History of trade of the People's Republic of China
Trade is a key factor of the economy of China. In the three decades following the removal of the Communist Chinese state in 1949, China's trade institutions at first developed into a partially modern system but inefficient in some ways. The drive to modernize the economy that began in 1978 required a sharp acceleration in commodity flows and greatly improved efficiency in economic transactions. In the ensuing years economic reforms were adopted by the government to develop a socialist market economy. This type of economy combined central planning with market mechanisms. The changes resulted in the decentralization and expansion of domestic and foreign trade institutions, as well as a greatly enlarged role for free market in the distribution of goods, and a prominent role for foreign trade and investment in economic development.
In 2013 China surpassed the United States as the largest trading nation in the world and plays a vital role in international trade, and has increasingly engaged in trade organizations and treaties in recent years. China became a member of the World Trade Organization in 2001. China also has free trade agreements with several nations, including China–Australia Free Trade Agreement, China–South Korea Free Trade Agreement, ASEAN–China Free Trade Area, Switzerland and Pakistan.
Internal trade and distribution
Agriculture
Approximately 63 percent of the population was located in rural areas, where the majority of people worked in agriculture and rural industries. Under the responsibility system for agriculture instituted in 1981, the household replaced the production team as the basic production unit. Families contracted with the economic collective to farm a plot of land, delivered a set amount of grain or other produce and the agricultural tax to the state, and paid a fee to the collective. After meeting these obligations, the household was free to retain its surplus produce or sell it on free markets. Restrictions on private plots and household sideline production were lifted, and much of the produce from these were also sold on free markets.Distribution of food and other agricultural goods to urban consumers, industry and rural areas deficient in food was carried out primarily by the state and secondarily by producers or cooperatives. The state procured agricultural goods by means of taxes in kind and by purchases by state commercial departments under the Ministry of Commerce. The agricultural tax was not large, falling from 12 percent of the total value of agricultural output in 1952 to 5 percent in 1979.
In 1984 the number of agricultural and sideline products subject to state planning and purchasing quotas was reduced from twenty-nine to ten and included cereal grains, edible oil, cured tobacco, jute, hemp, and pigs. In 1985 the system of state purchasing quotas for agricultural products was abolished. Instead, the state purchased grain and cotton under contract at a set price. Once contracted quotas were met, grain and cotton were sold on the market at floating prices. If market prices fell below the listed state price, the state purchased all available market grain at the state price to protect the interests of producers. Vegetables, pigs, and aquatic products sold to urban, mining, and industrial areas were traded in local markets according to demand. Local commercial departments set the prices of these goods according to quality to protect the interests of urban consumers. All other agricultural goods were sold on the market to the state, to cooperatives, or to other producers.
Restrictions on private business activities were greatly reduced, permitting peasants as well as cooperatives to transport agricultural goods to rural and urban markets. This also allowed a rapid expansion of free markets in the countryside and in cities. The number of wholesale produce markets increased by 450 percent between 1983 and 1986, reaching a total of 1,100 and easing pressure on the state produce distribution network, which had been strained by the burgeoning agricultural production engendered by rural reforms. In 1986 free markets, called "commodity fairs," amounted to 61,000 nationwide.
Once the food was procured and transported to urban areas, it was sold to consumers by state-owned stores and restaurants. In the mid-1980s food items were also available in free markets, where peasants sold their produce, and in privately owned restaurants. As noted previously, the prices of pigs, aquatic products, and vegetables were determined by local authorities according to quality and demand. The prices of other products floated freely on the market. Except for grain, edible oil, and a few other rationed items, food items were in good supply.
Industrial goods used in agricultural production were sold to agricultural units in the 1980s. Local cooperatives or state supply and marketing bureaus sold most agricultural producer goods, including chemical fertilizer, s and insecticides, to households at set prices. The state also offered preferential prices for agricultural inputs to grain farmers to encourage grain production. Households were permitted to purchase agricultural machinery and vehicles to transport goods to the market. In order to ensure that rural units could cover the costs of the increasing quantities of industrial inputs required for higher yields, the government periodically reduced the prices of the industrial goods sold to farmers, while raising the procurement prices for agricultural products. In the mid-1980s, however, the price gap between agricultural and industrial products was widening to the disadvantage of farmers.
Industry
After 1982, reforms moved China's economy to a mixed system based on mandatory planning, guidance planning, and the free market. In late 1984 further reforms of the urban industrial economy, and commerce reduced the scope of mandatory planning, increased enterprise autonomy and the authority of professional managers, loosened price controls to rationalize prices, and cut subsidies to enterprises. These changes created a "socialist planned commodity economy," essentially a dual economy in which planned allocation and distribution is supplemented by market exchanges based on floating or free prices.As a result of these reforms, the distribution of goods used in industrial production was based on mandatory planning with fixed prices, guidance planning with floating prices, and the free market. Mandatory planning covered sixty industrial products, including coal, crude oil, rolled steel, nonferrous metals, timber, cement, electricity, basic industrial chemicals, chemical fertilizers, major machines and electrical equipment, chemical fibers, newsprint, cigarettes, and defense industry products. Once enterprises under mandatory planning had met the state's mandatory plans and supply contracts, they could sell surplus production to commercial departments or other enterprises. Prices of surplus industrial producer goods floated within limits set by the state. The state also had a planned distribution system for important materials such as coal, iron and steel, timber, and cement. Enterprise managers who chose to exceed planned production goals purchased additional materials on the market. Major cities established wholesale markets for industrial producer goods to supplement the state's allocation system.
Under guidance planning, enterprises try to meet the state's planned goals but make their own arrangements for production and sales based on the orientation of the state's plans, the availability of raw and unfinished materials and energy supplies, and the demands on the market. Prices of products under guidance planning either are unified prices or floating prices set by the state or prices negotiated between buyers and suppliers. Production and distribution of products not included in the state's plans are regulated by market conditions.
Lateral economic cooperation
China also undertook measures to develop "lateral economic ties," that is, economic cooperation across regional and institutional boundaries. Until the late 1970s, China's planned economy had encouraged regional and organizational autarky, whereby enterprises controlled by a local authority found it almost impossible to do business with other enterprises not controlled by the same institution, a practice that resulted in economic waste and inefficiency. Lateral economic cooperation broke down some barriers in the sectors of personnel, resources, capital, technical expertise, and procurement and marketing of commodities. In order to promote increased and more efficient production and distribution of goods among regions and across institutional divisions, ties were encouraged among producers of raw and semi-finished materials and processing enterprises, production enterprises and research units, civilian and military enterprises, various transportation entities, and industrial, agricultural, commercial, and foreign trade enterprises.A multitiered network of transregional economic cooperation associations also was established. The Seventh Five-Year Plan divided China into three regions — eastern, central, and western, each with its own economic development plans. In addition to the three major regions, three echelons of economic cooperation zones were created. The first echelon — national-level economic development zones — cut across several provincial-level boundaries and linked major economic areas. Among these were the Shanghai Economic Zone, the Northeastern Economic Zone, the energy production bases centering on Shanxi Province, the Beijing-Tianjin-Tangshan Economic Zone, and the Southwestern Economic Zone. The second-echelon network linked provincial-level capitals with designated ports and cities along vital communication lines and included the Huaihai Economic Zone and the Pearl River Delta Economic Zone centered on the southern city of Guangzhou. The third tier of zones centered on provincial-level capitals and included the Nanjing Regional Economic Cooperation Association. Smaller-scale lateral economic ties below the provincial level, among prefectures, counties, and cities, also were formed.