An Analysis on Characteristics of China’sProcessing Trade and Its Development StrategyRobert J.CarbaughSchool of International Business,Southwestern University of Finance and Economics1. The important position of processing trade in China’s foreign tradeIn China, the trade of exports can be classified into three types according to the trade mode, namely common trade, processing trade, and other trade. From the “sixth five-year plan” to the “eighth five- year plan”, China’s foreign trade has kept on rising, centering on the common trade and assisting by the processing trade. In 1994, the total values of processing trade surpassed that of common trade for the first time. After that, the exports of processing trade are increasing annually, and its position in China’s foreign trade is rising. Data shows that the proportion of processing trade to total exports has always surpassed 50% since 1995. This fact proves the important position of processing trade in China’s imports and exports of trade.2. The cha racteristics of China’s processing trade and the reasons for these characteristics in recent years2.1 Reviewing China’s total values of exports in last decade, we can conclude three characteristics of processing trade in China at present.Firstly, the pos ition of processing trade in China’s exports of trade tends to be stable. The proportion of the values of processing trade to the total values of exports is about 55% or so from 2000 to 2006. This proportion is relatively stable. It indicates the importance of processing trade in China and its position becomes stable. Indirectly, it shows that the industrial structure and sections of foreign trade are basically stable, and the income of processing trade is chiefly coming from some industries. Secondly, the industrial structure of processing is upgrading. According to the comparative advantage ladder, we know that the comparative advantages of different countries, from the lower to the higher, are resource-intensive, non-skillful-labor-intensive, skillful-labor- and technology-intensive, research- and technology-intensive. Along with the execution of reform and open policy, China’s trade has gained great development and made huge progresses in science and technology fields. The processing trade has stepped into the new machine-dominant era from the textile-dominant era.Thirdly, the added value of products in the processing trade has been greatly improved. The upgrading of industrial structure will inevitably increase the value of commodities and their added value, which can help us gain more profits from exports. That is vital for the further development of processing trade in China.2.2 Why processing trade becomes more important in China. And why the quantities and total values of exports increase annually.Firstly, thanks for the integration of international economy and the great division of trade, China has gradually become a giant in the field of processing trade. What our aim is to be a great power in the trade field at present. Therefore, the processing trade has to catch up with the same space. Developing the processing trade, as the most important trade mode, firstly can drive the deepening development of other trademodes.Secondly, according to Ricardo’s comparative advantage theory and Ohlin’s facto r endowment theory, China has rich natural resources and labor resources. That is our advantages and endowments at present. The trade theory tells us to make best use of favorable factors to develop the foreign trade.Thirdly, the processing trade is a mode of international trade resource allocation in essence. Different countries produce commodities at different levels based on their unique comparative advantages and engage in trade. In fact, this process is for different countries accomplishing different production at different stages. As a result, resources are optimized, and costs of production are reduced. Finally, the competence is enhanced.Fourthly, China’s present system is good for the development of processing trade. Companies that are engaged in processing trade can enjoy favorable taxation. No tax-drawback procedure in exports. It can reduce companies’ capital occupation and management costs. Besides, market for exports is relatively reliable. What the companies have to do is to manage well production and obey the contracts. Costs are under control. As far as the local governments are concerned, the processing trade is an important power to ensure the scale and the growing speed of exports, because it is free from the impact of policy changes, such as taxation, tax-drawback, and exchange rate, and market fluctuation.3. The potential problems in China’s processing tradeThe analysis above helps us understand the importance of processing trade and the characteristics in its development.In general, its development is optimistic. But we have to realize the fact that there are still many malpractices and potential problems in the development of processing trade. In specific, these problems are as follow.(1) In recent six years, the proportion of the values of processing trade to the total values of exports is about 55%. It seems fixed and loses its advantages in development.(2) Companies depend on processing trade for a long time, being short of endogenous development ability of economy and self-independent innovation.(3) Some projects of processing trade are not associated with the upward or downward industries. These projects fail to benefit the growth of economy and science and technology, except solving employment.(4) The processing trade has exerted certain negative effects on our environment, resources, and energy. In special, the low-value-added processing industries have destroyed the environment to such a severe degree.4. Suggestions and countermeasuresConsidering the present situations and the potential problems in China’s processing trade, author thinks that the government and companies can reduce the negative effects of processing trade on China from these aspects as follow. By this way, the processing trade can gain better development an d China’s economy can achieve a fast increase. Next, relevant explanations and suggestions are proposed in responding to the four problems brought forward in the third part of this paper.Firstly, the proportion of the values of processing trade to the total values of exports is relatively stable. The reason is that China’s processing trade is at the important period of industry upgrading and direction changing. The stable proportion is for lack of right chance. Why the values of trade in different industries are relatively stable is not because of losing advantages in development. As a matter of fact, it is an inevitable stagnation for reform.Secondly, the government should provide with motivation policies for companies’ self-independent innovation. Government can guide companies to pursue processing industry’s upward or downward development, creating a complete industrial chain, and trying to export the products with China’s brand.Thirdly, the processing trade chiefly focuses on processing materials supplied by clients chiefly and complementarily processing with imported materials. Processing materials supplied by clients is to produce commodities with semi-products supplied by clients according to requirements. The processing company can charge the clients for processing costs. Processing with imported materials is to produce commodities by self. Companies can manage the business by themselves, including the organization of material resources, the types of products, and the specific production. In a sense, it is the companies themselves who are responsible for their losses. They are meaningful for China’s economy, which can be illustrated by these points as follow.(1) Solve the contradiction between the surplus productivity of the state and the shortage of raw materials, increasing China’s foreign exchange.(2) Develop new labor resources and create new employment, flourishing the local economy.(3) Introduce foreign advanced technological and managerial experiences and drive the development of exterior economy.(4) Build up our own brands and products, enhancing companies’ self-independence, what can help to improve companies’ innovative spirits.Fourthly, the rise is originated from the improvement of quality instead of the increase of quantity, gaining success by quality. In the key period of constructing a wealthy society, the state council puts forward that it is a must to change the way of economic growth. As far as the foreign trade field is concerned, it is necessary to speed up the transformation of foreign trade growth. China should make best use of its comparative advantages, making up the shortage of resources, expanding the space of development, increasing the added values, and achieving the success by quality.Fifthly, sharpen the consciousness of environment protection. In the process of developing economy, we should emphasize the protection for ecological environment in order to achieve the harmony development of society, economy, and environment. Therefore, we should speed up the upgrade of industrial structure, reducing the low-value-added, highly-environment-polluted, and seriously-energy- consumed industries, pursuing the development of green industries.Source：International Journal of Business and Management, December, 2007, 77-80中国加工贸易特点与发展策略分析Qing Shi1.加工贸易在中国外贸中的重要地位中国按贸易方式将贸易分为三类：一般贸易、加工贸易及其他贸易。