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Evaluation of International Trade and Finance

2733 words (11 pages) Business Assignment

12th Oct 2020 Business Assignment Reference this

Tags: Business AssignmentsFinance

Introduction

International trade is the exchange of goods and services between countries. Total trade is equal to exports and imports. (Investopedia. (2019).) Finance is defined as money management, including investments, borrows, lends, budgets, savings, and forecasts. There are three main types of financing: (1) the individual, (2) the corporate, and (3) the public/state. (Corporate Finance Institute. (2019).). The essay will study and assessment. This essay studies and assessment of China's international trade with Pakistan and India. China's "One Belt, One Road" new financial institution. This essay is organized by three parts about China's trade agreement on the East Asia Free Trade Agreement and China's "Belt and Road" South Asia's "China-Pakistan Economic Corridor" and China and South Asia along with the route countries. China and India's import and export trade volume and comparative advantage show a comparative advantage index. One of the new financial institutions established by China's "One Belt, One Road" strategy.

China-ASEAN-Pakistan free trade agreement and China-Pakistan Economic Corridor

In Asia, China, Pakistan, India, and Bangladesh are still in developing countries, so China first proposed a free trade agreement between developing countries. In 2000, the East Asia Free Trade Area entered into force on January 1, 2010. China is the largest free trade zone in the East Asian Free Trade Zone, with the third largest nominal GDP. China and Pakistan signed a free trade agreement in 2006, and Pakistan has signed this agreement with other East Asian countries to promote trade and exports between countries. (Irshad, M.S., Xin, Q., Xuan, P. and Arshad, H., 2016.) At the same time, in 2010, China proposed the "One Belt, One Road" initiative to develop regional trade and cooperation and expand South Asia. it is also to promote cross-continental exchanges between the mainland and the country, cultural exchanges and trade cooperation, and continue to inject new impetus into globalization through cooperation and win-win. The "China-Pakistan Economic Corridor" is the flagship project of the "Belt and Road," which has further promoted the trade development between China and Pakistan. The relationship between the two countries has taken a step closer.

Pakistan-ASEAN- China FTA Analysis

Source: Irshad, M.S., Xin, Q., Xuan, P. and Arshad, H., 2016.

Pakistan's import and export trade volume also grew slowly before 2006. After 2006, Pakistan's diversified imports of merchandise exports from its partners also expanded. In 2014, Pakistan's merchandise exports fell by a small margin of 1.6% to US$23.7 billion. Imports of goods have increased significantly to 8.6%, reaching $47.5 billion. The merchandise trade balance was $22.8 billion. it shows that the free trade agreement has brought many advantages to Pakistan and has also increased Pakistan's annual GDP.

Source: Irshad, M.S., Xin, Q., Xuan, P. and Arshad, H., 2016.

China itself is a country with a large population, so China's minimum import and export trade volume is only 45 billion US dollars. From 2009 to 2014, China's import and export volume has increased substantially. By 2014, China's merchandise exports amounted to a substantial increase of 6%, reaching $2,342.3 billion. Commodity imports only increased slightly by 0.4% to reach $195.8 billion. The trade balance in developed North America was $242.2 billion. In 2014, China's trade balance was $384.3 billion. it shows that China is currently one of the world's largest exporters, and it can also lead to the economic and trade promotion of East Asia. It will also make the East Asian Free Trade Area more diversified and increase the bilateral trade of many countries.

China-Pakistan Economic Corridor

China has invested heavily in CPEC to make its own multiple interests. Pakistan is an important economic transit station in the Belt and Road strategy. The first trade: bilateral trade (energy and infrastructure projects are about 45.6 billion US dollars, the trade volume between the two parties reached 5.2 billion US dollars per year, an annual growth of 12.57%. The two countries agreed to set bilateral trade to be increased in the next three years to the goal of $20 billion. (Esteban, M., 2016.) . Continued to complete the next six years, Chinese companies will be able to operate the project as a profitable entity. Another project will increase coal, nuclear energy to Pakistan's energy network by 10,400 megawatts and renewable energy projects. Pakistan and China signed a $28 billion agreement on April 20 to launch the “early harvest” project under PCEC. The $2.8 billion financing agreement will immediately enter the implementation phase. The China Three Gorges Corporation (CTG) co-developed hydropower projects and the Silk Road Fund are also developing private hydropower projects. Financing Tools Agreement (ICBC) between China Industrial and Commercial Bank, China PCC and HDPPL for Dawood Wind Power Project and Framework Agreement Financial services companies between Industrial and Commercial Bank of China and HBL promoted Chinese investment and signed the development plan for the Pakistan Industrial Park. In Pakistan, the Chinese leadership, who controls the East Turkistan Islamic Movement, seeks FATA-based rights to promote military action against these terrorists. (Esteban, M., 2016.)

