A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Bohnet, Armin; Hong, Zhong; Müller, Frank Article — Digitized Version China’s open-door policy and its significance for transformation of the economic system Intereconomics Suggested Citation: Bohnet, Armin; Hong, Zhong; Müller, Frank (1993) : China’s open-door policy and its significance for transformation of the economic system, Intereconomics, ISSN 0020-5346, Nomos Verlagsgesellschaft, Baden-Baden, Vol. 28, Iss. 4, pp. 191-197, http://dx.doi.org/10.1007/BF02926200 This Version is available at: http://hdl.handle.net/10419/140410 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu CHINA Armin Bohnet, Zhong Hong and Frank ML~ller* China's Open-Door Policy and its Significance for Transformation of the Economic System The open-door policy of the People's Republic of China is entering its 14th year in 1993. Petra Pissula and Dieter L6sch' presented a report in 1990 in which they took stock of the successes and failures of this policy by taking the special economic zones as an example, and they tended to assess China's future foreign trade activities pessimistically. Further progress has occurred in the open-door policy since that time, so that a revised evaluation is necessary. The aim of the present article is to show the more recent developments and problems and to examine the relationships between reforms and the open-door policy, particularly from the point of view of system transformation. he policy of opening up China economically to the rest policy, initially conceived as an experiment, would be kept T of the world constitutes an essential part of Chinese within limits. economic reform. Since this policy was initiated in 1979, The special economic zones exhibit the following the Chinese leadership has attached to it the dual aims of characteristics :3 strengthening the country's economic potential by importing foreign capital and know-how and lifting [] economic development is determined primarily by Chinese foreign trade towards a level and structure foreign capital; comparable to that of modern industrialized countries. It [] economic activities are mainly carried out according to was for this reason that efforts were made to create a the principles of a market economy; favourable institutional basis for importing capital. Initially, however, it was feared that an open-door policy of this kind [] foreign companies are allowed more leeway and their could have disruptive effects on the socialist economic operating environment is more favourable than in other system, and that great damage could be done to domestic parts of China; economic development if the policy were to fail. Various [] governments in the special economic zones have the restrictions, both geographical and with regard to the same administrative powers in matters of foreign trade as content, were therefore placed on the open-door policy by do the provincial governments. taking a variety of measures to avoid these risks. In order to prevent any unfavourable spillover effects on The regional demarcation of the open-door policy was the rest of China, the special economic zones were strictly manifested in the establishment of special economic isolated from the rest of the economy, also as far as the zones with relatively small areas, which were strongly types of economic activity were concerned. In product oriented towards trading with the outside world. In August markets, this meant that the field of activity of the Chinese- 1980, the four special economic zones of Shenzhen, foreign companies established in these areas was limited Zhuhai and Shantou in the Province of Guangdong and to export-oriented manufacturing and services. At the Xiamen in the Province of Fujian were established. The largest of these is Shenzhen with an area of 327.5 sq. km. 1 Cf. P. Pissula, D. LSsch: Special EconomicZonesinthe All of these zones2 were situated in economically People's Republic of China, in: INTERECONOMICS, Vol. 25, No. 5, underdeveloped areas in order that any damage to the September/October 1990, pp. 257-262. economy caused by a possible failure of the open-door 2 In 1988, the island of Hainan in the South China Sea was officially declared a special economic zone. 3 Cf. J. Wang, Y. Zhu (eds.): ManualofReformoftheEconomic * Justus Liebig University, Giessen, Germany. System, Beijing 1987, p. 869. INTERECONOMICS, July/August 1993 191 CHINA same time, the compulsory export of products Table 1 manufactured in the special economic zones was Time Chart of China's Open-Door Policy decreed. In the foreign exchange market, separation was maintained by an obligation on the part of the special Period Stage of reform Geographical location economic zones to generate the foreign currency they needed by themselves. Various measures intended to 1980 Establishment of the special Provinces of Guang- economic zones of Shenzhen, dong and Fujian in restrict migratory movements of the population also led to Zhuhai, Shantou and Xiamen the South East a separation of the special economic zones from the 1984 14 ports, including Shanghai and Along the length of domestic Chinese labour markets. Tianjin, are declared "open cities" the coast from North to South In spite of these restrictions, Chinese special economic 1985 Various towns in the Pearl River Near the coast in the delta, the South Fujian delta and East and South East zones made a substantial contribution to attracting foreign the Yangtze delta, the peninsulas capital. 4 These encouraging results also meant that the of Liaodong and Jiaodong, and the Bohaiwan district are opened up. initial fear of failure of the open-door policy gradually 1988 The island of Hainan is elevated South China Sea became less significant. The Chinese leadership made to the status of an independent the decision to expand both the scope and the province and declared a special economic zone. geographical range of its open-door policy. April The Shanghai district of Pudong East coast This commenced, from a geographical point of view, in 1990 is declared a special zone 1992 5 ports along the Yangtze River Central China 1984 as Shanghai, Tianjin and twelve other Chinese ports are declared "open cities" were officially declared "open cities". In these open cities, June 13 cities along the Chinese North East, favourable environmental conditions were created for 1992 national borders become "open North West and foreign investors and city governments received extensive cities" South West decision-making powers in respect of foreign trade August 11 provincial cities are declared In the interior 1992 "open cities" activities. After 1985, the open-door economic policy towards the rest of the world was extended in gradual S o u r c e s : China's Economic Structu re Reform, No. 10, 1992, p. 12; stages to China's interior. The last step to date was the J. Wang, Y. Zh u (eds.): Handbuch der Reform des Wirtschafts- systems, Beijing 1987, p. 870. opening up of eleven provincial capital cities in the interior of China. Consequently, the geographical separation of special economic zones and open cities on the one hand, and the domestic economy on the other, has now largely Figure 1 become a thing of the past. Table 1 outlines the Development of Foreign Trade and of Foreign development of the Chinese open-door policy in the period Trade Dependence in China (PRC), 1979-1992 since 1980. US$ billion % As geographical separation became less strictly lOO 100 enforced, there was also a constant watering down of the restrictions of freedom of action of Chinese-foreign 8o 8O companies in the special economic zones and in the open I t , territories. This was expressed on the selling side by an 6o I ! ! I = /r I ever greater opening up of the Chinese domestic market to I I i ! i I ~i I J-.~," I i the products of these companies and by a gradual 4o ~ relaxation of the compulsion to export. This also brought with it a gradual liberalization of foreign currency controls, 20 ~-r 20 which means that companies involved in foreign trade are 0 o now able to use as they see fit a considerable part of the lg79 lg~0 1861 11~2 lg63 1864 tg~6 I~R~ 1~167 1~ lg~8 18Q0 lgO1 ltlQ~ foreign currencies which they earn. The continuing Year regional expansion of the open-door policy also facilitated Imports Exports Dependence on access by Chinese-foreign companies to the Chinese in US$ billion in US$ billion foreign trade in % labour market. N o t e : Foreign trade dependence is expressed as the percentage of exports as a proportion of gross national product. 4 For example, foreign capital totalling US$ 20.5 billion was pledged Sources: Statistical Yearbook of China 1992, pp. 31 & 615; between 1979 and 1982. US$12.5 billion was also actually invested. Cf. Bedeutende Ergebnisse im Aussenhandel, in: Beijing Rundschau, Table 2.