ABSTRACT
The study explores foreign trade corporations (FTCs) in the reform process; the changes made, and responses of officials to change. It is based on discussions with officials, managers of FTCs and their clients, and comparisons with trading organizations of Japan, South Korea, Taiwan and Hong Kong.
Pre-reform, 12 specialized FTCs handled all China’s foreign trade according to the National Plan. Now at least 3,600 FTCs exist, and 538 enterprises have direct trading rights. FTCs are now financially responsible; no longer subsidized, but permitted to retain profits and more foreign exchange. Many, nevertheless, are in debt.
FTCs are no longer the obstacle to commerce they were. But complaints against FTCs are many; bureaucracy, overcharging, monopsony, technical incompetence, poor feedback from clients. In our survey no enterprise preferred trading through a FTC. Direct traders had no wish to return to FTCs. Foreigners generally preferred to deal directly with enterprises.
The FTCs’ unpopularity bodes ill for their future. In response, many propose to imitate Japan’s sogo shosha by enterprising (vertical integration), grouping (mergers with other FTCs), and internationalization (becoming diversified multinationals with overseas affiliates). While this might help FTCs to survive through captive suppliers, the policies could increase monopsony and encourage risky investments. A better strategy might be to equalize export incentives for all, extend trading rights to more firms, and open all trade to all enterprises. Given fair competition the most efficient institutions for trade should prevail.
