China Imports and Exports, Commodity Trade - Essay Example

Commodity Trade Contents: Serial No. Topic Page No Introduction 3 1. Aim of the Study 4 2. Objectives 4 2. China Imports and Exports:An Overview 4 3. China Trade: Grains as the Commodity 6 3.1. Domestic Grain Policy in China 7 3.2. China’s Grain Trade and its Impacts 8 4. International Prices and the Related Issues 9 4.1. Impact of the Price Hikes 10 4.2. China’s Grain Trade and WTO 12 5. Conclusion 13 References 14 List of Tables: Serial No. Topic Page No. Table 1. Increase in prices from January 2007 to their peaks 10 List of Figures: Serial No. Topic Page No. Figure 1. China Imports and its Trends from year 1980-2007 5 Figure 2. China Exports and its Trends from year 1980-2007 5 Figure 3. China net trade of rice, wheat and corn, 1961-2008 6 Figure 4 China’s Grain Exports from 2008-2010 7 Figure 5 Grain Consumption in China 8 Figure 6 Global Grain Prices 11 1. Introduction: There was a time three decades ago when China had a negligible role in the world trade. However, the situation has significantly altered over the years and now the country has improved its performance and is considered as one of the largest exporters in the world. The country also imports considerably products like raw materials, halfway contributions, and others. The growth of the country in the recent years with respect to trade has created significant challenges for the other countries in the world. Demands of materials in the country has significant impacts on the other countries that has also been felt with the deceleration in China’s industrial production in the middle of the 2008-2009 global economic crisis contributing to a remarkable collapse in the prices of commodities (Feenstra & Wei, 2009, p.1). In the present times, there has been a steep rise in the prices of the different commodities. Considering commodities like the grains, rise in demand has been experienced with the rising incomes in countries like India and China. Several factors associated with the trade policies of the country can be realized to have significant effects on the imports and exports of grains. The production of grains including wheat, flour, rice, and others are largely dependent on the world market that is associated with a country’s imports and exports (Ensuring the UK’s Food Security in a Changing World, 2008). The present study reflects on the emerging nations participating in the global financial markets through import and export mechanisms and thus having an impact on the commodities. In this case China has been considered and grains have been chosen as the commodity for the purpose of the study on the impact of the country’s imports and exports on the commodity. 1.1. Aim of the Study: The aim of the study is to understand the impacts of the trade policies of emerging nations on different commodities considering China as the nation and grains as the commodity. 1.2. Objectives: In order to achieve the aim of the study, the following objectives have been considered: To learn about the trade policies- imports and exports- of China, considering grains as the commodity chosen for the study. To discuss about the major importers and exporters of grain. To learn about the international price of grains and their agricultural policies in the market. To try to determine the impacts of China’s participation in global financial markets through exports and imports on the grains commodity. 2. China Imports and Exports: An Overview: Over the recent years, the imports and exports of China have increased with the total value of the exports and imports being recorded as USD 2.174 trillion in the year 2007. The total value of imports has been recorded at USD 956 billion in 2007 that reflected an increase of 25 percent on a yearly average. This has been possible owing to the living standards of the citizens of the country being rising over the years (China import and export trends, 2011). The imports and trends of the country can be represented through the following graph: Figure 1: China Imports and its Trends from year 1980-2007 (China import and export trends, 2011). The total value of exports of the country has been recorded as USD 1218 billion in 2007 that presented an increase of 26 percent annual average. The increase in the exports of the country has been possible with the growing participation of the country in the international market. Moreover, the country has increased its use of foreign investments leading to growth of export production (China import and export trends, 2011). The exports of the country can be learnt from the following figure: Figure 2: China Exports and its Trends from year 1980-2007 (China import and export trends, 2011). 