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Trade Facilitation and Poverty Reduction: China - ASEAN Region Case Study

Working paper by Wu, Laping /ARTNeT, 2013

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Trade facilitation has been a key part in the opening up process of China. This paper aims to investigate the linkage between trade facilitation and poverty reduction in China. It discusses the impact of the trade facilitation practices in China and the China - ASEAN cooperation on trade between China and ASEAN countries. A provincial panel data set for China from 2000 to 2008 is employed to quantify the impact of agricultural imports, agricultural exports and trade facilitation on poverty. The results show that a 1 per cent increase in port efficiency results in a 1.051 per cent decrease in the poverty index.

















































ASIA-PACIFIC RESEARCH AND TRAINING NETWORK ON TRADE


Working Paper
NO. 135 | OCTOBER 2013






Addressing
Non-Tariff Measures
in ASEAN


Gloria O. Pasadilla


Tra e Facil tation and
Poverty Reduction:


China-ASEAN Region
Case Study




Prof. Laping Wu








The Asia-Pacific Research and Training Network on Trade (ARTNeT) is an open
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trade policy and facilitation issues. IDRC, UNCTAD, UNDP, ESCAP and WTO, as
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© ARTNeT 2013
















NO. 135 | OCTOBER 2013





Trade Facilitation and Poverty Reduction:
China-ASEAN Region Case Study






Laping Wu *























* Project members: Prof. Laping Wu, Associate Prof. Hongman Liu, Assistant Prof.
Junfang Guo, Assistant Prof. Xiaoshu Wang, Assistant Prof. Min Sha, Rui Gu,
Wenzhi Wang and Yuhe Song, Shuiqin Yu, Tian Tian and Shang Xu.


WORKING PAPER
ASIA-PACIFIC RESEARCH AND TRAINING NETWORK ON TRADE


Please cite this paper as: Laping Wu (2013). Trade Facilitation and Poverty
Reduction: China-ASEAN Region Case Study. ARTNeT Working Paper No. 135.
Bangkok: ESCAP.


Available at www.artnetontrade.org.














Abstract: Trade facilitation has been a key part in the opening up process of China. This
paper aims to investigate the linkage between trade facilitation and poverty reduction in


China. It discusses the impact of the trade facilitation practises in China and the China-


ASEAN cooperation on trade between China and ASEAN countries. A provincial panel data


set for China from 2000 to 2008 is employed to quantify the impact of agricultural imports,


agricultural exports and trade facilitation on poverty. The results show that a 1 per cent


increase in port efficiency results in a 1.051 per cent decrease in the poverty index.




JEL Classification: F15, I3, O24




Key words: Trade Facilitation, China, ASEAN, Poverty





1


Contents

1. Trade facilitation and its impacts on poverty ....................................................................... 3
2. Trade facilitation practices in China .................................................................................... 3


2.1. Overall development of trade facilitation practices in China ........................................ 4
2.1.1. Port efficiency in China .................................................................................. 5
2.1.2. Reform and development of China’s customs procedures .............................. 6


2.1.2.1. Reform of China customs procedures ..................................................... 7
2.1.2.2. International cooperation ......................................................................... 8
2.1.2.3. Reform of Ningbo bonded area ............................................................... 8


2.1.3. Development of the Chinese institutional environment ................................. 10
2.1.4. Development of E-commerce and the formulation of related laws ................ 11


2.1.4.1 Development of e-commerce ................................................................. 11
2.1.4.2. Policies to promote the development of e-commerce ............................ 12


3. China-ASEAN cooperation and trade facilitation practices ............................................... 14
3.1. Impacts of ASEAN trade facilitation on Chinese trade .............................................. 14
3.2. Impacts of Chinese trade facilitation on ASEAN trade .............................................. 16


4. Impacts of trade facilitation on poverty ............................................................................. 22
4.1. Impact of trade on poverty ........................................................................................ 22


4.1.1. The effects of agricultural imports on poverty ............................................... 22
4.1.2. The effects of agricultural exports on poverty ............................................... 23


4.2. Impacts of trade facilitation on poverty: A case study of the manufacture industry and
port efficiency ........................................................................................................... 23


5. Conclusion and recommendations ................................................................................... 24
5.1. Impacts of trade facilitation on poverty reduction ...................................................... 25
5.2. Enhancing capacity-building in trade facilitation ........................................................ 25


5.2.1. Promoting reform of customs procedures ..................................................... 25
5.2.2. Strengthening infrastructure construction for trade and investment facilitation .
.............................................................................................................................. 25
5.2.3. Improving development of e-business .......................................................... 26
5.2.4. Improve the institutional environment ........................................................... 26


5.3. Enhance coordination between China and ASEAN in trade and investment facilitation
........................................................................................................................................ 26


5.3.1. Promote unified standards ........................................................................... 26
5.3.2. Establish trade facilitation committees in China and ASEAN members ........ 27


References .......................................................................................................................... 28
Annex ............................................................................................................................. 29






2


List of Tables

Table 1: Facilitation measures in the Ningbo bonded area


Table 2: E-commerce policies and regulations of China


Table 3: Imports and exports of China and 10 ASEAN members, 2003-2010


Table 4: Trade balance of China with 10 ASEAN countries


Table 5: Elasticity of agricultural imports on poverty reduction


Table 6: Elasticity of agricultural exports on poverty reduction


Table 7: Results of elasticity of ports on poverty


Table 8: Definitions of exogenous and endogenous variables






3


1. Trade facilitation and its impacts on poverty


Zhongying Sun (2009) applied a gravity model in his study of the role of trade facilitation; the


results showed that the elasticities were different for the various trade facilitation measures.


Port efficiency has positive effects in bilateral trade, both for importers and for exporters.


Juanjuan Xie and Jing Yue (2011) made an empirical analysis of China-ASEAN trade using


a gravity model. Junlan Shang and Ping Zhou (2012) also constructed a gravity model to


analyse the impacts of trade facilitation on China-ASEAN trade, they also studied the


impacts of trade facilitation on Chinese trade, and compared trade facilitation and tariff


reductions; the results showed that trade facilitation could improve trade much more than


tariff reductions. Lin Sun and Xufei Xu (2011) measured trade facilitation from port efficiency,


customs environment, regulation and e-commerce. The results showed that the level of


Chinese trade facilitation is near the world average, but among ASEAN countries there is a


big gap. Singapore is much higher than average while Malaysia, Thailand and Brunei


Darussalam are also near the world average. Viet Nam and Indonesia are lower than


average.


Lin Sun and Xufei Xu (2011) also constructed a gravity model to test the impacts of trade


facilitation on trade. The results showed that since the ASEAN Free Trade Zone was


implemented in 2010, trade facilitation has had significant effects on trade. Air transportation


is closely and positively related to exports of manufactured products. A 1 per cent


improvement in air transportation infrastructure results in a 1.48 per cent increase in exports


of manufactured products. However, the improvements both in customs procedures and in


trade barriers are not significant. Finally, the author simulated the results of different forms of


air transportation infrastructure. The results showed that when the infrastructure in all


ASEAN members reaches an average level (5.2), exports of Chinese manufactures to


ASEAN will increase by US$ 4.733 billion at a growth rate of 39.34 per cent. When ASEAN


air transportation infrastructure reaches the highest level, exports of Chinese manufactures


to ASEAN will increase by 70.95 per cent.


2. Trade facilitation practices in China


This study focuses on four components of trade facilitation – transportation, customs


clearance, institutions and policies, and e-commerce.





4


Transportation facilitation mainly refers to whether: (a) infrastructure, including ports, canals


and other areas of water transportation, can meet business requirements; (b) air transport


promotes the country’s commercial development; and (c) infrastructure maintenance and


development are scientifically planned and have adequate financial support.


Customs clearance refers to simplifying customs procedures through new technology in


order to increase customs clearance efficiency.


