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Opening Wider to the Outside World
2009/10/27

 

The People's Republic of China was founded in 1949.

For the 60 years since the foundation of the People's Republic of China, China has made remarkable achievements in the economic construction. In particular since the reform and opening up policy was introduced in China in late 1978, China has realized the historic transformation from the close or semi-close state to the all round opening up, forming an opening-up pattern from the coastal areas to the areas along the Yangtze River and the borders and from the eastern to the central and western regions. The opening-up pattern has constantly expanded from the trade to investment and from the barter trade to labor services.

 

I. Constant Expansion of the Reform
and Opening up in Terms of Depth and Extent

 

In the early period of the People's Republic of China, the Chinese Government, on the basis of gaining aid from the Government of the former Soviet Union and being open only to other socialist counties, tried to establish economic exchanges with the capitalist countries. However, the Western capitalist countries adopted the policy of isolation and blockage towards China. Though the external environment of China at that time was extremely disadvantaged, the Chinese Government still opened the gate to the Sino-American and Sino-Japanese relationships strategically. During the period, it also established the relations with many Western developed countries and made much headway in introducing the advanced foreign technologies and equipments. In 1973, China imported US$4.3 billion worth of the whole sets of equipments and single machines, including 13 sets of large-scale fertilizer equipments, four sets of large-scale chemical fiber equipments, two sets of petroleum and chemical equipments, one alkylbenzene plant, 43 sets of comprehensive coal excavating sets, three large power plants and WISCO'S 1.7 meters steel rolling mill. By the end of 1979, most of those introduced projects had been put into production, playing a significant role in quickening the modern construction of China.

After 1954, China failed to gain large amount of foreign capital. During the period from 1957 when the former USSR broke the relationship with China to 1972 when American President Nixon visited China, China was almost closed to the outside world except Albania, Viet Nam, North Korea and some countries in North America.

In late 1978, China introduced the reform and opening up policy, starting the new historical period. The policy was first followed in some regions and then popularized nationally, proceeding step by step. In 1979, the Chinese Government carried out special policies for the foreign economic activities of Guangdong and Fujian Provinces. In 1980, four Special Economic Zones-Shenzhen, Zhuhai, Shantou and Xiamen--were established.

From the mid-1980s to the early 1990s, the reform and opening up policy was implemented from the special economic zones to the coastal areas and the areas along the Yangtze River and borders. In 1992, the cities along the Yangtze River, the reservoir area of the Three Gorges, the capital cities in the coastal areas and the areas along the borders, the cities along the borders and 11 inland capital cities such as Taiyuan were opened. In the ensuing several years, a large group of inland counties and cities which met the conditions were also opened successively.

In December 2001, China acceded to the WTO, changing the regional opening up to an all-round opening. The opening up of China entered a completely new period. The regional pattern of the opening up from the coastal areas to the inland, from south to north and from east to west was basically formed.

 

II. Major Changes in the Pattern of Foreign Trade

 

During the period from 1949 when the People's Republic of China was founded to 1978 when the reform and opening up policy was introduced, China took the highly centralized uniform system of foreign trade, with the State dealing in foreign trade and management in a centralized way. In 1978, the 12 foreign trade companies monopolized the business; subsequently, the contract management responsibility system was adopted; in 1998, the private enterprises entered the foreign trade field for the first time; and in June 2008, some 700,000 businesses competed equally and developed commonly. The international competitiveness of trade and enterprises of China gradually increased, the import and export market of China became multi-element and there were increasing sources for import, building a new pattern of open economy for mutual benefits.

In the early period after the implementation of the reform and opening up policy, the opening up centered on "earning foreign exchanges through export"; various efforts were made to enlarge the export. On this basis, the Chinese Government pointed out that work should be done to continue enlarging the trade in goods and attract foreign business people to make direct investment in running enterprises and engaging in processing. In this way, the original foreign trade and economic exchanges spread to the investment and production fields from the field of trade. Various kinds of modes such as direct foreign investment, making foreign loans and financing in the international market were widely adopted. With the constant deepening of the reform and opening up, the opening up speed of the field of service was also quickened and the trade in services developed rapidly.

In the early period of the People's Republic of China, China engaged in trade mainly with socialist countries. In the early 1950s, more than 60 countries and regions maintained trade ties with China. As more countries improved foreign economic relationship with China, the number of China's trade partners was on the increase and reached 180 in 1980. Currently, China maintains trade relationship with over 220 countries (regions). The trade cooperation between China and the three major economies namely European Union, the United States and Japan develops flourishingly. China has made much headway in developing the rising markets such as ASEAN, Russia and India and accelerated the trade with other partners.

