A guide to answering this question.

• First, I would try to understand the question and identify key points/words, e.g.
  • Sources: what has China got that makes them competitive in production and  international trade? To keep your answer in context, you will need to use the various theoretical concepts of comparative advantage (see Ricardo, etc).
  • What is comparative advantage? How is it different from absolute advantage? You will therefore need to start from the Classical theory of trade up to Linder’s similarity of preferences to trace the various theoretical explanations for the gains to trade.
  • As China might represent the developing world, so will the UK (the comparator) represent the industrialised countries.

• Most of the background informstion you will need to answer this question is available/accessable from your lecture notes and recommended texts.

• Second, You will need to know some background information about China and the UK with respect to their economic, as well as social and political structures. These are very important for understanding their trade patterns. For e.g.
  • China is a transitional economy moving from a command system to a more free market system. Production, consumption, trade and investment have all been liberalized to a greater or lesser extent.

• The UK, on the other hand, have always boasted of a free market economy, from which many of our theories are claiming would lead to the highest gains from trade. It is thought to lead to efficiency in production, consumption and trade.

• Most of the information you need here could be accessed from the WTO website. For e.g., China’s trade profile, from which you can assess their endowments, population, skills level/human capital/technology, demand, exports/imports and so on. Has the pattern of their trade changed over the transitional years? See all these at; http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Country=CN& and links from the wto site.

• Third, Here is where you start combining the information in the first and second parts above.

• See this video that will help you to appreciate how far China has come in liberalising their international trade and investment;  http://english.cntv.cn/2015/10/23/VIDE1445583842002170.shtml
• Follow the theories in the order in which they were tought in class and look at China vs UK. You can also draw on information relating to othe developing and industrialised countries
  • Classical theory of trade – labour productivity (comparative advantage)
  • Neoclassical (HO) theory – factor endowment (K/L)
  • Human Skills theory – skilled vs unskilled labour
  • Technology (PLC) theories – other theories that explain Leontief paradox
  • Linder’s similarity of preferences (demand reversal)

• Other theories could also be included if required

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