Institutions and policies mainly refers to trade-related rules and policies, including whether:


(a) competition-related laws and regulations limit unfair competition effectively; (b) the


protection of intellectual property rights is fully implemented; (c) the legal and regulatory


framework promotes the competitiveness of enterprises; (d) government policy is


transparent; and (e) bureaucracy, bribery and corruption have hindered commercial and


trading activities.


The last component is e-commerce, which includes the hardware and software environment


for e-commerce development.


2.1. Overall development of trade facilitation practices in China


China has been continuously promoting trade facilitation as part of its reform and opening up


process, from a single department to multiple departments, from a single link to multiple


links, from the improvement of trade management to the extensive application of information


technology, which has showed a high-level, wide-range, all-around feature. China first


reformed foreign trade management on a large scale, and substantially reduced or removed


the import quota. After joining the World Trade Organization (WTO), China’s foreign trade


policy has been inclined towards more active participation in regional trade and economic


cooperation, such as implementing the China-ASEAN Free Trade Area, promoting trade and


investment facilitation within the scope of the Shanghai Cooperation Organization, and


actively pursuing transit transport agreement negotiations with the Russian Federation and


Mongolia as well as making appropriate arrangements to boost the development of trade


facilitation.


The amendment of the “Foreign Trade Law of the People’s Republic of China” in 2004 both


fulfilled its WTO commitments in advance and introduced the registration system for foreign


traders, which created a more liberal foreign trade and business environment. In December


2011, the State Administration of Foreign Exchange and General Administration of Customs





5


signed a memorandum of cooperation to jointly promote foreign exchange reform for goods


trade, so that both sides could strengthen supervision and information exchange including


import and export declaration data of enterprises, other electronic data concerning the


receipt and payment for goods trading so that they can share data and effectively promote


trade facilitation.


2.1.1. Port efficiency in China


Since a port is the gateway to a country, port efficiency is an essential component in


ensuring national or regional economic development and social prosperity. With the


accelerating development of global economic integration and trade liberalization, efficient


port management and clearance procedures have increasingly become an important


indicator for measuring a country’s competitiveness. After years of effort, the modernization


of Chinese ports has greatly improved, particularly in the case of the coastal ports which are


now close to the advanced level found in developed countries. This is especially seen in port


construction as well as loading and unloading equipment.


According to data released by the National Bureau of Statistics of China, from 2005 to 2010


China’s investment in coastal port construction totalled more than RMB 350 billion, with a


number of large-scale, specialized ports having been built along the Yangtze River, the


Xijiang shipping trunk and the Beijing-Hangzhou Grand Canal. As of the end of 2010, there


were 96 ports above designated size and 32,148 berths for production, of which 1,659 were


able to handle ships of more than 10,000 metric tons (mt). Port berths have been developed


in a large-scale and specialized direction.


The container throughput of the ports above designated size was 130.6 million TEUs.


China’s port throughput has been the global leader for six consecutive years and port


construction has made remarkable progress. In 2011, the throughput at the top five Chinese


ports was 691 million MT at Ningbo Port, 620 million MT at Shanghai Port, 451 million MT at


Tianjin Port, 429 million MT at Guangzhou Port and 380 million MT at Suzhou Port.


In recent years, China Air Transport has also developed rapidly. The Civil Aviation


Administration of China signed air services agreements with 114 countries and regions at the


beginning of 2012, including 43 Asian countries and regions. China’s aviation transportation


enterprises have opened up 443 international routes and navigable cities have reached 125


around the world. Asian regional routes totalled 143 to just 29 Asian cities. China and


ASEAN member countries have opened up the third and fourth traffic rights, and close





6


communications have been maintained between China and North-East Asian countries –


including Japan and the Republic of Korea – in order to ensure that the bilateral air


transportation relationship is improved.


The “Port Law of the People’s Republic of China”, which came into effect at the beginning of


2004, adjusted the administrative system of the Chinese ports and established an


administration system that ports were administrated directly by the local governments and


separated government functions from commercial business. According to the National Plan


for Coastal Ports, which was jointly issued by Ministry of Transportation and the National


Development and Reform Commission in 2006, national coastal ports will be divided into five


groups – Bohai Rim, Yangtze River Delta, the south-eastern coast, the Pearl River delta and


the south-western coast – in terms of port situation in the region, transportation relations


among ports and the rationality of the main cargo transport. At the same time, the national


coastal ports have formed eight transportation systems for coal, petroleum, iron ore,


containers, food, commercial automobiles and passenger transport. Recently, coastal ports


have been gradually forming a convenient and efficient waterway system for passenger and


freight transportation, which has a rational layout, a clear structure, explicit functions and


resource saving features. The overall competitiveness of China’s coastal ports has


significantly improved, based on adaptation to the development of the country’s economic,


social, trade and defence requirements.


At present, most of the ports in China are attempting to use container tags and to implement


the intelligent management of container transport, which has greatly enhanced the efficiency


of container clearance and unloading, and the improvement of transportation security.


Together with the advancement of the China-ASEAN Free Trade Area and the continued


growth of trade in the region, shipping demand is growing, resulting in higher demand for


port services. The theme of the Seventh Conference of Ministers of Transport in September


2011 was “APEC security, stability and sustainable balanced development”, and


unanimously adopted by the Joint Ministerial Statement of the Seventh Asia-Pacific


Economic Cooperation (APEC) Transportation Ministerial Meeting. The Joint Declaration


encourages members to further strengthen cooperation in the field of transportation, and to


promote security, stability and sustainable growth of APEC transportation (APEC, 2004).


2.1.2. Reform and development of China’s customs procedures


Customs is a key department in China’s international trading. The efficiency of customs





7


clearance procedures will affect trade costs directly and extensively. Therefore, many


countries take active measures to reform their customs procedures in order to improve


international trade. Trade facilitation in China became more important after the 2008


economic crisis because many exporting firms were hurt financially. Therefore, the


Government makes easy policies to encourage private enterprises to invest in China and


other countries. A unified customs control could be of great benefit to China as this would


create a fair competition environment.


2.1.2.1. Reform of China customs procedures


The “Golden Customs Project”, officially launched in 2001, is aimed at promoting electronic


clearance in order to save time and costs. The core of “golden customs” comprises two


parts: (a) an internal clearance system; and (b) an external port electronic system. As an


important part of the “Golden Customs Project”, the China Electronic Port has established a


public data centre and data exchange platform that relies on the national public


telecommunication network. Based on the electronic data interchange (EDI) centre, the


customs network is connected with other government departments and enterprises such as


the industry and commerce departments, as well as the administration of taxation, foreign


exchange, quality control, transportation, banks and enterprises. It strengthens supervision


and management, improves the efficiency of trade, reduces trading costs, and is of great


significance to trade promotion.


In 2002, the Internet-connected big customs clearance system was implemented throughout


China. Cooperation between bonded shipment areas and ports was also officially launched


in the eastern coastal areas in 2004. This makes it possible to take full advantage of coastal


ports and bonded areas to speed up the flow of goods and increase trade efficiency.


In 2005, regional customs reform in China was launched with the goal of facilitating imports


and exports by integrating costal port and inland customs resources, standardizing and


simplifying customs procedures, and reducing the costs and improving the efficiency of


customs clearance. In October 2005, a trial inter-regional customs cooperation reform was


launched in 11 areas: the Yangtze River delta, Pearl River delta and Bohai Rim region as


well as Shanghai, Nanjing, Hangzhou, Ningbo, Guangzhou, Shenzhen, Beijing and Tianjin.


In April 2007, seven cities – Tianjin, Shanghai, Fujian, Qingdao, Ningbo, Guangzhou and


Shenzhen – jointly signed a “Customs Clearance Cooperation Framework Agreement


between Coastal Port Provinces and Inland Six Provincial Ports”. The agreement proposes





8


the establishment of a cooperation platform between central regions and the coastal areas,


and encourages innovating measures to simplify customs procedures and actively


implement a 24-hour reservation system. For exports “apply at origin, check in port” has


been introduced, which will save considerable time and costs.


