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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.


Working Paper
NO. 135 | OCTOBER 2013

Non-Tariff Measures

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
regional network of research and academic institutions specializing in international
trade policy and facilitation issues. IDRC, UNCTAD, UNDP, ESCAP and WTO, as
core network partners, provide substantive and/or financial support to the network.
The Trade and Investment Division of ESCAP, the regional branch of the United
Nations for Asia and the Pacific, provides the Secretariat of the network and a direct
regional link to trade policymakers and other international organizations.

The ARTNeT Working Paper Series disseminates the findings of work in progress to
encourage the exchange of ideas about trade issues. An objective of the series is to
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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.


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. 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 Reform of China customs procedures ..................................................... 7 International cooperation ......................................................................... 8 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 Development of e-commerce ................................................................. 11 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


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


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


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.


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


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


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


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


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. 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


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. 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


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. 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.


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

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

Implement online annual checks and improve its

Industry and

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


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.


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 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


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. 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



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


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.


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.


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.


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.


The eleventh five-year plan on
electronic commerce

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.


The twelfth five-year plan on
electronic commerce

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


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


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


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


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


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


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.


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


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


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


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


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




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


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.


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


China to


China to

China to

China to

China to

China to

China to the

China to

China to

China to
Viet Nam


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


-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


-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


-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


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


-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


-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


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


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


-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.


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

-0.0500 -0.0559 -0.1454 -0.0228

Elasticity on agricultural

-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.


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

1.0300 0.3779 2.1160 0.5921

Elasticity on agricultural

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


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

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

Results of elasticity of ports on trade 1.02 1.07 -

Results of elasticity of trade on
poverty reduction



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.


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.


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

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


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.



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.



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.


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

Definition Variabl


Exogenous variable UCPI Urban CPI

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


NAK Capital per worker in rural
non-agricultural sector

AEXP Agricultural exports

PWRE Government spending on rural

NAGDPR Rate of agricultural GDP to non-


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

IRRE Government expenditure on

CPIR Rate of rural CPI to urban CPI

RDE Government spending on



Total power of agricultural

PI Percentage of rural population
poverty line

EDUE Government spending on rural

SCHY Average years of schooling of
population 16 years and older

FERTI Agricultural fertilizer IRR Percentage of total cropped area
that is


Government spending on rural

ELECT Electricity consumption

PLOAN Government expenditures for
alleviation per capita

WAGE Wage rate of non-agricultural
labour in
rural areas

INFIAT Rural inflation rate


Percentage of non-agricultural
in total rural employment


Agricultural drainage areas AGDPPC Agricultural GDP per worker

LANDQ Soil erosion areas GAGDPP

Agricultural productivity growth at
national level

LANDD Land disaster areas NAGDPP

Non-agricultural GDP per worker
rural areas


Urban unemployment rate

ATT Terms of trade, measured as
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


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.




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.



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


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.



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)



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


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


∂ ∂

∂ ∂

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



− − −

− −

∂ ∂ ∂ ∂ ∂ ∂
= +

∂ ∂ ∂ ∂ ∂ ∂

∂ ∂ ∂ ∂ ∂ ∂
+ +
∂ ∂ ∂ ∂ ∂ ∂


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


derived as:

i i i






− − −

∂ ∂ ∂ ∂ ∂ ∂ ∂ ∂
= +

∂ ∂ ∂ ∂ ∂ ∂ ∂ ∂

∂ ∂ ∂ ∂
∂ ∂ ∂ ∂

∂ ∂ ∂ ∂ ∂ ∂
+ +
∂ ∂ ∂ ∂ ∂ i


∂ ∂


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.


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