Decades of growing openness and reforms, foreign investment, and the WTO entry have changed China's economic landscape, write China Features' DING QILIN and GONG WEN on the eve of the 16th Party Congress

In the late 1970s, the Chinese government adopted two major policies of historic significance: to open the country to the outside world and to carry out economic reforms. The policies have brought economic rejuvenation and prosperity to the country and led to its becoming a member of the World Trade Organization (WTO).

Implementation of the open policy began with the establishment in the early 1980s of four special economic zones (SEZ): Shenzhen, Zhuhai, Shantou and Xiamen, all located along the southeastern coast. The SEZs were permitted to experiment with developing a market-oriented economy and encouraged to attract foreign investment, at a time when the rest of the country still practised a planned economy. With preferential policies, ample land and low labour costs, the SEZs became an instant draw for overseas investment.

China opened its door wider in the following years. In 1984, the country opened 14 coastal cities - Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang and Beihai - to overseas investment.

Then, beginning in 1985, the state decided to expand the open coastal areas, extending the open economic zones of the Yangtze River Delta, Pearl River Delta, Xiamen-Zhangzhou-Quanzhou Triangle in southern Fujian, Shandong Peninsula, Liaodong Peninsula, Hebei and Guangxi into an open coastal belt.

Hainan Island in the South China Sea became China's largest SEZ in 1988. In 1990, the central government declared the opening of Pudong, a Singapore-sized piece of land wedged between Shanghai proper and the East China Sea. In 1992, China opened more cities along major rivers, border cities and all of its provincial capitals.

Thanks to the implementation of its open and reform policies, China's economy and foreign trade has developed rapidly. The country's gross domestic product (GDP) last year reached 9.6 trillion yuan, or US$1.16 trillion, the sixth largest in the world. Today, China is also the sixth biggest trading nation in the world, with imports and exports totalling US$509.8 billion in 2001, about 24 times more than the total in 1978 when implementation of the open and reform policies began.

China's opening up and economic reforms paved the way for its entry into the WTO. Were it still living in self-imposed isolation with central planning holding sway, WTO membership would have been unthinkable.

More foreign investments

China has achieved tremendous progress in the past two decades and has been actively involved in economic globalization.

Guangdong Province in the south, the first area to open to the outside world and implement economic reforms, witnessed an increase of 13.4 per cent annually in its GDP between 1978 and 2001. The province is now a "factory for the world," turning out great quantities of goods ranging from toys and garments to consumer electronics, computers and cars. Shenzhen alone exports US$2 billion worth of Christmas articles a year, while Guangdong, once an economic backwater, exported US$176.5 billion worth of goods in 2001.

"We should stick to the policies of opening up and reform, which will further promote our development. And in turn, that development will further promote our opening up and reform," says Li Shoujin, director of the Information Office of Guangdong Province.

Since 1978 when China began opening its doors, overseas investment has poured into the country. By June 2002, a cumulative total of 401,637 foreign-funded enterprises had been established in China, and cumulative foreign direct investment (FDI) had reached US$412.15 billion, according to the Ministry of Foreign Trade and Economic Co-operation (MOFTEC).

In the past few years, excluding 1999, China has been the world's second major recipient of international investment, after the United States. In 1999, China received US$40.4 billion in FDI, just behind the United States and Britain.

Over the years, China has opened up even further to foreign investment. Sectors that were eventually encouraged to welcome foreign investment include retailing, transportation, real estate, tourism and foreign trade. Foreign banks, insurance companies, law firms and certified public accountants have established operations in China, too.

Rolling off assembly lines in many joint venture plants are shiny cars with the latest automotive technology, bearing internationally-familiar names such as Buick, Honda, Volkswagen, Audi and Citroen. Stores are stacked full of products made by joint venture companies or manufactured using imported technology: colour televisions, washing machines, air conditioners and refrigerators are just some.

Each big city now has a community of foreigners - diplomats, resident business people, students and professionals, not to mention the millions of tourists who visit China every year and spend in excess of US$10 billion annually.

By the end of June 2002, China's foreign exchange reserves had reached US$242.7 billion, the second highest amount in the world.

Open policy at a new stage

China's WTO entry demonstrates that the country has kept up with the trend of globalization and that China's opening up and reform policies have entered a new stage, Vice-Premier Li Lanqing told a forum in Tianjin in May.

"With a more active attitude, we will take part in global co-operation and competition on a larger scale. We will open the country even wider to foreign countries and investors," he said.