China-India import, and export trade and display of comparative advantage index show comparative advantage

In recent years, India has experienced rapid economic growth, its trade performance has been outstanding, its national strength has dramatically increased, and its influence in the region and the world has been continuously enhanced. It plays a vital role in China's "Belt and Road" strategy. The structure of import and export trade between China and India is due to the cooperation between the two countries in recent years. First, India is China's largest export destination in Southeast Asia. The main items China imports from India are cotton, copper, its products, minerals, jewelry metals, and organic chemicals. India's main five categories of products imported from China: organic chemicals, fertilizers, steel, and its products, machinery and components, mechanical and electrical products. In terms of the production of imported and exported products, India's exports to China are mainly primary or semi-finished products, while China's exports to India have always been based on manufactured goods.

According to India's import and export trade records for 2010-2016, In recent years, as China's export trade to India has continued to increase, India has adopted anti-dumping measures to protect local companies by reducing anti-dumping measures. For example, India's imports from China are mainly divided into four major products, including mechanical equipment and mechanical and electrical products (audio and video equipment and accessories), chemical products, steel products. In 2014, India's four sorts of goods imported from China were US$6.241 billion, US$2.339 billion, US$2.541 billion, US$3.875 billion, US$10.067 billion and US$109.80 billion, with a total value of US$36.143 billion, accounting for India's total imports. 66.47% are from China. In contrast, in 2015, imports of copper and products, minerals, jewelry, precious metals, and products all declined in China, with imports of US$ 1.647 billion, US$ 1.875 billion, US$ 1.961 billion and US$ 1.647 billion, respectively, down 29.30%, 29.68 % and 25.09%. (Li, K., 2018)

The display comparative advantage coefficient is a method used in the comparative advantage of international trade and can reflect the comparative advantage of a certain country (region) trade. The display comparative advantage coefficient is a method used in the comparative advantage of international trade and can reflect the comparative advantage of a certain country (region) trade. It expresses the ratio of the industry’s share of the country’s exports to the share of the world’s total trade in world trade, excluding the effects of fluctuations in national aggregates and world aggregates, which can better reflect The comparative advantage of the export of a certain industry in the country compared with the average export level of the world. Display of comparative advantage index [1]

RCAij = (Xij / Xi) / (Wj / W) (Shahab, S. and Mahmood, M.T., 2013.)

Data Analysis of Display Comparative Advantage Index

The Display Comparative Advantage Index can reflect the competitive position of a country's services in world service. If RCA>2.5, it indicates that the country's service is extremely competitive. If 1.25≦RCA≦2.5, it indicates that the country's industry has strong international competitiveness. If 0.8≦RCA≦1.25, it indicates that State service has moderate international competitiveness. If a country's industrial RCA <0.8, it indicates that the country's industry is relatively inferior in the international market and its competitiveness is weak. Such as: (Shahab, S. and Mahmood, M.T., 2013.)

Data resources: the UN UNCOMTRADE database between the two countries

(Shahab, S. and Mahmood, M.T., 2013.)

(Shahab, S. and Mahmood, M.T., 2013.)

The first chart illustrates, from 2002 to 2009, China's RCA index exceeded the highest standard of 2.5 per year, which shows that China's manufacturing industry's comparative advantage is continuously increasing, capital and technology products in the international market. It has already been highly competitive. On the other hand, the competitiveness of China's first products is relatively weak, showing a downward trend year by year. Hence India, this is excellent new. They have stiff competition in the manufacture of primary products and semi-finished products in the international market. Due to the weak competitiveness of Chinese primary products, India will able to export more primary products to more countries.

