2 Developing an Open Economy and the Belt and Road
Zhou Fangye
The formation and development of an open economy
An open economy is an important concept that has been continuously enriched and improved in the process of China’s reform and opening up. It covers major theoretical topics such as economic systems and structures, open strategies, participation in global economic governance, and formation of new advantages in participating in international economic competition and cooperation.[1] In 1993, the 3rd Plenary Session of the 14th CPC Central Committee put forward the concept of “an open economy” for the first time and required that “we should make the best use of bothdomesticandinternational marketsandresources so as to optimize the allocation of resources”.[2] The main contents include: first, geologically, all-round opening up is stressed, and apart from advancing special economic zones and opening up of coastal areas, we must also focus on advancing the opening up of cities along the border and rivers and inland cities; second, we must deepen the reform of foreign trade system, and accelerate the conversion of foreign operation system for various types of enterprises; third, we must further actively introduce foreign capital, technologies, talents, and management experience.
In the report to the 15th CPC National Congress in 1997, the Party further proposed that “We will improve the pattern of omnidirectional, multilevel and wide-ranging opening-up and develop an open economy”.[3] The report added some new contents, including expanding trade in services, actively participating in regional economic cooperation and the global multilateral trading system, promoting the opening up of service industries step by step, encouraging outward foreign investments that could leverage China’s comparative advantages, and making best use of both domestic and foreign markets and resources, etc. The 5th Plenary Session of the 15th CPC Central Committee held in 2000 emphasised that “we will further expand the areas of opening up and develop an open economy”.[4] It proposed for the first time the “going global” strategy and required making best use of the development opportunities brought by the accession to the WTO and striving to make new breakthroughs in utilising both domestic and international markets and resources.
While highly praising the achievements in developing an open economy, the report to the 16th CPC National Congress in 2002 clearly stated that the key to further promoting the development of an open economy was to adhere to the integration of “bringing in” and “going global”.[5] The 5th Plenary Session of the 16th CPC Central Committee held in 2005 clearly proposed to advance “the development of an open economy to a new level” and proposed for the first time to promote the liberalisation and facilitation of global trade and investment and implement a mutually beneficial,win-win strategy for opening up.[6]
The report to the 17th CPC National Congress in 2007 proposed for the first time the concept of “an open economic system” and required that “we should expand the areas of opening up, optimize its structure, raise its quality, and turn our open economy into one in which domestic development and opening to the outside world interact and Chinese businesses and their foreign counterparts engage in win-win cooperation, and one that features security and efficiency”.[7] The 5th Plenary Session of the 17th CPC Central Committee in 2010 further proposed that “we will improve an institutional mechanism that better suits the requirements of developing an open economy” and put forward for the first time that “we will actively participate in global economic governance and regional cooperation” and “promote the reform of the international economic system”.[8]
The report to the 18th CPC National Congress in 2012 further clarified that “we will promote all-around improvements to China’s open economy. In response to new developments in economic globalization, we must implement a more proactive opening up strategy and improve the open economy so that it promotes mutual benefit and is diversified, balanced, secure and efficient”.[9] Therefore, it has identified the new positioning and requirements for building an open economy. The report to the 19th CPC National Congress in 2017 further clearly stated that “We must actively participate in and promote economic globalization and develop an open economy of higher standards” and includes the new concept of “promoting the development of an open global economy” into the scope of building an open economy.[10]
Achievements and prospects of building an open economy
After nearly 40 years of exploration and practice of reform and opening up, China has made significant progress in the development of an open economy. First, remarkable results have been made in foreign trade. China has become the world’s largest trader in goods, the second largest trader in services and the second largest service outsourcing provider. Foreign trade has made significant contributions to the economy, and the total number of jobs created,directly or indirectly,was 180 million, which was roughly 23% of the number of all jobs in the country. Second, remarkable results have been made in “bringing in”. In 2016, China actually introduced 844.4 billion yuan of foreign investment, ranking first among developing countries for 25 consecutive years. Foreign investment has made significant contribution to the economy. In 2016, foreign-funded enterprises accounted for 43.7% of the country’s total exports, 18.3% of total tax payment, 9.9% of total employment in urban areas and 25.2% of total profits of industrial enterprises above designated size. Third, the scale of “going out” was expanded. In 2016, China ranked second in the world by the flow of outward foreign investment and became a net exporter of capital in strict sense. China’s stock of outward foreign direct investment exceeded US$1.3 trillion, and its total amount of oversea assets was nearly US$ 5 trillion.[11]
As the world is moving further towards multi-polarisation and economic globalisation, the international political and economic environments are undergoing profound changes, and China’s reform and opening up is now at a new historical starting point. Under the guidance of Xi Jinping’s Thoughts on Socialist Economy with Chinese Characteristics for the New Era, the open economy has also entered a new stage of development. In 2013, the Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform adopted at the 3rd Plenary Session of the 18th Central CPC Committee proposed the main direction of developing an open economy. In 2015, Several Opinions of the CPC Central Committee and the State Council on Developing a New System of Open Economy clearly specified the objectives and contents of a new system of open economy. The Outline of the 13th Five-Year Plan for the National Economic and Social Development of the People’s Republic of China further proposed the work programme for the development of an open economy. So far, the development layout for building an open economy in the new era hastaken shape.[12]