2.1.2.2. International cooperation


Chinese customs authorities have established friendly exchanges with 117 countries or


regions. China has carried out extensive cooperation with ASEAN in capacity-building since


2003. In addition, the Chinese customs authorities continue to broaden cooperation, and


promote China-United States and China-European Union exchanges in traditional areas,


including law enforcement, statistics, country of origin requirements, technical cooperation


and trade facilitation as well as anti-terrorism efforts and protection of intellectual property


rights.


In addition, in order to promote the implementation of the World Customs Organization’s


(WCO) “International Trade Security and Facilitation Standards Framework”, China and the


European Union have jointly launched the “China-European Union Safe and Smart Trade


Lanes Pilot Programme” and the “Authorised Economic Operator (AEO)”, as well as


promoting China-European Union trade facilitation.


2.1.2.3. Reform of Ningbo bonded area


Reform of customs procedures is an important symbol of China’s commitment to


implementing trade facilitation. For example, after 20 years of exploration and development


of the Special Zone, the Ningbo bonded area has become an important window to China’s


opening up and development of an export-oriented economy.


The Ningbo Free Trade Area, which was approved by the State Council in November 1992,


is divided into three districts in the east, west and south, covering a total area of 2.3 km2. It is


the only bonded area in Zhejiang province. The region, which enjoys a policy of “exempt,


tax-free and bonded” and is supervised by the customs authorities, is one of the economic


areas of China where policy is most favourable and the opening-up level is at the highest


level. The bonded area has three main functions: import and export processing; international


trade; and warehousing and logistics. In order to adapt to the rapid development of foreign


trade, the Ningbo bonded area has implemented a series of reforms.





9


First, an application information management system has been developed for the customs


area of Ningbo bonded area plus a Ningbo Export Processing Zone Customs information


technology-assisted management system, a Ningbo Bonded Logistics Park information


management system and other related systems. Ningbo is the first to implement a regional


information management model among all the bonded areas in China. The regional “e-


Customs” plays other roles too. Through these systems, goods, enterprises and the whole


area are under the effective monitoring of the customs authorities. With this foundation, the


area has been able to integrate and upgrade new information management systems for


special supervised areas as well as accelerate the establishment of a smart card port


clearance system, plus a carefully implemented “wise park” combined with a monitoring,


clearance and information centre. Thus enterprises in the area can undertake all types of


customs procedures.


Table 1. Facilitation measures in the Ningbo bonded area
Department Main content
National inspection
and quarantine
department


Implement the integrated application, collection,
inspection and quarantine, charge, and clearance model
in inspections and quarantine; pre-inspection for imports,
thus saving considerable inspection time; electronic
sampling of exports of electric appliances to save time
and cost.


Foreign Exchange
Management
Department


Implement online annual checks and improve its
efficiency.


Industry and
Commerce
Administrative
Department


Develop query system software for administrative licences
to save time for enterprises when registering and getting
the market access registration service.


Taxation Department Provide on-site service in the bonded area for enterprises
to process receipt issues, and an online application and
electronic taxation system to save time and taxation costs.


Other Launch a pilot linkage project for the bonded zones,
export processing zones and bonded logistics park zone
in China first. Then establish a convenient goods transfer
mechanism among customs offices in different areas.




In order to support the restructuring and development of a regional “bonded economy”, the


Ningbo bonded area has also developed special regional clearance guidelines, and actively


assists the bonded area administrative committee to attract investment. It also creates a


special channel for local and special products, implements on-site inspection services,


strongly supports enterprises in expanding goods exhibitions, and implements priority for


declaration and clearance of imported wines and fruit in hot weather, thus creating a good





10


customs environment.


In establishing the international trade demonstration area, the Ningbo bonded area gained


strong support from many related government departments in establishing national


inspection, foreign exchange, and business and the taxation as customs special supervised


areas (table 3).


The Ningbo Free Trade Area customs authorities have introduced and reformed customs


procedures to enable paperless customs clearance, centralized declarations, advance


declarations and classification clearance among other measures.


The average time for import clearance has been reduced from 10.2 hours to 7.7 hours, while


export clearance has been lowered from 51 hours to 43.6 hours, thus saving time by about


20 per cent. Regulatory models are being optimized, to establish powerful regional electronic


customs procedures and enhance the level of trade facilitation.


2.1.3. Development of the Chinese institutional environment


Since joining WTO in 2001, China has greatly strengthened its trade-related legislation. In


2004, the Foreign Trade Law was revised and international trade was liberalized. The rights


and obligations of foreign traders are clearly defined and protected, and the import and


export environment has been greatly improved. In accordance with WTO rules, China has


revised and improved related laws and regulations, including the trade remedy system,


customs supervision, and the import and export inspection and quarantine system


In order to improve the fair competition environment, the Government of China has also


enhanced the competition-related laws and regulations, including the Anti-monopoly Law,


Anti-unfair Competition Law, Price Law, Advertising Law, Product Quality Law, Patent Law


etc. Several laws have also been enacted and implemented for protecting intellectual


property rights (IPR), including the country’s patent, trademark and copyright laws.


China’s customs authorities have established a perfect IPR enforcement system, including


declaration auditing, inspection of imported and exported goods, detention and investigation


of goods that infringe IPR, punishment for illegal imports and exports, and the disposal of


such goods. In October 1995, China promulgated and implemented the Customs Protection


of Intellectual Property Rights Regulations; then, in December 2003, these regulations were


revised and the customs authorities were given more rights to punish illegal trade.





11


With regard to international cooperation on IPR protection, China actively participated in, and


fulfilled the requirements of international protection of IPR conventions and treaties. Since


joining the World Intellectual Property Organization (WIPO) in 1980, among more than 10


international conventions China has successively joined the Paris Convention for the


Protection of Industrial Property, the Patent Cooperation Treaty, the Locarno


Agreement Establishing an International Classification for Industrial Designs, the Madrid


Agreement Concerning the International Registration of Marks, and the Trade-related


Intellectual Property Rights Agreement,..


The information of Import and Export management are published in the International


Business newspaper. The Customs General Administration Office publishes China customs


statistics, while customs regulations, import and export tariff rates, and customs procedures


are published in the Bulletin of the State Council and other media sources.


2.1.4. Development of E-commerce and the formulation of related laws


2.1.4.1 Development of e-commerce


E-commerce in China has been developing rapidly since 2002. In many sectors, such as


production, trade, transportation, finance and tourism, e-commerce is playing an ever-


growing important role. Cross-border e-commerce is gaining more attention. Online


purchases and sales by large enterprises are increasing, year by year. The e-commerce of


small and medium-sized enterprises (SMEs) is also increasing rapidly, with the useage rate


of online trading and marketing having reached 42.1 per cent in 2010. Online retail


transactions are rising rapidly, with the average annual growth rate reaching 100.8 per cent


between 2005 and 2010; in addition the share of total social retail sales of consumption


goods is increasing year by year. The value of the online retail market reached RMB 192.4


billion in the second quarter of 2011; during the first half of that year, online retail


transactions reached RMB 370.7 billion, an increase of 74 per cent compared with the same


period in the previous year.


During the development of e-commerce, the related support systems have also advanced


rapidly. From 2005 to 2010, the development of support systems such as the e-commerce


platform service, credit service, e-pay, modern logistics and e-certification all accelerated.


Related enterprises serving e-commerce, such as e-commerce information, transactions and


technologies, are emerging; by 2010 the number reached 25,000. E-commerce information





12


and the transaction platform are becoming more and more professional and integrated. The


improvement of the social credit environment also contributes much towards credible e-


commerce transactions. New payment service systems, such as online payment, mobile


payment and telephone payment, are growing rapidly; in fact, the size of the third-party e-


payment grew by nearly 60 times from 2005 to 2010. Meanwhile, modern logistics are


developing rapidly during the expansion of e-commerce.


The rapid growth of e-commerce also benefits from the continuously improving economic


circumstances. During the eleventh five-year period (2005-2010), the network infrastructure


in China improved continuously with user numbers growing rapidly; by 2010 the Internet


penetration rate had reached 34.3 per cent. In the same year, the total number of Internet


users reached 457 million while the number of mobile phone users reached 859 million, of


whom 47.05 million were 3G users. With the improvement of Internet services, user fees are


gradually being lowered.