China needs the rest of the world if it is to achieve prosperity, and global development also needs China, Li said. China's open-wider policy and economic progress will not only benefit the country itself, but also provide more opportunities for investors from the rest of the world, he said.

Since its WTO entry on December 11, 2001, China has committed itself to abiding by the rules and regulations of the world trade body. In recent years, China has revised or annulled foreign-related laws, rules and regulations that do not conform to WTO rules. For instance, the country now gives equal treatment to foreign-invested enterprises according to WTO terms. In the revised "Law on Chinese-foreign Equity Joint Ventures", localized production is no longer required of foreign-funded enterprises.

Furthermore, on January 1, 2002, China cut its overall tariff rate from 15.3 per cent to 12 per cent.

"WTO membership will exert wide-ranging and far-reaching influences on the Chinese economy. It will bring both opportunities and challenges," says Liu Peiqiang, deputy director of the Office of the State Council for Economic Restructuring. "But from an overall perspective, it will bring more advantages than disadvantages."

With China's WTO entry, more foreign investment has been coming to China. In the first half of this year, the Chinese government approved another 15,155 foreign-funded enterprises, up 26.39 per cent from the same period last year; and contractual foreign investment during the period totalled US$43.99 billion, up 31.47 per cent. Sources with MOFTEC say foreign investment in China for the whole of 2002 may exceed US$50 billion, the most in the country's history.

Of the world's 500 top multinational corporations, more than 400 have established one or more operations in the country, according to International Business Daily, a leading business newspaper in China.

As China's economy keeps developing at a rapid pace, the size of the country's market is also growing fast. And with WTO membership, access to that market has become easier for all. Likewise, the China market is decidedly more attractive in the wake of the WTO entry. In the next five years, China's goods market alone will provide its trade partners with at least US$1.5 trillion worth of business opportunities.

WTO a positive role

On November 11, 2001, in Doha of Qatar, Minister of Foreign Trade Shi Guangsheng ratified the agreement that completed the country's 15-year bid for WTO membership.

One year after its entry, China already has tasted the impact as a full member of the world trade body.

Shi Guangsheng described the impact as "generally positive" during an interview with the press in July. "While striving to fulfill our obligations as such," he said, "we are beginning to enjoy the rights under the rules and principles of the world trade body."

Shi attributed China's latest economic success to a range of factors including the proactive financial policy designed to boost internal demand and improvements in the global economic situation. "The WTO impact, taken as a whole, is positive," he said.

According to the minister, China's foreign trade will continue to grow this year, likely in step with growth of the GDP.

China has played an active role in WTO activities. At the latest round of agricultural negotiation, Shi noted, China put forward proposals demanding that developed countries terminate export subsidies and reduce tariff rates. "Our proposals won widespread support from fellow developing members of the WTO," he conceded.

While striving to fulfill its WTO obligations, China is using WTO principles and rules to effectively protect its own rights and interests when trade disputes break out.

Trade frictions between China and its trade partners have been on the rise since the beginning of the year. The European Union, for example, has taken measures to restrict Chinese exports. The United States, on its part, has adopted measures that "deviate from WTO rules" to restrict the import of Chinese steel and agricultural products.

But the minister refused to put the blame on the WTO. He attributed these protective measures to the on-going slowdown of the American and other Western economies, and to the after-effects of the 1997-98 financial crisis. "The WTO is not to blame for the increase of trade disputes against us," Shi insisted. "China should regard its entry into the WTO a blessing. We have acquired the proper means to fight trade protectionism against it, using the WTO norms as weapon."

Shi points out that China has become the sixth largest trading power in the world, and particularly spectacular is the growth of its exports. Under such circumstances, he notes, trade disputes involving China are bound to increase. "The latest trade frictions between China and its trade partners are not surprising at all," he said.

Minister Shi called on the entire society - governments, enterprises and consumers alike - to build up a strong sense of respecting the rules. "It's essential to the establishment of a good economic order," he says.

It is so short a time since China became a full member of the WTO, he noted. "The country is yet to face even more complicated situations in keeping the multilateral trade system going and in promoting the process of economic globalization. Our tasks will be formidable."

After 15 years of difficult negotiations, China is now a full member of the WTO, a milestone in the country's march towards becoming an active player in the world economic community.

But it is not the end of the opening up process.

In years to come, in order to conform to WTO rules and its own commitments, China will implement its open policy to a greater degree and depth and will continue to carry out reforms. For China's open policy, WTO membership signifies only the beginning of a new era.

(chinadaily)