The Development of Foreign Trade in China over Last Decade:Higher-level Opening-up to the Outside World

By Lu Xinhong

Since the 18th CPC National Congress， China has experienced a new economic normal， namely a shift from high-speed growth to high-quality development. As such， China has issued foreign trade policies emphasizing both imports and exports， namely “flowing in” and “going out”， and has paid more attention to trade balance. The foreign trade industry in China has entered a development stage in which the trade market is boosted by science and technology， and in which innovations are becoming more important drivers. Moreover， China also attaches greater importance to broader international trade cooperation， such as actively advancing the construction of the Belt and Road and boosting common economic development around the world. In the last decade， the higher level of Chinas opening-up has pushed the world towards widespread prosperity.

I. The foreign trade industry in China has made remarkable achievements in last ten years

In last decade， the foreign trade industry in China has made progress in leaps and bounds： China has grown into the largest trading country in the world， optimized the structure of foreign trade， and accelerated the upgrade of the manufacturing industry， the transformation from the worlds factory to the worlds market， and the shift in the driving forces for foreign trade growth from production factors to innovations.

i. China is turning into a strong rather than a large trading country

China has made historical achievements in foreign trade. In 2013， China took the lead in trade in goods around the world， and between 2014 and 2021， China ranked second in terms of trade in service for eight consecutive years. In 2012， China recorded a total import and export value of USD 3，867.1 billion， which grew to USD 6，050.2 billion in 2021， marking a ten-year increase of 57%. Specifically， exports grew by 64% and imports by 48%. The role of China in the international trade market became more and more important， as the Chinese contribution to world trade rose from 11% in 2012 to 15% in 2021. Moreover， the Chinas share in the world economy increased from 21% in 2012 to 25% in 2019. Under the impact of the global COVID-19 pandemic in 2020， China was the only country with a positively growing economy in the world. Furthermore， in 2021， China contributed up to 18% to the world economy， and 13.4% to global import growth， strongly supporting global economic recovery.

China is growing into a strong trading country. Over the past decade， the value of imports into China grew from USD 1.8 trillion in 2012 to USD 26.9 trillion in 2021. Now， China is among the top countries in the world in terms of domestic consumption， foreign trade and two-way investment， with a perfected new and open economic system， and a consolidated position as a strong foreign trader. Although it is the worlds largest exporter of goods， exports from China are mainly middle- and low-end goods， and the manufacturing industry in China still needs to be improved. China should encourage Chinese manufacturing enterprises to give up the development models that depend on quantity and low prices， and instead pursue quality and high added value， in order to enhance the international competitiveness of exports from China. This will allow China to achieve the goal of building a strong economic and trade country in a two-stepped process featuring goals to be met by 2035 and by 2050， boosting the implementation of the “two-phase”and “two-step” strategy proposed in the report issued by the 19th CPC National Congress.

ii. Innovation has become the new drive behind foreign trade growth， replacing production factors

Over the past decade， China has actively promoted the high-quality development of foreign trade and accelerated the shift in the drive behind foreign trade growth， so as to encourage the export of technology， services and capital besides goods， establish new and comprehensive competitive advantages with technology at the core （replacing the low-price strategy）， develop new momentum for innovation， construct an internationalized and law-based business environment instead of favorable temporary policies， and match foreign trade rules with high international standards. In other words， China is attaching more importance to innovation， placing innovation as the main factor for driving foreign trade growth， in the hope of stimulating innovations in technology， systems and management， cultivating new competitive advantages in foreign trade， vigorously developing new trade patterns and models， and promoting the foreign trade industry to make the leap from big to strong.

