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In early stages, FDI played crucial role in reform and opening up

Editor: Li Shouen 丨CCTV.com

07-30-2018 09:36 BJT

Full coverage: China's reform and opening-up, 40 years on

By Tom McGregor, CCTV.com Panview commentator and copyeditor

Editor's note: 2018 marks the 40th anniversary of China's 'reform and opening up' that opened the doors for a more prosperous China that helped hundreds of millions of Chinese citizens escape poverty as the nation had enjoyed rapid economic growth and development. CCTV.com takes a closer look at Beijing's comprehensive reforms with a series of special reports focusing on various fields where tremendous changes have taken place ever since the introduction of the policy.

When the late Chinese leader Deng Xiaoping announced the reform and opening up policy in December 1978, the long-term strategy was to introduce more free market measures that would spur China to grow more prosperous while marching in step with industrial development and modernization.

Yet for reform and opening up to succeed that required all Chinese to support such efforts. Many citizens from impoverished rural villages would either stay in their hometowns to boost agricultural production or they would migrate to the cities to jumpstart the manufacturing sector in the early stages.

China’s average annual GDP (gross domestic product) growth rates stood at around 9.5 percent, according to a research report published by the United States Congress (Congressional Research Service - Feb. 5, 2018). The economic miracle of China was an amazing feat to witness, since over 800 million Chinese had escaped poverty in the past four decades of reform and opening up.

Nonetheless, China could not achieve the remarkable results just by relying on its own people. Deng called for the launch of five Special Economic Zones (SEZS) at the coastal regions, which gave preferential tax and tariffs treatments to firms registering at designated SEZs.

But in the late 1970s, many Chinese were poor, so they did not have much access to capital to open factories. People could go to banks for loans, but that was high-risk, both for the banks and debtors.

  

Accordingly, Beijing introduced measures in the early 1980s, permitting FDI (foreign direct investment) to flow into SEZs. And in doing so, foreign investors could receive preferential treatment on taxes and tariffs.

Opening up FDI to China was a gradual process, since the country could adapt to ongoing changes without relying too much on foreign investors. In the emerging markets, a few countries had allowed FDI to pour into their country quickly, but when the domestic economy slowed down that sparked a massive outflow of cash, causing a crash.

So when outsiders wonder why Beijing has taken a gradual process to welcome FDI, we only need to look at how the emerging markets had endured disturbing boom and bust cycles. The Chinese government does support prosperity, but will not place social stability at risk.

So let’s take a closer look at the three stage process of FDI flowing into China. In the 1980s, FDI was only allowed to flow into SEZs and foreign enterprises. Later on, in spring 1992, Deng declared further liberalization, which meant FDI could flow into the retail, trade and finance sectors, while restrictions against investing outside SEZs were lifted.

Consequently, large inflows of FDI poured into China, the highest growth years were from 1992 to 1997. The third stage began with China becoming a member of the WTO (World Trade Organization), starting in Dec. 2001. Ever since then, China has enjoyed even larger FDI inflows, allowing Chinese companies to transition into a ‘go global’ approach making them more competitive in international markets.

Although FDI had played a crucial role for China’s industrialization and modernization, the process had occurred in a gradual manner, which resulted in the national economy staying strong and vibrant for the past four decades.

Therefore, the best way to understand China's reform and opening up is that it’s a never-ending story and will continue to change in order to adapt to new situations. Sometimes, the government moves slowly and at other times faster.

The gradual phased-in approach helps its citizens adapt to new adjustments without causing dramatic disruptions in their lives.  

(The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

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