[MUSIC] Engaging in foreign trade and becoming a quote, unquote trading state, has many advantages, but it also has some disadvantages. It also has some dilemmas. And so the Chinese find themselves increasingly dependent on variety of goods from overseas, from imports, services from overseas. They have to get access to other countries if they want to trade with these other countries. They need the goodwill of their major trading partners, and we'll see this, particularly, a problem with the United States. They've got some insecurity about shipping goods across the high seas. We'll talk in a future course, the next course, I'll talk more about energy and the shipping of energy across the seas. But even in general, going through the Malacca Straits or coming through South China Sea, there's pirates, there's all kinds of difficulties that could can about in shipping goods through the high seas. Global financial crises, global financial markets, we see this now, happening very recently that China's now much more vulnerable to global financial markets. It survived 1997 relatively easily as its economy becomes more and more integrated with the world and more and more dependent on trade, the value of its currency becomes more and more important in terms of making its goods competitive so they have to worry about that as the value of the US dollar keeps going up, it has an impact on China. Also, they need competitive brand names, brand labels, if they want to continue to export. As we'll see, this is an important reason why they think about going overseas, their policy of going out is to get many of these fine goods, get the brand names, the brand labels. Another thing that we see is that as China continues to engage in world trade, its demand for energy keeps going up and its imports of energy keep going up. And in fact, one of the estimates was that around 2006, 50% of all of China's energy imports were actually used to manufacture goods for foreign firms that were then exported, sent back to the foreign firms. So that as China became the factory to the world, as we often call it, it also became a massive importer of energy. We can see this as well in the dependence on foreign firm and so here we can see that the type of enterprises that are engaging in exports for China changes dramatically between 1997 and 2012. Here we can see in 1997, the state owned enterprises are the key industrial, the key ownership, the key sector that is promoting exports, and their share of exports drops down dramatically to around 22% by 2012. Here is where China is extremely vulnerable, where it is highly dependent even now, over 50% of its exports are managed, manufactured, and managed by foreign firms, which puts it in a vulnerable situation. The other thing we can see is the rise of the private sector. As you may remember, we talked about the rural industry being privatized over here, so probably many of these factories may have been township and village enterprises before that and then get taken over by the private. But even here, as of 2006, the private sector surpasses the public sector in terms of it's exports. Now, as I mentioned before, China has become heavily dependent, as it becomes this export, this trading state, it has become heavily dependent, particularly on the US market. I was surprised when I went back and asked my research assistant to put together this table, I was surprised to see that the United States still plays s such a large role as China's major export market. And significantly greater, people would've thought, maybe, that Japan was importing a much larger percent of China's exports but, in fact, it's the US that imports almost three times as much as Japan. There's nobody else that comes close to the United States. And here we can see from 2005, it's only 2-1 almost for the United States and Japan but here the US still stays up there and the share of Japan decreases. Now this means that in fact, China is vulnerable to external pressure from the United States. The US administration and Congress, they have some leverage, they talk about the value of the currency, they talk about trade issues, about intellectual property rights. These are the things that the United States can pressure China, partly because the trade is so highly interdependent. Now, particularly, let's say, back in 1998 though, you could say that China was even more vulnerable to United States pressures. Here's a very nice table, which shows China's total trade and you could see this enormous jump in 1998, $324 billion, this is in US billion dollars. And here, we're talking about $4.3 trillion and China has clearly become the number two export trading company in the world, after the United States, which still remains, certain, maybe 20% greater than China. But in terms of how much does China rely on selling to the United States and Sino-US trade, one good way to think about this is Sino-US trade is a percentage of China's total trade. Here, you can see that it was at 17%, which would mean that the United States has a lot of influence. For the United States, China was not a key trading partner, only 2.7% of US total trade was actually going to China back in 1998. But the situation has changed dramatically, we can see here, and so I put this in red, as well. You can see that Sino-US trade as a percentage of China's total trade has decreased from 16.9% to 12.9%. But the key jump is actually that now the US has become more and more dependent upon China and the Chinese market, which one could argue weakens the United States' ability to squeeze China in terms of its own policies on trade. This is a very nice figure that again, you start over here in 1998, with Sino-US trade as a percentage of China's trade, and as a percentage of US total trade. Here you can see, this puts China as being quite vulnerable because it's so dependent upon the United States market but then that has been decreasing. But the big change is that the United States has become more and more dependent on the China market and so this gap has become quite, almost insignificant, so China's actually in a much less vulnerable situation.