Starting from the reform of the economic system, the Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform has made important arrangements for the development of an open economy and proposed the development requirements, such as nurturing new advantages for comprehensive industrial competition, new advantages for all-round opening up, new advantages for creating stable, transparent and predictable business environment, and new advantages for participating in and leading the formulation of international rules and standards so as to create new advantages for participating in and leading international economic cooperation in fierce international competition.[13]
Several Opinions on Developing a New System of Open Economy proposed the overall objectives to be achieved in developing a new system of open economy: to nurture new advantages for international cooperation and competition at a quicker pace; to more actively promote the balance between domestic and external demand, import and export, and the attraction of foreign investment into China and outbound investment by Chinese enterprises; to progressively realise the overall balance of international payments; to form a new pattern of all-round opening up; to modernise open economic governance systems and governance capabilities; to uphold justice while pursuing shared interests in opening wider to the rest of the world; to earnestly safeguard national interests and maintain national security; and to promote the common development of China and other countries in the world, and build a new system of open economy that is diversified, balanced, safe, and efficient, and that brings about mutual benefits and win-win outcomes. On this basis, four concrete objectives are further broken down: a new mechanism for market allocation of resources shall be established; a new model for economic operation and management shall be formed; a new pattern of all-round opening-up shall take shape; and new advantages shall be developed for international cooperation and competition.The document has also specified the contents of 10 categories of 46 work items: foreign investment management regime shall be innovated; a new regime facilitating the implementation of the “going global” strategy shall be established; a new mechanism for the sustainable development of foreign trade shall be created; the regional distribution of opening up shall be optimised; the implementation of the Belt and Road Initiative shall be accelerated; the new space of international economic cooperation shall be expanded; an open and safe financial system shall be established; a stable, fair, transparent and predictable business environment shall be created; the support for the establishment of security mechanism shall be strengthened; and a security assurancesystem for the open economy shall be established and steadily improved. These have provided an action guide and roadmap for an open economy.[14]
The Outline of the 13th Five-Year Plan for National Economic and Social Development of the People’s Republic of China emphasises that “Opening up is the path China must take to achieve prosperity and development”. The Outline stated that in adapting to China’s ever-deepening integration into the world economy, we would pursue a mutually beneficial strategy of opening up, coordinate the role of domestic and foreign demand in stimulating growth, balance imports and exports, stress the importance of both bringing in and going global, and work simultaneously to attract foreign investment, technology, and talent; we would achieve a higher level of openness within our economy, participate actively in global economic governance and global supply of public goods, seek a greater say in the institutions for global economic governance, and look to build more international communities of interests. On this basis, it proposed the corresponding specific plans and work programmes in the five key areas, i.e. to improve the strategic layout of opening up, to improve the new system of opening up, to promote the implementation of the Belt and Road Initiative, to actively participate in global economic governance, and to actively assume international responsibilities and obligations.[15]
The Belt and Road Initiative promotes the development of an open economy
Developing an open economy has a close logic relationship with the Belt and Road Initiative. On the one hand, developing an open economy is the intrinsic requirement and prerequisite condition of the Belt and Road Initiative. As the initiator and responsible practitioner of the Belt and Road Initiative, China must set a positive example in opening up to the outside world. Only in this way can China play a leading role in promoting the Belt and Road Initiative and ensure its vitality. On the other hand, the Belt and Road Initiative is an important platform and an effective means for developing an open economy, and it helps to integrate domestic and foreign resources and promotes the development of an open economy that is diversified, balanced, safe, and efficient and that brings about mutual benefits and win-win outcomes.
First, the Belt and Road Initiative helps to ensure that the development of an open economy brings about mutual benefits and win-win outcomes. The basic requirement of an open economy is free flow of goods, capital, personnel, technology, and other factors so as to rationalise allocation of resources and maximise production efficiency. However, compared with the concept of free economy advocated in the Western countries, the most significant difference of an open economy to be developed under the guidance of Xi Jinping’s Thoughts on Socialist Economy with Chinese Characteristics for the New Era is that it insists on bringing about mutual benefit and win-win outcomes. That is, China will strive to promote the common development of China and other countries in the process of opening up to the outside world so as to fundamentally change the unreasonable and unfair international system of industrial division of labour and effectively curb the hegemonic behaviour of “neo-colonialism”.
The Belt and Road Initiative carries forward the Silk Road spirit of seeking mutual benefit and win-win cooperation and pursues the principle that all countries, big or small, rich or poor, can participate on an equal footing. China is willing to combine the experience and foundations of its own development with the development will and comparative strengths of all countries, and use the Belt and Road Initiative as an important opportunity and a cooperation platform to promote economic policy coordination among various countries, improve connectivity, foster bilateral and multilateral cooperation with a broader scope and at a higher and deeper level, and build a new cooperation framework that is open, inclusive, balanced, and mutually beneficial. The Belt and Road Initiative, characterised by equality and inclusiveness and grounded in realism, manifests the common interests of countries along the routes, including China.