2.1.4.2. Policies to promote the development of e-commerce


In order to improve the development of e-commerce, the central Government has


introduced a series of policies and regulations (table 2). With the new policies, laws and


regulations on e-commerce in place, the e-commerce development environment is gradually


emerging. The environment for e-commerce development is therefore becoming mature.


In summary, although China’s trade facilitation has made great progress, it is still in its early


stage. Compared both globally and with Asia, China’s trade facilitation level is relatively low,


and a big gap remains with developed countries in many aspects (e.g., the overload runs of


ports, poor transparency of policies and the unbalanced development of e-commerce). The


positive side of this situation is that China has great potential for improving its trade


facilitation.






13


Table 2. E-commerce policies and regulations of China


Data source: summarized by authors based on On-line information.(The Central People’s Government of People’s Republic of China, http://www.gov.cn/)


Date File name Issues


August
2004


Electronic Signature Law of the
People’s Republic of China


First law on information technology area to ensure security of electronic transactions, promote
development of e-commerce and e-government in the legal system; create a favourable legal
environment for e-commerce security certification, provide a foundation for a network trust system
and electronic certification services sector.


January
2005


Opinions on accelerating the
development of electronic
commerce by the Office of the
State Council


Put forward five basic principles to speed up the development of e-commerce, i.e. five
combinations – government and enterprise, environment creation and application extension,
network economy and real economy, key points and overall development, the acceleration of
development and strengthen of management.


April
2005


Regulations on the Internet
transaction platform service


First industry standards in China’s e-commerce field to regulate e-commerce transactions, clarify
rights and responsibilities of the traders, establish trade rules, and improve reliability and trust of e-
commerce transactions.


May
2006


National development strategy on
informationization 2006-2020


Put forward an Action Plan for e-commerce development to create environment, improve policies,
speed up establishment of credit, certification, standards, payment and logistics, and improve the
information clearing system; explore the multi-level and wide range of the e-commerce
development mode.


June
2007


The eleventh five-year plan on
electronic commerce
development


Clarify the position of e-commerce and overall goals of e-commerce development in China; put
forward the specific goals of e-commerce development from four aspects – to improve the level of
e-commerce, foster the e-commerce service system, enhance the innovation ability of enterprises
and improve the supporting environment.


March
2012


The twelfth five-year plan on
electronic commerce
development


Put forward the overall goals of e-commerce during the twelfth five-year development, further
promote them in 2015, improve contributions to the national economy and social development,
increase the proportion of e-commerce in the modern service industry, perfect the e-commerce
system and form a network business environment





14


3. China-ASEAN cooperation and trade facilitation practices


On 4 November 2002, the leaders of China and the 10 ASEAN countries signed the China-


ASEAN Comprehensive Economic Cooperation Framework Agreement, which decided to


implement the “early harvest” programme from 2004 in advance in order to reduce and


cancel tariffs on 600 types of agricultural products. In 2003 China and ASEAN officially


launched customs cooperation, and in recent years have made great achievements due to


the efforts of both sides. A regular department consultation mechanism and expert customs


coordination commission (CCC) have been established to promote the rules of origin


negotiations between China and the ASEAN Free Trade Area.


On 29 November 2004, the Trade in Goods Agreement was signed, under which about


7,000 tariff lines were to be reduced from 20 July 2005. In 2009, China’s tariff average on


trade with ASEAN countries dropped to 2.4 per cent. In October 2009, at the China-ASEAN


Customs and Business Cooperation Forum, the delegates signed the Nanning Initiative of


China-ASEAN Trade Facilitation, and agreed to strengthen cooperation between China and


the Free Trade Area countries. On 1 January 2010, the China-ASEAN Free Trade Area was


fully established, and bilateral economic and trade relations entered a new stage.


The China-ASEAN Economic and Trade Cooperation Report (2010-2011) showed that China


had become the third-largest trading partner of ASEAN and that ASEAN was China’s fourth-


largest trading partner. Economic and trade activities between China and ASEAN countries


are strongly complementary. With this expansion of China-ASEAN trade and economic


relations, the reduction and elimination of obstacles to trade, the reduction of transaction


costs and the establishment of an efficient trade facilitation system have become important


issues.


3.1. Impacts of ASEAN trade facilitation on Chinese trade


ASEAN trade facilitation measures comprise two main characteristics. First, the ASEAN


countries are emphasizing business partnerships and cooperation. The ASEAN customs


authorities are taking the following measures to improve trade facilitation: (a) establish a


single customs window to provide services and coordination between each member country;


(b) standardize the trade declaration form among ASEAN members; (c) introduce electronic





15


customs procedures to save time and reduce costs of customs clearance; and (d)


standardize the commodity classification and valuation systems, in order to simplify ASEAN


taxation regulations and promote customs transparency, stability and consistency. Following


years of effort, the customs clearance time has been greatly reduced from several days to


two hours. The Green/Fast Channel makes rapid customs clearance possible for a Common


Effective Preferential Tax (CEPT).


Second, ASEAN members have established a standard and consistent system; under this


system international standards and quality management are applied. About 20 products,


mainly electrical equipment have met the requirements of 59 related international standards.


Seven unified standards and regulations for make-up technology have been formulated and


put into effect. Public technical standards for medicine have also been established and


implemented. Mutual Recognition Agreements can reduce repetitive detection and


certification processes, thus reducing trading time and costs.


The trade facilitation measures taken by ASEAN have enabled China to become its biggest


trade partner during the past three years. By the first half of 2012, ASEAN had invested


US$ 4.55 billion in China at an annual growth rate of 27.5 per cent. Direct investment in


China from ASEAN also increased to US$ 73.8 billion by the end of June 2012, accounting


for 6 per cent of China’s total foreign investment. China’s border cities of Yunnan and


Guangxi make full use of their advantageous locations, and benefit considerably from trade


facilitation.


Trade between Yunnan and ASEAN members has an extensive history, and Yunnan has


long been the trade frontier between China and South-East Asia and South Asia. The China-


ASEAN Free Trade Area and Great Mekong Subregion (GMS) economic corridor give


Yunnan favourable developing opportunities. Before the Kun-Man (Kunming-Bangkok)


highway was constructed, Yunnan exported vegetables and fresh-cut flowers through


coastal ports; this meant that vegetable- and flower-producing companies had to rely on


intermediate firms. As a result, a large part of profits went to the latter companies. However,


since the opening of the Kun-Man highway in 2008, vegetables and flowers can be shipped


directly to ASEAN with most of the profit going to the producers. Yunnan also exports non-


ferrous metal, electrical and agricultural products and electricity to ASEAN, and imports


wood, tropical fruit, seafood and handicraft products from ASEAN with low or no customs


duties. As a result, bilateral trade and investment between Yunnan and ASEAN has rapidly


increased.


In general, trade facilitation has produced extensive benefits for Yunnan. For example, it





16


previously took seven to eight days to ship fresh-cut flowers from Kunming to Bangkok;


however, following the construction of the Kun-Man highway, shipments now take only three


days. The transportation cost has also been reduced from RMB 7 to RMB 3. These


improvements are due to the high efficiency of customs officials, standardized and unified


inspections and quarantine, and convenient transportation.


Yunnan’s electronic port system was initiated in June of 2009, enabling members to share


information between different regions, sectors and industries; as a result, customs clearance


is made more convenient and faster. Customs clearance can be completed within 30


seconds at the key national electronic Red River port, whereas in the past it took about 10


minutes. This has allowed the trade flow of goods to increase by four to six times. In


addition, import and export costs have been reduced, helping to improve trade.


Pingxiang in Guangxi province has become one of the largest fruit import and export


distribution centres. A logistics park for the China-ASEAN Free Trade Area was set up and


the Pingxiang Integrated Free Trade Zone (bonded area) was established in 2011. Customs


clearance is becoming more convenient.


