Trade in South Africa

Country

National Mosjeed of South Africa

 

Formal Name: Republic of South Africa.
Short Form: South Africa.
Term for National(s): South African(s).
Administrative Capital: Pretoria.
Legislative Capital: Cape Town.
Judicial Capital: Bloemfontein.
Independence: May 31, 1910, as Union of South Africa, self-governing British dominion; sovereignty recognized May 1, 1934, under Britain's Statute of Westminster. Republic of South Africa, May 31, 1961.
Public Holidays: New Year's Day (January 1), Human Rights Day (March 21), Good Friday, Family Day (Easter Monday), Freedom Day (April 27), Workers' Day (May 1), Ascension Day, Youth Day (June 16), Women's Day (August 9), Heritage Day (September 24), Day of Reconciliation (December 16), Christmas Day (December 25), and Day of Goodwill (December 26).

Geography

Size: South Africa occupies 1,227,200 square kilometers at the southern tip of Africa; seventh largest African country; twice the size of Texas. Coastline nearly 3,000 kilometers. Extraterritorial holdings: Prince Edward Island and Marion Island (Indian Ocean).

South Africa in map

Topography: Interior highlands continuation of African plateau stretching north to Sahara, 1,200 meters average elevation. Plateau rises to Drakensberg Mountains (3,300 meters) south and east; Great Escarpment descends to coastal lowlands. Marginal coastal lowlands vary from eighty to 240 kilometers wide. Regular coastline, few natural harbors.
Climate: Variable; warm temperate climate overall; Mediterranean conditions far southwest; subtropical northeast; desert northwest. Moderating influence of ocean currents: East coast warmed by Agulhas current, west coast cooled by Benguela current. Dry, sunny winters (April-October), summer rains (November-March) except in southwest, where rainfall yearround; average annual rainfall 484 millimeters.
Time: 2 hours ahead of Greenwich Mean Time.

Society

Population: 41.2 million, 1995 estimate (1996 census not yet final). Annual population growth 2.2 percent. Fertility: 4.4 births per female; crude birth rate: 23.4 per 1,000; 12 percent of births to teenagers. Population to double in twenty-five years. Life expectancy: sixty-three years males, sixty-eight years females, marked racial differences. Crude death rate: 9.4 per 1,000. Median age 19.2, declining; 37 percent under age fifteen. Density 33.8 persons per square kilometer, uneven distribution; concentrations in KwaZulu-Natal (21 percent of population), Gauteng (17 percent), Eastern Cape (17 percent). Estimated urban population, 57 to 63 percent; rural, 37 to 43 percent. Major urban areas: Cape Town, 2.2 million; Johannesburg, 1.9 million; Durban, 1.1 million; Pretoria, 1.1 million; Port Elizabeth, 854,000. Ethnic heterogeneity: estimated 76 percent black Africans--Nguni (Zulu, Xhosa, Swazi, Ndebele), Sotho-Tswana, Venda, Tsonga-Shangaan, Khoisan; 13 percent whites--Afrikaners, British, other Europeans; 11 percent Asians and others. Government estimates at least 2 million foreign workers (1996).
Languages: Eleven official languages. Most widely used: isiZulu, isiXhosa, Afrikaans, English, and sePedi; also seSotho, seTswana, xiTsonga, siSwati, tshiVenda (luVenda), and isiNdebele. English important in commerce.
Religion: No government restrictions. Population 80 percent Christians, mostly Protestant. Of these, 8 million members of African Independent churches; 4 million, of Dutch Reformed churches. Traditional African beliefs remain important, especially in rural areas. Asians almost equally Hindu and Muslim; Islamic community growing rapidly.
Education and Literacy: Superior education system primarily served racial minority until 1990s. Nine years compulsory education universal after 1994; shortages of schools, teachers. Estimated 7.17 million primary pupils, 4.59 million secondary pupils; 20,780 primary and secondary schools, of which 20,303 government operated; 336,653 primary and secondary teachers. Adult literacy estimated 61 percent. Nineteen major universities, two correspondence; extensive vocational and technical training available.
Health: Health problems reflect racial, class differences. Physicians 1 per 1,200 people in wealthy areas (1 per 10,000 in poor, rural areas). Acquired immune deficiency syndrome (AIDS): 10,351 reported cases (1996); human immunodefi-ciency virus (HIV) infection estimated close to 1 million. Infant mortality declining: 43.1 deaths first year per 1,000 live births (54.3 blacks, 7.3 whites). National health insurance system being phased in.

Economy

Character and Structure: Economy based on market-oriented, private enterprise, bolstered by state subsidies; traditionally strong public sector undergoing initial privatization. Industry and manufacturing crucial to growth. Government's five-year Reconstruction and Development Programme emphasizes public services, job creation to ameliorate most severe impacts of apartheid. Gross domestic product (GDP) estimated US$133.6 billion; US$3,010 per capita (1995). Major contributions to GDP: manufacturing, 25.2 percent; trade, 15.5; finance, 15.3; general government, 14.1; mining, 8.9. Economic growth, 3.1 percent (1996), predicted 2.5 percent (1997). Inflation, 8.7 percent (1995); 7.4 percent (1996).

