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International Trade International 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. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. Relations between Kenya and China 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 it 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 the 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
Diplomatic and economic ties between Kenya and China have grown exponentially in the recent past. 2006). achieved new results in humanities exchanges and maintained close consultations and cooperation in international affairs. in recent past. awarded Chinese firms numerous huge infrastructure contracts. According to provisional data by in Economic Survey 2010. "Agreement on Trade between the People's Republic of China and the Republic of Kenya" (1978) and the agreement on promotion and protection of investments in 2001. with bilateral trade between the two countries sky-rocketing to Sh144 billion in 2010.48 billion worth of goods to China in 2009 while imports from the Asian country stood at Sh74. The two countries have signed a number of bilateral accords over the past decade which have covered a variety of fields including the economy. willing to further deepen and expand the friendly cooperation between the two countries.5 billion. investment and project contract. 2 . 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". technology. communications. However there is massive imbalance of trade that is in favor of China. the press. archaeology and education (Kenya. health. Kenya exported Sh2. tourism. aviation. These include the Sh27 billion Thika Road expansion contract that was awarded to Chinese Overseas Engineering Corporation. The first phase of the project was undertaken by China WU Yi. the Kenyan government has. and Jomo Kenyatta International Airport second phase upgrade contract that was awarded to China National Aero-Technology International Engineering Company. Apart from trade. Bilateral economic and trade relations have scored new progress and both sides have made rapid headway in cooperation in the areas of electric power. Syno Hydro and China Wu Yi. Volume of trade between China and Kenya Bilateral relations have been developing smoothly with the traditional friendship continuously deepened and friendly cooperation in all areas increasingly expanded.2002 when a new government was formed after Mwai Kibaki was elected President of the country he expressed to hold a great account of the relations with China. energy.
Gambogi-Serem Highway etc. and China Road Bridge Construction (Group) Corporation and China Import and Export (Group) Corporation for Complete Sets of Equipment and so on. 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. the bilateral trade value increased greatly. The imported goods from Kenya mainly cover: black tea. the expansion project of Eldoret hospital. The company is also undertaking other projects that involve construction of power lines and sub-stations throughout the country. such as Jiangsu International Economic and Technological Cooperation Co.798 million. of which the Chinese export took up US$ 180. the projects of aid and assistance provided by China to Kenya mainly include: Moi International Sports Center. The Chinese exports to Kenya mainly include: household electric appliance. "Agreement on Trade between the People's Republic of China and the Republic of Kenya" (1978) and so on. commodities for daily use. coffee and leather-goods.. methanegenerating pit. Ltd. The year of 2002 saw the trade value between China and Kenya reach US$ 186. At present. there are over 20 Chinese companies doing their businesses in Kenya.576 million while the import was US$ 5. etc.TBEA International. building materials and drugs and so on. In recent years. another Chinese company. Bilateral economy and trade relations and economic and technological cooperation Since the establishment of the diplomatic relations. China is also slated to clinch the lucrative contract for the construction of the country¶s second port in Lamu. The mutually beneficial cooperation between China and Kenya began in 1985. is developing a 120MW thermal plant in Longonot and 600MW coal-fired power station in Mombasa as an independent power producer.37 million. textile goods. 3 . industrial and agricultural tools. Sichuan International Economic and Technological Cooperation Co. 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".
Among the major factors that can influence trade relations between the two countries include a) Political Environment. For example. An increase in the interest rates will raise their costs and therefore discourage them from importing since they may find their profit margins eroded. A reduction on interest rates by the lending institutions can also promote trade. according to the CBK. On the other hand. Environmental issues can be domestic or international. The Kenya Shilling continues to weaken against the international currency. For example if the leaders make statements implying that the country is not comfortable in dealing with another country. Banks can promote trade between Kenya and China by offering attractive interest rates for trade only between the two countries.Measures to Improve the trading relations between Kenya and China The environment plays a major role in International Business. b) Economic environment. c) Socio cultural factors. exports will be cheaper and therefore the country is likely to see a surge in its exports. Some western countries have been raising issues with levels of corruption in the country and apparent lack of political goodwill to end impunity. Apparently. There are a 4 . however. 1 US $ was exchanging at 90 Kenya Shillings. One of the biggest barriers to trade between Kenya and China is Language. as at the time of writing this paper. This indicates a level of confidence by China about the Kenyan political situation and therefore increased trade between the two countries. Tourism is a major foreign exchange earner. This has led to declining trade between the countries and Kenya. the number of tourists from China and Far East have not been many due to communication barriers. The banks may also facilitate trade by offering easier settlement for international transactions. then businessmen shall be apprehensive and skeptical in undertaking transactions. This has the effect of making the imports more expensive and therefore discourages the importation of goods. China has been less concerned with some of the issues raised by countries such as UK and USA implying that such issues are domestic and should not interfere with the trade between the two countries. The Chinese language and writing is not understood by majority of Kenyans whose training in languages has centered mainly on English and Kiswahili. Political position of the leaders in the country can have profound impact on trade between two countries. Most businessmen finance their imports through loans obtained from the commercial banks.
