China Export and Domestic Market

By | January 23, 2022

In Liaoyang, Manchuria, 30,000 ‘disused’ workers, belonging to about twenty factories that have been inactive for some time, take to the streets to demand payment of wages that have been blocked for months. The cities of the Northeast, once the most industrialized region in China, have been hit for years by a profound crisis, caused by the economic reforms that have led to the closure of many state plants. The final push towards the market economy, after the profound changes produced by the revolution initiated by Communist leader Deng Xiaoping, came from China’s entry into the World Trade Organization. The agreement, officially ratified on November 10, 2001, represents the opening to the globalized economy of a market of 1.3 billion people.

Total wealth and per capita wealth

It is estimated that by the end of 2002, China’s gross domestic product, which reached 2102 billion yuan in the first quarter of the year, with a growth rate of 7.6%, is expected to cross the 10,000 billion yuan mark. At the current exchange rate, this figure would lead the Chinese economy to surpass the Italian one for the second year in a row and confidently reach fifth place in the world rankings. 24 years after the start of economic reforms, China has more than quintupled its GDP (the average growth rate between 1979 and 2001 was over 8% per year) and has thus led to over 1.3 billion residents to come out of the underdeveloped area and, in fact, to enter the narrow circle of nations with a great influence on the world economy. World trade organization). The WTO has indeed granted China a gradual transition to full application of international trade rules, offering a five-year transition period. China is on the whole a rich country, but if you divide this wealth among its entire immense population, the picture becomes much less brilliant. In 2000, China had an annual per capita GDP of just 7028 yuan, less than 1000 euros per person. According to the World Bank’s latest World Report, China’s GDP per capita, measured in purchasing power parity (PPP, Parity purchasing power), in 2000 it was 3920 dollars (for comparison: that of Italy was 23,470 dollars; that of Greece, the poorest country in the European Union, of 16,880 dollars; that of Poland of 9000; that of Russia of 8010; that of Turkey of 7030; that of India of 2340 dollars).

According to LOCALBUSINESSEXPLORER.COM, the entire growth potential of the country must also be seen in this gap between total wealth and per capita wealth. However, there is a wide debate on the figures for this growth. Some foreign scholars, such as N. Lardy and Th.G. Rawski argued, taking into account the growth rates of energy consumption and the use of public transport, that the real growth figures are actually 8% lower than the official figure. The National Statistics Office counters these objections by claiming that it has sufficient arguments to prove the consistency of its data. When Rawski points out that in some years the growth in energy consumption does not correspond to the economic one, Chinese officials reply that this is due to improvements in the efficiency of energy use. As for transport, which would increase at a slower pace than GDP growth, officials say Rawski’s figures do not include private wheeled transport, which has absorbed a large proportion of travelers. However, it should be noted that Lardy, Rawski and the other scholars, while not trusting the data provided, base their work on official statistics, of which they point out true or presumed inconsistencies. In reality, there is no other data to work on apart from the massive amount of figures compiled each year by the National Statistics Office. Under these conditions the debate could go on indefinitely. So, to begin to understand something, it is perhaps appropriate to start with the most certain data, that is, those relating to foreign trade. These are in fact the only incontrovertible ones as they must correspond to the accounts of other countries. However, the numbers here are staggering.

Export and domestic market

In 2001, foreign trade exceeded 500 billion dollars out of a total GDP of approximately 1160 billion dollars. Over 40% of the country’s wealth is produced by foreign trade, a quadruple percentage compared to that of the United States, which is also a great trading power (another comparison: in Japan and Italy the percentage is about 30%). This figure clearly imposes itself on those who think vice versa that the Chinese economy is a closed economy. On this basis, the World Bank, calculating the Chinese GDP in PPP, argues that today the Chinese economy is the second in the world and in less than 20 years it will have overtaken the American one. This hypothesis is also endorsed by the Economist, which has drawn up a ranking of purchasing power, comparing the price of some identical goods sold in different parts of the world: this is the mac list (from the fast food McDonald’s), based on the assumption that the same sandwich and the same drink can be bought all over the world at different nominal prices. Based on this index, the Chinese economy appears undervalued by around 40%. The Japanese also arrived at similar figures in 2001, when they suggested a revaluation of the Chinese yuan by about 50% to make Japanese products, put in difficulty by the Chinese ones, to gain competitiveness.

If we then look at the lifestyle of the people, we can see that entire sectors of the national economy are underestimated or not estimated. For example, in the past four years, state-owned companies have sold their homes to their employees at favorable prices ($ 10-20,000). The commercial price of those same houses is often five to ten times higher than the purchase price. In reality, corporate home buyers have pledged not to put their properties back on the market before a certain date, five years on average, and this no doubt limits the impact on the statistics. Certainly, however, there is a difference between the construction price of the apartment, the purchase price (which more or less correspond) and the market value. In other words, it is a massive transfer of wealth from the state to private individuals: by making them spend little and therefore by not contracting domestic demand, the government has created – in a very short time – a middle class that owns a house. It is a political and social decision of enormous impact that among other things drives consumption, which has increased in recent years by about 6% per year in terms of value, but around 10% in quantity. Inflation has in fact been flat in recent years (in 1998, 1999 and 2000 prices actually dropped) and in 2001 it recorded a longed-for increase of just 0.7%. Falling prices are doubly serious. On the one hand, in fact, it leads to re-evaluating debts, on the other to lower demand, as it pushes to postpone purchases. But this is only one aspect of the phenomenon, because while the prices of consumer goods have fallen, those of services have increased. Thus, in the face of lower prices, the perception of ordinary people was not that of an improvement in the standard of living or a decrease in the cost of living. The drop in the prices of consumer goods was in fact the result of a complex process, very important for the Chinese economic structure, but also difficult to report in numbers.

China Export and Domestic Market