With a continuously improving business environment， the establishment of the public service platform for foreign trade， and the implementation of measures for trade and investment liberalization and facilitation， China is becoming more and more attractive to foreign investment. In 2020， China both made and received the largest amounts of investment in the world， and the actual utilization of foreign investment in China in 2021 reached USD 173.5 billion， marking an increase of 20.2% from the previous year ago， and demonstrating the attractiveness of China to foreign investors. In 2021， 48，000 new foreign-funded enterprises were founded in China， up 23.5% year-on-year. Meanwhile， China is determinedly advancing reforms to apply high-standard international economic and trade rules， which is reflected in its active participation in global economic governance， the implementation of the RCEP， the advancements in phase two of high-standard FTA negotiations between China and South Korea， the upgrading of the China-ASEAN FTA， the application for the CPTPP and Digital Economy Partnership Agreements （DEPA）， the carrying out of a China-Japan-Korea FTA， and the active promotion of WTO reforms and other initiatives， which has also helped further enhance Chinas voice in international economic and trade rule-making and its position in global economic governance.

iii. Further optimization of foreign trade structure

First， China has a more diversified layout of international markets. While deeply cultivating the European， American， Japanese and South Korean markets， Chinese foreign trade enterprises have also significantly increased their presence in countries along the Belt and Road， by attaching great importance to trade cooperation with ASEAN countries， and by actively negotiating and signing higher standard bilateral and multilateral FTAs， as well as through the implementation of the RCEP. Between 2013 and 2021， Chinas total import and export with countries along the Belt and Road rose from RMB 6.5 trillion to RMB 11.6 trillion， and the proportion of the total increased from 25% to 30%. China has been ASEAN countries largest trading partner for 13 consecutive years since 2009， while ASEAN countries have been Chinas largest trading partners for two consecutive years， and both sides are now actively promoting version 3.0 of the China-ASEAN FTA. In 2021， the import and export volume of China with RCEP member countries reached RMB 12.07 trillion， up 18.1%， accounting for 30.9% of Chinas total foreign trade value.

Second， the regional layout of the foreign trade industry is being optimized， as China is consolidating the development of foreign trade in the eastern region， improving the performance of the central and western regions， further opening up the northeast region， and strengthening regional cooperation and coordination. With China-European freight trains， the New International Land-Sea Trade Corridor， and the deepening economic and trade cooperation between China and ASEAN countries and between China and countries along the Belt and Road region， foreign trade enterprises in central and western regions are developing rapidly. With the support of strategic measures to promote the comprehensive revitalization of the northeast of China， the three provinces there will be transformed into an important center in Northeast Asia for opening-up and economic and trade cooperation， in order to better carry out FTA strategies with neighboring countries to China and promote the Belt and Road Initiative， while also bringing about opportunities for economic development in the northeast of China.

Third， the commodity structure is being improved. China is currently focusing on maintaining the security and stability of the industry and supply chain， and continues to promote industrial transformation and upgrading， in order to optimize the structure of import and export goods， increase the proportion of high-tech products in foreign trade， and develop export brands. In 2020， high-tech products accounted for 26% of Chinas total exports.

Fourth， foreign trade business entities are developing， supported by policies to vigorously cultivate leading enterprises with strong innovative capabilities and international competitiveness， and to improve the competitiveness of SMEs and private enterprises. As a result， in 2021， private enterprises contributed 58.2% to the growth in foreign trade.

Fifth， the trade models are being improved. China is consolidating general trade， enhancing processing trade， and making innovations in trade models， thus stimulating the rapid development of new trade modes， business models and platforms such as cross-border e-commerce， comprehensive bonded zones， pilot free trade zones， the Hainan free trade port and so on， and effectively promoting the integration of domestic and foreign trade. In 2021， Chinese crossborder e-commerce businesses achieved a growth of 24.5% in exports year-onyear， 24.3% in imports and exports for comprehensive bonded zones， 26.4% for pilot free trade zones， and 57.7% for the Hainan free trade port.

Sixth， operation methods， service models and channels are being innovated. By completing the industrial chain， building public service platforms， using international exhibitions as a platform， and promoting the construction of international marketing systems and security systems， China is helping enterprises to become internationalized.

iv. Chinas acceleration of the upgrading of manufacturing industry

China has the most complete manufacturing system globally and also has a world-oriented supply capacity， and outputs about one quarter of the manufactured products in the world， making Made-in-China a renowned brand worldwide. However， the manufacturing industry in China is still at the middle-to-low end of the global value chain， with enduring problems such as a lack of high-end capacity and low-end overcapacity. In the wake of the deep integration of the manufacturing industry with the Internet， big data， artificial intelligence and other technologies， China will accelerate manufacturing upgrading. Taking the opportunities presented by global industrial restructuring， and giving full play to the advantages of the super large market， the great potential in domestic demand， and the new dual-circulation development pattern in which domestic and overseas markets reinforce each other with domestic market as the mainstay， China will accelerate the strengthening of the weak links in the domestic industry chain， focusing on improving， extending and making up the chain， so as to build an independent and efficient core manufacturing industry chain， and promote the manufacturing industry to move up the global value chain to the high value-added end.

