Concerns About China’s Trade Practices

Source: The post concerns about China’s trade practices has been created, based on the article “The paradox of China’s globalisation” published in “Business Standard” on 24th August 2024

UPSC Syllabus Topic: GS Paper2- International Relations-Effect of policies and politics of developed and developing countries on India’s interests.

Context: The article discusses concerns about China’s trade practices, focusing on its growing export dominance, especially in sectors like electric vehicles. Despite various global trade restrictions, China’s exports continue to rise, puzzling experts and challenging conventional economic policies.

For detailed information on US-China trade war affected global trade read this article here

What Are the Concerns About China’s Trade Practices?

1. China is accused of exporting excess capacity, particularly in emerging sectors like electric vehicles (EVs), raising concerns in the U.S. and Europe.
2. China might be using unconventional or concealed subsidies to boost exports, or its firms may be very efficient in mastering new technologies.

How Has China’s Trade Changed Over Time?

1. Rising Imports: From the mid-1980s to 2008, China’s import-to-GDP ratio more than doubled, increasing from about 14% to around 33%. This reflected China’s trade liberalization and global integration.
2. Export Dominance: China’s current-account balance shifted from a 4% GDP deficit to a nearly 10% surplus. This was due to aggressive export-promotion policies, including currency manipulation and restrictions on foreign capital.
3. WTO Accession: After joining the World Trade Organization in 2001, China’s share of global manufacturing exports surged from less than 1% in 1985 to 12% by 2007, reaching up to 50% in sectors like apparel and footwear.
4. Continued Growth: Despite global pressures and policy changes, China’s share of global manufacturing exports further increased to 22% by 2022. This shows the resilience of China’s export strategy.

What Steps Has China Taken to Boost Exports?

1. Currency Manipulation: China kept its currency, the renminbi, undervalued to make its exports cheaper. This helped its foreign reserves grow to $4 trillion.
2. Export Promotion Strategy: China limited foreign capital inflows and accumulated foreign exchange to maintain a competitive exchange rate, boosting export competitiveness.
3. Government Stimulus: Post-2008, China invested heavily in infrastructure, indirectly supporting the export sector by strengthening the economy.

How Did Global Policies React to China’s Rising Exports?

1. The U.S. pressured China to let its currency, the renminbi, appreciate, leading to a 50% increase over a decade.
2. The U.S. also implemented higher tariffs on Chinese goods under Presidents Donald Trump and Joe Biden.
3. These policies aimed to reduce China’s export dominance but had limited success, as China’s exports continued to grow significantly.

What Should Be the Focus Now?

1. There is a need to understand why China’s exports are still increasing despite these measures.
2. It might be due to hidden subsidies or because Chinese companies are very efficient, especially in new technologies.
3. The U.S. and Europe should consider these factors before deciding on further actions.

Question for practice:

Examine the strategies China has used to boost its exports and how these have contributed to its growing dominance in global trade.