3.2. Impacts of Chinese trade facilitation on ASEAN trade


China has given a commitment to improving the general administration of customs to boost


trade facilitation with ASEAN in three areas:


(a) Strengthening cooperation and communications, the promotion of standard and


unified customs supervision, co-operation in law enforcement and information exchange;


(b) Building a strategic cooperative partnership with ASEAN, related governments and


business associations;


(c) Taking into consideration proposals on trade facilitation in WTO negotiations as


well as actively promoting trade facilitation.


Currently, various measures are being taken by the Chinese customs authorities to promote


convenient customs clearance for ASEAN goods. At Shenzhen, which is one of the main


import centres for ASEAN goods, customs authorities now use an automatic clearance


system. Following the implementation of this system, the clearance time for vehicle imports


has been reduced from about two minutes to five seconds, which represents an increase of


more than 20 times in efficiency.





17


In 2010, the customs service at Pingxiang Port and Dongxing Port of Guangxi autonomous


zone began an online one-station clearance service as well as implementing preferential and


convenient measures for imports and exports, and introduced a round-the-clock, no-holiday


service and 24-hour application system. This has greatly reduced transaction costs and


improved the development of trade between Guangxi and ASEAN.


Benefitting from formal cooperation between China and the ASEAN Free Trade Area as well


as the implementation of China-ASEAN trade facilitation measures, in 2011 ASEAN became


China’s third-largest trading partner and source of imports. Bilateral trade between China


and ASEAN reached US$ 362.85 billion in 2011. Compared with the low, decreased or zero


growth of Chinese trade with other countries, bilateral trade between China and ASEAN has


maintained a growth rate of 9.2 per cent. From January to June 2012, China-ASEAN


bilateral trade amounted to US$ 187.82 billion,with an annual growth rate of 9.8 per cent,


which is higher than the total foreign trade growth of China. Bilateral investment between


China and ASEAN accumulated nearly US$ 93 billion. ASEAN has become an important


destination of overseas investment by Chinese enterprises now. The major pattern of China-


ASEAN Free Trade Region economic and trade cooperation is changing, such as the shift


from the rapid growth of bilateral trade to bilateral investment.


In recent years, the trade surplus of ASEAN countries with China has increased significantly.


For example, in 2001 Malaysia’s trade surplus with China was US$ 2.98 billion and it


continued to rise in each subsequent year to reach US$ 26.64 billion in 2010, which


represented an increase of 792.63 per cent for that period (table 5). Thailand’s trade surplus


with China in 2001 was US$ 2.37 billion, rising to US$ 13.45 billion in 2010, an increase of


466.4 per cent. Trade between the other ASEAN members and China also increased


considerably.


According to the Thai Bureau of Statistics, since the R3 highway was opened in April 2011,


fruit exports from Thailand to China have increased by 100 per cent, with the trade value


reaches more than Baht 722 million.


The 1,104-km R3 highway, which links Thailand’s Chiang Rai port with Boten port in the Lao


People’s Democratic Republic and Mohan port of Yunnan province of China, has reduced


transportation times to two or three days. The fresh fruit is distributed directly through the


Yunnan market to south-western China, which is more convenient compared to the former


distribution channel through the Guangzhou market.


China has also become Myanmar’s largest trading partner. Myanmar Statistical Bureau data


show that, from 2011 to 2012, the value of Myanmar’s trade with China reached US$ 5.001





18


billion, of which imports from China accounted for US$ 2.786 billion and exports to China


amounted to US$ 2.214 billion. Currently, 215 investment projects are underway in


Myanmar. Fourteen of the projects with a total of some US$ 13.87billion are by Chinese


investors, placing them at the top of the investment list.


According to Viet Nam’s customs statistics, that country’s exports to China totalled US$ 6.1


billion during the first half of 2012. The main Vietnamese export commodities were: cassava


and its products (US$ 700 million); natural rubber (US$ 576 million); rice (US$ 459 million);


cashew nuts (US$ 120 million); aquatic products (US$ 110 million); fruit and vegetables


(US$ 90 million); and wood and wood products (US$ 56 million).


In the first half of 2012, Chinese investment in ASEAN totalled US$ 1.488 billion, an increase


of 34.3 per cent over the same period in the previous year. Chinese investment in ASEAN


has been broadened to include construction, hotels, and the electrical, mining and


transportation industries. At the same time, ASEAN investment in China has been steadily


expanding.


On 12 July 2012, at the East Asia Summit of Foreign Ministers in Phnom Penh, China’s


Foreign Minister Yang Jiechi stated that: “Transportation and communications are the focus


of the Government of China [in order to] to improve cooperation between China and ASEAN,


and China therefore will establish a Fund for China-ASEAN Investment Cooperation, the


overall amount of which will reach US$ 10 billion to support ASEAN’s infrastructure


construction.”


The investment projects include transportation, information and communications technology.


In July 2011, the China-ASEAN Fund completed its equity investment in Thailand’s largest


port of Laem Chabang. In March of the same year and in June 2012, the China-ASEAN


Fund invested in Cambodia’s optical fibre communications network in order to assist the


development of intraregional fibre-optic network and related businesses in the Indo-China


Peninsula. In December 2010, the first investment by the China-ASEAN Fund was the


purchase of the Philippines’ largest and second-largest shipping companies.


The cooperation between China and ASEAN is comprehensive, involving not only trade,


investment and technology cooperation, but also finance, culture, aviation, tourism,


telecommunications, transportation, shipping and environmental protection, all of which have


achieved remarkable progress.


The above analysis shows that international cooperation and trade facilitation measures


between China and ASEAN members promote foreign investment, trade and economic





19


development.





20




Table 2. Imports and exports of China and 10 ASEAN members, 2003-2010
(Unit: US$ million)


Country 2003 2004 2005 2006 2007 2008 2009 2010


Singapore 19 348.62 26 682.07 33 146.86 40 857.91 47 143.98 52 477.07 47 855.87 57 075.98


Malaysia 20 127.22 26 260.80 30 699.56 37 109.50 46 386.26 53 556.57 51 967.69 74 248.84


Thailand 12 654.75 17 342.09 16 787.28 27 726.49 34 638.12 41 293.09 38 190.82 52 937.02


Indonesia 10 228.95 13 472.09 16 787.28 19 055.45 24 997.82 31 516.05 28 388.76 42 750.28


Philippines 9 399.52 13 328.16 17 557.32 23 412.69 30 615.76 28 636.98 20 539.00 27 762.23


Viet Nam 4 639.45 6 742.02 8 196.74 9 949.44 15 117.58 19 858.45 21 045.18 30 086.08


Myanmar 1 079.74 1 145.38 1 209.25 1 460.07 2 077.84 2 625.32 2 900.12 4 442.07


Cambodia 320.65 481.70 563.34 732.85 933.99 1 134.37 944.15 1 440.97


Lao PDR 63.96 109.44 113.53 128.93 218.37 402.37 751.80 1 085.12


Brunei
Darussalam


346.26 298.95 260.87 314.94 358.76 219.43 422.44 1 031.94


Source: Based on the People’s Republic of China Statistical Yearbook.










21


Table 3. Trade balance of China with 10 ASEAN countries
(Unit: US$ million)


Year



China to
Brunei


Darussalam


China to
Cambodia




China to
Indonesia




China to
Lao PDR




China to
Malaysia


China to
Burma


China to the
Philippines


China to
Singapore


China to
Thailand


China to
Viet Nam


200
1


-131.08 170.81 -1 051.53 12.60 -2 984.95 363.16 -324.91 649.36 -2 375.40 -2 137.40


200
2


-220.79 227.01 -1 081.90 46.95 -4 322.09 587.86 -1 174.92 -62.34 -2 642.25 2 032.49


200
3


-278.48 268.65 -1 264.99 44.66 -7 845.60 740.70 -3 214.14 -1 621.08 -4 998.93 1 726.03


200
4


-203.17 421.84 -959.25 87.04 -10 088.68 731.50 -4 790.72 -1 306.87 -5 738.93 1 778.04


200
5


-154.59 508.72 -86.64 88.23 -9 486.86 660.45 -8 182.06 117.66 -12 172.59 3 091.06


200
6


-115.68 662.67 -156.03 77.83 -10 035.36 954.77 -11 936.43 5 512.67 -8 198.37 4 977.28


200
7


-133.40 831.86 204.85 119.07 -11 007.84 1 321.56 -15 619.92 12 096.61 -10 691.26 8 665.02


200
8


41.66 1 056.71 2 870.18 133.85 -10 646.23 1 330.22 -10 372.51 12 134.55 -10 020.39 10 785.81


200
9


141.55 870.37 1 052.30 2.54 -12 704.14 1 607.86 -3 357.82 12 248.01 -11 619.80 11 550.12


201
0


-296.72 1 253.71 1 156.85 -117.87 -26 644.76 2 508.97 -4 681.71 7 618.48 -13 454.86 16 117.00


Source: Based on the People’s Republic of China Statistical Yearbook.





