Changing Chinese Foreign Trade Development Mode by Business Mode Innovation

M & D FORUM
Changing Chinese Foreign Trade Development Mode by Business
Mode Innovation
CHEN Qiuyun
School of Accountancy of Jiujiang University, Jiujiang, Jiangxi, P.R.China, 332005
Abstract: There is an inherent unique contact mechanism between foreign trade development mode and
economic development mode in China that high investment, high export and low consumption economic
development mode has been formed by the continued increate labor productivity and the continued low
share of workers income. The meeting point between foreign trade development mode and economic
development mode is to guarantee high employment rate in the above contact mechanism. It follows that
the primary objective of changing foreign trade mode is still to ensure enough high employment rate
before domestic demand really starts. It argues that inappropriate transforming countermeasures of
foreign trade mode will bring about serious employment and growth negative effects under many
domestic and international constraints in the face of Chinese foreign trade. Practical experience shows
that the reasonable transforming path of foreign trade development mode in China is business mode
innovation under double binding of ensuring steady economic growth and enough employment rates.
Keywords: Business mode innovation, Foreign trade development mode, Transformation path
Introduction
In the face of the severe economic situation at home and abroad, the foreign trade of China changed the
high-speed growth, growth continues to fall. In the domestic large-scale before the start, has the very
important influence of foreign trade on China's economic growth and employment. Under the new
situation, how to change the growth mode of foreign trade is extremely urgent. Around the
transformation of the growth mode of foreign trade, domestic and foreign scholars put forward the views
and suggestions of many. In any case, change the mode of foreign trade development must still have to
play the comparative advantages of rich labor force, rather than the pursuits of capital and technology
based on the industrial upgrading, or have a significant impact on employment and economic growth.
From the actual experience of enterprises to cope with the financial crisis, business model innovation is
not only suitable for capital, technology intensive products export, but also conducive to the exports of
labor-intensive products. Business model innovation is China's current foreign trade development mode
change optional path.
1 The Intrinsic Link Mechanism Between China's Foreign Trade and Economic
Development
China's economic growth mode is a big-investment, large exports and low consumption, while export
growth is low price, low quality, and large quantity. How can we explain the formation and persistence
of such a mode of economic development? One of the most critical reasons is that the labor efficiency
has increased fast, but the labor income has not been so in the course of economic development. It is the
characteristic of China’s economic development mode that the ratio of labor income to GDP has been
low for long time. It is the low labor income share that makes public savings and corporate savings too
high, and thus it provides enough funding for the government and enterprises to invest. It is the low
labor income share that leads to Chinese export products well known of low-cost and low-price
competitive advantage, and thus enables large export. It is the low labor income share that leads to low
levels of domestic consumption. It shows that domestic excess capacity must be achieved through
international markets, and at the same time domestic excess investment provides foreign trade with
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cheap abundant products which are of low-cost and low-quality competitiveness. There is a mutual
promotion mechanism between domestic excess investment and foreign trade which can be verified the
inherently coordination and synchronization of foreign trade development and economic development
(see Figure 1), but the correlation between domestic consumption and economic growth has not been
obvious.
GDP and foreign trade growth trend
0.4
0.3
%
0.2
0.1
0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
year
GDP
Foreing trade
Figure 1 GDP and the import and export volume growth rate at current prices
Data sources: Wind database.
The low labor income share is closely related to China's dual economic structure. Before the arrival of
the Lewis turning point, China's rural surplus labor can be infinitely supplied who can only get the
necessary income for life and most of the economic surplus became public savings and corporate
savings. Chinese cheap labor-intensive products can be invincible in the international market for this
reason. China's labor market in the state of “labor shortage” in coastal provinces forms 2003, which
sparked debate on the issue whether the Lewis turning point is arriving in China's foreign trade
development field.
The above analysis shows that China's foreign trade can improve industrial productivity through
technology spillover and dual economic structure lows workers income, which improve Chinese export
competitiveness and increase public & corporate savings. The growth of saving guarantees, the source
of investment funds and increasing in local debt is encouraging local governments to expand investment.
