International Trade; Kenya and China

1.0 International TradeInternational trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.

Trade among nations is thus essential for countries to obtain goods and services not available within their own borders either because resources are not indigenous or production technology is lacking. Trade also can serve as an important act of diplomacy between cooperating nations looking to support and be supported by one another or as a weapon of war to punish or harm countries with divergent agendas. 1.1 The reasons why countries trade include;

1.Haves and Have NotsIn some cases, trade is essential for a country to obtain a product or resource not available within its sovereign territory. Middle Eastern countries, for example, have vast natural petroleum resources. Much of the world depends on trade with these oil-rich countries for fuel. The need for rare resources held by only a few nations has led to war throughout thecourse of world history when trade talks have broken down. 2.Keeping the Peace

Some nations trade amongst themselves as a means of fostering good relations, not just to obtain imports or sell exports. In one form of ancient trade, some countries or tribes would pay tributes of gold or other goods in order to pass through foreign borders for purposes of further trade or travel. A healthy trade treaty is one of the first signs of positive relations between nations. 3.Specialized trade

Some countries trade with other nations for particular goods and services because they either lack the technology to produce the goods themselves or the other countries can do it cheaper. One country may be very good, for example, at producing high quality cabinets and entertainment stands for large screen televisions. Another country may have dialed in to the most efficient means of producing high definition televisions that fit on the stands. It would benefit both countries to trade with one another for their different but complementary goods and services. 4.Trade as a Weapon

Trade, or lack thereof, also can be used as a weapon to do harm to competing or belligerent countries. Powerful nations throughout history have used economic sanctions (essentially blocking and prohibiting trade) with other nations in order to punish or force political or behavioral change.

Countries also often enter into strong trade agreements with the enemies of their enemies, such as trading weapons or nuclear arms to one nation that may be used against another. The United States has used economic sanctions on numerous occasions to cease trade with nations suspected of supporting terrorism. Economic sanctions can be slow to work or ineffective, however, if enough other nations are not on board with the country trying to dole out the punishment. 5.Unification of Trade

Trade also can serve as the great unifier. Neighboring nation-states with shared borders and similar economic goals and endeavors can create common currencies and trade rules and regulations in order to further the agendas of all participants. In Europe in 2002, for example, 12 nations began using a common currency called the Euro, which has become stronger than the U.S. dollar.

1.2 The benefits of International TradeSome of the benefits countries accrue from trading with each other include; I.Export of goods and services is used as a means to finance imports of those products a country can’t produce within its boarders. II.Exports represent an injection of demand into the circular flow of income III.There is an improvement in economic welfare if countries specialize in the products in which they have a comparative advantage and then trade with other nations IV.Trade allows firms to exploit scale economies by operating in larger markets.

Economies of scale lead to lower average costs of production that might be passed onto consumers V.International competition stimulates higher efficiency – particularly for domestic monopolies. VI.Free trade provides greater choice for consumers and competition helps keep prices down. VII.Imports can help to satisfy excess demand from consumers – acting as a safety valve for the economy. A trade deficit during an economic boom helps to reduce demand-pull inflation VIII.Trade in ideas stimulates product and process innovations that generates better products 1.3 Disadvantages of international trade

Some disadvantages of trade are;I.Dependence may occur of one country on another.II.Smaller and local countries do not get to enjoy the international trade. III.International trade does not reduce the standard of living; it increases it, for all countries involved. IV.Firms that are not familiar with the trade rules and policies of overseas markets, will inevitably run into a wall, and may even encounter fraud.. V.Trade between countries only confer economic advantages when negotiated with countries which are significant trading partners

2.0 Trade Relations between Kenya and China and reasons why the two countries are trading; The People’s Republic of China established the diplomatic relations with the Republic of Kenya on December 14, 1963. In the initial days of the establishment the relations between the two countries saw a fair development. After 1965, the relation of the two countries was lowered to be at the chargé d’affaires level and towards the beginning of 1970s it gradually returned to normal.

In 1978, when President Daniel Arap Moi came in power, the relation of the two countries gained a fast development. With frequent mutual visits at high level the friendly cooperation has witnessed outstanding achievements in many fields. By the end of 2002 when a new government was formed after Mwai Kibaki was elected President, he expressed to hold a great account of the relations with China, willing to further deepen and expand the friendly cooperation between the two countries.