II. Challenges and opportunities facing Chinas foreign trade

The current circumstances increase the uncertainties for the future of Chinas foreign trade， bringing about new challenges and opportunities.

i. Challenges brought about by changes in the international economic landscape

Profound changes in the international environment have created huge challenges for the foreign trade market in China. In the last decade， the global political and economic landscape has undergone dramatic changes， severely impacting the foreign trade market in various countries and regions， including the deep adjustments to the worlds economy as global economic development faces growing uncertainties and risks， the rise of global trade protectionism which challenges the multilateral trading system， the fragmentation of international trade rules， and frequent international trade frictions. Besides this， other non- economic factors are putting more pressure on the international trade market， such as the global pandemic which has already lasted for years， the fiercer competition between China and the United States， intensifying geopolitical conflicts such as the Russia-Ukraine conflict， and the focus on security， instead of the economy. The uncertain overseas trade environment has become the biggest challenge for Chinese foreign trade enterprises.

ii. Challenge of weak links in foreign trade industry

As Chinas economy has reached a relatively high development level， together with rising costs for production factors including labor， land and so on in recent years， the problem of structural shortages has become more prominent， and the pressure on energy resources and the environment has increased. Furthermore， the global pandemic and the Russian-Ukrainian conflict and other geopolitical issues are turning global industry and supply chain more regional， near-shore and local， weakening the traditional comparative advantages of Chinese foreign trade enterprises as the growing foreign trade industry in neighboring countries attracts more orders. In addition， shifts in the economic driving forces and structural adjustments in China are still under way， leading to the coexistence of weak effective domestic demand and supply shortage， prominent structural problems， and pressure on transformation and upgrading.

iii. Opportunities for strategic transformation of foreign trade industry

Against this background， China has adjusted the focus of its foreign trade policies. By utilizing its new dualcirculation development pattern， China is now attaching more importance to high-quality foreign trade and actively promoting a higher level of openingup， while also paying more attention to the integration of domestic and foreign trade， so as to make full use of the advantages and resources of domestic and international markets for industrial transformation. China is focusing on trade balance， which means laying equal stress on imports and exports， and on “bringing in”and “going out”， instead of the former export-oriented policies. While insisting on the use of traditional trade， China is encouraged to cultivate new advantages in international competition， for the structural adjustment and optimization of international trade， to stimulate the development of hightech industries with more investments to motivate independent innovations rather than duplications， to expand the cooperation on international trade with the implementation of the RCEP and the construction of the Belt and Road for the recovery of the global economy， and to emphasize the highquality green economic development and issues regarding resources and the environment， in order to restructure the foreign trade industry with a new momentum.

iv. Opportunities for high-quality development of service trade

Over the past decade， China has increased its presence in the global service trade market， and has sped up the international transfer in R&D， logistics and other service links. The global leading digital economy， the high level of opening-up and the huge domestic market will bring new opportunities for Chinas service trade enterprises in the future. Meanwhile， China is promoting higher-level opening-up， improving its synergy with various countries， and strengthening regional cooperation in an orderly fashion， making it more attractive to overseas investors， and realizing a growth of 20% in direct investment in China year-on-year in 2021. There is still great potential in the service trade market in China， with cross-border direct investment further fueling this， and technological innovation and financial openness creating favorable conditions for the development of the service trade. If China enters the era of high-quality development， the service trade market will be well-supported too.