In the 1950s, China mainly developed the clearing agreement trade with the former Soviet Union and other countries in Eastern Europe. Since the implementation of the reform and opening up policy, with the development of the trade with Western countries and rest of the third world, China, on the basis of vigorously developing the common trade, also developed the processing trade and compensation trade. The common trade value accounted for 94.3 percent of the total trade value of China in 1980, but the processing trade value only occupied 4.4 percent of the total. In 2008, the processing trade value of China reached US$1,053.59 billion, accounting for 41.1 percent of the total foreign trade value; the processing trade value became one of the major foreign trade modes of China.

 

III. Constant Achievements Made in Foreign Trade

 

In the early 1950s, China's economy was resumed, but the total foreign trade value rested on the low level of less than US$2 billion. During the period from the mid-1950s to the 1960s, China mainly traded with Soviet Union and a few countries in Eastern Europe; the total foreign trade value of China was lingering on the level of US$3-4 billion. In the 1970s, with the completion and operation of several large oil fields, the amount of the oil exported increased year by year. China's foreign trade gradually flourished and occurred with western developed countries and developing countries.

After the implementation of the reform and opening up policy in 1978, China strengthened the trade relationship with various countries in the world. In particular after the entry into WTO in December 2001, China actively participated in the economic globalization, and taking the historical chance of the accelerated transfer of the international industry, won the fastest and best development in foreign trade in the history. From 2002 to 2007, the annual average increase rate of the foreign trade of China reached 27.3 percent; of this, that of export trade was 28.9 percent, and that of the import trade 25.6 percent. The total foreign trade value of China surpassed US$1,000 billion in 2004 and US$2,000 billion in 2007. In 2008, the total foreign trade value of goods amounted to US$2,561.6 billion.

During the 59 years from 1950, China spent 29 years making its total foreign trade value exceed US$20 billion, 23 years making it increase from US$20 billion to US$500 billion and three years making it rise from US$500 billion to US$1,000 billion and from US$1,000 billion to US$2,000 billion.

After the entry into WTO, China reduced the variety of the commodities whose export called for export license, from 114 (28 percent of the total) in 1998 to the present 47 (5 percent of the total). The general tariff rate reduced to 9.8 percent from the 50 percent in the early period of the opening up. China basically canceled the non-tariff measures such as import quota and import license, becoming one of the most open markets in the world.

With the elevation of China in industrialization degree, the structure of the export commodities was constantly improved. The proportion of the exported industrial finished products gradually surpassed that of the exported primary products; and the proportion of the exported products of high added value also increased. In the 1950s, China mainly exported the agricultural and sideline products, accounting for 42.2 percent of the total exported products on average. In the 1960s, the light and textile industry developed fairly fast, whose products exported accounted for 45 percent of the total exported products on average. In 2008, the export value of the mechanical and electrical products hit US$822.93 billion, accounting for 57.6 percent of the total export value.

The structure of the import commodities of China has been mainly the industrial finished products. In the 1950s, the major means of production imported by China included the equipments and raw materials, accounting for the 92 percent of the total import value and playing an important role in promoting the production of industry and agriculture. In the 1960s, due to the natural disasters, the agricultural output fell largely short of demand. China began to import a great deal of means of livelihood such as cereal grains, cotton and sugar. Thanks to the reform and opening up, China's economy developed rapidly, demanding increasing amount of the raw materials and mechanical equipments, so the import in this regard also increased correspondingly, in particular the import of industrial finished products. In 2008, the import value of the industrial products of China reached US$770.31 billion, accounting for 68 percent of the total import value. Of the total, the import value of the electromechanical products totaled US$538.66 billion. The import of the electromechanical products sped up the technical alternation of the Chinese enterprises and promoted the upgrading of the industrial structure of China.

 

IV. Rapid Development in Utilization of Foreign Capitals

 

Currently, China utilizes the foreign capitals in various modes, mainly including the loans from foreign governments, international financial organizations and foreign commercial banks, export credits and issuance of bonds overseas.

In the 1950s, China began to utilize the foreign capitals, totaling US$1.9 billion. It mainly came from the low-interest loan provided by the former Soviet Union, and was used for the construction of 156 projects in the economic field. In the 1960s and the 1970s, China principally absorbed deposits in Hong Kong and Macao via the Bank of China and introduced complete sets of industrial equipments from the Western countries through trade credit. After the implementation of the reform and opening up policy in 1979, the utilization of foreign capitals gradually became one of the important contents of the foreign economy and cooperation of China. Since 1990, the total amount of the long-term foreign capitals attracted by China ranked in the forefront of the developing countries. In 2008, the total amount of foreign capitals actually used by China reached US$92.395 billion; China ranked first among the developing countries for 17 years-running in this regard. Of the total, the amount of foreign capitals actually used in service industry of China totaled US$38.12 billion, accounting for 41.26 percent of the total.

