Economics In China

Economics in China: China's mounting openness to trade with the United States and other foreign markets is rapidly developing and evolving to adapt to the new realities of the nation's economy.

The official support of a market-based economy that came from Deng Xiao Ping in 1992 has resulted in a more open system of trade for China, and subsequently a huge growth spurt in China's economy. The economic reforms which Deng instigated culminated in a "socialist market economy", a term which was actually incorporated into the Chinese constitution during the National People's Congress in March 1993. Since that time, China's economy has experienced a substantial boost in regards to living standards, quality of food and spendable income.

While these elements expand opportunities for U.S. exporters, factors such as inflationary pressure, irrational foreign exchange controls, and restrictive trade practices have created numerous barriers. In fact, China's official Gross National Product (GNP) posted a 12.8 percent real growth rate in 1992 to about US$435 billion, or about US$371 for each of China's 1.172 billion people- urban incomes grew at a real rate of 8.8 percent. Rural incomes also grew, but at a slower rate of 5.9 percent.

These figures, however, may be tainted by the disproportionate distribution of income and wealth that permeates China. The Chinese, after all, have lower human rights standards than the United States and the poor definitely suffer the consequences. Add to that the immense size of the Chinese population, and suddenly any estimates of wealth, buying power, or economic conditions appear to be quite diminished in their reliability. In the end, these figures are based on national averages, which creates a fictional middle class majority that simply does not exist. Realistically, a very large proportion of China's economic growth comes from the collective and private sector, and not the subsidized state sector.

In addition, China continues to maintain an illogical foreign exchange mechanism, utilizing both an official exchange rate and a "swap center" rate, which is influenced even further by the black market rate - none of which can be properly measured. Other barriers include the fact that it can sometimes be hard to decipher the rules regarding license requirements, as well as what type of inspections are required. For those commodities which are still restricted at the central government level, there is also confusion as to which agency has the ultimate authority. These difficulties can be managed, but necessitate perseverance and diligence on the part of U.S. exporters.

The market and price reforms made by the China Communist Party in 1993 also fueled dynamic changes in China's economic environment, especially in regards to agriculture. With the population of China increasing by approximately 17 million people every year, it is easy to see why China can only meet demands by increasing the number of agricultural and food product imports it receives. Today, there are over 80,000 grain and edible oil markets as well as numerous fruit and vegetable markets in China importing products for the domestic market. China has signed agreements which force them to loosen the restrictions on foreign trade, which has had a very positive impact on U.S. trade relations with China, especially in regards to food products.

In China, as in many countries throughout the world, the rise in incomes and living standards has perpetuated a notable increase in the per capita consumption of meat, fruits and vegetables, and most especially, processed and convenience foods is increasing. In major urban markets, and most noticeably in Beijing, Shanghai, and Guangzhou, consumers are literally "eating up" fast foods, convenience foods, and packaged food products. The elimination of price subsidies for grain, pork, milk, eggs and other products has caused some increase in price, however this increase has caused little, if any, dissension. This means that not only can Chinese consumers better afford to pay higher prices, but are willing to, in order to increase the number of alternatives that are available to them. Consumers in China today are demanding quality and variety in the food they buy and the U.S. market is more than happy to fulfill their needs. Unfortunately, there are still about 300 million people in China's urban population who have not yet caught up with the rapid growth of the Chinese economy. The good news for U.S. exporters however is that as long as the economic trends in China continue to improve, more and more markets will continue to open up. The bad news is that the high tariffs, technical barriers and general lack of clarity that products of major interest to U.S. exporters, such as beef, nuts, and fruit, have received only minimal reductions in tariffs despite the many promises from China that international trade will be made more cost-efficient. Quarantine barriers also officially prohibit U.S. fruit and most fresh vegetables from entering China, due to fear of fruit fly contamination. However efforts are being made to permanently remove all restrictions that cannot be scientifically justified.



China also maintains quotas on many products, but the quotas seem to be somewhat flexible. In truth, figuring out exact quota amounts is often very difficult. Therefore, when evaluating the U.S. market position for consumer ready products, China Customs data is the only source that provides comparable China Import data for the United States and other countries. There is still however a lot of discrepancies in figures, and it is assumed that the China market is larger than indicated by U.S. and Chinese statistics.

While market research is not exactly a prevalent practice in China, some evidence has shown that an American label does significantly help boost product sales. Subsequently, dishonest importers have been known to put U.S. labels on other countries' products because it makes the item sell better. This not only skews statistical data, but could have a strong negative impact on the U.S. economy if the matter were to get out completely out of hand. Labeling requirements are not very restrictive at the moment, but the U.S. and China are working to eradicate this fraudulent behavior being perpetrated. The China market for American products is swiftly freeing itself from strict government control. The amalgamation of rapid economic growth and market reforms is has fueled the interest in American products on the part of the Chinese consumer. It is predicted that the hotel and restaurant industry will continue to be the major market opportunity for U.S. meats, wines, frozen potatoes, condiments and a plethora of other related products. In addition, the telecommunications, financial and other service markets also offer great potential for U.S. exporters. In spite of the plethora of trade restrictions which still limit the overall import market in China, the latest trends are pointing toward simplifying admission into the Chinese market. The number of trade corporations, and factories, for example, has gone sky high in the recent past. Because of its struggling economy, most emphasis in past China trade relations was based on exporting. There is currently is a continually increasing interest in importing products for the domestic market.

Foreign trade corporations that were at one time part of a strict government structure are now able to expand their scope of business and deal in more products and distribute to more outlets than ever before. While still associated with some level of the Chinese government, these corporations must now turn a profit and are subsequently becoming more active in importing U.S. products. In virtually all cases, these importers are also distributors. This has introduced an element of competition in the import sector that did not exist just a few years ago. It also means that at least some of these potential importers/distributors are not familiar with U.S. products or international trading practices. . In addition, the elimination of price controls and the establishment of wholesale markets has allowed China to achieve a better balance between supply and demand.

One of the most recent notable developments in regards to China's trade regulations is that, China and the U.S. finally signed a deal which allowed China to enter the World Trade Organization. This agreement will benefit the U.S. in a number of ways, including the new freedom of foreign investors to partake in China's internet market, and manufacturers are now allowed to import and export their products without overt governmental interference.

Economic reform and the establishment of a "socialist market economy" have virtually revolutionized trade between our two countries. Therefore it is vital that good relations with China are maintained so that both economies can experience the benefits of higher quality living.

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