Answered Essay: Why are the Chinese merchandise exports so competitive in the world?

Why are the Chinese merchandise exports so competitive in the world?

Expert Answer


China’s export competitiveness hinges on the coincidence of several factors:

1..The favorable exchange rate

2.Low wages and available supplies of unskilled labor

3. The reduced cost of communication and transportation,

4.The flow of foreign direct investment and foreign management and its implications for China’s productive abilities,

5. The large scale of the potential Chinese domestic market, the opening of world markets, and the encouragement of Chinese foreign trade policy.

On the other hand, certain considerations have special importance. For example, Chinese export growth is more than a matter of low wages and an undervalued exchange rate. Appreciating the exchange rate, even by substantial amounts, is not likely to greatly diminish Chinese competitiveness. China’s huge pool of cheap and increasingly mobile labor means that even with exchange rate readjustment, competitiveness based on low labor costs will be maintained for quite some time. Chinese competition may also further displace some low-cost export production in other parts of the world, East Asia or Mexico, for example, although in East Asia most regional exchange rates have adjusted back in line with that of China prevailing in the early 1990s. Secondly, Chinese producers have become greatly more proficient at meeting world requirements for quality and product design. The large inflow of foreign direct investment and entrepreneurship, which is responsible for much of the export flow, has facilitated this process, and , in turn, reflects the favorable economics of export production in China. The shift of Chinese production toward more advanced products with technological content is also notable. On one hand, this represents competition with other East Asian countries. On the other, it reflects a collaborative symbiotic relationship with South Korea, Singapore, and Taiwan whose cost structure has outgrown the simpler high technology goods that supported earlier phases of their industrialization. China’s competitive ace in the hole continues to be its large and potentially mammoth domestic market. Foreign firms seek entry to China not only to take advantage of low cost export platforms, but also as a way to position themselves for future local sales. Aside perhaps for India, there is simply no other developing economy with such promise as a market.

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