1.0 China’s Background
As the largest population country, China has the second largest economy which made up from 1.4 billion population strong market (BBC News 2017). After the global financial crisis in 2008, China became the biggest player in the global market with its increasing influential role in development and economy.
China has been shifted from a largely agrarian society to an industrial powerhouse. This shift raised the wages and productivity. Hence, it allowed China to get in the list of the world’s second-largest economy (HELEN WONG 2017).
Before mid-1980s, the Law on Chinese Foreign Equity Joint Ventures was introduced by China. They allowed foreign capital inflow into China and boost regional economies. Government not only ease the pricing restrictions and also let companies to set up their own wage structures and retain its profit. This allowed GDP increase from 6% in 1953-1978 to 9.4% in 1978-2012. Hence, it also helped China to shift from rural area to pace of urbanization as workers were drawn from the countryside into higher-paying jobs in cities (Tomas Hirst 2015).
Turning into market liberalization helps China develop as major global exporter. In December 1990, Shanghai stock exchanges reopen in December 1990 for the first time over 40 years and introduced China to the World Trade Organisation (Tomas Hirst 2015).
These reforms had a significant impact both on per capita GDP and the pace of the falling share of the labour force working in agriculture.
In November 2002, China signed The ASEAN-China Framework Agreement on Comprehensive Economic Cooperation and establishes ASEAN-China FTA in January 2010. It allowed China to build strong relationship with members, boost economic and increase trade (Ministry of International Trade and Industry 2017).
In this paper, we draw attention to a different determinant of China’s comparative advantage, China major trading partners, Balance of Payment in China and Free Trade Agreement affect China’s electronic machinery.
(i) China’s Comparative Advantage Sectors
According to the reliable data, China is the top largest exporter in the world which the value of goods that exported from China has developed enormously between 2002 and 2014 (The Statistics Portal 2016). China’s top 5 trading partners are United States, Hong Kong, Japan, South Korea and Germany (Daniel Workman 2017). The manufacture industry in China has at least two advantages which is low labor cost and less regulation. While low labor cost make higher benefit conceivable, less regulation implies that Chinese industries could deliver the same number and as assortment things as they need without an excessive amount of limitations. For instance, they don’t have to stress over the pollution from production process excessively. Along these lines for China, it is astute and profit to take the advantages (Linda 2015). Based on the data shown, the volume of China’s exports are greater than its imports which mean that China are more focusing to export its domestic products around the worlds. China is the largest exporter country of the electrical machinery and equipment. China’s top 10 exports has represented for 67% of the overall value of its global shipment. The major domestic exports sectors for China are electrical machinery and equipment which representing for half of the total exports (The Statistics Portal 2016).
Besides that, China’s electronic machinery sectors has dominated 16.7 percent of the country’s economic growth and also its added-value output which is 7 percent of the Gross Domestic Product (GDP). Foreign country have taken advantage of China’s policy and have used China as a production base. The labour-intensive stage of production in other country tended to migrate to China, taking the advantage of low labor cost (OECD 2017). This was enhanced China’s ability to greater national income. Most of the China’s electronic manufacturers can gain the benefit with the reduction of average production cost thus the product that made in China will be cheaper.
(ii) China’s Major Trading Partner
China is the world largest exporter. They had shipped worth US$2.119 trillion of products around the globe in 2016 (Atlas 2016). The figure represent about 13.1% of overall global exports estimated $16.236 trillion in 2015. From a continental perception, 49.8% of the total export in 2016 were delivered to other Asian trade partners. 21.2% of Chinese shipments was delivered to North American while the other 18.5% was delivered to European countries. African also import 4.4% of Chinese goods to their country. There are at least 15 of China’s top trading partner in the terms of export sales. Those trading partner had imported Chinese shipments by using dollar during 2016. Below had shown every import country’s percentage of the total Chinese exports. Firstly, United States had imported US$388.1 billion which worth 18.3% of Chinese exports. Second, Hong Kong imported $292.2 billion worth 13.8% Chinese goods. Third, Japan imported $129.5 billion from China which worth 6.1% of Chinese goods. Fourth, South Korea imported $94.7 billion worth 4.5% of Chinese goods. Fifth, Germany imported $65.8 billion worth 3.1% of Chinese goods. The following will be India, Netherlands, United Kingdom and so on. Around 2/3 which is 68.1% of Chinese goods were export to the above 15 trading partners. There are several companies that service china trading partners, Dong Fang electric that export electric equipment, AA Technology Co. Ltd which export advanced electronic components, Shuz Tung Machinery Industrial Co. Ltd which export electronic equipment and machinery. There are also a few companies which export household appliances and beverages such as Gree Electric Appliances, Midea Group Co. Ltd (Daniel 2017).
