Trade is a key factor of the economy of China. In the three decades following the dump of the Communist Chinese state in 1949, China's trade institutions at first developed into a partially modern but somewhat inefficient system. The drive to modernize the economy that began in 1978 required a sharp acceleration in commodity flows and greatly improved efficiency in economic transactions. In the ensuing years economic reforms were adopted by the government to develop a socialist market economy. This type of economy combined central planning with market mechanisms. The changes resulted in the decentralization and expansion of domestic and foreign trade institutions, as well as a greatly enlarged role for free market in the distribution of goods, and a prominent role for foreign trade and investment in economic development.
In 2013 China surpassed the United States as the largest trading nation in the world and plays a vital role in international trade, and has increasingly engaged in trade organizations and treaties in recent years. China became a member of the World Trade Organization in 2001. China also has free trade agreements with several nations, including China–Australia Free Trade Agreement, China–South Korea Free Trade Agreement, ASEAN–China Free Trade Area, Switzerland and Pakistan.
Internal trade and distribution
Agriculture
Approximately 63 percent of the population was located in rural areas, where the majority of people worked in agriculture and rural industries. Under the responsibility system for agriculture instituted in 1981, the household replaced the production team as the basic production unit. Families contracted with the economic collective to farm a plot of land, delivered a set amount of grain or other produce and the agricultural tax to the state, and paid a fee to the collective. After meeting these obligations, the household was free to retain its surplus produce or sell it on free markets. Restrictions on private plots and household sideline production were lifted, and much of the produce from these were also sold on free markets.
Distribution of food and other agricultural goods to urban consumers, industry and rural areas deficient in food was carried out primarily by the state and secondarily by producers or cooperatives. The state procured agricultural goods by means of taxes in kind and by purchases by state commercial departments (state trading companies) under the Ministry of Commerce. The agricultural tax was not large, falling from 12 percent of the total value of agricultural output in 1952 to 5 percent in 1979.
In 1984 the number of agricultural and sideline products subject to state planning and purchasing quotas was reduced from twenty-nine to ten and included cereal grains, edible oil, cured tobacco, jute, hemp, and pigs. In 1985 the system of state purchasing quotas for agricultural products was abolished. Instead, the state purchased grain and cotton under contract at a set price. Once contracted quotas were met, grain and cotton were sold on the market at floating prices. If market prices fell below the listed state price, the state purchased all available market grain at the state price to protect the interests of producers. Vegetables, pigs, and aquatic products sold to urban, mining, and industrial areas were traded in local markets according to demand. Local commercial departments set the prices of these goods according to quality to protect the interests of urban consumers. All other agricultural goods were sold on the market to the state, to cooperatives, or to other producers.
Restrictions on private business activities were greatly reduced, permitting peasants as well as cooperatives to transport agricultural goods to rural and urban markets. This also allowed a rapid expansion of free markets in the countryside and in cities. The number of wholesale produce markets increased by 450 percent between 1983 and 1986, reaching a total of 1,100 and easing pressure on the state produce distribution network, which had been strained by the burgeoning agricultural production engendered by rural reforms. In 1986 free markets, called "commodity fairs," amounted to 61,000 nationwide.