The Role of Microeconomic Refoms in the Decentralization of China's Foreign Trade

Abstract

After China's adoption of an 'open-door' policy in 1978, its trade regime was partly decentralized and China's exports grew rapidly from 1978-84. However, after 1988 China's exports stagnated and imports surged giving rise to an unsustainable trade deficit. The foreign exchange black market has thrived, smuggling and illicit trade is growing. China's authorities reacted by recentralizing its trade system. This paper focuses on the microeconomic aspects of the decentralization of foreign trade in China and concludes that China's problems in trade occurred because China allowed trade decentralization to run ahead of necessary microeconomic reforms. It analyses these microeconomic problems and evaluates China's policies for managing its recent malaise.