ASEAN China Free Trade Area is the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China. Their ultimate goal not only just to eliminate tariffs and it also addresses behind-the-border barriers which slow down the flow of goods and services. Besides that, it also encourage investment and enhance cooperation. This agreement was signed in November 2002 and it was full established in January 2010 which enhance a strong groundwork for the ASEAN-China economic relations (ASEAN 2015). Ever since it start implement, the economic relations become more intense. The Agreement on Trade in Goods was signed on November 2004. The aim is to reduce the tariff and it was grouped into either Normal Track or Sensitive Track. In the other hand, the Agreement on Trade in Services was signed on January 2007 which is to liberalise and substantially abolish discriminatory measures.
China and Australia had signed a free trade agreement on 17 June 2015. It had come into force on 20 December 2015 which indicate that 7289 individual Chinese tariffs were cut or eliminated completely (Queensland 2015). Australia’s Minister for Trade and Investment state that this agreement will support their future economic growth, job creation and living standards improve with the help of China’s population of 1.4 billion people, present huge opportunities for Australian business will in the future (Australian 2017). Australian basically import electronic, machinery goods, manufactured products from China. The main imports of Australia from China are manufactured goods, which was value more than $17 billion in 2014 and it eventually led by telecommunication equipment, furniture, homewares and also IT products. Agricultural exporters in Australia will also get the opportunities to gain competitive advantages from number of tariff reduction. Tariff will be remove 85% on Australian goods when it is imported into China (Carter 2016)
China is the largest trading partner for Australia. China buys almost 1/3 of all Australian goods which worth at about $90 billion in 2014 to 2015. Chinese investment in Australia has also been growing quite strong in recent years and in which it has reach almost $65 billion in 2014. Trade and investment with China is central to Australia’s future prosperity (Queensland 2015). For Australia, ChAFTA is the most significant of their 3 Northeast Asian FTA. The largest trading partner for Australia was China, which is the 2nd largest economy in the world and also the most dynamic economies. Hence, market opportunities are growing for Australia as China’s middle class grows rapidly (Armstrong 2017).
There are factors which show that why China signed a FTA with Australia. First, the liberalization that was assured in China-Australia Free Trade Agreement was consistent with China’s reform agenda. China focus on transforming the growth model away from export and investment towards a more supportable service and consumption-led model which dominated by heavy industry. Next, Australia is a middle level economy with well-established and high quality institutions and regulatory systems. They provide a better testing ground for making deals with larger advanced economies, China. This had benefit China as it can be seen as a step to prepare Chinese institutions, regulations and the broader liberalization. As a result, with ChAFTA China are able to further the domestic reorganisation and the liberalization for the service sector become more broadly (Armstrong 2017).
(iii) China’s Balance of Trade and the effect of trade surplus of China
The China has been beginning to adopt the policy of reform and opening to the outside world at the end of the 1970s, that was marked the beginning of the China’s transition to the market economy (John McEwen Crescent 2005). China’s revised that the Constitution explicitly stated that “the State adopts the socialist market economy mechanism”, which is providing a legal basis for the development of the market economy in China at the year of 1993. The economic development of the Gross Domestic Product (GDP) is increasing at the average of annual rate in 9.7% at the 1980s and 10.7% in the 1990s. The annual growth has been continued in the 7% to 9% range during the period of 2000-2004 (John McEwen Crescent 2005).