Economical relation

Government budget: FY1997-98 proposed expenditures, R186.7 billion; revenues R162.0 billion; projected deficit R24.7 billion. Budget allocations: military, 5.7 percent; police, 7.0 percent; interest on government debt, 20.4 percent; education, 21.3 percent; allocations to provinces, 43.2 percent. Proposed relaxation of exchange controls, tax reductions in lower income brackets (1997).
Mining and Minerals: Mining based on unparalleled reserves: gold, diamonds, platinum, chromium, manganese, vanadium; also coal, iron ore, uranium, copper, silver, fluorspar, asbestos, limestone. Mineral concentrations greatest in Gauteng, Northern Province, Mpumalanga. One offshore oilfield, further exploration underway.
Manufacturing: Steel, steel products, chemicals, electronics, automobiles, textiles, paper, food processing. Strong growth in export-oriented manufacturing, increasing capacity utilization, mid-1990s. Substantial foreign investment. Factors favoring investment: broad technological base, highly trained managerial class, abundant labor supply, specialized financial institutions. Factors countering investment: abundance of unskilled, uneducated workers; crime, violence; labor militancy. Industrial interests protected by South African Chamber of Business (SACOB), Steel and Engineering Industries Federation of South Africa (SEIFSA), Afrikaner Trade Institute (Afrikaanse Handelsinstituut--AHI), National African Federated Chamber of Commerce (NAFCOC).
Agriculture, Forestry, and Fishing: Arable land roughly 11 percent of total, mostly eastern provinces, far southwest. Principal crops: cereals and grains, especially corn; wool; sugar; peanuts; tobacco; fruits and vegetables; affected by early 1990s periods of drought. Flourishing wine industry. Livestock, dairy farming. Government marketing boards being phased out. Land claims disputes arising out of apartheid era being adjudicated, could affect 30 percent of farm land. Small timber industry meets most domestic demand. Large commercial fishing industry exports more than 60 percent of catch.
Energy: Extensive coal reserves expected to last through most of twenty-first century; uranium plentiful. Limited hydroelectric potential, plans to import electric power from cooperative ventures in Lesotho, Mozambique. Imported petroleum, refined domestically. World leader in coal liquefaction to synthesize oil and gas; one nuclear power facility, plans for additional nuclear facilities after 2000.
Labor: Work force estimated 14.5 million (1995). Employment in manufacturing (16.6 percent), agriculture (12.2 percent), commerce and trade (11 percent), domestic service (8.5 percent), education (7.8 percent), mining (6.9 percent). Unemployment, 29-32 percent of formal work force. Job creation proceeding slowly. Looming shortage of skilled labor, oversupply of unskilled labor. Public-sector employment increasing, especially in provincial governments. At least 194 recognized trade unions; roughly 25 percent of labor force. Wage disparities among racial groups persist, especially in manufacturing.
Tourism: More than 4.6 million international arrivals (1995), including more than 3.4 million Africans; also British, Germans; growing Asian interest. Well-developed tourism industry; key attractions Kruger National Park, Western Cape, Blue Train (Pretoria-Cape Town).
Foreign Economic Relations: Major exports: gold, precious metals, precious stones, base metals, textiles, chemicals, paper products, agricultural products. Increasing coal exports. Major imports: machinery, vehicles, petroleum products, chemicals, scientific instruments, base metals, textiles. Early 1990s growth in imports slowed in mid-1990s; exports rose steadily, but declining value of rand reduced impact on trade balance. Value of exports US$27.9 billion, value of imports US$27.1 billion (1995). Major trading partners: United States, Britain, Germany, Japan, Italy. Trade with United States: exports US$2.21 billion, imports US$2.75 billion (1995). Binational Commission with United States, binational chambers of commerce in other countries promote trade, investment. Southern African Customs Union with Botswana, Lesotho, Namibia, and Swaziland. Trade with other African countries: exports US$2.5 billion, imports US$664 million (1994). Major South African investments in Africa: tourism, telecom-munications, railways, ports, breweries, mining. Pursuing stronger trade, investment ties to China, Japan, Singapore, India, Australia.
Currency: Rand (R)=100 cents. As of March 1, 1997, US$1=R4.66; conversely, R1=US21.4 cents, following uneven decline through 1996.
Fiscal Year: April 1 through March 31.

Foreign Trade and Investment

South Africa's foreign trade and investment were affected by sanctions and boycotts, especially during the 1980s and early 1990s. These measures included a voluntary arms embargo instituted by the United Nations (UN) in 1963, which was declared mandatory in 1977; the 1978 prohibition of loans from the United States Export-Import Bank; an oil embargo first instituted by OPEC in 1973 and strengthened in a similar move by Iran in 1979; a 1983 prohibition on IMF loans; a 1985 cutoff of most foreign loans by private banks; the United States 1986 Comprehensive Antiapartheid Act, which limited trade and discouraged United States investors; and the 1986 European Economic Community (EEC) ban on trade and investment. The Organization of African Unity (OAU) also discouraged trade with South Africa, although observers estimated that Africa's officially unreported trade with South Africa exceeded R10 billion per year in the late 1980s.

