Chinas trade reform: Verdoorns Law married to Adam Smiths "vent for surplus" principle

The premise is that, as a member of the World Trade Organization, Chinaʹs industrial trade practices are consistent with the principle of specialization in accordance with the principle of comparative advantage. Yet the trade reforms that were undertaken since the end of the Cultural Revolution (1976) have made direct foreign and joint investment primary vehicles for promoting export-centered industries that have become increasingly capitalintensive rather than labor-intensive. This paper argues that these reforms reflect policy initiatives that are more consistent with Verdoornʹs Law and Adam Smithʹs "vent for surplus" principle than with the efficiency principles of conventional Ricardo-Heckscher-Ohlin trade theory.