China’s foreign trade policy with OPEC member countries
| Pages | 61-81 |
| Published date | 06 February 2017 |
| DOI | https://doi.org/10.1108/JCEFTS-09-2016-0027 |
| Date | 06 February 2017 |
| Author | Ehsan Rasoulinezhad |
| Subject Matter | Economics,International economics |
China’s foreign trade policy with
OPEC member countries
Ehsan Rasoulinezhad
Faculty of Economics, Saint Petersburg State University,
Saint Petersburg, Russia
Abstract
Purpose –The purpose of this paper is to analyze specications of the China’s foreign trade policy with
Organization of the Petroleum Exporting Countries (OPEC) member countries.
Design/methodology/approach –The paper conducts three panel data estimations (xed effect [FE],
random effect [RE] and fully modied ordinary least squares [FMOLS]) based on the gravity model approach
for bilateral trade patterns in natural resource and non-natural resource commodities between China and 13
OPEC members over the period of 1998-2014.
Findings –The ndings reveal that the gravity equation ts the data reasonably well. The existence of
long-term relationships between the bilateral trade ows and the main components of gravity model – GDP,
income (GDP per capita), the difference in income, exchange rate, the openness level, distance and WTO
membership – through the FE, RE and the FMOLS approaches was conrmed. The estimation results show
that the trade pattern between China and OPEC member countries relies on the Heckscher–Ohlin theory, thus
being explained by difference in factor endowments such as energy resources and technology.
Originality/value –To the best of the authors’ knowledge, this is the rst attempt to examine the China’s
foreign trade policy with the OPEC member countries through a gravity trade approach.
Keywords China, Trade policy, OPEC, Gravity model
Paper type Research paper
1. Introduction
Over recent decades, modeling bilateral trade has received considerable attention among
academic researchers. They have tried to explain the pattern of trade ows between nations
or a group of countries by means of various models. One of the most popular international
trade models, that have been extensively used to formulate trade ows between countries, is
the gravity model of trade, which has been known since the seminal work of Tinbergen
(1962) and Poyhonen (1963), and that the size of bilateral trade ows between any two
countries depends on national incomes and bilateral distance between them (Rasoulinezhad,
2016).
The main purpose of this study is to use a gravity model to provide an overview of
bilateral trade between China and the 13 OPEC member countries during the period from
1998 to 2014. The choice of these countries for this study is also motivated by the fact that
China is one of the largest global fossil fuel importers, while OPEC member countries are the
main exporters of this kind of energy in the world. This fact can shape a distinctive trade
pattern between China and these 13 countries, raising the question whether the gravity
model also ts unique trade structure. Unlike the extant literature, we split the aggregate
China–OPEC trade into two separate groups of natural resources and non-natural resources
trade. It allows us to draw out the differences in trade of these two kinds of commodities
between China and her trading partners in OPEC, and test the sensitivity of the gravity
JEL classication – C33, F10
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1754-4408.htm
China’s foreign
trade policy
61
Journalof Chinese Economic and
ForeignTrade Studies
Vol.10 No. 1, 2017
pp.61-81
©Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-09-2016-0027
variables in each case. The authors have not seen a comparison such as this in the literature
so far.
Although the trade pattern of China has drawn some attention from researchers such as
Shi and Jiang (2016),Keorite and Pan (2016),Sekakela (2016),Caporale et al. (2015),Dinda
(2014),Gu and Shen (2014),Bahmani-Oskooee et al. (2014),Chan et al. (2014),Ancharaz and
Tandrayen-Ragoobur (2013),Butter and Hayat (2013),Xing (2012),Bahmani-Oskooee and Xi
(2012),Lu and Li (2010),Zhao and Wang (2009),Yu (2009),Baak (2008),Wu and Zhou (2006)
and Cross (2004), we do not nd any study that has considered the analysis of China’s
bilateral trade with OPEC member countries in natural and non-natural resources through a
gravity model. Therefore, this study leads to make new research results for scholars and
policymakers.
The remainder of this paper is structured as follows: Section 2 discusses China–OPEC
trade pattern. Section 3 provides a brief literature view of the gravity model. Data and
methodology are discussed in Section 4. Section 5 presents the research results and nally,
Section 6 concludes with a discussion and directions for further research.
2. China–OPEC trade pattern
Feenstra and Jin Wei (2010) in the book entitled China’s Growing Role in World Trade
expressed that: “In less than three decades, China has grown from playing a negligible role in
international trade to being one of the world’s largest trader”. A high number of scholars
such as Ding and Tay (2016),Caporale et al. (2015),Tahir and Azid (2015) and Chen et al.
(2014) believe that before 1978, China experienced a low level of trade openness because of
her centrally planned economy (based on the World Bank Indicators, China had an average
of nearly 7.24 per cent trade openness over the period of 1960-1977) which was under the
tenets of the Maoist people’s communes (Soong, 2014). However, as stated by Xu (2011), the
country attempted to modify this economic model during the Great Leap Forward
(1958-1961) and Cultural Revolution (1966-1976). But the main reforms were implemented
since 1978 [era of Chinese economic take off (Grabowski, 2011)], when China’s economy had
pursued trade liberalization and placed under economic structure (gradual but fundamental
reform) which led to the improvement in the trade volume of this country (Hsieh et al., 2014).
At the beginning of the 1980s, China applied tariff barriers to control the imports’ volume
into her local market. The most important milestone of China’s trade happened in 2001 when
they joined the WTO through which a country has to modify and revise her administrative
regulations and trade law (Urdinez and Masiero, 2015;Tahir and Khan, 2014;Wang et al.,
2013) to convert the global atmosphere of “China threat” to “China opportunity”(Tai and
Soong, 2014). Over the period of 2001-2015, China experienced an average of 50.98 per cent
trade openness which depicts a higher level of trade relationship with the other nations. A
higher level of trade openness in China has been considered with a rapid increase in
investment, economic growth rate and reallocation of labor force from agriculture to
industrial sector. A larger share of industry in the economy increased the necessity of fossil
fuels’ imports as a vital production input in China.
According to BP Statistical Review of World Energy in 2016, China was the rst biggest
oil importer worldwide with about 73 per cent of her oil coming from OPEC member
countries [Saudi Arabia (16 per cent), Angola (13 per cent), Oman (10 per cent), Iraq
(9 per cent), Iran (9 per cent), Venezuela (4 per cent), UAE (4 per cent), Kuwait (3 per cent) and
other OPEC members (5 per cent)]. In fact, energy can be considered as the most traded
commodity and also the main cause of the trade volume growth between China and the OPEC
member countries in the recent decades. Historically, the domination of the global oil market
by OPEC after the collapse of the Bretton Woods system in the early of 1970s, many fossil
JCEFTS
10,1
62
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