By Long Guoqiang

Research Report Vol.18 No.2, 2016

During the 13th Five-Year Plan period, the world economy is undergoing great adjustment, the global economic governance reform is underway, and new economic and trade rules are being formed. In this context, how should China open wider to the outside world? How should China form a new pattern of all-round opening-up? How should China reform further? How should China promote innovation, eco-friendly development, and industrial upgrading? How should China form new advantages in international competition? How should China play a better role in global governance? An elaboration will be given by Long Guoqiang, Deputy Director of Development Research Center of the State Council.

I. New Requirements for China’s Economic Reform and Opening-Up in the New Normal

Open development is a major part of the philosophy of innovative, coordinated, green, open, and shared development, proposed at the Fifth Plenary Session of the 18th Central Committee of the Communist Party of China. At present, as China’s economy enters the new normal, the goal and impetus of economic growth are changing. To realize middle and high-speed growth when industries are going advanced, the new development strategies guided by the five development concepts put forward new requirements for opening-up. That is to say, under the new normal, opening-up strategies should make full use of external resources and markets, and integrate those with their domestic counterparts, so as to boost innovation, upgrading of structure and value chain.

As China’s economy enters the new normal, it is necessary to improve China’s position in the global division of labor, which is consistent with the domestic goal of creating economic growth engines. It is important to introduce, through further opening-up, advanced industrial activities, factors of production and more advanced technology in fields like manufacturing and services, and promote China’s position in the division of global production value chain. This means China upgrades its industrial structure and becomes more competitive. From this perspective, it is not hard to find that many fields were not fully opened up to the outside world, like the capital and technology-intensive industries. The United States and Germany, in the early industrial development, protected and nurtured their infant industries by restricting imports of like products, so as to protect their domestic market. Such policy is called infant industry theory which is reasonable and indispensable in certain periods.

A key theoretical basis of import substitution policy is infant industry theory. However, industries with the policy are overly protected for too long, just like flowers in the greenhouse, hard to be vital and strong. In China, this problem stands in the way of many capital or technology-intensive industries, so they lack impetus to innovate. For instance, China started its auto industry in the 1950s while the time for South Korea was 1970s, but the latter has become a shining star in the field around the globe. As we still rely on highly protective policies, China’s auto industry is yet to be internationally competitive despite the large production and scale. Besides, China’s comparative advantages are changing. With the low cost of labor as its advantage in global competition, China’s manufacturing industry has been severely challenged, and the cost of labor will rocket in the next five or ten years. Moreover, labor-intensive industries will be upgraded. For one thing, it is major to change the advantage from low cost to quality, technology, brand, and service; for another, importance should be attached to preparing Chinese capital and technology-intensive industries to be more internationally competitive.

To improve the competitiveness of Chinese enterprises, reform is the key, namely, deepening the reform of state-owned enterprises and industries falling behind. What’s more, it is necessary to propel reform by further opening-up, which is to change what guided the development of capital and technology industries, and replace the concept of “import instead of development” with that of “open development”.

II. Forming a New Pattern of All-Round Opening-Up

According to the Fifth Plenary Session of the 18th Central Committee of the Communist Party of China, it is crucial to form a new pattern of all-round opening-up between land and sea, home and abroad, and east and west. New patterns, strategies and mechanisms are integrated, with a goal of creating new advantages in global competition. To realize the goal, work should be done in two ways, the first of which is to build a new open economic system and further improve management and service, and the second is to form new pattern of opening-up, not only in space but also in industries.

First, we need to create a new system of open economy. The Central Committee of Communist Party of China and the State Council of the People’s Republic of China issued Opinions on Building a New Open Economic System in 2015, with an overall goal of accelerating the fostering of new advantages in international cooperation and competition, more proactively promoting the balance between domestic demand and overseas market demand, between imports and exports, and between introducing foreign capital and investing overseas, gradually realizing the international balance of payment, so as to form a new pattern of all-round opening-up and ensure advanced governance system and capability of an open economy. To promote reform and build a new open economic system at the new historical stage, on the basis of its current stage of development, China should design the system according to the conditions it faces and the goals it has in the global division of labor. The overall plan of optimizing China’s socialist market economy, formulated at the Third Plenary Session of the 18th Central Committee of the Communist Party of China, requires a new open economic system serving current national conditions by 2020.

The second thing is to build a new pattern of opening-up. First of all, in terms of space, China opens up not only to developed countries but also to developing ones. In the past, it focused on developed markets. But now the Belt & Road Initiative, covering 65 countries, gives more attention to its neighboring countries and emerging economies in Asia. When it comes to spatial layout, coastal, inland and border areas will take on different tasks. Coastal areas need to further open up, lead the upgrading of China’s industrial structure, and continue innovating, namely, creating new advantages in international competition. Border areas, due to their special geographical locations, are of importance for China to implement its diplomatic strategies towards neighbors, to build China’s pathways connecting other countries, and to constitute a significant strategic framework ensuring resource security, energy security, and national security. Further opening-up border areas is key to carrying out the Belt and Road Initiative. At present, many places have successively put forward plans for the implementation of the Belt and Road Initiative. For example, Xi ’an city will build itself to be the new start of Silk Road Economic Belt (SREB); Gansu Province plans to be a highlight of SREB; and Ningxia Hui Autonomous Region will strive to be a new strong performer in an open economy. During the 13th Five-Year Plan period, feasible measures should be implemented to open up central regions in China and prepare them for welcoming some industries from the east. In addition, China should give play to its strengths in global division of labor and competition, which is the key to the spatial layout.

The next thing of importance lies in the industrial pattern. As priority was placed on opening-up the manufacturing industry, especially labor-intensive ones over the past three decades, great achievements have been accomplished, which enables China to be the largest exporter of goods. However, the exported goods mostly create value in labor-intensive processes with low added value in China. For capital and technology-intensive industries, open competition means more private enterprises and foreign ones can compete in a fair domestic market. China should reduce trade protection, which is certainly achieved step by step. With clear understanding of relevant strategies, China should gradually reduce trade protection, introduce competition, promote innovation in technology, brand and business model, and enhance international competitiveness. ...

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