The exportation of China that has expanded 12.3% in the last few year to USD 217.37 billion and that is coming in the last few month of 6.9% increase and the market analysts’ are estimate of a 5.3% gain (Focus Economic 2017). It is the fastest to raise in the outbound’s shipment due to the strong global demand (Trading Economic 2017).
At the meanwhile, the importation of China that rose 17.7% which is same with the past few year to USD 177.11 billion which is coming in next month of 17.4% expansion and the 11.3% increase that is the market analysts had expected (Trading Economic 2017). The annual growth in the inbound’s shipment that are supporting by the domestic demand and the demand is in a good shape, which is the bodes as well for overall growth in the quarter 4 (Focus Economic 2017).
The exportation in China that will be expanding of 4.5% in the year of 2018 and it is bringing the trade surplus to USD 470 billion. Exports will be increase in 3.7%, and it can be pushing up to the trade surplus to USD 492 billion at the year of 2019 (Focus Economic 2017). When the export is increasing it will lends to increase in China’s Gross Domestic Product (GDP) in 18.06% of the world economy, and it will decrease in the inflation rate from 1.9% to 1.7% in November (Trading Economic 2017).
The China’s trade surplus was narrowed from USD 40.21 billion in the November to USD 44.24 billion at the same month of a year earlier and in the October 2017 is USD 38.2 billion surplus but above the market consensus of USD 35 billion (Focus Economic 2017). According to January to November of 2017, the trade surplus are remain constant at USD 380.24 billion and decrease in USD 471.67 billion surplus in the past few year (Trading Economic 2017). The balance of trade in the China are averaged at the 96.08 USD HML from 1983 until now, it has been reaching all the the time high of the 628.33 USD HML in the February of 2015 and moving the sum of the trade surplus are has been decreased from October of USD 425 billion to USD 421 billion in November which is marked at the lowest value in the January 2015 (Trading Economic 2017). It also record the lower of -319.71 USD HML in 2012 of February (Focus Economic 2017).
The Government of Australia and the Government of the People’s Republic of China have signed a Free Trade Agreement (FTA) that can increase the market access for Australian and Chinese (Daniel Hurst 2017). Both of the countries are very substantial markets with the combined of an imports goods and services worth over US $0.7 trillion in the year of 2004. The China’s real GDP grew at the annual average rate of 8.1% over the past five years fuelled by the higher levels of investment and sustained economic reform (John McEwen Crescent 2005). The commercial relationship between Australia and China should be continue to develop quickly because the strong factors are driving the current increase in the trade and investment are unlikely to abate. The Chinese investment in Australia that has been growing strongly in these few years up to around the $87 billion at the end of the year 2016 and then from $4 billion 10 years ago (R.G. Casey 2017). China’s per capital GDP in 2003 was around 4.4% of Australia’s in current US dollar terms and over the two-thirds of China’s total population remain in rural areas and agriculture contributes around 15% of China’s GDP. The manufacturing is the key driver of China’s economic growth and development and contributes around 35% of GDP (R.G. Casey 2017) .
(iv) Free trade agreement affect China’s electronic machinery
China and Australia has sign a free trade agreement due to decade of negotiation in 2015 which lowers barriers to trade between two countries. Now, it has known as China-Australia Free Trade Agreement (ChFTA). Under the agreement, 85.4% of goods traded between both countries will reduce tariffs to zero immediately. This will provide advantage to China increased their export as well. From the customs data, China’s major exports to Australia are electronic machinery, computer, telecommunication equipment, furniture and apparel products. It has showed that trade volumes between China and Australia increased from $88.1 billion in 2010 to $136.9 billion in 2014 (Zhong 2015).
ChAFTA increased opportunities for Australian connections with China. In 2014 to 2015, annual two-way trade between China and Australia reached almost $150 billion (Asialink Business 2015). As China export electronic machinery to Australia and many other countries, it has recorded that China become the largest export country with US$557.1 billion during 2016. China’s most exported electrical equipment is telephones, including cell phones (Export Genius 2017). China’s electronic machinery has a comparative advantage and will also see a significant improvement in economic welfare. Lower tariff on electronic machinery will increase the quantity of goods export to Australia and boosting China jobs and economic growth. Therefore, it will increase profit on China’s electronic machinery because Australia will buy more from China (Tejvan 2017). Besides, with sufficient labour, China has become a major supplier of labour-intensive manufactured goods in Australia. China also importing large quantities of nonferrous metals produced in Australia. In the two countries with higher added value, there are major bilateral trade between two countries’ electronic machinery and equipment.
