Credit Constraints and the Quality of Export Commodities in modern China: Taking Sino-foreign Tea Trade as an Example

Abstract

In recent years, the increase in the quality of export commodities has become the urgent needs to improve the competitiveness of China's foreign trade. This paper starts on the analysis of the relationship among market participants in tea trade, explores the key barriers to the quality of tea export in modern China, and then builds a two-stage dynamic game model to analyze the effect of Ch'a Chans as the trade and financial intermediaries on the tea quality improvement. It finds that Ch'a Chans are the determinant affecting the quality of tea export in modern China, but the conflict between the private interests of Ch'a Chans and the tea quality improvement has become one of the main obstacles. The reasons basically lie in that it is difficult to form a long-run cooperation relationship between Ch'a Chans and tea manufacturers, thereby leading to the obtainment of only short-term loans from Ch'a Chans by tea manufacturers to ensure the supply of tea quantity and a lack of long-term loans to improve the quality of tea export. Furthermore, it conducts a more comprehensive historical analysis of reasons for the poor quality of Chinese tea export in modern times, and argues that the quality of tea export is subject to tea manufacturers'lack of incentives to improve the tea quality, and is hampered by multi credit constraints between intermediaries and financial system. In addition, a lack of the provision of powerful industry and fiscal policies in the late Qing Dynasty is also a restriction factor. The conclusions provide some enlightenment to the transformation of current China's foreign trade from quantity to quality and the enhancement of the supply-front reform to some extent.