22


4. Impacts of trade facilitation on poverty


4.1. Impact of trade on poverty


Increase trade is one of the main channels through which trade facilitation benefits the poor.


Based on the methods of Shenggen Fan et.al (2002), in this study trade is incorporated into


the model for building a system and studying the contribution of trade to poverty reduction by


using provincial panel data for China from 2000 to 2008. The other factors affecting rural


poverty reduction are also analysed in the models. For the details of the system model, see


the annex.2


4.1.1. The effects of agricultural imports on poverty


From the national perspective, elasticity of agricultural imports on poverty reduction is


negative, which indicates that an increase in agricultural imports would worsen rural poverty


in China. The elasticity of agricultural imports on poverty reduction is -0.05 (table 5), i.e., if


agricultural imports increase by 1 per cent, the rural poverty index in China will increase by


0.05 per cent.


From the regional perspective, the marginal effects of agricultural imports on rural poverty,


from high to low, are central, east and west. A large part of rural incomes in the central


regions is derived from agriculture; therefore, farmers in the central region are affected to a


great extent by agricultural imports.



Table 4. Elasticity of agricultural imports on poverty reduction


National Eastern region Middle region Western region
Elasticity on poverty
reduction


-0.0500 -0.0559 -0.1454 -0.0228


Elasticity on agricultural
production


-0.0166 -0.0185 -0.0482 -0.0076




2 The model is based on a research project, “Trade liberalization and poverty reduction – a case study
of China and ASEAN countries”, which was funded in 2010 by the International Poverty Reduction
Centre in China. The project studied the impacts of trade on poverty in detail.





23


4.1.2. The effects of agricultural exports on poverty


Nationally, the elasticity of agricultural exports on poverty reduction is 1.03 (table 6), which


indicates that the increase in agricultural exports has had a positive effect on the alleviation


of rural poverty in China; i.e., if agricultural exports increase by 1 per cent, then China’s rural


poverty index will decrease by 1.03 per cent. Output elasticity of agricultural exports is


positive and the increase in agricultural exports raises farmers’ income, so that they increase


their agricultural production.


Table 5. Elasticity of agricultural exports on poverty reduction
National Eastern region Middle region Western region
Elasticity on poverty
reduction


1.0300 0.3779 2.1160 0.5921


Elasticity on agricultural
production


0.0825 0.0303 0.1695 0.0474


From the regional perspective, the marginal effects of agricultural exports on rural poverty,


from high to low, are central, west and east. Agricultural exports have the greatest impact on


rural poverty reduction in the central region, the main reason being that a large part of rural


income in the central region is from agriculture.


When putting agricultural imports and exports together, the elasticity of net agricultural


exports on poverty reduction is still positive, indicating that agricultural trade can help to


reduce rural poverty in China. Trade liberalization also has positive effects on rural poverty


reduction in China.


4.2. Impacts of trade facilitation on poverty: A case study of the manufacture industry
and port efficiency


The impacts of trade facilitation on poverty reduction can be derived based on “trade


facilitation on trade” and “trade on poverty”. However, due to the difficulty in measuring trade


facilitation, especially with regard to customs procedures, regulations and e-commerce, the


case study here is mainly on port efficiency, with the manufacturing industry results being


used to analyse the impacts of port improvement on poverty reduction.


Zongying Sun (2009) tested the elasticity of port efficiency on trade,3 the results of


which have been used by the author together with the results of elasticity of trade on poverty,



3 A 1 per cent increase in port efficiency results in an increase of 1.07 per cent in exports and 1.02 per cent in
imports.





24


to calculate the elasticity of port efficiency on poverty reduction (table 7).


Table 6. Results of elasticity of ports on poverty
Imports Exports Overall


effect
Results of elasticity of ports on trade 1.02 1.07 -


Results of elasticity of trade on
poverty reduction


Agricultural
product
imports


Agricultural
product
exports




National -0.0500 1.0300 0.9800
Eastern region -0.0559 0.3779 0.3220
Middle region -0.1454 2.1160 1.9706
Western region -0.0228 0.5921 0.5693
Elasticity of port on poverty reduction*
National -0.0510 1.1021 1.0511
Eastern region -0.0570 0.4044 0.3473
Middle region -0.1483 2.2641 2.1158
Western region -0.0233 0.6335 0.6103
* Due to a lack of data, the effect of elasticity of ports on poverty reduction is simply multiplied by “elasticity of
ports on trade” and “elasticity of trade on poverty reduction”.


The results show that a 1 per cent increase in port efficiency results in a 1.051 per cent


decrease of the poverty index. In the middle region, the elasticity reaches 2.116 per cent


while it, is lower for the eastern and western regions. The major reasons are: (a) in the


eastern region the poverty problem has basically been solved, and the marginal contribution


of trade facilitation is small; and (b) the western region is mainly a mountainous area,


therefore the transportation system is not well-developed and its connections with


international markets are not as strong as those of the eastern or middle regions. Therefore,


the contribution of trade to the western region’s economic growth is not as high as the other


regions, and the effect of trade on poverty reduction is small.


5. Conclusion and recommendations


In summary, although China and ASEAN have made great progress in trade facilitation,


including port infrastructure construction, customs procedure reform, e-commerce


development as well as laws and regulations, the level of trade facilitation is still low


compared to that of other developed countries, and it is uneven in ASEAN countries.


Therefore, China should learn from the experience of countries with a high degree of trade


facilitation in order to enhance international cooperation to prompt trade facilitation and the


development of the national economy.





25


5.1. Impacts of trade facilitation on poverty reduction


It is easy to understand the mechanism of trade facilitation impacts on poverty reduction, but


the real situation is much more complicated than the theory. This is mainly due to the


dynamics and complexity of trade facilitation as well as the complexity of the reasons for


poverty and the impact channels between them.


Therefore the impact of port construction on poverty reduction is used in this study. The


results show that a 1 per cent increase in port efficiency results in a 1.051 per cent decrease


in the poverty index. For the middle region of China, elasticity is 2.116 per cent, but is less


for the eastern and western regions. This is mainly because in the eastern region the poverty


problem has basically been solved, and the marginal contribution of trade facilitation is small,


while in the mountainous western region, the transportation system is not well-developed


and its connections with international markets are not as strong as those in the eastern and


middle regions. Thus, the contribution of trade in economic growth in the western region is


not as high.


5.2. Enhancing capacity-building in trade facilitation


5.2.1. Promoting reform of customs procedures


In the global supply chain, customs clearance is the most important link. Burdensome and


inefficient customs clearance measures and poor infrastructure create high costs and make


corruption easy. Therefore, reform of customs procedures and the internationalization of


customs rules will be conducive to the development of trade facilitation. Some developing


countries feel that the costs of customs reform and modernization are too high and that there


are technical difficulties. However, the experience of Chile and Singapore shows that the


costs can be controlled, and that investment in trade facilitation is likely to bring a fast return.


5.2.2. Strengthening infrastructure construction for trade and investment facilitation


The improvement of physical infrastructure is an important component of trade and


investment facilitation. Among the ASEAN members, only in Singapore and Malaysia has


port infrastructure reached the advanced international level; however, in China and the other


ASEAN members the port facilities are not as high or even below the world average level.





