes about 10% to the total international trade. Since its entry into WTO in 2001, China has implemented deep structural reforms promoting international integration of its economy. This external focus has helped it become the largest exporter and the second largest importer in the world. Naturally, China exercises a major influence on the world economy through its trade activities. As the economic might of China increases, this influence will become an important determinant of how the global economy shapes in the future. This study aims to understand the impact of China’s international trade on the partnering economies. China’s economic take-off can be attributed to its integration in global trade networks and global value chains. The centrality index, which measures the likelihood of a country’s involvement in randomly selected trade chains, suggests that China has moved from an isolationist position to the core of the trade network over the last two decades, at par with US, Japan and Germany. This rapid integration has been made possible mainly by processing trade, which currently constitutes about half of its overall trade. It involves production of goods primarily for export from intermediate inputs imported free of custom duties. This regime has attracted many multi-national companies to China as it allows them to exploit its comparative advantage in labor-intensive activities. Processing trade has made China an integral part of global value chains involving exporters of raw materials and intermediate inputs on one side and importers of finished goods on the other. To assess China’s impact on the global economy, tracing these trade linkages becomes essential. In this report, we present our initial analysis of the trade data between China and other countries and the current patterns in terms of growth and direction. This analysis will help identify specific countries / industries that will become the foci of this study in the remainder of the term.