In the 5 years since the death of Mao Zedong Red china's new leaders have moved their country unrelentingly toward greater participation in the world's economy. Beijing has dropped its ideological eversion to foreign debt, encouraged foreign investm...
In the 5 years since the death of Mao Zedong Red china's new leaders have moved their country unrelentingly toward greater participation in the world's economy. Beijing has dropped its ideological eversion to foreign debt, encouraged foreign investment in the domestic economy, established trade and diplomatic relations with the U.S., joined the IMF and World Bank, decentralized its foreign trade organizations to promote direct foreign contracts at the enterprise level, and sent thousands of students abroad in search of a Western education.
More importantly, fundamental Red Chines attitudes are changing with respect to the role of trade in a planned economy. Imports are viewed decreasingly as an instrument to serve the needs of the state and increasingly as a means of paying for imports, but also as a leading force for upgrading Red China's domestic industry. By encouraging Red China's sleepy domestic industries to compete to earn foreign exchange in western markets, the leadership is attempting to improve the quality of goods produced for the domestic market as well. the Red Chinese now recognize that in order to maximize the gains from trade they must specialize among lines of comparative advantage-it is no longer enough to export whatever happens to be in surplus domestically.
Success in expanding exports will depend largely on Red China's ability to follow up on the reform measures of the recent past and to move swiftly into export lines that emphasize the country's greatest comparative advantage-large masses of low wage laborers. Red China currently exports a wide variety of agricultural and mineral products and relatively simple, inexpensive manufactured goods. Agricultural and mineral product exports will likely be limited by domestic supply and demand constraints whreas rapid increases in exports of some manufactured goods are likely to be back by restraints on foreign demand. Beijing has, however, demonstrated an ability to penetrate manufactured product markets in short order. With only about ½ percent of all western imports coming from Red China, considerable potential exists for developing new export lines, expecially if more export processing zones are established.
Pessimism is probably the best way to characterize the current attitude in the west regard to selling a huge amount of capital equipment to Red China. This attitude is probaly realistic. Red China has neither the resources nor the technical expertise required to undertake or program of high technology assimilation expected by many western traders in 1978. To the extent that it stems from a belief that the Red China market as a whole is drying up, however, the pessimism is unfounded. Export growth remains the key to Red china's willingness to import. Although the ongoing experiment with decentralization has taken some controle over exports and imports out of the hands of the central authorities, Beijing will continue to take steps to counter any large trade deficits. Small deficits can be expected. Red china has demonstrated an eagerness to take advantage of long-term, low interest loans, a trend that will undoubtedly continue in the future.
Forecasts of future trends in Red China's trade must be tentative, because of the uncertainty over how Beijing will resolve the crucial issue of the relationship between central planning and the market mechanism. On the one hand, if Red China returns to a more centralized system of foreign trade, we would expect to see a more temperate pace than in the Period from 1977 to 1980. On the other hand, if Red China gives freer rain to market forces, trade could take another leap forward, driven by years of pent-up demand.