Abstract
In the first part of our paper we will present the theoretical background of the international trade. We will begin with the description of the evolution of the comparative advantage theories, and then continue with the competitive advantage theory. We will continue with the discussion of some important factors, responsible for China's competitiveness. We will briefly understand Balassa's comparative advantages, which is an ex-post measure, to analyze where China has comparative advantages. The international trade had been an important issue several centuries before the classical theory of economics even took off with Adam Smith's Wealth of nations in the 1776. The philosophy dealing with this issue was mercantilism, a philosophy guided by European thinking in the 15th, 16th and 17th centuries. Mercantilists believed that if a country wants to become richer, its exports have to exceed its imports. This is because in those days, the measure of country's power was the quantity of gold and silver it had.