3. China Trade: Grains as the Commodity: The trade of agricultural commodities in China is largely dependent on the comparative advantage of the country. The country imports commodities like soybeans,  cotton, barley, rubber, and oils made from soybeans and palm kernels, and exports fish, fruits, vegetables, and processed agricultural goods. Abrupt shifts in the trade policies and their significant effects on the country have made the country a unpredictable player in the international market. Back in the year 1994 and 1995, the exports of grains had been increased by the country while the corn exports were reduced depending on the shortage of grains and the effects of inflation. Imports of wheat were stopped and the country raised the exports of grain from the year 1997 to 2003 (Trade, 2012). In the year 2008, China stopped the imports of grains along with cutting down tariffs of certain other products and focused on imports of vegetable oils and pork that could add to government reserves in the midst of gradual rise in the prices of food (Trade, 2012). Thus the imports and exports of the country can be said to have been largely dependent on the international policies. The net trade of grains in China can be represented through the above figure (Figure 3: China net trade of rice, wheat and corn, 1961-2008) (Trade, 2012). 3.1. Domestic Grain Policy in China: The primary goal of the agricultural policy followed in China intends to achieve support for economic development of the country. The 11th Five Year Plan of China (2006-2010) included measures to improve the agricultural production in the country, thereby developing the industrial sector. Several important agricultural and trade policy measures have been considered by China after joining WTO, where the domestic agricultural policies have been effective on the grains commodities as well. The government was found to withdraw their direct roles in the procurement as well as price-decisions and marketing of grains in the country since the early 2000s. However, now the government has considered measures to establish minimum procurement price policy thus allowing the government to become an important customer of grains (Hansen et al, 2009, pp.3-6). Figure 4: China’s Grain Exports from 2008-2010 (Wolff, 2011). Records reflect that the imports of grains in the country have been rising since 2008. However it has also been obtained that the Chinese authorities have plans to cut back their level of imports and hence depend less on foreign trade that might indicate on the rising prices internationally. However depending on the increasing demand of grains in the country, the rising imports might continue along with the higher prices of the commodities (Wolff, 2011). The consumption of grain in China can be represented through the following graph that projects for the near future as well. Figure 5: Grain Consumption in China (Brown, 2011). 3.2. China’s Grain Trade and its Impacts: Grain trade in China has had significant impacts on the grain market in the country as well in the international market. The country’s trade of grains at an international level has enabled the domestic market to balance their supply and demand. Considering the international scenario, the unpredictable variations in the China’s grain trade have time and again shaken the market prices internationally. The impact of China’s grain trade is significant on the domestic market. Of the total grain produced in the country, about two-thirds grains are utilized or consumed by the rural citizens and the remaining gets circulated in the market (Will China Liberalize its Grain Trade?, 1999). Chinese wheat imports have reflected considerable variations affecting and leading to fluctuations in the supply in the world market. Increasing prices reflect a prospective deficiency of supply and vice versa. In these circumstances, rising imports when prices are high and decreasing imports when prices reduce performs as a means of controlling the stability of prices in the market. Considering China, the government has been capable of stabilizing the domestic grain market by depending on the global market (Will China Liberalize its Grain Trade?, 1999). 4. International Prices and the Related Issues: During the period of time in the years 2007 and 2008, the international prices of grains along with other commodities reflected significant hikes owing to several reasons. These included increased inflation across the world economy, as well as dependence of poor countries on imports of foods and grains leading to imbalances in the payments thereby causing trade deficits. Moreover although high prices represented prospects for families that are net producers of agricultural commodities, the production costs being higher mutually associated with higher product instability in price furthermore served to augment the risks of investing in agricultural production grains (The 2007/08 Agricultural Price Spikes: Causes and Policy Implications, n.d., p.21). The rates of price increases of grains as well as other commodities internationally may be presented through the following table: Commodity Date of Peak % Change in price between Jan 2007 & peak of market Wheat Mar-08 118% Maize Jun-08 77% Rice Apr-08 224% Sugar Sep-09 111% Beef Aug-08 14% Soybeans Jul-08 107% Sunflower seed Jun-08 184% Table 1: Increase in prices from January 2007 to their peaks (The 2007/08 Agricultural Price Spikes: Causes and Policy Implications, n.d., p.24) 4.1. Impact of the Price Hikes: The grain prices have reflected increasing trends over the recent few years. With the demands in the developing countries like China, the supply of the commodity has not been sufficient. Moreover the price hikes have had significant impacts on the imports and exports of such countries- the emerging nations like China. Countries have effectively planned on cutting down their grain exports trying to keep