China's One Belt One Road Strategy: New Financial Institutions with Pakistan and India

A new type of a financial institution established by China's "Belt and Road" is a $100 billion Asian Infrastructure Investment Bank and a $40 billion New Silk Road Fund. Nearly $100 billion is invested in the bank AIIB. This financial institution is mainly for funding: the south Asian market and infrastructure-related projects. The current international financial institutions - the World Bank, the International Monetary Fund and the Asian Development Bank - have also pledged to cooperate with new financial institutions in China. At present, the founding members of the AIIB have joined the United Kingdom, France, Italy, Germany, South Korea and Russia, Pakistan.

Countries along the China-Pakistan Economic Corridor will also benefit from the agency's fund support. the agency's first pilot is Pakistan, which has pledged to invest about $46 billion in development deals, equivalent to 20% of Pakistan's annual GDP. China is currently Pakistan's largest foreign investor. The goal of the Economic Corridor project is to increase the 17,000 megawatts of electricity generated in Pakistan, which costs approximately $34 billion. Most energy projects are funded under the independent business. Chinese investors entering the Pakistani energy market are independent power suppliers entering the market, and also provide exceptional protection. The return on investment as an independent power supplier is about 18%, while the rest is a return on equity of 17%. The remaining funds are used for some transportation infrastructure projects, such as upgrading the railway line between the big city of Karachi port and the northwestern city of Peshawar. (Esteban, M., 2016.)

Another measure is investment education, where local communities have access to opportunities offered through CPEC, and the industrial park also requires a large number of skilled workers for the infrastructure, regulatory framework and labor required for logistics. Establishing vocational schools is an effective way to improve the education level of the local labour force. It will cost 10 million U.S. dollars in Pakistan to be a Chinese technical and vocational school plan, which was successfully opened in Gwadar in December 2017. In 2019, the two parties have signed the Gwadar Vocational School project agreement. (Esteban, M., 2016.)

India's new financial institutions in China are currently not interested in joining the financial institutions because they believe that they are competing with China as a trading partner in the international market. Despite the rapid growth of trade between China and India, there is a huge trade gap between the two countries. The Indian government considers military and political factors. China still hopes that India can join this new financial institution, if Chinese companies learn to be in India. Under the operation, China's investment in Indian infrastructure can also help India to make up for its infrastructure deficit. India is one of the significant indispensable economic and trade forces in South Asia that is indispensable in South Asia.

Conclusion

China's economy is developing rapidly, so it is not limited to the autonomous business model, but vigorously promotes economic and trade cooperation between China's neighbouring countries. The "economic corridor" project between China and Pakistan is a cooperative relationship between promoting and connecting South Asian countries. . India is also the most critical economic driver in South Asia in the future. China is committed to multi-country rounds of negotiations, advocating the Asia-Pacific Free Trade Area, promoting regional comprehensive economic partnership negotiations, advocating the construction of the AIIB, and comprehensively promoting economic and financial cooperation as an active promoter of economic globalization and regional integration.

References

  • Corporate Finance Institute. (2019). What is Finance? - Definition, Overview, Types of Finance. [online] Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-finance-definition/ [Accessed 27 Aug. 2019].
  • Investopedia. (2019). What Is International Trade?. [online] Available at: https://www.investopedia.com/insights/what-is-international-trade/ [Accessed 27 Aug. 2019].
  • Chhibber, A., 2017. China’s One Belt One Road strategy: The new financial institutions and India’s options. Institute for International Economic Policy Working Paper, No. IIEP-WP-2017-7.
  • Esteban, M., 2016. The China-Pakistan Corridor: a transit, economic or development corridor. Strategic Studies, 36(2), pp.63-74.
  • Shahab, S. and Mahmood, M.T., 2013. Comparative advantage of leather industry in Pakistan with selected Asian economies. International Journal of Economics and Financial Issues, 3(1), pp.133-139.
  • Irshad, M.S., Xin, Q., Xuan, P. and Arshad, H., 2016. Deltoid analysis of Pakistan-ASEAN-China free trade agreements and opportunities for Pakistan. Asian Economic and Financial Review, 6(5), pp.228-237. 
  • Irshad, M.S., 2015. One belt and one road: dose China-Pakistan economic corridor benefit for Pakistan's economy? Journal of Economics and Sustainable Development, 6(24).
  • Li, K., 2018. China and India Trade Competition and Complementary: Analysis of the “Belt and Road” Background. Modern Economy, 9(07), p.1213.
  • Bhattacharjee, D. (2015). China Pakistan economic corridor. Available at SSRN 2608927.

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