Cultural differences hinder trade in most countries – but not in China

It is a widely accepted view amongst economists that cultural differences is usually a significant barrier to trade. The greater the cultural gap between two countries – measured by differences in language, customs, values ​​and business norms – the demanding and expensive trade relations. This is a recurring Theme in research.

But there’s one big exception to the rule: China.

As an applied economist Since I’m very involved in how culture influences trade, I actually have conducted several studies on this dynamic. In one among these studies, two colleagues and I rigorously analyzed China’s trade relations with almost 90 countries over 16 years.

Our research revealed a characteristic pattern: Unlike in lots of other countries, cultural differences have little influence on the extent of China's trade activities.

Bridging cultural differences: strategies and successes

Countries have various tools at their disposal to attenuate the impact of cultural differences on their trade. Cultural exchange programsbilateral Trade agreements And International trade fairs have proven to be a remarkable success in promoting mutual understanding, facilitating trade negotiations and overcoming cultural barriers.

However, these options can be found to all countries. What makes China unique?

I think that China’s national trade strategy, which state-supported Export industries and considerable global infrastructure investmentsis an enormous a part of the reply.

By aligning itself with the economic development needs of its trading partners, China has been capable of minimize the negative impact of cultural differences on its trade. This strategy has proven surprisingly effective.

A more in-depth take a look at Chinese trade activities in Africa, the Middle East and Latin America – all regions with significant cultural differences from China – paints a vivid picture of this remark.

Despite its cultural differences with the nations of the African continent, each of which has its own traditions, languages ​​and customs, China has a Multi-billion dollar trading network within the region, which incorporates industries from mining to telecommunications. China's engagement in Africa is enabled by a mix of local infrastructure investment, reasonably priced technology provision and favourable credit conditions. These partnerships are more about symbiotic relationships And less about efficiency. The facilitates market access and helps China overcome cultural barriers.

China has also made significant progress within the Middle East by aligning itself with the region’s development goals, comparable to those set out in Saudi Arabia’s Vision 2030 and the United Arab Emirates Centenary 2071. China's Belt and Road Initiative complements these long-term development plans and provides the capital investment and construction expertise required to deliver ambitious infrastructure projects.

China's presence in Latin America has also increased significantly within the last decade. Despite the geographical and cultural distance, China has turn into one among the Top trading partners for countries comparable to Brazil, Chile and Peru. This relationship relies on reciprocity: Latin American countries supply raw materials and agricultural products in exchange for Chinese investments within the infrastructure and manufacturing sectors.

This can be a technique based on pragmatic economic interactions focuses on mutual profit and development goals.

The need for strategic adaptability

Some may argue that trading with China is an obvious alternative due to its Size and influence. Economic incentives include access to China’s population of over 1.4 billion and its significant role in Global value chainsparticularly within the electronics, textiles and mechanical engineering sectors. As China’s influence in global markets grows, US corporations also face Competitive pressure to keep up their market positions.

However, China’s trade practices, which regularly involve government intervention, may endanger Market efficiency — a longtime economic goal — in some ways.

In international trade, market efficiency refers back to the extent to which prices on the world market reflect all available information in order that resources could be optimally allocated amongst countries.

China is understood to demand foreign corporations should transfer technology to local corporations as a condition for market access. This practice can undermine market efficiency by forcing corporations to share proprietary technologies fairly than compete on equal terms.

Theft of mental property and inadequate protection of mental property rights in China are also a serious problem for Western corporations. The lack of strict mental property enforcement can result in inefficiencies by discouraging innovation and investment by foreign corporations that fear that their inventions and technologies could possibly be copied without adequate legal means.

Western corporations also face various market access barriers in China, comparable to Joint enterprise requirements, Restrictions on foreign ownership and regulatory hurdles. These barriers can prevent efficient allocation of resources and limit competition and innovation, leading to a less efficient market overall.

Despite these concerns, Western corporations proceed to do business with China.

China's ability to beat cultural barriers and the continued engagement of Western corporations pose a big challenge to Western economies, particularly the United States. The challenge is magnified because the United States continues to depend on traditional efficiency approaches to constructing trade relationships in diverse regions comparable to Africa, Latin America and the Middle East.

Since traditional market efficiency approaches may not at all times be sufficientWestern economies may have to rethink their strategies.