China's Foreign Economic Relations

UCSC Economics Dept #370

Posted: 2 May 1997

See all articles by K. C. Fung

K. C. Fung

University of California at Santa Cruz

Lawrence J. Lau

Chinese University of Hong Kong-Institute of Global Economics and Finance

Date Written: January 1997


This paper provides an up-to-date overview of China's economic relations with its major trade and investment partners, including Hong Kong and Taiwan, the United States, Japan, the European Union and ASEAN. We also discuss other important international issues such as China and the WTO and the status of China's currency and foreign reserves. In 1995, China's merchandise exports to the world increased by 22%, while merchandise imports rose by 14%. But preliminary data show that China's foreign trade experienced a dramatic slowdown in 1996. Exports grew only by 1.4%, while imports rose by 5.1%. Asia absorbed more than 60% of China's exports and provided about 60% of China's imports. After adjusting for re-exports via Hong Kong, the largest export market for China is the United States, followed by Japan and the EU. Hong Kong and Taiwan are the largest foreign investor in China. Together they accounted for more than 60% of the total foreign direct investment. There are three general problems that China faces with its trading partners: trade restrictions imposed by importing countries against China in the textile and clothing sector, the use of the rule of origin as a means to restrict China's exports, and the use of antidumping duties against Chinese goods. In addition, economic relation with the United States is also affected by the large but inaccurately measured bilateral trade balance, as well as tough negotiations related to China's entry to the WTO. Japan's importance to China is not only through trade and investment, but also through being the largest source of concessional fianancing and aid. The EU is important since it is the third largest export market for China and the second largest provider of China's imports.

JEL Classification: F15, O53

Suggested Citation

Fung, K.C. and Lau, Lawrence J., China's Foreign Economic Relations (January 1997). UCSC Economics Dept #370, Available at SSRN:

K.C. Fung (Contact Author)

University of California at Santa Cruz ( email )

Santa Cruz, CA 95064
United States
831-459-3273 (Phone)
831-459-5900 (Fax)

Lawrence J. Lau

Chinese University of Hong Kong-Institute of Global Economics and Finance ( email )

13/F., Cheng Yu Tung Building
12 Chak Cheung St.
Shatin, NT
Hong Kong
+852 3943-1611 (Phone)
+852 2603-5230 (Fax)


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