Export rate of South Africa

The most effective sanctions measure was the withdrawal of short-term credits in 1985 by a group of international banks. Immediate loan repayments took a heavy toll on the economy (see External Debt, this ch.). More than 350 foreign corporations, at least 200 of which were United States owned, sold off their South African investments. In 1991 both the EEC and the United States lifted many official sanctions in view of measures taken by Pretoria to begin dismantling apartheid. Foreign investors were slow to return to South Africa, however; most banking institutions considered the country too unstable, and foreign corporations faced high labor costs and unrest if they tried to operate there.
In 1994 and 1995, many of the United States companies that had sold off shares or operations in South Africa in the past decade returned to do business there. By early 1996, at least 225 United States companies employed more than 45,000 South African workers.

Foreign Trade

Throughout the twentieth century, South Africa's economy has depended heavily on foreign trade--a trend that continued even under pressure from international sanctions and recession. Gold dominated its exports to the point that the government occasionally intervened to promote nongold exports. During the 1970s and the 1980s, the price of gold directly affected the value of the rand and, therefore, the prices at which exports were sold overseas. As the gold price fluctuated, the exchange rate of the rand rose and fell, and export revenues responded accordingly. Under these uncertain conditions, few manufacturers were willing to risk large investments to increase their export capacity.

South Africa rate

One of the 1970s programs that promoted nongold mineral exports was the development of new harbor facilities, railway lines, and mines, which helped to increase revenues from the export of metal ores at the impressive rate of nearly 18 percent per year, on average, during the 1980s. Also during the 1980s, the Board of Trade and Industry implemented structural adjustment programs for various industries and a General Export Incentive Scheme, which reduced import tariffs on raw materials to be used to manufacture goods for export, in proportion to their value and local content. One effect of these programs was to reduce the importance of gold in South African exports from 56 percent of revenues in 1980 to 36 percent in 1992, according to government statistics. Gold exports increased slightly in 1993 and 1994, as a fraction of export revenues, but remained below 40 percent of the total.
The government also took direct action to limit imports, in part to protect local industries. The government has the power to do so through tariffs, surcharges, and import licenses. Import tariffs provided some protection against dumping by foreign manufacturers. Import surcharges helped reduce import demand and raise government revenues. In August 1988, the surcharge on some items was raised as high as 60 percent in a bid to hold down imports, but in May 1989 the surcharge on capital goods was eased from 20 percent to 15 percent, and most import tariffs were being phased out in the 1990s.
Government pressures in the 1970s and the 1980s succeeded in reducing South Africa's import levels but did not succeed in changing the pattern of imports. By 1987, when total imports were down about 30 percent from their peak 1974 volume, industrial inputs continued to dominate imports. Machinery was the most important among these, followed by vehicles and transportation equipment, a variety of chemicals, and oil. After the OPEC boycott of 1973 and Iran's cutoff of oil to South Africa in 1979, however, official figures on oil trade were not available. Observers estimated that 1987 oil import costs reached US$1.75 billion.
The pattern of trade dominated by gold exports and industrial imports continued in the early 1990s (see table 9; table 10, Appendix). The government continued to promote exports and to limit imports in an effort to create the trade surplus (and foreign exchange reserve surplus) necessary for debt repayment. In 1993 exports were valued at roughly R79.5 billion (almost 35 percent of GDP) according to official estimates, and imports were valued at approximately R59 billion. In 1994 exports were valued at an estimated R89.1 billion, and imports, at R75.9 billion. In early 1995, imports began to outstrip exports, and South Africa's trade surplus declined at an uneven pace for the rest of the year. South African Reserve Bank estimates in early 1996 placed the value of exports in the previous year at R81 billion in merchandise and R20.2 billion in gold. Merchandise imports were about R98.5 billion, leading officials to predict that the trade balance could lapse into deficit. In early 1996, however, exporters took advantage of the sharp depreciation of the rand, and the trade surplus rose sharply. In dollar values, however, the trade balance remained almost flat as the benefits of the lower rand were offset by lower commodity prices
Foreign trade delegations began arriving in South Africa as international sanctions were being lifted in the early 1990s. Among its most dramatic turnabouts, South Africa sent a delegation to Moscow in mid-1991 to discuss strengthening trade ties, and for the first time, South African companies participated in a trade fair there.
South Africa's main trading partners in the mid-1990s are West European countries, the United States, and Japan. Members of the European Union (EU--see Glossary) receive roughly 40 percent of South African exports and provide one-third of South Africa's imports. In 1994 Switzerland, an important destination of South African diamonds, purchased the largest share of South African exports. Other markets for South African goods are the United Kingdom, the United States, Japan, and Germany, in that order. Leading sources of South African imports are Germany, the United States, the United Kingdom, Japan, and Italy.
The EU accorded South Africa duty-free entry on most of its industrial exports in early 1995, and the two were negotiating terms for the purchase of South Africa's agricultural products. In 1996 the EU granted South Africa a qualified membership in the Lomé Convention, to take effect in 1997. The Lomé Convention gives African, Pacific, and Caribbean countries preferential access to European markets.
South Africa's trade with the United States increased rapidly after 1994. In 1995 South Africa imported roughly US$2.75 billion worth of United States exports, mostly manufactured goods. This represented more than half of all United States exports to Africa. South Africa exported roughly US$2.21 billion worth of metals, alloys, and precious stones to the United States in that year, representing the only significant source of African products other than petroleum.
South Africa's trade with the rest of Africa, the natural market for its manufactured goods and agricultural products, was carried on both openly and clandestinely until the early 1990s, because of the OAU's long-standing trade ban. As commercial ties expanded in the 1990s, African countries purchased about 10 percent of South Africa's exports; Zimbabwe, Zambia, and Mozambique were the largest African markets. Only Zimbabwe supplied significant exports (primarily tobacco) to South Africa.
Official South African trade statistics include all members of the Southern African Customs Union (SACU). SACU arose out of a customs agreement between South Africa and the territories that became Botswana, Lesotho, and Swaziland, dating back even before the Union of South Africa was formed in 1910. SACU was formally established when the agreement was renegotiated in 1969, and Namibia joined the customs union when it became independent in 1990. Goods move freely among SACU member states, which share a common accounting procedure and impose a common tariff structure. Each country contributes to a shared fund and receives a fixed portion of revenues based on its approximate share of production and consumption. In the mid-1990s, South Africa was considering either dismantling SACU or restructuring its participation in the alliance.

