L1-China&39;s Economic Conditions(11)

Figure 1. China’s Foreign Exchange Reserves,

1990-September, 2005

($ in billions)$800$700$600$500$400$300

$200

$100

1990

1992

1994

1996

1998

2000

2002

2004

Source: Official Chinese government data.

China’s Major Trading Partners

China’s trade data often differ significantly from those of its major trading partners.This is due to the fact that a large share of China’s trade (both exports and imports) passesthrough Hong Kong (which reverted back to Chinese rule in July 1997 but is treated as aseparate customs area by most countries, including China and the United States). Chinatreats a large share of its exports through Hong Kong as Chinese exports to Hong Kong forstatistical purposes, while many countries that import Chinese products through Hong Konggenerally attribute their origin to China for statistical purposes. According to Chinese tradedata, its top five trading partners in 2004 were the European Union (EU), the United States,Japan, Hong Kong, and the 10 nations that constitute the Association of Southeast AsianNations (ASEAN) (see Table 5). China’s largest export markets were the United States,Hong Kong, and the EU, while its top sources for imports were Japan, the EU, and Taiwan(the United States ranked sixth).

U.S. trade data indicate that the importance of the U.S. market to China’s export sectoris likely much higher than is reflected in Chinese trade data. Based on U.S. data on Chineseexports to the United States (which, as noted, do not agree with Chinese data), and Chinese

data on total Chinese exports, it is estimated that Chinese exports to the United States as ashare of total Chinese exports grew from 15.3% in 1986 to 33.1% in 2004.

A growing level of Chinese exports is from foreign-funded enterprises (FFEs) in China.According to Chinese data, FFEs were responsible for 57% of Chinese exports in 2004,compared with 41% in 1996. A large share of these FFEs are owned by Hong Kong andTaiwan investors, many of whom have shifted their labor-intensive, export-oriented, firmsto China to take advantage of low-cost labor. A significant share of the products made bysuch firms is likely exported to the United States.

Table 5. China’s Top Five Trading Partners: 2004

($ billions)

TradeBalance asReported byPartner

-90.7-162.0-20.5-3.9N/A

CountryEuropean UnionUnited StatesHong KongASEAN*

Totaltrade177.3169.7112.7105.9

Chineseexports

95.9125.073.5100.942.9

Chineseimports

63.444.794.411.863.0

China’s tradebalance

32.580.3-20.989.1-20.1

Source: Official Chinese trade data.

Note: Chinese data on its bilateral trade often differ substantially from the official trade data of other countrieson their trade with China.

* Association of Southeast Asian Nations (ASEAN) member countries are Indonesia, Malaysia, the Philippines,Singapore, Thailand, Brunei, Cambodia, Laos, Myanmar, and Vietnam.

Major Chinese Trade Commodities

China’s abundance of cheap labor has made it internationally competitive in many low-cost, labor-intensive manufactures. As a result, manufactured products constitute anincreasingly larger share of China’s trade. A large share of China’s imports, such as rawmaterials, components and parts, and production machinery is used to manufacture productsfor export. For example, China imports cotton and textile-production machinery to producetextile and apparel items. A substantial amount of China’s imports is comprised of parts andcomponents that are assembled in Chinese factories (major products include consumerelectronic products and computers), then exported.

China’s top five imports in 2004 were electrical machinery and parts; boilers,machinery, mechanical appliances, and parts; crude oil; plastics; and organic chemicals (seeTable 6). China’s top five exports in 2004 were boilers, machinery, mechanical appliancesand parts; electrical machinery and parts; apparel; furniture, bedding, and lamps; and optical,photo, and medical equipment and parts (see Table 7).