2.1 Volume of trade between China and KenyaBilateral economy and trade relations and economic and technological cooperation have increased since the establishment of the diplomatic relations, the projects of aid and assistance provided by China to Kenya mainly include: Moi International Sports Center, methane-generating pit, the expansion project of Eldoret hospital, Gambogi-Serem Highway etc. In recent years, the bilateral trade value increased greatly.

The Chinese exports to Kenya mainly include: household electric appliance, industrial and agricultural tools, textile goods, commodities for daily use, building materials and drugs and so on. The imported goods from Kenya mainly cover: black tea, coffee and leather-goods, etc. The year of 2002 saw the trade value between China and Kenya reach US$ 186.37 million, of which the Chinese export took up US$ 180.576 million while the import was US$ 5.798 million.

The mutually beneficial cooperation between China and Kenya began in 1985. At present, there are over 20 Chinese companies doing their businesses in Kenya, such as Jiangsu International Economic and Technological Cooperation Co., Sichuan International Economic and Technological Cooperation Co. Ltd. and China Road Bridge Construction (Group) Corporation and China Import and Export (Group) Corporation for Complete Sets of Equipment and so on.

Bilateral relations have been developing smoothly with the traditional friendship continuously deepened and friendly cooperation in all areas increasingly expanded. Bilateral economic and trade relations have scored new progress and both sides have made rapid headway in cooperation in the areas of electric power, communications, investment and project contract, achieved new results in humanities exchanges and maintained close consultations and cooperation in international affairs. The two countries have signed a number of bilateral accords over the past decades which have covered a variety of fields including the economy, technology, energy, tourism, health, aviation, the press, archaeology and education (Kenya, 2006).

The bilateral economy and trade agreements signed between China and Kenya include: Agreement on Economic and Technological Cooperation between the People’s Republic of China and the Republic of Kenya Agreement on Trade between the People’s Republic of China and the Republic of Kenya(1978) Agreement on promotion and protection of investments in 2001.

Diplomatic and economic ties between Kenya and China have grown exponentially in the recent past, with bilateral trade between the two countries sky-rocketing to Sh144 billion in 2010. However there is massive imbalance of trade that is in favor of China. According to provisional data by in Economic Survey 2010, Kenya exported Sh2.48 billion worth of goods to China in 2009 while imports from the Asian country stood at Sh74.5 billion. Apart from trade, the Kenyan government has, in the recent past, awarded Chinese firms numerous huge infrastructure contracts.

These include; Sh27 billion Thika Road expansion contract that was awarded to Chinese Overseas Engineering Corporation, Syno Hydro and China Wu Yi; Jomo Kenyatta International Airport second phase upgrade contract that was awarded to China National Aero-Technology International Engineering Company. The first phase of the project was undertaken by China WU Yi. TBEA International, another Chinese company, is developing a 120MW thermal plant in Longonot and 600MW coal-fired power station in Mombasa as an independent power producer.

The company is also undertaking other projects that involve construction of power lines and sub-stations throughout the country. Other Chinese companies carrying out projects in Kenya include Shengli Engineering Construction which is currently refurbishing the Moi International Sports Complex Kasarani at a cost of Sh1 billion and Great Wall Drilling which is exploring for geothermal energy in the Rift Valley. China is also slated to clinch the lucrative contract for the construction of the country’s second port in Lamu.

2.2 Reasons the two countries are trading include; 1.Exchanges and cooperation in the fields of culture and education China and Kenya signed the agreement for cultural cooperation in September 1980. The two countries signed the protocol for the cooperation in higher education, according to which China provides Egerton University with apparatuses for teaching and researches with 2 teachers sent over to work there.

Starting from 1982, China would provide Kenya every year with at least 10 scholarships. And in 2002, the Kenyan students studying in China came to 58 in all. In 1985, China’s Xinhua News Agency set up a general branch office at Nairobi in Africa. 2.cooperation in the fields of military affairs

In recent years, the military exchanges between China and Kenya are increasing. With military delegations from both countries visit the other. In March 1998, Kenya sent its military attaché to its embassy in China 3.Established political and diplomatic relations between the two countries. Through signing of bilateral accords between the two countries, that cover a variety of fields including the economy, technology, energy, tourism, health, aviation, the press, archaeology and education. 4.Availability of business opportunities

Kenya provides ready business for the highly advanced technology Chinese companies, for example Vision 2030 projects such as road construction, which awarded contracts to Chinese companies.

ReferencesAllan M. Rugman and Simon Collinsion: International Business 4th edition. Hill, Charles. International Business. Tata McGraw hill New Delhi, 2003. John Yabs. International Business Operations in Kenya. Dairy.