Investment

During the 1960s, foreign investment in mining and manufacturing grew steadily, reaching over 60 percent of total foreign investment by 1970. After that, foreign investment in South Africa stagnated and in some cases declined, increasing the government's reliance on loans rather than on equity capital to finance development. In 1984 loans constituted over 70 percent of South Africa's foreign liabilities, as compared with only 27 percent from direct investments. As a result, when most loans were cut off in 1985, available investment capital dropped sharply, and the economy suffered. In 1989 a substantial proportion of gross investment--R39 billion out of R49 billion--represented depreciation.
Although international opposition to South Africa eased in the early 1990s and bans on investment were lifted, investment as registered on the Johannesburg Stock Exchange (JSE) continued to decline and South African share prices on the JSE and on the London Stock Exchange were low. Industrial shares fared better than other sectors, but even the industrial index showed only sluggish growth through 1991. The overall JSE index improved slightly in 1992, and this trend continued after that. In 1993 the index rose by nearly 50 percent, although the volume of trade continued to be low by international standards. By late 1995, foreign purchases on the JSE had risen to more than R4.5 billion.

Transport system

Foreign purchases were primarily in portfolio investment rather than direct investment through the mid-1990s. Most foreign direct investment was in the form of joint ventures or buying into existing enterprises. There was very little foreign direct investment in new enterprises, a trend that hit hardest in the struggling black business sector in South Africa. United States direct investment in South Africa rose during this time, from about US$871 million in 1992 to more than US$1.34 billion in 1995.
South Africans invested heavily in other African countries, even during the years of declining investments in South Africa. Tourist facilities were a favorite target for South African investments during the sanctions era. South Africans invested in tourist parks in Madagascar, for example, and in hotel development in the Comoro Islands and in Mozambique in the early 1990s. South African tourists, banned from many other tourist locales at the time, then shared in the benefits of these developments.

Balance of Payments

Before the debt crisis of 1985, South Africa's current-account position traditionally mirrored its business cycle, showing alternate surpluses and deficits. Whenever the economy grew faster than about 3 percent a year, local demand for imports increased, and when the economy slowed, imports decreased. In times of growth, when current-account deficits became too large, the government implemented restrictive monetary and fiscal policies in order to slow demand. After the 1985 debt crisis, however, South Africa had no choice but to run continuous current-account surpluses to meet repayment commitments. By the early 1990s, South Africa had become a capital-exporting nation because creditors wanted repayment on loans, and almost no new capital inflows other than replacement or rollover trade credits were available.
South Africa's current-account surplus, which had averaged about 3 percent of GDP in the late 1980s, increased sharply to exceed R6 billion in 1991, before declining slightly in 1993, according to the Central Statistical Service. In 1994 and 1995, import growth forced the current account into a deficit for the first time in more than a decade and officials estimated that the current-account deficit could reach R10 billion by 1997.
South Africa's gold and foreign currency reserves were hit hard by the need to repay the nation's loans in 1985 and 1986. At that time, gold holdings were sufficient to cover only about ten weeks of imports, and by the end of 1988 the reserve position had deteriorated to little more than six weeks of import cover. Although the capital account started to improve in 1990, and total gold and other foreign reserves rose to US$2.39 billion, this amount was still equivalent to the cost of only about six weeks of imports of goods and services. Net foreign currency reserves were still very low in the mid-1990s, at about R15.7 billion (about two months of import cover) in late 1995, and R10 billion (only about one month's import cover) in mid-1996.

Foreign Relations

The Ministry of Foreign Affairs is responsible for South African foreign policy decisions. The Department of Foreign Affairs (DFA) within the Ministry of Foreign Affairs conducts liaison with foreign governments and international organizations on all matters affecting official relations. These relations are conducted through foreign government officials, through diplomats accredited to South Africa, and through South Africa's accredited embassies, consulates, and other missions abroad. Until the early 1990s, the DFA and the diplomatic corps competed against numerous counterestablishment "diplomatic services" run by antiapartheid organizations in exile, especially the ANC. The aim of these parallel communication channels was to isolate the South African government within the international community as a means of pressuring Pretoria to abolish apartheid.