III. Suggestions for the development of Chinas foreign trade industry

In order to promote the highquality development of the foreign trade industry， China needs to reform the foreign trade management system and mechanism， further optimize the business environment， take measures to stabilize the economy， the foreign trade market and the industry and supply chain， promote two-way opening-up of the financial sector， vigorously develop trade in services， and improve the services and support for the opening-up.

i. Further deepening reforms in foreign trade management systems

China should deepen its reform of the foreign trade industry to streamline administration， delegate power， improve regulations and upgrade services， give play to the fundamental role of the market in the allocation of resources， and promote the development of an open economy. For example， China should： coordinate fiscal， financial， industrial， trade and other foreign trade policies， and should issue supporting measures to further attract foreign investment； strengthen the protection of intellectual property rights， build R&D centers for foreign investors， and expand multi-bilateral communication cooperation on intellectual property； optimize the management of customs clearance， quality inspection， tax rebates， foreign exchange and so on， and support foreign trade enterprises in developing new business models； actively execute institutional reform in industry associations and chambers of commerce， and give full play to the role of industry intermediary organizations， while also benchmarking international trade rules to perfect the policy system for integrated domestic and foreign trade； and further accelerate the construction of a law-based， internationalized and convenient business environment for foreign investment.

ii. Stabilizing the economy， the foreign trade market and the industry and supply chain

Faced with the current complex international environment， China needs to help foreign trade enterprises overcome these difficulties， and promote the stability and high-quality growth of foreign trade. The government should aid enterprises affected by the pandemic with the aim to resume production and operation， secure smooth domestic and international logistics and a stable industry and supply chain， encourage cross-border e-businesses to further explore overseas markets by meeting local demands with overseas warehouses， and strengthen their risk resistance capacity by providing export credit insurance， import and export credits， exchange rate hedging and other training. In addition， the government should encourage enterprises to utilize online and offline channels， and guide them to better use existing export tax rebate policies to reduce costs， while stimulating them to increase their investment in scientific research and R&D and production of innovative， green， high value-added products， in order to enhance the competitiveness in the international market.

iii. Promoting two-way openingup of the financial sector

In recent years， China has steadily promoted the two-way opening-up of the domestic financial market， enriching and diversifying the innovative financial services. China has launched “ShanghaiHong Kong Stock Connect”， “ShenzhenHong Kong Stock Connect”， “Bond Connect” and “Swap Connect”， as well as the internationalization of the RMB， and has pushed forward the marketbased reform of interest rates and the reform of the exchange rate formation mechanism. The RMB was officially included in the IMFs Special Drawing Rights basket in 2016， 11 measures to further open up the financial market were issued in 2019， and all foreign equity limits in the financial sector were abolished and a new Foreign Investment Law was implemented in 2020， helping expand the business scope of foreign financial institutions in China. Next， China should further promote the twoway opening-up of the financial market and get it geared towards international standards in the following aspects： improving the financial blockchain service platform and facilitating crossborder investment； improving the system of negative lists for foreign investment， and advancing the opening-up of capital projects in a steady and orderly manner； completing the regulatory framework of“macro prudence and micro supervision”for the foreign exchange market， and strengthening the supervision and early warning of cross-border capital flows； enhancing the management of foreign exchange reserves for the preservation and appreciation of reserve assets； and improving the internationalization of financial institutions and the openness to foreign institutions， and the global financial service network.

iv. Vigorously boosting the development of trade in services

China should improve the institutional mechanism for service trade management and optimize the policy support system by boosting the reform and opening-up of the service trade market， extending the limitations on market access for service industries， developing an open cross-border service trade market， and constructing a highlevel platform for the reform and openingup of the service trade， so as to facilitate the flow of technology， capital and labor， and the trade in services. Meanwhile， China also needs to innovate the service trade， especially business models and platforms， give full play to the platform provided by China International Fair for Trade in Services （CIFTIS）， call for the establishment of a global service trade alliance， and develop special centers for service exports， in order to secure high-quality development of trade in services. In addition， China should pay greater attention to the protection of intellectual property rights， digitize the service trade for higher international competitiveness， vigorously advance the innovative development of the digital service trade and the construction of digital infrastructure， actively participate in global digital governance， boost cooperation on the safe and orderly crossborder flow of data， and actively apply to join DEPA.

（Author from China Center for International Economic Exchanges）