Australia and China have become important economic partners due to the agreement. The deepening of the economic partnership between China and Australia is mainly due to the complementarity of the economic dynamics. The complementarities of the respective economic endowments and development paths from Australia and China are reflected in the evolution of bilateral trade and investment flows. It will benefit China and Australia economic growth and had a win-win situation for both countries (Dr Yinhua Mai 2005).
Conclusion by: Chin Eng Wei
Conclusion by: Goh Chai Yan
China is known as top largest exporter in the world with at least two advantage which is low labor cost and less regulation. China’s top 5 trading partners are United States, Hong Kong, Japan, South Korea and Germany. Most of the country have taken advantage of China’s policy and used China as a production base which then migrate to China and taking advantage of low labor cost. Thus, China take a comparative advantage to focus on producing in low production costand exporting electronic machinery and equipment around the globe. Also, it shown that the volume of China’s exports are greater than its imports.
Conclusion by: Lee Yih Joe
Based on my research, China had reap benefit by signing ASEAN China Free Trade Agreement with abolishing tariffs and with the help of ASEAN countries, China tends to improve their economic relations. China is the largest export economy in the world. Exportation in China rise 12.3% in 2016 to US$217.37 billion on November 2017 (Appendix 1). China was growing faster in outbound shipments since March because of the robust global demand (Trading Economic 2017). China’s import had increase 17.7% to US$177.11 billion on November 2017 (Appendix 2). It was out of market expectation of 11.3% growth. China’s import was primarily focus on crude oil, natural gas (Trading Economic 2017). China had maintain at high percentage of import and export is because they have 15 trading partners to trade goods and services from different country and earn more foreign inflow in which it help to boost economy in China and perhaps led to a better condition. China’s major exportation was electrical machinery, equipment worth US$557.1 billion and which occupy 26.3% of total export. Furthermore, China’s sixth largest trading partner is Australia. It is China’s fifth largest supplier of imports. 25% of manufactured part of Australia imported from China and 13% of thermal coal exported to China. Australia has niches of excellence in services such as tourism which is an important market in China. As Australia import from China, this had sophisticate and demanding customer in Australia will pressure China producer to produce high quality and innovative product. This could help China improve their brand images and eventually may rise more trading partners.
Conclusion by: Ooi Shin Min
As a conclusion, an Australia-China FTA would have a negligible impact on the rest of the world’s real GDP and welfare. It would be mildly trade creating, with some evidence of minor trade diversion (John McEwen Crescent 2005). So when the exportation of China increase, it will cause the GDP increase in 18.06% and also cause the inflation rate decrease to 1.7% in November (Focus Economic 2017). Because the inflation rate of China is decreasing, so it will attack more investor come to invest in China and buy share in China. When it has many investors are coming to invest in China, the economy of China will be increasing as well, and the political and economy of China will be very stable. The Australia-China FTA is feasible and on balance, it would substantially to benefit both of the countries. Then it should both of the governments decide to enter into FTA negotiations covering goods, services and others (John McEwen Crescent 2005).
Conclusion by: Lee Win Ne
According to the research, Free Trade Agreement between China and Australia has a very good partner to support each other especially on electronic machinery. This is due to the reduce tariff on China’s electronic machinery will attract business from Australia as most of them rely on thing that can have advantage to them. China and Australia will also make sure that they have focus strong to continue remove tariff to make it easier to expand their business on term of investment and so on. It will also include the opening of numerous services to simplify the investment review process, the most-favoured nation status, favourable market access rules and market transparency. The trade relations between China and Australia are based on their own preconditions so that each side can provide each other with what they need to stimulate their own economic growth (Xinhua 2017).