Study On The Economic Effects And Sustainability Of China's Processing Trade

The processing trade has soared ever since the commencement of the opening and reform of China and has become China's major form of trades over other ones. Therefore, it is of great theoretical and practical significance to study the all-round influences and effects of the processing trade upon China's economy and society and sustainability of the processing trade. After studying the present documents of processing trade, the author discovered, however, that most foreign studies follow the logical clues of the trade analytic intra-industry frame. The truth of China processing trade is that it is viewed as a phenomenon of policy in the first place, with specific taxation, guarantee and supervision regulations, which does not equal to intra-industry trade. Moreover, China's studies on processing trade are not systematic with few documents expatiating the all-round influences and effects of the processing trade upon China's economy and society and sustainability of the processing trade. On the other hand, great disputes exist among the conclusions of relative studies and the meanings of policies. China being a developing country of economic and political transformation, the development, macroeconomic effects and sustainability of its processing trade is to a great extent a demonstrative problem that need be checked by demonstration.Therefore, this article, based on a full scale research of the history, backgrounds, features and main influential factors of China's processing trade during the Opening and Reform of China, builds a model through the effects of economic growth, employment and income distribution to search for and probe into the economic effects and policy meanings resulted from China's processing trade development, and to try analyzing the sustainability of the processing trade. Finally, this article discusses the basic strategic shift and major threads for the policy change of China's processing trade under the current domestic and international situations. In detail, this article includes the following:First, this article tries to provide the development of China's processing trade with a full scale illustration and an analysis of current situation through the study of the history, backgrounds and features of China's processing trade under the reform of international manufacture division of labor and under the domestic economic system reform, and through the major influential factors of economic growth based on the gravity model analysis. Second, this article builds a model on the basis of relative theories of trade and economic growth, with necessary abstraction and assumption, aimed at the actual features of China's processing trade development, and analyzes demonstratively its economic effects and sustainability. First of all, this article follows the classic growth research analysis frame and demonstrates whether the processing trade improves China's economic growth, and how the levels of marketization, human capital, R&D abilities and infrastructure influence the performance of the improvement. This article also employs the Feder analysis frame and GMM, a dynamic panel model, to estimate and demonstrate whether and how the processing trade units boost China's productivity. Next, the processing trade employment model is constructed according to the production function of endogenous technology in order to demonstrate and analyze the impact of the import and export of processing trade upon the employment of the secondary industry and industry. Last, the influence of the income gap between urban and rural areas from the development of processing trade is demonstrated after the analyses of the levels of income control and marketization as well as an all-round analysis frame. In addition, this article tries to analyze the sustainability of China's processing trade from the angle of export potentials in accordance with random cutting-edge model.Third, this article, based on the above-mentioned demonstration and analyses, researches into the thread of the basic orientation of the transformation and policy change of China's processing trade strategy taking into consideration the external environment change of the current development of China's trade industry and problems arisen from internal economic operation. Compared with other similar researches, this article distinguishes itself in the following:(1) Though China's rise in the trade industry originated from the soar of processing trade, the research on processing trade is far from enough in contrast to the richness of the documents written from the integral angle of the trade. This article attempts to construct models from various levels so as to demonstrate fully, and to combine theories with China's situation through the process of model construction and analysis, which is a beneficial attempt and extension for the acknowledgement and comprehension of problems like enhancing the leading force of China's processing trade, its economic effects and tendencies.(2) This article checks the effects of economic growth and the constraint condition of the development of processing trade following the classic growth research analysis frame and with the adoption of Feder analysis frame and GMM, a dynamic panel model. The conclusion is drawn that the development of China's processing trade effectively boosts its economic growth, marketization, human capital, R&D abilities and infrastructure and helps to improve its performance. The improvement of processing trade on productivity mainly derives from the deployment effect of labor and is far from enough in the appliance of trade to improve technological advancement.(3) This article researches into and checks the employment effect of processing trade and its impact on the income gap between urban and rural areas. It discovers that the export of processing trade has a positive improvement and the import a negative extrusion on employment. With the technological advancement of domestic enterprises and the transformation and upgrade of processing trade, the employment improvement of the former and the employment extrusion of the later both have decreasing tendencies. Besides, the development of processing trade, though beneficial to the employment of rural surplus labors, boosts the development of urban manufacturing industry and the financial and service industry related to trade but fails to narrow down the income gap between urban and rural areas.(4) This article draws a function of random cutting-edge production and probes into the sustainability of processing trade from the angle of export potentials, and reveals that the export potentials remains a significant increase in most of the years in contrast to the decrease of China's processing trade efficiency to a certain extent in recent years. The export potentials, caused by the change of technological advancement and the reform of trade policy, have replaced the key element input and become the leading force of the export growth of processing trade. The sustainability of China's processing trade export is expectable due to its rather great potentials.