Analysis On Intra-industry Trade Between China-Russia

In the 1970s, international trade between developed countries bore the form of intra-industry trade. This phenomenon can not be explained by the Ricardian and other traditional trade theories. China and Russia having constantly optimized the structure of export commodities, mechanical and electronical products, and China's high-tech products having rapidly increased, shows the gradual improvement in the upgrading of the structure of China's exports to Russia. Study on Sino-Russian trade, in particular intra-industry trade of mechanical and electrical industries, will provide a series of reference for adjusting and optimizing our foreign trade policy, and ensuring the stable development of our foreign trade.Intra-industry trade (Intra-Industry Trade, IIT), is a phenomenon that an economy body which exports, meanwhile imports the same product, and also a trade practice differing from inter-industry in patterns but having the same function. Intra-industry trade is also known as the department trade. The above-mentioned same product is classified in accordance with SITC (Standard International Trade Classification), which stipulates that at least first three numbers of the product must be the same. That means the product belongs to the same division, the same chapter, and the same group, both appears in a country's imports items and export items.Different types of intra-industry trade have different theory to explain and different reality and conditions. To analyze the intra-industry trade, we must distinguish between the different natures of intra-industry trade. At present, the academia categorize the intra-industry trade into the traditional homogeneous product, product of horizontal disparity, product of vertical disparity, as well as the emerging marginal intra-industry trade, and intra-industry trade within the enterprise (Intra-enterprise Trade or Intra-company Trade).With the deepening knowledge of the intra-industry trade, the modeling theories are emerging. For example, Economies of Scale Model and Monopolistic Competition Model given by Krugman and other scholars, New H-O Model by Falvey based on the traditional H-O theory in 1981, and H-O-L Model by Davis from Harvard in 1995, these theories explain the intra-industry trade phenomenon from different angles, add, improve, and develop, thus revise the traditional theories whose assumptions do not conform to reality from different angles.With China and Russia's rapid economic development, scale of bilateral trade a rapidly expands. At the same time, commodity structure has also undergone a significant change, oil and its products have become the largest commodities of China's imports from Russia, light and textile products has replaced mechanical and electrical products and become the first category of China's exports to Russia. From January to September 2006, China's export of mechanical and electrical products to Russia reached to 3.38 billion US dollars, accounting for 30.5% of the total China's exports to Russia; Russia's exports of mechanical and electronic products to China only came to 173 million US dollars, accounting for 1.3 % of China's share of total imports from Russia. Expanding Sino-Russian trade volume of mechanical and electrical products, improving the level of trade between the two countries, have become the focus of Chinese and Russian governments. Currently, the most widely used approach to measure intra-industry trade is GL index (Grubel and Lloyd-type Indicator), or intra-industry trade index. GLij = (1 -︱Xij-Mij︱/ (Xij + Mij))×100%. If an industry GL index is more than 50%, that is, the overlapping part of import and export trade volume accounts for more than 50 percent of the total trade volume. That means intra-industry trade within the industry is more obvious.The GL index of Russian mechanical and electrical products has decreased gradually from 1.7570 in to 0.3893 in 2006. Although the GL index has been on the decline, but the pattern of Sino-Russian trade of mechanical and electrical products industry still features on intra-industry trade. Moreover, seven years before 2006, the intra-industry trade of mechanical and electrical products is more visible. China and Russia's intra-industry trade in aircraft, spacecraft, machine parts, ships, marine equipment and accessories, trams, railway locomotives and vehicles, machine parts are relatively on a high level compared to other kinds of mechanical and electrical products.In order to reflect more accurately a country's import and export trade in the comparative advantages, Balassa (Balassa, 1965,1989) proposed a indictor -Revealed Comparative Advantage(RCA). RCAia=(Xia/Xit)/(Xwa/Xwt), if RCAia<1, the country is relatively inferior in the industry or product; if RCAia>1, the country has comparative advantages. The greater the value, the greater comparative advantage is.The minimum difference of RCA index of Sino-Russian mechanical and electrical products was 0.506 in 1999, and the maximum is 1.197 in 2006. Seen from the figures, China's increased exports of mechanical and electrical products to Russia in recent years are inseparable to the international competitiveness of China's mechanical and electrical products, and China's exports of mechanical and electrical products has strong competitive power, and the reality and competitiveness of Russian exports can not be optimistic.Pulled by large demand of the domestic market and higher output of China's mechanical and electronic products, a large scale introduction of foreign investment of mechanical and electrical industry has become the main factor of China's strong exports to Russia; lack of export trade pattern, lack of investment to Russia, exports of small scale, low value-added products, lack of supporting marketing system has become the main factor of restricting China's export to Russia; at the same time, the overall upgrading of the Russian economy, domestic industry being still in transition and adjustment period, Russian mechanical and electrical products being in a weak position, weak export enterprises, as well as Russia's ability to lower the "grey clearance" also promote and restrict the China's export to Russia. Furthermore, the accelerating pace of technological innovation, on the one hand, activates market demand of related products, on the other hand, reduces the international transaction transport and communications costs, which result in growth of international trade of mechanical and electrical products; changes of structure and increasing trade frictions of mechanical and electrical products, increasing export of mechanical and electrical products of developing countries, also affected the situation in Sino-Russian trade of mechanical and electrical products.The two sides should formulate appropriate development strategy based on the economic development of the two countries. Develop bilateral strategy on export of mechanical and electrical products, such as policy support, strengthening of regional exports, exporting complementary products, industry association's coordination.; strengthen investment cooperation projects on mechanical and electrical products, broaden the scope of the project on the basis of marketable products investment, the investment cooperation should be diversified to encourage foreign investment in research and development centers, improve the soft environment for investment; improve competitiveness and product quality, establish a brand, adjust the structure of export to the high-tech, high value-added direction, improve China's non-price competitiveness, increase the ability of independent innovation and the core competitiveness of enterprises, develop technical cooperation to raise the competitiveness; expand marketing network of mechanical and electronic products to Russia, increase marketing efforts, and do a good job of advertising products, and establish a sound marketing network to strengthen after-sales service.