Shipping trade statistic

After the abolition of apartheid and the inauguration of the democratically elected Government of National Unity, South Africa's foreign relations were dramatically transformed. The country's diplomatic isolation ended, and existing relations with other countries and with international organizations improved. South Africa reestablished diplomatic and trade relations with many countries, particularly in Africa, and established new relations with some former sanctions "hardliners," such as India, Pakistan, Bahrain, Malaysia, Jordan, Libya, and Cuba. Several regional and international organizations invited South Africa to join, or to reactivate its membership, including the Organization of African Unity (OAU), the Southern African Development Community (SADC), and the United Nations (UN). In addition, South Africa participated in international and bilateral sport, academic, and scientific activities, often for the first time in decades. Relations with the countries of the former Soviet Union, Eastern Europe, and Central Europe improved. South Africa had full diplomatic ties with thirty-nine countries in 1990; that number increased to sixty-nine in 1993, and to at least 147 in 1995.
After the April 1994 elections, President Mandela appointed two ANC members, Alfred Nzo and Aziz Pahad, as minister and deputy minister of foreign affairs. He refused to make immediate sweeping changes in the diplomatic corps. The pillars of South Africa's future foreign policy had been enunciated by Mandela in late 1993, in an article published in Foreign Affairs . These principles are the promotion of human rights and democracy; respect for justice and international law in interstate relations; the achievement of peace through "internationally agreed and nonviolent mechanisms, including effective arms-control regimes"; incorporation of African concerns and interests into foreign policy choices; and economic development based on "cooperation in an interdependent world." In southern Africa, Mandela denounced South Africa's earlier economic domination of the region and its deliberate destabilization of neighboring states. Instead, Mandela called for "cooperation in regional construction, infrastructure and resource development projects . . . in virtually every sector and area." Finally, Mandela advocated the full reintegration of South Africa into global trade networks.
These foreign policy principles were being implemented even before Mandela's inauguration. For example, in early 1994 de Klerk and Mandela, along with the presidents of Botswana and Zimbabwe, helped mediate an end to a military revolt in neighboring Lesotho. In mid-1994, South Africa provided its first assistance to a UN peacekeeping operation when it supplied hospital equipment for Rwanda. Also in 1994, President Mandela agreed to help resolve the intractable civil war in Angola, although he cautioned against unrealistically high expectations in this and other deep-rooted political and ethnic conflicts.

Relations with African States

Official delegations from almost every other African state visited Pretoria in 1992 or 1993 to discuss ways to strengthen bilateral ties. South Africa's estimated 100 assistance projects in twenty-two African countries in 1991 more than doubled by 1994 and provided technical aid and training in agriculture, wildlife conservation, education, and health care. The effects of the early-1990s drought in southern Africa would have been even more devastating to the region's agriculture and wildlife if South Africa had not provided transportation and food assistance to its neighbors.
The change in South Africa's regional standing was dramatically marked by its admission to the Southern African Development Community (SADC) in August 1994. The twelve-member organization (also including Angola, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, and Zimbabwe) aims to promote regional cooperation in economic development and security affairs. The SADC annual meeting of heads of state and government was held in Johannesburg on August 28, 1995. The assembled leaders agreed to create a regional common market with the elimination of all internal trade barriers by the year 2000. They also signed an agreement to share water resources among SADC member nations.

Relation map

Almost all African countries had depended on South African trade even during the sanctions era, despite their strong rhetorical condemnation of the apartheid regime. In 1991 South Africa's trade with the rest of the continent was at least US$3.5 billion, and this figure increased steadily as apartheid was being dismantled.
For the five landlocked countries of southern Africa (Botswana, Lesotho, Swaziland, Zambia, and Malawi), South Africa's well-developed system of roads, railroads, and port facilities provides a vital trade link. The Southern African Customs Union (SACU), headquartered in South Africa, provides a common customs area, including Botswana, Lesotho, Swaziland, and Namibia (see Foreign Trade, ch. 3).

Trade in China

China

Country Profile

COUNTRY

Formal Name: People's Republic of China.
Short Form:China.
Term for Nationals: Chinese.
Capital: Beijing.

GEOGRAPHY

China in Map

 

Size: Area about 9.6 million square kilometers; east to west distance about 5,000 kilometers, from the Heilong Jiang (Amur River) to Pamir Mountains in Central Asia; north to south distance approximately 4,050 kilometers, from Heilongjiang Province to Hainan Island in south, and another 1,450 kilometers further south to Zengmu Shoal, territorial claim off north coast of Malaysia.
Topography:Main topographic features include Qing-Zang (Qinghai-Tibet) Plateau 4,000 meters above sea level and Kunlun, Qin Ling, and Greater Hinggan ranges. Longest of country's numerous rivers, Chang Jiang (Yangtze River) and Huang He (Yellow River), extend for some 6,300 and 5,400 kilometers, respectively.
Climate: Most of country in temperate belt. Complex climatic patterns ranging from cold-temperate north to tropical south. Precipitation varies regionally; temperatures range from minus 30°C in north in January to 28°C in south in July. Alternating wet monsoon in summer, dry monsoon in winter.

ECONOMY

China Currency

 

Salient Features:Economic system in transition, cautiously moving away from Soviet-style central planning and gradually adopting market economy mechanisms and reduced government role. Industry, largely based on state and collective ownership, marked by increasing technological advancements and productivity. China's people's communes  eliminated by 1984--after more than twenty-five years--and responsibility system  of production introduced in agricultural sector. Private ownership of production assets legal, although major nonagricultural and industrial facilities still state owned and centrally planned. Restraints on foreign trade relaxed and joint ventures encouraged.

