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Economic Reforms and China’s Internationalization

Economic Reforms and China’s Internationalization
The Asiatic Giant is waking up

 

The year 1979 marks the beginning of economic reforms in China. The openings to international trade, the creation of Special Economic Zones, the foreign investment boom, are just some of the milestones in a journey of nearly three decades of economic growth. Chinese growth rates, averaging double digits.

The economic policy of the Republic of China was founded originally in the direction of industrial policy, agriculture, monetary and trade by the government, with the assistance of other powers and the Communist Party Central Committee.

However, leaders in the Chinese world, unlike leaders in the Soviet world, that were  stalled in its traditional economic model, unwilling to accept the need to adapt to changes in the global economy, essentially in  commercial matters, foresaw the need to transform its economy to adapt to international trends in vogue.

Thus, the inclusion of China as strategic commercial competitor in the new world economic order is not a recent phenomenon, but the result of an ongoing effort for over thirty odd years or more. Even long before, anyone could foresee the fall of the Berlin Wall and then the collapse of the former USSR and, therefore, the socialist bloc.

More accurately put, in late 1978 the Chinese leadership tried to change its economy, until then based on the Soviet model with a centrally planned economy to a market-oriented one, but controlled by the Communist Party. Deng Xiaoping was chief architect and promoter of the Reformation.

To achieve their goals, Chinese leaders passed the responsibility of agriculture to a centralized system, instead of the old collectivization. They also increased the responsibilities of directors of industries and allowed a variety of small businesses. China opened the economy to foreign investment and trade abroad, particularly in coastal areas, known as “Special Economic Zones”, those that were the base of transformation.

Economic Reforms and China’s Internationalization

All of the above could be considered as key to development and transformation of the Chinese economy, because it led to the setting of economic relations with other nations, through trade, foreign investment and economic cooperation, as well through various industrial and commercial international consortia.

Gradually, in the Chinese economy GDP was increased by an approximate average of 10% in the 1990s. China started to employ the population while scrubbed state administrative systems. Thus, China was preparing the conditions for completing the transformation of the centralized economy to a more dynamic one.

In late 1993, Chinese leaders approved a series of long-term reforms to improve market laws; they strengthened the central control on finance and also kept control of key industries in what is now called ‘socialist market economy’. At the same time, the government endeavored, among other things, to keep afloat the large state companies, many of which had not participated in the now booming economy.

Thus, in the development of the Chinese economy, while making the adaptation to the dominant trends in the international economy, the State sought to carry out the transformation in a gradual, balanced way. As they were incorporating all productive sectors the change was also consistent, as it did not opened immediately.  The leadership was preparing the necessary conditions for this turnaround to be achieved fully, effectively and permanently, without rebound effects or any negative consequences.

Economic Reforms and China’s Internationalization

In addition, one of the strategies that allowed the Government of the People’s Republic of China to boost business growth was to abate a number of levies that hindered internal consumption, while SEZs were opened. China also made ​​a number of reforms to the structure of foreign trade.  Among them was the expansion of local authority to assess and ratify exports, fostering the autonomy of management, and export foreign trade companies. They basically changed the old structure in which the foreign trade monopoly was managed by the state and was highly concentrated. Before the reforms, there was no separation between government functions from business activities, and the Government took care of all profits and losses. The State reduced, gradually, managerial plans in foreign trade and in the respective companies. It gradually established a management system that regulated foreign trade trough economic methods, such as customs duties, foreign exchange rates, credit, and other economic, financial and fiscal tools.

This system, adopted by the People’s Republic of China as part of the process of incorporation and adaptation to changes in the world economy, in the context of globalization, retains some features of the socialist government. In this system, a vital point is what China calls “definitive sectors of the economy”, i.e. industry and farming. About these sectors, the Chinese State retains ownership of many of the companies they comprise.

The economic policy of the government of the People’s Republic of China is based on five major points:

  • The development and reorientation of agriculture as a strategic sector of the national economy, but based on a new mode of production and marketing.
  • The industrialization of the country at all levels and sizes of industry, but with an important encouragement and support to small business.
  • Opening up of the Chinese national economy, to foreign investment and foreign trade.
  • The fight against extortion and other economic crimes. Timely collection of public contributions. A struggle that is vital to maintain the loyalty of the population.
  • The reduction or elimination of various taxes that hindered domestic consumption.

 

The Chinese government has invested heavily in communications, transportation and telecommunications to enable its development. The official incorporation of China as partner agencies leading the new world economic order, helped ensure its continued growth.

The Communist Party of China decided to implement a model in which, without changing its political system and its system of government, could act within the international free market, with state regulation but without direct intervention. Thereby China strengthens trade with other countries and encourages foreign investment and consumption in the domestic market, while taking care of the welfare of the Chinese people. This is the Chinese formula of socialist market economy.

 

Video

London School of Economics

“Demystifying the Chinese Economy”

Speaker: Professor Justin Lin. Former Chief Economist at the World Bank. Professor at Biejing’s University.

Chair: Professor Danny Quah

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