Zhang Xiaoji & Long Guoqiang

Opening to the outside world is a fundamental state policy of China and is also an important component of the Tenth Five-Year Plan. Formulation of a feasible new strategy of opening to the outside world on the basis of summarizing the successful experience of the past and adapting ourselves to economic globalization at the time when China is approaching accession to the World Trade Organization (WTO) is of important significance to carrying out China’s three-step development strategy.

I. Basic experience of opening to the outside world

In the past 20 years, China implemented the policy of opening to the outside world and did quite well in taking advantage of the favorable circumstances created by the international restructuring of industries. It expanded its foreign trade and attracted direct foreign investment. As a result, significant results were achieved and the economy grew at a fast rate. China became one of pioneering the developing countries in the economic globalization.

China’s basic experience in opening to the outside world consists of the following:

First, China never wavered in opening to the outside world. Opening to the outside world is an important integral part of Deng Xiaoping Theory. It is the consensus of the entire Party and all the Chinese people and has become a fundamental state policy. Even when serious incidents such as the Tiananmen Accident and the Asian financial crisis took place or when the international situation was in turmoil, China persisted in its fundamental policy of opening to the outside world and maintained stability and continuity of its policies. It thus has established its status as a country consistently engaged in reform and opening to the outside world.

Secondly, China made full use of “international and domestic resources and markets”, actively participated in the international division of labor, and increased its national economic strength. By opening to the outside world, China was able to import capital and technology. It gave play to its comparative advantage and overcame the resources and environmental bottlenecks that were limiting economic development. It greatly promoted its economic development and boosted its national strength.

Thirdly, China properly coordinated institutional reform and opening to the outside world and turned the two into a virtuous circle. Through opening to the outside world China has imported foreign capital and technology as well as international practices in market economy. As a result, the country’s economic restructuring has been promoted. On the other hand, the marketization domestic economy and the major restructuring of foreign economic relations and trade in turn provide favorable conditions for further opening to the outside world.

Fourthly, China adopted timely strategic measures for further opening to the outside world according to changes taking place at home and abroad. China opened its coastal areas to the outside world in the 1980s. In the 1990s, it put forth the “strategy of expanding international market share by improving quality”, “market diversification” and “strategy of broadly-based foreign trade and economic cooperation”. Furthermore, it practiced “all-dimensional, multi-tiered and wide-ranging opening to the outside world”. The degree of opening-up rose continuously.

Fifthly, China consistently maintained the principle of independence and kept the initiative in its own hands. China is a large socialist country. It must base itself on its own strength. While absorbing the common achievements of human civilization, it opposed the encroachment of decadent capitalist culture. It cracked down on smuggling, struck against evasion of foreign exchange and took strict precautions against financial disturbances. All these measures ensured economic security.

The successful experience of the past 20 years should constitute the basic principles guiding China’s further opening to the outside world in the early stage of 21st century.

II. New situations and new problems faced in opening to the outside world

With economic globalization as the backdrop, China will be gaining accession to WTO and will fulfill most of its commitments in 5 years. It is a significant event affecting China’s economic life as well as a basic point of departure when we analyze the new situation facing China as it continues to open to the outside world. Opening China’s market implies that China will be more deeply involved in the globalization. This will not only bring new problems, but will also make the existing problems more conspicuous. It is therefore necessary for China to correctly gauge and actively deal with new situations and new problems. It must seize opportunities while striving for the best and avoiding harm.

Firstly, structural adjustment is not only a problem which China faces. It is also a prominent problem in the entire world. The new technological revolution with information technological at the core and the international industrial and technological transfer bring China with an historic opportunity to undertake structural adjustment by carrying out opening to the outside world. However, technological innovation brings along with it a drastic shortening of the life cycle of products. Some industries are already faced with overproduction on a world scale. Such a situation raises new requirements to the efficiency of China’s structural adjustment. Should the nation fail to keep up with the technological progress and changes in the international structure of demands that are taking place around the world and thus fail to carry out structural adjustment domestically and accept international industrial transfer, China will find that it will not only be unable to upgrade its industrial structure, but structural problems might even more deteriorate.

Secondly, the change in the aggregate supply and demand pattern of the domestic market created favorable conditions for China to gradually open its domestic market to the outside world and actively develop the international market. In the present stage of development when industrialization and urbanization have yet to be completed, insufficient demand has created tremendous employment pressure for China during its Tenth Five-Year Plan period. The development of some new industries is meeting with constrictions resulting from the size of the domestic market. China would have to actively expand domestic demand. At the same time China should make use of the improved external conditions after its accession to WTO and increase the share China’s products and services occupy in the international market. It should also take this opportunity to expand the utilization of foreign capital and import those resources and advanced technology and equipment that are in short supply domestically. Such undertakings are of important significance to expanding aggregate demand and increasing effective supply more than ever before. It is directly related to whether opening to the outside world can continue to be a driving force in promoting the rapid growth of the Chinese economy.

Thirdly, whether China can truly reap the benefits of opening its market to the outside world depends on a large part on the improvement of the domestic market mechanism. Lowering trade barriers, relaxing the restrictions on the entry of foreign capital, and further linking up the international and domestic markets will enable China to give play on a wider scale the fundamental role of the market in the allocation of resources. However, the present domestic market is still plagued by barriers existing between different departments and between different regions, and market orientation calls for prompt improvement. Whether China can carry out a unified application of economic and trade policies and establish a unified large market in the country during the transition period after accession to WTO will directly affect China’s optimization of resources allocation and economic development.

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