26


Therefore China and ASEAN must focus on investment in infrastructure – especially ports,


airports and other related areas – and establish transportation systems that are compatible


with economic development. Meanwhile, cooperation between customs authorities must be


strengthened and customs procedures that meet international standards must be developed.


5.2.3. Improving development of e-business


The development of e-commerce in the ASEAN members is uneven. These countries need


to enhance the level of information availability and give greater importance to the


development of electronic commerce and its application in trade facilitation. Vigorous


development and further investment in the network infrastructure should be given higher


priority. At the same time, laws and regulations related to e-commerce should be improved.


5.2.4. Improve the institutional environment


Policy transparency should be further improved and policies should be stable and consistent.


On the one hand, the trade and investment administrative department should increase the


transparency of trade and investment policies. The laws and regulations concerning trade


and investment should be made available in official publications or on the government


websites; it can not be executed before publishing. On the other hand, approval procedures


should be simplified and standardized. Enforcement of laws should be enhanced. Finally, a


coordination mechanism for trade and investment facilitation should be established. The


related administrative departments should continue to expand dialogue with foreign


companies and formulate a new management model in order to achieve a “win-win” situation.




5.3. Enhance coordination between China and ASEAN in trade and investment
facilitation


5.3.1. Promote unified standards


Adopting international standards is the simplest and most effective way of achieving trade


facilitation within China and the ASEAN members. With the rapid development of economic


integration in the China-ASEAN Free Trade Area, unified standards will play an increasingly





27


important role in the promotion of international trade and the establishment of technical trade


measures. China and the ASEAN members should attempt to base their domestic standards


on international standards, and adopt international standards in priority areas. Trade


agreements as well as domestic laws and regulations related to international standards


should be consistent within the China-ASEAN region.


5.3.2. Establish trade facilitation committees in China and ASEAN members


Trade facilitation involves wide areas and multiple sectors. Each country should establish an


institute to coordinate the different sectors. On the other hand, a fast and effective


coordination mechanism between countries should also be introduced. First, each country


should: (a) achieve efficient and detailed domestic information sharing; and (b) establish a


central database on trade facilitation and ensure data are updated regularly in order to


provide complete and accurate information. Second, each country should establish an


effective decision-making and information communications mechanism at the government


level. Finally, each country should: (a) establish a consultative mechanism with foreign trade


enterprises; (b) have a clear understanding of the issues involved and the impact of trade


facilitation; and (c) solve problems in trade facilitation in a timely manner.


In general, China and the ASEAN members should give more attention to: (a) the


establishment of a National Trade Facilitation Committee in the Doha Round negotiations; (b)


cooperation in promoting the development of trade facilitation; (c) improving the level of


China-ASEAN cooperation; (d) strengthening trade and investment cooperation partnerships;


and (e) joint promotion of extensive trade facilitation development.





28


References


APEC (2004). Trade Facilitation and Trade Liberalisation: From Shanghai to Bogor. APEC


Economic Committee, Singapore.


Shenggen Fan, Linxiu Zhang and Xiaobo Zhang (2002). “Growth, inequality, and poverty in


rural China-the role of public investments”, IFPRI Research Report No. 125. International


Food Policy Research Institute, Washington, D.C.


Junlan Shang and Ping Zhou (单君兰,周苹) (2012). “Impacts of trade facilitation on Chinese


exports – based on APEC’s evaluation” (Chinese language), International Business


Research, vol. 1.


Lin Sun and Xufei Xu (孙林,徐旭霏) (2011). “Trade facilitation in ASEAN countries and its


impacts on exports of Chinese manufacturing industry products” (Chinese language),


International Trade Problems, vol. 8.


Zhongying Sun (孙衷颖) (2009). “Trade facilitation of regional economic organizations”,


Dissertation Paper (Chinese language), Nankai University.


Juanjuan Xie and Jing yue (谢娟娟、岳静) (2011), “The empirical research on implication of


trade facilitation on China-Asian trade” (Chinese language), World Economic Research,


vol. 8.






29


Annex


Model used to test the impact of various factors on poverty


In order to test the impact of various factors on poverty, a four-set and nine equations
system was formulated to analyse those factors, as follows. Equation (1) is a poverty
reduction equation that is used to quantify different variables in rural poverty reduction
contribution. The following factors were considered in the equation: agricultural GDP per
worker; non-farm employment rate; rural non-farm employment wage rate; relative prices of
agricultural produce; rural inflation rate; rural internal gap in income distribution; income gap
between urban and rural areas; and international trade in agricultural products.


In equation (1), the agricultural GDP per worker mainly reflects the effect that agricultural
output growth has on rural poverty reduction. Farmers’ agricultural income forms a large
proportion of their total income in the impoverished and backward areas of China. Off-farm
income is an important source of rural residents’ total income in China, and the wage level of
the non-farm workforce is introduced in the model to capture off-farm income. In addition, not
only can these two variables reflect the effect of non-farm sector wages change and
employment changes on rural poverty reduction, but they can also provide better policy
guidance for rural poverty reduction. If an improved rural wage ratio has a more significant
effect than increased non-farm employment opportunities on rural poverty reduction,
Governments should pay attention to improving the rural wage level, and conversely should
pay more attention to increasing non-farm employment opportunities.


( , , , , , , )PI f AGDPPC INFIAT WAGE NAGEMPLY INEQ ATT TRADE= (1)


The relative prices of agricultural products are mainly used to reflect the impact of relative
price changes on rural poverty. If the impoverished rural population is a net buyer of
agricultural produce, agricultural product price rises will cause a loss, but if the impoverished
rural population is a net seller of agricultural produce, agricultural product price rises will
provide a benefit. In the long term, agricultural produce price increases will lead to
governments and farmers increasing agricultural production investment, and will lead to the
total supply curve to shift upward. The rural gap in income distribution reflects the degree of
rural poverty while the income gap between urban and rural areas reflects the relative rural
poverty level, and the inflation rate reflects the economic environment’s impact on rural
poverty. International trade in agricultural products is demonstrated by imports and exports.
The following table shows the meaning of each variable in equation (1).


Definitions of exogenous and endogenous variables
Variabl
e


Definition Variabl
e


Definition


Exogenous variable UCPI Urban CPI


ALAND Land area per worker TRADE Opening degree of trade index
AK Agricultural capital per worker AIMP Agricultural imports





30


NAK Capital per worker in rural
non-agricultural sector


AEXP Agricultural exports


PWRE Government spending on rural
power


NAGDPR Rate of agricultural GDP to non-
agricultural
GDP


UGDPP
C


GDP produced by urban sector NAKR Rate of rural per non-agricultural
capital
to urban per capital


IRRE Government expenditure on
irrigation


CPIR Rate of rural CPI to urban CPI


RDE Government spending on
agricultural
R&D


Endogenous
variable


AMAC
H


Total power of agricultural
machinery


PI Percentage of rural population
below
poverty line


EDUE Government spending on rural
education


SCHY Average years of schooling of
rural
population 16 years and older


FERTI Agricultural fertilizer IRR Percentage of total cropped area
that is
irrigated


POWE
RE


Government spending on rural
energy


ELECT Electricity consumption


PLOAN Government expenditures for
poverty
alleviation per capita


WAGE Wage rate of non-agricultural
labour in
rural areas


INFIAT Rural inflation rate


NAGEMP
LY


Percentage of non-agricultural
employment
in total rural employment


WATE
RD


Agricultural drainage areas AGDPPC Agricultural GDP per worker


LANDQ Soil erosion areas GAGDPP
C


Agricultural productivity growth at
the
national level


LANDD Land disaster areas NAGDPP
C


Non-agricultural GDP per worker
in
rural areas


EMPLO
Y


Urban unemployment rate


ATT Terms of trade, measured as
agricultural
Prices divided by a relevant
Non-agricultural GNP deflator


RCPI Rural CPI INEQ Income gap between urban and
rural areas


Equation (2) is an agriculture production function. The dependent variable is the agricultural


GDP per worker while the independent variables include: (a) capital investment (land per


worker) and capital; technology; infrastructure; and education (all of which may help to





31


improve agricultural labour and productivity as well as result in the total supply curve moving


upwards); and (b) agricultural scientific research investment (R&D); planting areas; irrigation


rate; the rural population’s average years of education; rural disaster areas; soil erosion


areas; agricultural electricity supply; rural machinery; and agricultural products trading. All


these affect agricultural production and rural poverty reduction through the output effect.