This will enable more visitors from China to chose Kenya as a destination and improve the volume of trade between the two countries d) Technological factors. 5 . it is quite poor in the remote places like game parks where majority of tourists would like to visit. there is increased awareness of the dangers of Genetically Modified (GM) foods. Kenya needs to improve its communication infrastructure especially mobile telephony and internet services. It appears that Credit cards that are so much used in other countries do not have widespread use in Kenya. One of the remedies to this is to train more Kenyans especially at the school levels in basic Chinese language. Disputes usually arise in businesses and a platform for settling such disputes either through arbitration or court litigation should be swift. On the other hand. This can discourage international trade especially if the system is perceived as unfair. The tourists enquiring about Kenya destination usually get problems because of language differences on both sides. Kenya imports battery cells from China which are believed to be harmful during disposal. space. This will have the negative effect of reducing the trade between the two countries. This has led to an increase in demand for organically produced goods. Kenyan hotels and lounges should also be trained in the preparation of Chinese cuisines. Trade may improve if the communication infrastructure is improved throughout the country. This refers to the surroundings with the products of nature such as Land. Such products should not be allowed in the country. However. Tourists get worried when they venture into an area where they are cut off from the rest of the world. f) Legal factors. the Kenyan justice system is in disarray with court cases taking too long to be resolved. legislation can affect business between two countries. Banks should also adopt technology of international funds transfer. transparent. while the mobile network is good in the Major cities and urban areas. However. In addition. For example. Some imports are known to be pollutants because of their composition. water and air. Most visitors need to keep in touch with their home countries when they are on safari. Most tour vehicles and lodges use radio frequency for communicating. e) Ecological factors.few Chinese speaking trained tour guides and those available usually charge a premium for their services. Kenya can capitalize on this and export more food to China which has a big population. fair and efficient. This will enable them to negotiate a business transaction to its successful conclusion. The laws in the country can have a profound effect on business.
Kenya recently enacted the Anti-Counterfeit law and created an enforcement body. They have difficulties accessing their local accounts and even when they do it the costs are prohibitive. the most common settlement is by Cash or Telegraphic Transfer. However. This may solve trade imbalance problems. The country should improve the methods for paying for goods and services. y Bilateral trade agreements. At the moment. China should undertake to import from Kenya an equivalent value of Tea. If the counterfeit law is enforced to the letter. Kenya can insist on agreements where importation from China is pegged to the level of exports. y Waiving of tourist tariffs. Government should facilitate a cost effective and efficient settlement system to encourage trade flow. For example. Other Factors There are other factors of improving trade between the two countries. Government should review the tariffs in place and eliminate those found to be unreasonable of excessive. Kenya can establish more direct flights to more destinations in China. This will lead to more flow of businessmen to and from the two countries. The government can take the initiative of marketing Kenyan produce in china. China is known for its laxity on counterfeits and such products regularly get into the country. In order to encourage more tourists from China. Coffee. Tourists have to pay for visa fees and port entry fees every time they make a visit regardless of their expenditure in the host country. Conclusion 6 . y More Marketing. These include:y Improving trade routes. Kenya Tourist Board markets tourists¶ destinations in Kenya to other countries. At the moment. the marketing of other products is left to the individual businessmen who have difficulties establishing and following up contacts. Businessmen have to carry loads of money whenever they go shopping to China. sugar or horticultural produce y Improved Settlement Systems.The country may pass laws prohibiting the importation of certain items this may drastically the level of transactions between two countries. It will also increase the number of tourists between the two countries. it may affect the importation of certain goods from China and therefore reduce trading volumes. in order to import electrical goods and heavy machinery.
floriculture. Kenya has little to offer in manufactured goods and machinery but has a lot to offer in agricultural produce. horticulture.While trade between Kenya and China has been on the rise. This paper has examined the measures that will not only improve the volume of trade between the two countries but also address the imbalance in trade. 7 . and also an important tourist destination that it can leverage for greater economic benefits. Kenya imports more from China than the other way. the trade imbalance between the two countries is heavily skewed towards China.