What ‘Opening Up’ has meant for China

12 May

The process of opening up was gradual but significantly changed the landscape of the Chinese economy. Deng Xiaping is considered to be the architect of Chinese economic reform which saw China attempt to attract foreign direct investment and massively increase its levels of foreign trade. This gradual process initially involved the establishment of three special economic zones (SEZ) in Guangdong Province (Shenzhen, Shantou and Zhuhai), one in Fujian (Xiamen) and then later the whole of Hainan province. These SEZs were areas where various firms were exempt from import duties and industrial taxes but were still taxed on imported commodities (Yin, 2007, p.20). The extent of economic reform and focus on international involvement continued through the 1980s with the creation of Coastal Open Cities, Open Economic Zones and Technology Development Zones. The purpose of these economic regions was to introduce foreign capital in order to develop domestic industries (Wang, 2013). Upon creating economic hotspots throughout the country the Chinese government decided to put forward the ‘Along’s Strategy’ where further opening up of the country was sought (Yin, 2007, p.22). This involved opening up along the coast, borders, Yangtze River and along railroads within China (Yin, 2007, p.23). It is clear how China has opened up but what did this mean for China?

China’s role in international trade has significantly increased since it began to open up. The value of its imports and exports ranked 22nd in the world in 1980 but by 1995 China was 11th. This emergence as a global trading partner continued to strengthen and by 2005 China was ranked 3rd in the world in terms of value of imports and exports (Yin, 2007, p.29). One explanation of China’s exporting success comes from Bouin, Coricelli and Lemoine who argue that China was able to utilise its comparative advantage in labour intensive industries (1998, p.67). The table below highlights exactly what opening up has done for China. A trade deficit existed until the mid 1980s when China’s exports dramatically increased. From 1978 to 2005 the value of China’s exports had grown exponentially placing China in a world leading position in foreign trade. Additionally, a trade balance surplus emerged in the mid 1980s and this along with the value of China’s exports increased exponentially. China’s opening up has obviously benefitted the country itself but has also contributed towards global economic stability and development (Yin, 2007, p.34).    

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Inward foreign direct investment, like international trade, has also risen over the last three decades. The favourable measures that the Chinese government have implemented have ensured that since 1993 China has ranked first amongst developing countries in absorbing inward foreign direct investment (Yin, 2007, p.26). This foreign direct investment has allowed China to upgrade its industrial structure, be more competitive and increasingly export high-tech goods. Additionally, China has experienced spill over effects from this foreign investment on its domestic industries which has furthered the economic benefit China has experienced. The graph below outlines the extent to which China has rapidly started to receive foreign investment. Up until 1991 foreign direct investment was increasing slowly but then a huge surge was experienced.

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Economically for China, huge increases in foreign direct investment and international trade have served to increase GDP. Consider the GDP equation of . Foreign direct investment positively effects GDP through the I component whilst (X-M) is net exports. Therefore a positive trade balance will increase GDP. As China has experienced vast inward foreign direct investment and a trade surplus over the last two decades it can be expected that GDP has rapidly increased in China. From the annual growth rate graph it is clear that China has enjoyed large positive growth rates which are mainly a result of China’s increased international presence.

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Overall, the process of opening up for China has meant increased foreign direct investment, a large trade surplus and increased GDP. Furthermore, per-capita incomes have risen in China contributing to a slightly more wealthy population (Yin, 2007, p.53). However, negative effects of rapid economic growth have also been experienced such as inequality and the issue of migrant workers. Despite this, I have focussed solely on the direct economic benefits China has experienced through opening up and these benefits have helped to shape what is considered as modern China.

Bibliography

Bouin, O., Coricelli, F. and Lemoine, F. (1998) Different Paths to s Market Economy: China and European Economies in Transition. Paris: Organisation for Economic Co-operation and Development.

Guthrie, D. (2009) China and Globalization. Rev edn. New York: Routledge.

Huang, J., Yang, J. And Rozelle, S. (2013) China’s Rapid Economic Growth and its Implications for Agriculture and Food Security in China and the Rest of the World. Available at: http://www.fao.org/docrep/009/ag088e/AG088E03.htm (Accessed: 10 May 2013).

Wang, Y. (2013) The Impact of the Open Door Policy on the Chinese Economy. [Lecture to UOSM2018 class].

Yin, W. (2007) China’s Road to Development in a Global Perspective. Beijing: Foreign Language Press.

Zweig, D. (2002) Internationalizing China: Domestic Interests and Global Linkages. Ithaca: Cornell University Press.

 

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