Significant investment must bring about large export because domestic consumption is related to labors
income share. The reason why the typical characteristic of foreign trade and economic development is in
quantity not in quality is that Chinese productivity improvement is reflected in physically measured by
Labor productivity not the one measured by Currency.
The high employment rate is an extremely important goal which governments focus on economic
development especially in China. The high employment rate must be ensured by high economic growth.
It is more than 10% average annual economic growth that ensured a large number of rural surplus labor
force to find jobs in cities. Average annual growth rate of more than 18% of foreign trade is the key to
GDP growth. The high employment rate is the meeting point that combines economic growth mode with
foreign trade growth mode in China. It is the real reason that ensuring enough employment rate through
transformation of foreign trade growth mode in the current situations.
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2 Constraints and the Goal of Transformation of Foreign Trade Growth Mode
China's foreign trade development faced with more severe situation after the outbreak of the
international financial crisis. International constraints are the following: (1) Economic downturn and
decline of consumer demands in developed countries have reduced imports from China after
international financial crisis. (2) Continuous appreciation of Renminbi has weakened the
competitiveness of Chinese export products. (3) China's export products have suffered very tough
protectionist forces that are not only from developed countries but from developing countries.
Domestic constraints are as follows: (1) Prices of production factors, especially labor costs, have been
rising. Many parts of China in recent years have increased the minimum wage. (2) Ecological resources
and environment carrying capacity are becoming more fragile. (3) Uneven development of foreign trade
in domestic region has seriously hampered the further development of China's foreign trade.
The foreign trade top ten’s total exports & imports proportion in China's total exports & imports is over
90% in China's foreign trade development process, but rest proportion is less 10% (See Figure 2). The
foreign trade development of top ten provinces are mainly of intensive mode not the extensive one. That
is to say that the top ten’s exports expansion are on the basis of low quality and price not on the basis of
high quality, goods varieties and market diversification, which has limited their development potential
and growth rate under the current constraints and even dragged down the overall growth rate of China's
foreign trade. The data shows that the foreign trade growth rate of top ten regions is much lower than
that of Midwest regions in crisis period and recent two years. With the foreign trade development of the
rest regions more and more local labor forces will not go to costal regions to find jobs and thus
exacerbate developed regions "labor shortage" and increase labor cost. When it reaches a certain
threshold, the firms in developed regions will be bound to move inland or offshore or even bankruptcy.
If firms move inland, this will promote the foreign trade development of inland areas and increase the
labor costs in developed regions. With the movement of firms from costal areas to inland regions, the
enlargement of exports in Midwest regions can not offset the reduction of exports in costal regions for a
long time. This will challenge employment.
1
0.8
%
0.6
0.4
0.2
0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Rest areas exports
Top ten exports
Rest areas imports
Top ten imports
year
Figure 2 Export & import proportion in total total imports and exports (1993-2010)
Source: Wind database.
Under the influence of unfavorable factors, the exports and imports of top ten have declined, which
make China's foreign trade growth rate have a decreasing trend month by month since the financial
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crisis broke out (Figure 3).
Montly export growth rate
%
0.6
0.5
0.4
0.3
0.2
0.1
0
-0.1
1
3
5
7
9
11
13
15
17
19
21
23
25
2010.1- 2012.4
27
Month
Figure 3 2010.1-2012.4 China’s monthly export growth rate (at current price)
Source: Wind database.
There is an intrinsic link mechanism between foreign trade development and economic development.
Foreign trade growth decline will lead to economic growth decline and affect employment and people's
livelihood. It is the reason that Chinese government once again attaches great importance to the issue
that changes the growth mode of foreign trade. In short, the external reason why Chinese government
transform foreign trade development mode is that China is being faced up with more severe situation.
The internal reason is to promote employment. The primary goal is to stabilize economic growth.