Industry of China

Industry: In 1985 employed about 17 percent of labor force but produced more than 46 percent of gross national product (GNP). Fastest growing sector; average annual growth of 11 percent from 1952 to 1985. Wide range of technological levels; many small handicraft units; many enterprises using machinery installed or designed in 1950s and 1960s; significant number of big, up-to-date plants, including textile mills, steel mills, chemical fertilizer plants, and petrochemical facilities but also burgeoning light industries producing consumer goods. Produced most kinds of products made by industrialized nations but limited quantities of high-technology items. Technology transfer by importing whole plants, equipment, and designs an important means of progress. Major industrial centers in Liaoning Province, Beijing-Tianjin- Tangshan area, Shanghai, and Wuhan. Mineral resources included huge reserves of iron ore; adequate to abundant supplies of nearly all other industrial minerals. Outdated mining and ore processing technologies gradually being replaced with modern techniques.
Agriculture: In 1985 employed about 63 percent of labor force; proportion of GNP about 33 percent. Low worker productivity because of scanty supplies of agricultural machinery and other modern inputs. Most agricultural processes still performed by hand. Very small arable land area (just above 10 percent of total area, as compared with 22 percent in United States) in relation to size of country and population. Intensive use of land; all fields produce at least one crop a year; wherever conditions permit, two or even three crops grown annually, especially in south. Grain most important product, including rice, wheat, corn, sorghum, barley, and millet. Other important crops include cotton, jute, oilseeds, sugarcane, and sugar beets. Eggs a major product. Pork production has increased steadily; poultry and pigs raised on family plots. Other livestock relatively limited in numbers, except for sheep and goats, grazed in large herds on grasslands of Nei Monggol Autonomous Region (Inner Mongolia) and northwest. Substantial marine and freshwater fishery. Timber resources mainly located in northeast and southwest; much of country deforested centuries ago. Wide variety of fruits and vegetables grown.
Energy Sources:Self-sufficient in all energy forms; coal and petroleum exported since early 1970s. Coal reserves among world's largest; mining technology inadequately developed but improving in late 1980s. Petroleum reserves very large but of varying quality and in disparate locations. Suspected oil deposits in northwest and offshore tracts believed to be among world's largest; exploration and extraction limited by scarcity of equipment and trained personnel; twenty-seven contracts for joint offshore exploration and production by Japanese and Western oil companies signed by 1982, but by late 1980s only handful of wells producing. Substantial natural gas reserves in north, northwest, and offshore. Hydroelectric potential greatest in world, sixth largest in capacity; very large hydroelectric projects under construction, others in planning stage. Thermal power, mostly coal fired, produced approximately 68 percent of generating capacity in 1985; expected to increase to 72 percent by 1990. Emphasis on thermal power in late 1980s seen by policy makers as quick, shortterm solution to energy needs; hydroelectric power seen as longterm solution. Petroleum production growth to continue in order to meet needs of nationwide mechanization and provide important foreign exchange but domestic use to be restricted as much as possible.

The Banking System

The history of the Chinese banking system has been somewhat checkered. Nationalization and consolidation of the country's banks received the highest priority in the earliest years of the People's Republic, and banking was the first sector to be completely socialized. In the period of recovery after the Chinese civil war (1949-52), the People's Bank of China moved very effectively to halt raging inflation and bring the nation's finances under central control. Over the course of time, the banking organization was modified repeatedly to suit changing conditions and new policies.
The banking system was centralized early on under the Ministry of Finance, which exercised firm control over all financial services, credit, and the money supply. During the 1980s the banking system was expanded and diversified to meet the needs of the reform program, and the scale of banking activity rose sharply. New budgetary procedures required state enterprises to remit to the state only a tax on income and to seek investment funds in the form of bank loans. Between 1979 and 1985, the volume of deposits nearly tripled and the value of bank loans rose by 260 percent. By 1987 the banking system included the People's Bank of China, Agricultural Bank, Bank of China (which handled foreign exchange matters), China Investment Bank, China Industrial and Commercial Bank, People's Construction Bank, Communications Bank, People's Insurance Company of China, rural credit cooperatives, and urban credit cooperatives.
The People's Bank of China was the central bank and the foundation of the banking system. Although the bank overlapped in function with the Ministry of Finance and lost many of its responsibilities during the Cultural Revolution, in the 1970s it was restored to its leading position. As the central bank, the People's Bank of China had sole responsibility for issuing currency and controlling the money supply. It also served as the government treasury, the main source of credit for economic units, the clearing center for financial transactions, the holder of enterprise deposits, the national savings bank, and a ubiquitous monitor of economic activities.
Another financial institution, the Bank of China, handled all dealings in foreign exchange. It was responsible for allocating the country's foreign exchange reserves, arranging foreign loans, setting exchange rates for China's currency, issuing letters of credit, and generally carrying out all financial transactions with foreign firms and individuals. The Bank of China had offices in Beijing and other cities engaged in foreign trade and maintained overseas offices in major international financial centers, including Hong Kong, London, New York, Singapore, and Luxembourg.
The Agricultural Bank was created in the 1950s to facilitate financial operations in the rural areas. The Agricultural Bank provided financial support to agricultural units. It issued loans, handled state appropriations for agriculture, directed the operations of the rural credit cooperatives, and carried out overall supervision of rural financial affairs. The Agricultural Bank was headquartered in Beijing and had a network of branches throughout the country. It flourished in the late 1950s and mid-1960s but languished thereafter until the late 1970s, when the functions and autonomy of the Agricultural Bank were increased substantially to help promote higher agricultural production. In the 1980s it was restructured again and given greater authority in order to support the growth and diversification of agriculture under the responsibility system.
The People's Construction Bank managed state appropriations and loans for capital construction. It checked the activities of loan recipients to ensure that the funds were used for their designated construction purpose. Money was disbursed in stages as a project progressed. The reform policy shifted the main source of investment funding from the government budget to bank loans and increased the responsibility and activities of the People's Construction Bank.