the domestic prices low. December 2007 records reflect on China’s policy to reduce around 13 percent of the country’s grain exports rebate on value added taxes. Exported taxes have been implemented by several other countries as well along with China. A licensing or registration method has also been used by the country to decide on the level of exports of grains in the country (Dollive, 2008, pp.1-2). In order to keep the domestic prices of the grains low, several restrictions on the exports have been acted out by China. The issue of new export quotas for wheat and maize were stopped by the country in the latter half of the year 2007. This had successfully prohibited the signing of new export contracts unless particular approvals were obtained. Early in 2008, export taxes on grains and grain powders were imposed by the country. A 10 percent tax was faced by maize, rice, and soybeans. Export quotas were also issued in the country for grain flour, leading to increased production when export restraints on wheat and maize were enacted by China (Dollive, 2008, p.4). Figure 6: Global Grain Prices (Food Prices are Now at 2008 Peak, 2011). “The 2008 food crisis had a very high percentage change in food prices, while absolute price changes were relatively small and remained lower than they were in the mid 1980s for the most part” (Food Prices are Now at 2008 Peak, 2011). 4.2. China’s Grain Trade and WTO: The politics of liberalization has considered the issues associated with the food security and hence the imports and exports facilities in different countries across the world. Substantial reforms have been taking place over the years that include reductions in trade security, farm subsidies and involvement of the government along with significant demand of free trade. WTO Agriculture Agreement was initiated in the year 1994 that focused on open agricultural markets by implementing lowest requirements on the imports and tariff and reductions in producer subsidy as well. The vital objective was to open markets for northern commodities, focusing on the fortified position of the OECD countries in the worldwide division of industry in agriculture (McMichael, 2000, pp.4-5). Much of the trade policies of China underwent significant changes after the country joined the WTO or World Trade Organization. The state trading enterprises (STEs) in the country had been continuing with their level of powers providing for the achievement of trade of different commodities including grains. However, the concern had been reflected from the WTO that the country’s policies might place the country’s competitors in an unjust inconvenience. With all these factors in focus, the country had sought for membership in WTO (State Trading & Management of Grain Marketing in China, 1999). After joining WTO in 2001, China has been focused on the use of a hybrid approach in devising policies of agriculture and trade. The country now discards total direct central planning, state monopolies, and persists on shifting in the direction of an economy that is more market driven. In the recent times, China has implemented a more open trade administration that meets the terms of the requirements of the WTO (Hansen et al, 2009, p.5). 5. Conclusion: From the study it can be analyzed that China being a part of the global financial markets through its imports and exports of products, the trade policies of the country, the climatic changes, the agribusiness and food security policies, the demands of the household families, their level of incomes, the rising prices, inflation, recession, are some of the factors that are significantly associated with the imports, exports and production levels of grain. As it can be realized that these factors are associated with the emerging nations and their policies of trade, these tend to affect the commodities largely that are dependent on these issues. As in the case of China considering the grains as the commodity for the study, it can be concluded that although the people of the country have become more interested in the recent years in the products of foods and grains, yet the trade policies, the WTO regimes, and the internationally rising prices have the ability to have an impact on the level of exports and imports. This can be actually said to have a significant impact on the commodity since the exports for the commodity is effectively on the verge of decrease depending on the rising prices across the globe. This might eventually lower the production level of the commodity and hence the level of income that the country could achieve from the production and sales of grains. Thus it can be concluded from the study that emerging nations and their trade practices along with the external factors associated with trade have significant influences on the production, imports and exports of commodities in a country, in this study considering China as the country and grains as the commodity. References 1) Brown, L.R. (2011), earth-policy, available at: http://www.earth-policy.org/data_highlights/2011/highlights18 (accessed on July 12, 2012) 2) China import and export trends (2011), starmass, available at: http://www.starmass.com/china_review/imports_exports/import_export_trends.htm (accessed on July 11, 2012) 3) Dollive, K. 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