At the end of 2007, the number of registered foreign-funded enterprises in China exceeded 280,000; they made a total investment of US$2,110 billion in the country. In recent years, obviously more foreign investment is made in high-tech projects such as research and development center, integrate circuit, computer and communication products. After the field of the trade in services was opened, the service industry including the commerce, foreign trade, telecommunication, finance, insurance and real estate became attractions for the new round of foreign investment.

From the implementation of the reform and opening up policy to the entry into the WTO, China only attracted the direct foreign investment and seldom had investment through merge and acquisition and financed in the international capital market. After the entry into WTO, China earnestly fulfilled the commitments it made to WTO by opening the capital market gradually and improving the related laws and regulations. The internationalization course of the capital market is pushing forward in due order. By the end of April 2008, all together 150 domestic companies had been listed overseas, raising totally US$110.5 billion. By the end of 2007, foreign investors had merged and acquisitioned the shares of 21,800 domestic enterprises of China, accounting for 7.6 percent of the total actually foreign-funded enterprises.

 

V. Benefits Gained by Following the "Going Global" Strategy

 

China began the contracting foreign projects and international manpower cooperation in the late 1970s as a result of the reform and opening up. In the beginning, only China State Construction Engineering Corporation, China Road and Bridge Engineering Company, China Civil Engineering Construction Corporation and China National Complete Plant Import and Export Corporation developed such business in a small number of countries in the Middle East. Through 30-odd years of efforts, the business of contracting foreign projects and international manpower cooperation of China has rapidly grown into an important part of the foreign economy and cooperation of China.

In 1976, China began to engage in the contracting foreign labor service projects for the first time. In 1980, a total of 29 enterprises were found to be in markets mainly in West Asia and North Africa. In 2007, the Chinese team was comprised of over 1,000 enterprises in various sectors and with fairly strong international competitiveness. Today, the business of the contracting foreign projects of China covers over 180 countries and regions. The business volume of the fund and technology-intensive projects in the fields of electric power, metallurgy, petrochemical, rail traffic and electrommunication accounted for half of the total business volume; the number of the large projects increased rapidly.

The Chinese enterprises started to invest overseas in 1979. They did so with the approval of the Central Government departments concerned, but only a few State-owned enterprises engaged in the business established representative offices or enterprises overseas. Thanks to the 30 years of exploration and development, the overseas investment of China, though small in scale, has made progress actively. By the end of 2007, over 7,000 domestic investment subjects of China set up 10,000-plus direct overseas investment enterprises in more than 170 countries (regions), having a net volume of direct overseas investment of US$117.9 billion.

China's overseas investment developed from the single green field investment (a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up; the early multinational companies basically adopted this kind of mode to develop the overseas business) to the overseas merge and acquisition, share participation and being listed overseas. The transnational merge and acquisition has become an important mode in the direct overseas investment, mainly involving the energy resources, telecommunication and petrochemical sectors. In 2007, the direct overseas investment made through merge and acquisition by China accounted for 23.8 percent of the total investment. In 2008, the Chinese enterprises completed US$31.82 billion worth of transnational merge and acquisition of natural resources, occupying two thirds of the total scale.

 

VI. Remarkable Achievements in Multilateral and Bilateral Economic and Trade Cooperation

 

The Free Trade Area has become a new style and jumping-off point of the reform and opening up of China as well as a new platform for winning mutual benefits with other countries. From 2000 when China began to build the free trade area to October 2007, China established 12 free trade areas in 29 countries and areas in Asia, Oceania, Latin America, Europe and Africa. China signed and implemented the Agreement on Trade in Goods and Services in the Free Trade Area with ASEAN, deepening the "10+1" and "10+3" mechanisms.

The multilateral, bilateral and regional economic and trade cooperation was further deepened. China has signed the Agreement for Protection of Bilateral Investment with 123 countries and established 180-odd multilateral joint committees with 129 countries and regions and 13 international organizations.

The mechanism of strategic economic dialogue was established. On September 20, 2006, the Sino-America strategic economic dialogue mechanism was formally started. So far, three Sino-America strategic economic dialogues have been held, where the two parties achieved a series of important consensus and signed many agreements. Meanwhile, China also established the economic dialogue mechanism with Japan, European Union and ASEAN in succession, strengthening the harmonization and communication with major economic partners. China also held "State Year" with Russia, involving various economic and trade activities. The economic and trade cooperation content of Shanghai Cooperation Organization was enriched. The Beijing Summit of the Forum on China-Africa Cooperation was set up, carrying out eight measures for the economic and trade cooperation with Africa. The "China-Caribbean Economic and Trade Cooperation Forum" and "China-Pacific Islands Economic Forum" were established.

 

 

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