Market Share by Assets of China

Rural credit cooperatives were small, collectively owned savings and lending organizations that were the main source of small-scale financial services at the local level in the countryside. They handled deposits and short-term loans for individual farm families, villages, and cooperative organizations. Subject to the direction of the Agricultural Bank, they followed uniform state banking policies but acted as independent units for accounting purposes. In 1985 rural credit cooperatives held total deposits of -Y72.5 billion.
Urban credit cooperatives were a relatively new addition to the banking system in the mid-1980s, when they first began widespread operations. As commercial opportunities grew in the reform period, the thousands of individual and collective enterprises that sprang up in urban areas created a need for small-scale financial services that the formal banks were not prepared to meet. Bank officials therefore encouraged the expansion of urban credit cooperatives as a valuable addition to the banking system. In 1986 there were more than 1,100 urban credit cooperatives, which held a total of -Y3.7 billion in deposits and made loans worth -Y1.9 billion.
In the mid-1980s the banking system still lacked some of the services and characteristics that were considered basic in most countries. Interbank relations were very limited, and interbank borrowing and lending was virtually unknown. Checking accounts were used by very few individuals, and bank credit cards did not exist. In 1986 initial steps were taken in some of these areas. Interbank borrowing and lending networks were created among twenty-seven cities along the Chang Jiang and among fourteen cities in north China. Interregional financial networks were created to link banks in eleven leading cities all over China, including Shenyang, Guangzhou, Wuhan, Chongqing, and Xi'an and also to link the branches of the Agricultural Bank. The first Chinese credit card, the Great Wall Card, was introduced in June 1986 to be used for foreign exchange transactions. Another financial innovation in 1986 was the opening of China's first stock exchanges since 1949. Small stock exchanges began operations somewhat tentatively in Shenyang, Liaoning Province, in August 1986 and in Shanghai in September 1986.
Throughout the history of the People's Republic, the banking system has exerted close control over financial transactions and the money supply. All government departments, publicly and collectively owned economic units, and social, political, military, and educational organizations were required to hold their financial balances as bank deposits. They were also instructed to keep on hand only enough cash to meet daily expenses; all major financial transactions were to be conducted through banks. Payment for goods and services exchanged by economic units was accomplished by debiting the account of the purchasing unit and crediting that of the selling unit by the appropriate amount. This practice effectively helped to minimize the need for currency.
Since 1949 China's leaders have urged the Chinese people to build up personal savings accounts to reduce the demand for consumer goods and increase the amount of capital available for investment. Small branch offices of savings banks were conveniently located throughout the urban areas. In the countryside savings were deposited with the rural credit cooperatives, which could be found in most towns and villages. In 1986 savings deposits for the entire country totaled over -Y223.7 billion.

FOREIGN TRADE

History of Chinese Foreign Trade

Chinese foreign trade began as early as the Western Han dynasty (206 B.C.-A.D. 9), when the famous "silk route" through Central Asia was pioneered by Chinese envoys. During later dynasties, Chinese ships traded throughout maritime Asia, reaching as far as the African coast, while caravans extended trade contacts in Central Asia and into the Middle East. Foreign trade was never a major economic activity, however, and Chinese emperors considered the country to be entirely self-sufficient. During parts of the Ming (1368-1644) and Qing (1644-1911) dynasties, trade was officially discouraged.

Export and import port of china

In the nineteenth century, European nations used military force to initiate sustained trade with China. From the time of the Opium War (1839-42) until the founding of the People's Republic in 1949, various Western countries and, starting in the 1890s, Japan compelled China to agree to a series of unequal treaties that enabled foreigners to establish essentially autonomous economic bases and operate with privileged status in China. Foreign privileges were abolished when the People's Republic came into being.
Foreign trade did not account for a large part of the Chinese economy for the first thirty years of the People's Republic. As in most large, continental countries, the amount of commerce with other nations was small relative to domestic economic activity. During the 1950s and 1960s, the total value of foreign trade was only about 2 percent of the gross national product (GNP). In the 1970s trade grew rapidly but in 1979 still amounted to only about 6 percent of GNP.
The importance of foreign trade in this period, however, far exceeded its volume. Foreign imports alleviated temporary but critical shortages of food, cotton, and other agricultural products as well as long-term deficiencies in a number of essential items, including raw materials such as chrome and manufactured goods such as chemical fertilizer and finished steel products. The acquisition of foreign plants and equipment enabled China to utilize the more advanced technology of developed countries to speed its own technological growth and economic development.
During the 1950s China imported Soviet plants and equipment for the development program of the First Five-Year Plan (1953-57). At the same time, the Chinese government expanded exports of agricultural products to repay loans that financed the imports. Total trade peaked at the equivalent of US$4.3 billion in 1959, but a sudden decline in agricultural production in 1959-61 required China's leaders to suspend further imports of machinery to purchase foreign grain. Under a policy of "self-reliance," in 1962 total trade declined to US$2.7 billion. As the economy revived in the mid-1960s, plants and equipment again were ordered from foreign suppliers, and substantial growth in foreign trade was planned. But in the late 1960s, the chaos and antiforeign activities of the Cultural Revolution (1966-76) caused trade again to decline.
The pragmatic modernization drive led by party leaders Zhou Enlai and Deng Xiaoping and China's growing contacts with Western nations resulted in a sharp acceleration of trade in the early 1970s. Imports of modern plants and equipment were particularly emphasized, and after 1973 oil became an increasingly important export. Trade more than doubled between 1970 and 1975, reaching US$13.9 billion. Growth in this period was about 9 percent a year. As a proportion of GNP, trade grew from 1.7 percent in 1970 to 3.9 percent in 1975. In 1976 the atmosphere of uncertainty resulting from the death of Mao and pressure from the Gang of Four, whose members opposed reliance on foreign technology, brought another decline in trade.