3 The Path to Transform Foreign Trade Development Mode
How to transform foreign trade development mode? Many scholars have discussed this issue and
reached the following conclusions: By means of science and technology, upgrading the industrial
structure, building brand, increasing the added value, encourage foreign investment, optimizing the
export product structure, foreign market diversification. Although all these means maybe good, no
matter what means will be effect, we should make ourselves understand what the goal to change foreign
trade development mode is. As analyzing above export has been playing a key role in maintaining
employment. If means to change foreign trade development mode would damage employment, it can not
be successful. Based on this understanding, this essay holds that innovation of business mode can be
used to change foreign trade development mode.
Business mode innovation not only improves the performance of capital-intensive industries but also
improve the performance of labor-intensive industries. So far there is not a clear definition of business
mode. Based on different perspectives, business mode can be a business strategy, a form of organization,
a competitive way, a business process reengineering, and one kind of resource integration. Its successful
application is closely related to information network technology development and intra-product
specialization. Based on information technology, Li (2012) discussed the information flow, knowledge
flow, value flow, capital flow, logistics, and commodity flow in business mode and proposed three kinds
of mechanisms to innovate business mode. They are interaction mechanisms, learning mechanisms and
knowledge management mechanisms. Through business mode innovation firms can achieve logistics
visualization, business process automation, real-time communication, collaboration mobile, agile
response, self-service technology. By doing so can help firms to improve production efficiency, reduce
the comprehensive cost of foreign trade, improve customer relationships, improve decision-making, and
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develop new market.
It is very important to change the foreign trade development mode of labor-intensive products in China
because these products exports are closely related to employment. To change the foreign trade
development mode of labor-intensive products, business mode innovation not only improves production
efficiency but also upgrade quality. Companies often have to face the problem which products varieties
contradict production scale. To solve this problem, Companies are increasingly keen to contract out
peripheral activities, but focus on production and design of key components. For example, the famous
ZARA company and Nike company both contract out peripheral activities, focus on design and
marketing. Meters/bowe Company integrated a large number of domestic apparel production enterprise
by means of "Company plus farmers", but he focused on branding, terminal building, product design.
The secret of its success is the business mode innovation. Taiwan’s footwear enterprises on the mainland
today have all exited from the production areas by outsourcing production to mainland enterprises, but
focused on branding and trading. There are many such examples. With "cloud platform" appearing,
business mode innovation has a broader space.
Foreign trade itself can also innovate business mode through developing intermediary service
organizations, for example customs deceleration services, inspection services, logistics services,
consulting services. Business mode innovation can lend itself to process reengineering of foreign trade.
The author has discussed the process reengineering of general trade and processing trade by means of
business mode innovation.
To meet and encourage business mode innovation, Chinese government should strengthen the
construction of infrastructure, especially construction of foreign trade infrastructure in central and
western regions and border areas. By promoting the development of producer services and continuously
improving the level of information to help firms innovate business mode Chinese government can
promote the smooth transformation of foreign trade growth mode.
4 Conclusion
China's foreign trade is facing a grim situation which is not only from domestic various pressures of
rising costs but also from the impact of decline in external demand. China's foreign trade transformation
is becoming extremely urgent because China's foreign trade growth rate has being declined since the
financial crisis broke out. There is a unique mechanism of interaction between China's economic growth
and foreign trade growth. China's huge production capacity for the reason of high investment has being
resolved by high export and the high export must be resolved by the low-wage cost advantage.
Therefore China’s high export not only promotes economic growth but also helps a large number of
migrant workers find jobs.
China's foreign trade transformation should not affect employment in spite of simply promoting the
high-end products to export but should focus on economic growth to make China’s employment rise.
Labor-intensive products are related to China's employment problem, therefore, labor-intensive exports
transformation is the focus of China's foreign trade transformation. Experience and theory suggests that
business model innovation is not only in favor of capital-intensive exports, but also conducive to
labor-intensive exports. Business model innovation can not only low costs under the broader perspective
but also improve the quality of products. Therefore, business model innovation without sacrificing
employment situation is conducive to China's foreign trade in transition.
Acknowledgment:
It is preliminary achievement of the national natural science found of China (No. 71363031).
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