),,,
,,,,,,,,,(


AEXPAIMPLANDDLANDQ
WATERDELECTFERTIIRRAMACHRDEAKALANDSCHYfAGDPPC =


(2)


Equations (3) and (4) are for rural off-farm sector wages and rural off-farm sector


employment, respectively. The two equations are a simplified form of supply and demand


under conditions of the labour market equilibrium. Labour and wages is the labour


productivity function. At the same time, labour productivity is the capital/labour ratio and


some elements that elicited the production curve outside shift function, including


infrastructure and education. The independent variables include the capital per labour,


infrastructure (water resources, electricity, education, training and irrigation), years of


education and the agricultural GDP in the previous year. Off-farm capital investment in rural


areas can promote non-farm productivity. An increase in the education level of workers can


also improve work efficiency. Rural power development is also beneficial to farmers’


entrepreneurship and improves agricultural productivity.


The work relief in the rural water conservancy project has great influence on non-farm


employment and non-farm wages. Agriculture is the foundation of both the national economy


and social development, and the lagged agricultural output determines the input in


agricultural product processing industry. The influence of non-farm sector productivity on


non-farm labour and non-farm wage levels is an important factor as it directly affects the


ability of the economic environment to absorb surplus rural labour. Opening to the outside


world and trade liberalization has played a direct role in promoting rapid economic growth in


China; therefore, international trade also has a very important influence on rural non-farm


labour and non-farm wage levels.


),,,,,,,( AEXPAIMPEMPLOYUGDPPCAGDPPCNAKSCHYNAEMPLYfWAGE = (3)


),,,,,,,( AEXPAIMPEMPLOYUGDPPCAGDPPCNAKSCHYWAGEfNAEMPLY =
(4)


Equation (5) reflects the allocation difference in urban and rural areas. The variables that


influence the allocation difference in urban and rural areas mainly include labour output


value per head orural population and urban residents’ income level, the amount of unit





32


labour own quantity in urban and rural areas, the ratio of the rural consumer price index to


the urban consumer price index, the process of urbanization, the urban unemployment rate,


domestic and international trade, and finance transfer payments in urban and rural areas. In


addition, the rural internal income gap is an important variable that affects rural poverty


reduction; however, it is very difficult to calculate the rural internal Gini coefficient because of


limited available data. So the factors having an impact on rural internal income distribution


appear to be the rural off-farm employment situation, the process of urbanization, domestic


and international trade, and financial transfer payments.


),,,,,,( EMPLOYAEXPAIMPATTCPIRNAKRNAGDPRfINEQ =


(5)


In conclusion, variables that need to considered in equation (5) such as agricultural GDP per


wroker versus non-agricultural GDP per wroker the ratio of rural and urban unit labour capital


quantity, rural CPI versus urban CPI, relative agricultural product prices, the unemployment


rate in cities and towns, and imports and exports of agricultural products.


Equation (6) reflects the relationship between planting area irrigation rate and government


irrigation expenditure while equation (7) reflects the relationship between the rural


population’s average number of years of education and government education investment.


Equation (8) reflects the relationship between rural electricity consumption andgovernment


expenditure on power supply.


Equation (9) deals with trade conditions, particularly the relative price levels of agricultural


and industrial products from the agricultural product supply and demand perspective. The


growth of agricultural GDP leads to increased supply of agricultural products that, in turn,


leads to decreases of agricultural product prices. The growth of GDP (exclusive of


agricultural GDP) leads to increased demand for agricultural products, which improves the


agricultural product trade environment. The growth of industrial output will be accompanied


by greatly improved demand for agricultural products, thus creating a gap in supply and


demand that is conducive to improved agricultural and industrial product trade conditions:


),...,,( 1 jIRREIRREIRREfIRR −−= (6)


),...,,( 1 nEDUEEDUEEDUEfSCHY −−= (7)


),...,,( 1 lPWREEPWREEPWREfELECT −−= (8)


),,( UGDPPCGGDPPCAGDPPCfATT = (9)





33


It is necessary to distinguish between internal variables and external variables in the


simultaneous equation estimate model, for which the table above shows the specific


variables.


In order to understand the specific region of the fixed effects, and through the virtual


variables, the impact of trade liberalization on rural poverty reduction in the eastern, central


and western regions of China can be measured and compared. By totally differentiating


equations (1) to (9) it is possible to obtain the marginal impact and elastic ties of different


types of government expenditures on growth in agricultural and non-farm productivity as well


as on reductions in regional inequality and rural poverty.


For growth effects the marginal impact of R&D investment in year t-1 on agricultural labour


productivity in year t can be derived as:


( ) i
i


AGDPPC AGDPPC
RDE RDE− −


∂ ∂
=


∂ ∂
(10)


Equation (10) measures the direct impact of investment in research on agricultural


productivity growth. By aggregating the total effects of all past government expenditures


during the lagged period, the sum of the marginal effects is obtained for any particular year.


Returns to other variables can be derived in a similar way.


For poverty effects, the impact of government investment in agricultural R&D in year t-i on


poverty at year t can be derived as:


i i i


i i


P P AGDPPC P WAGE AGDPPC
RDE AGDPPC RDE WAGE AGDPPC RDE


P NAGEMPLY AGDPPC P ATT AGDPPC
NAGEMPLY AGDPPC RDE TOT AGDPPC RDE


− − −


− −


∂ ∂ ∂ ∂ ∂ ∂
= +


∂ ∂ ∂ ∂ ∂ ∂


∂ ∂ ∂ ∂ ∂ ∂
+ +
∂ ∂ ∂ ∂ ∂ ∂


(11)


The first term on the right-hand side of equation (11) captures the impact of government


investments in R&D through yield-enhancing technologies, such as improved varieties, on


poverty and therefore agricultural labour productivity. Increased agricultural labour


productivity also affects poverty through changes in rural non-farm wages and employment,


and relative prices, which are captured in the remaining terms on the right-hand side of the


equation. As with government investments in agricultural R&D, the impact of government


investments in irrigation is captured through improved productivity, rural wages and non-farm


employment, and relative prices. Other variables have similar impacts on poverty.


The impact of government investments in rural electricity in year t-n on poverty in year t is





34


derived as:


i i i


i


i


P P AGDPPC ELECT P WAGE AGDPPC ELECT
PWRE AGDPPC ELECT PWRE WAGE AGDPPC ELECT PWRE


P NAGEMPLY AGDPPC ELECT
NAGEMPLY AGDPPC ELECT PWRE


P ATT AGDPPC ELECT P WA
ATT AGDPPC ELECT PWRE WAGE


− − −






∂ ∂ ∂ ∂ ∂ ∂ ∂ ∂
= +


∂ ∂ ∂ ∂ ∂ ∂ ∂ ∂


∂ ∂ ∂ ∂
+
∂ ∂ ∂ ∂


∂ ∂ ∂ ∂ ∂ ∂
+ +
∂ ∂ ∂ ∂ ∂ i


GE ELECT
ELECT PWRE−



∂ ∂


(12)


The first term on the right-hand side of equation (12) measures the direct effects on poverty


of improved productivity that is attributable to greater availability of electricity supply. Terms


2, 3 and 4 are the indirect effects of improved productivity through changes in rural non-farm


wages, employment and prices. Terms 5 and 6 capture the direct effects on poverty of higher


non-farm wages and greater non-agricultural employment opportunities arising from


government investment in electricity supply. Similarly, it is possible to derive the impact on


rural poverty of increased investment in roads, irrigation and education.






35






















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