Export Growth of china

Beginning in the late 1970s, China reversed the Maoist economic development strategy and, by the early 1980s, had committed itself to a policy of being more open to the outside world and widening foreign economic relations and trade. The opening up policy led to the reorganization and decentralization of foreign trade institutions, the adoption of a legal framework to facilitate foreign economic relations and trade, direct foreign investment, the creation of special economic zones and "open cities," the rapid expansion of foreign trade, the importation of foreign technology and management methods, involvement in international financial markets, and participation in international foreign economic organizations. These changes not only benefited the Chinese economy but also integrated China into the world economy. In 1979 Chinese trade totaled US$27.7 billion--6 percent of China's GNP but only 0.7 percent of total world trade. In 1985 Chinese foreign trade rose to US$70.8 billion, representing 20 percent of China's GNP and 2 percent of total world trade and putting China sixteenth in world trade rankings.

Organization of Foreign Trade

The increasingly complex foreign trade system underwent expansion and decentralization in the late 1970s and 1980s. In 1979 the Ministry of Foreign Trade's nine foreign trade corporations lost their monopoly on import and export transactions as the industrial ministries were permitted to establish their own foreign trade enterprises. The provincial branch corporations of the state foreign trade corporations were granted more autonomy, and some provinces, notably Fujian, Guangdong, and the special municipalities of Beijing, Tianjin, and Shanghai were permitted to set up independent, provincial-level import-export companies. Some selected provincial enterprises were granted autonomy in foreign trade decisions. In 1982 the State Council's Import-Export Control Commission, Foreign Investment and Control Commission, Ministry of Foreign Trade, and Ministry of Foreign Economic Relations were merged to form the Ministry of Foreign Economic Relations and Trade. In 1984 the foreign trade system underwent further decentralization. Foreign trade corporations under this and other ministries and under provincial-level units became independent of their parent organizations and were responsible for their own profits and losses. An agency system for foreign trade also was established, in which imports and exports were handled by specialized enterprises and corporations acting as agents on a commission basis.

Composition of Foreign Trade

The dominant pattern of foreign trade after 1949 was to import industrial producer goods from developed countries and to pay for them with exports of food, crude materials, and light manufactures, especially textiles. The pattern was altered as circumstances demanded; in the period of economic collapse following the Great Leap Forward (1958-60; see Glossary), food imports increased from a negligible amount in 1959 to 39 percent of all imports in 1962. At the same time, imports of machinery and equipment dropped from 41 percent to 5 percent of the total. From this time on, food and live animals remained a significant, although declining, share of imports, amounting to 14.8 percent of the total in 1980 but dropping to 4.1 percent in 1985. The pattern also shifted over time as China's industrial sector expanded, gradually increasing the share of exports accounted for by manufactured goods. Manufactures provided only 30 percent of all exports in 1959, 37.9 percent in 1975, and grew to 44.9 percent in 1985.
Important changes occurred in several specific trade categories in the 1970s and 1980s (see table 17, Appendix A). Imports of textile fibers rose from 5.8 percent in 1975 to 10.7 percent in 1980 as the Chinese textile industry grew faster than domestic cotton supplies but then fell to 4 percent in 1985 as domestic cotton production increased. Imports of unfinished textile products also increased from 1.3 percent in 1975 to 5.3 percent in 1985 as a result of textile industry growth. Iron and steel accounted for approximately 20 percent of imports in the 1970s, fell to 11.6 percent in 1980, then rose to 14.9 percent in 1985. Imports of manufactured goods, machinery, and transportation equipment represented 62.6 percent of total import value in 1975, fell to 53.9 percent in 1980 as imports were cut back during the "period of readjustment" of the economy (1979-81), and rose again to 75.2 percent in 1985. On the export side, the share of foodstuffs fell to 12.5 percent in 1985. The fastest growing export item in the 1970s was petroleum, which was first exported in 1973. Petroleum rocketed to 12.1 percent of all exports in 1975, 22 percent in 1980, and 21.2 percent in 1985. In the 1980s textile exports grew rapidly. Although exports of unfinished textiles remained about 14 percent of total exports, all categories of textile exports rose from 5 percent in 1975 to 18.7 percent in 1984. In 1986 textiles replaced petroleum as China's largest single export item.