IntroductionInternational trade and foreign direct investment are major contributors of economic growth. Nations, such as China, have actively been involved in foreign direct investment and international trade since time immemorial. Many countries have engaged in international trade and foreign direct investment due to their importance in economic growth. It is believed that active participation in international trade and foreign direct investment improves a country’s balance of payment position. Furthermore, international trade exposes countries’ products to the outside world. It also enables countries to acquire cheap goods and services from foreign nations.
Foreign direct investment on the other hand enhances the amount of investments in home country, thus boosting that country’s economic growth. Therefore, the importance of international trade and foreign direct investment cannot be ignored since they have, for along time, contributed to the entire development of a country’s economy. This paper therefore evaluates the role that international trade and foreign direct investment have played in recent economic development in China. The role of international trade in China’s economic developmentInternational trade is a major driver of China’s economic growth and prosperity.
It has played great roles in Chinese recent economic development. One of the main roles that international trade has played is exposing China to international competition. International trade enables a country purchase goods and services from countries where costs of production are comparatively less. It also enables a country sell its goods and services to countries where costs of production are comparatively high. International trade therefore assists a country to easily participate in cross border trade, thus exposing it to international competition. The global competition, brought about by international trade, makes a county concentrate in producing goods and services in which it has a comparative advantage.
It is believed that, with global competition, a country specializes in producing goods and services that can effectively compete in the global market. Selling goods and services to the global market makes a country earn valuable foreign exchange. The foreign exchange obtained can later be used to pay for imports. This makes international business more profitable, thus strengthening a country’s economy (Gaurav, 2011). The recent economic development in China is due to profits obtained from cross border trade.
China exports telecommunications equipment, clothing, electrical machinery, office machines and data processing equipment to the world market. The foreign exchange obtained from exports are normally employed in importing mineral fuels, oil, plastics, medical equipment, iron and steel. The exported goods and services in China are normally more expensive than imported goods and services. This therefore makes China experience balance of payment surplus, thus enhancing its economy. Apart from exposing China to international competition, international trade has also played a role in Chinese economic development through optimum utilization of resources.
It is believed that with international trade, a nation can fully utilize both domestic and international resources, thus making a country’s economy grow rapidly. International trade normally widens the market for goods and services of a country. This makes a country to fully utilize the domestic and international resources so as to enhance its production of goods and services for international market (HM Treasury, 2004). China, for instance, utilizes its finance and technology in enhancing production of goods and services for export. It also utilizes raw materials and cheap labor from poor countries to enhance its exports.
This therefore has made its economy to grow very fast. Carr (2009) argues that international trade enables a country to efficiently allocate its resources. It is believed that with international trade, countries specialize in production of goods and services that they can produce more efficiently. Countries do always raise the entire consumption by exchanging their surplus production with the surplus production from other nations.