China’s Dual Trading Regimes: Implications for Growth and Reform

Abstract

The dramatic growth of Chinese foreign trade since 1985 has attracted world-wide attention. Rapid growth of manufactured exports has come predominantly from the southern coastal regions, and foreign invested enterprises (FIEs) have played a prominent role in this growth. This chapter stresses the less-well-known fact that export-orientated enterprises operate in a trade policy regime that is very different from the regime faced by most Chinese firms, as well as by potential exporters to China. Export-orientated firms operate in an extremely open policy environment that can be characterized as an export promotion regime; the rest of the economy operates under a trade regime that is still best characterized as one of import substitution, with very substantial barriers to trade. To an unusual degree, China thus operates a bifurcated trade regime. This perspective provides a good framework for analyzing Chinese achievements to date, as well as providing an insight into the challenges still facing the reform of Chinese trade policy, including entry into the World Trade Organisation (WTO).