At the end of 2017, China had signed 100 cooperation agreements with 86 countries and international organisations on jointly building the Belt and Road Initiative, covering a broad range of fields that include connectivity, production capacity, investment, economy and trade, finance, science and technology, society, humanities, quality of life, and marine issues. Meanwhile, while actively fulfilling its international responsibilities, China has advanced its cooperation with relevant international organisations in the Belt and Road framework. It has signed cooperation documents on jointly building the Belt and Road with the United Nations Development Programme, United Nations Economic and Social Commission for Asia and the Pacific, and the World Health Organisation.[16] This provides a strong guarantee for the mutually beneficial and win-win direction of China’s open economy.
Second, the Belt and Road Initiative helps to promote the development of a multilateral yet balanced structure of an open economy. In the new stage of development of an open economy, China has clearly put forward the principle of maintaining a multilateral yet balanced structure of an open economy and called for changing the long-standing imbalance in development. Through building the Belt and Road Initiative, we will be able to make new ground in opening China further through links running eastwards and westwards, across land and over sea. This will help to effectively improve the problem of unbalanced development between bringing in and going global and between the eastern and western regions and southern and northern regions in China during the new round of China’s reform and opening up.
First, the unbalanced development between bringing in and going global. Since the beginning of the twenty-first century, China has actively promoted the strategy of going global and has achieved remarkable results, but there is still a significant gap compared to the bringing-in strategy. The Belt and Road Initiative focuses on promoting policy coordination, connectivity of infrastructure, unimpeded trade, financial integration, and understanding between people, which will effectively improve the external environment for the strategy of going global and help to adhere to the principle of laying equal emphasis on bringing in and going global and effectively strike a balance between internality and external conditions of the Chinese economy, especially a balance between internal and external demands.
Second, the imbalanced development between the eastern and western regions in China. There is a large development gap between the eastern and western regions in China after the reform and opening up, and the openness and development achievements of the central and western regions lag far behind those of the eastern coastal areas. The six major international economic cooperation corridors proposedunder the Belt and Road Initiative—including the China-Mongolia-Russia Economic Corridor, the New Eurasian Land Bridge Economic Corridor, the China-Central Asia-West Asia Economic Corridor, the China-Indochina Peninsula Economic Corridor, the China-Pakistan Economic Corridor, and the Bangladesh-China-India-Myanmar Economic Corridor—have paved the way for the opening up of the central and western regions and thus enable China to implement the overall strategies for regional development, including the Great Western Development Strategy, the Northeast Revitalisation Strategy, the Strategy for the Rise of Central China, etc.
Third, the imbalanced development between the northern and southern regions in China. The Western developed countries have traditionally mainly been important economic and trade partners of China, while South-South cooperation is relatively weak. The Belt and Road Initiative provides sustained new momentum for China’s economic and trade cooperation with the countries along the routes, especially the developing countries. In recent years, the trade between China and the countries along the Belt and Road has become a new and persistent growth point of China’s foreign trade. In 2017, China’s imports and exports with the countries along the Belt and Road accounted for 26.5% of its total foreign trade.
Third, the Belt and Road Initiative will help increase the level of safety and efficiency in developing an open economy. On the one hand, while developing an open economy, we should pay attention to safe institutional construction and prevent the impact of external risk. On the other hand, we must also remove unreasonable institutional barriers, promote the flow of transnational factors and improve cooperation efficiency. The Belt and Road aims to build a new system of global economic governance based on the principles of extensive consultation, joint contribution and shared benefits. This will not only help promote a reasonable allocation of global resources and markets, but will effectively reduce the likelihood of global economic and financial crisis, reduce barriers to trade and investment among countries, and help all countries to avoid taking irrational measures to shift their risks on to others. In November 2016, the 193 member states of the UN unanimously adopted a resolution, which welcomes the establishment of the Belt and Road Initiative and other economic cooperation initiatives and calls on the international community to provide a safe and secure environment for the Belt and Road Initiative. On March 17, 2017, the UN Security Council unanimously adopted Resolution 2344, calling on the international community to strengthen regional economic cooperation through the Belt and Road Initiative. This has created a favourable international environment for China’s open economy.
[1] Pei Changhong, “Outline of the Research on the Open Economy Theory with Chinese Characteristics”, Economic Research Journal, Issue 4, 2016.
[2] Decision of the CPC Central Committee on Some Issues Concerning the Establishment of a Socialist Market Economic Structure, adopted at the Third Plenary Session of the 14th Central Committee of the Communist Party of China on November 14, 1993.
[3] Hold High the Great Banner of Deng Xiaoping Theory for an All-round Advancement of the Cause of Building Socialism with Chinese Characteristics to the 21st Century, Jiang Zemin’s Report to the 15th National Congress of the Communist Party of China on September 12, 1997.
[4] “Suggestions of the CCCPC on Formulating the Tenth Five-Year Plan for National Economic and Social Development”, adopted at the Fifth Plenary Session of the 15th Central Committee of the Communist Party of China on October 11, 2000.
[5] Build a Well-off Society in an All-Round Way and Create a New Situation in Building Socialism with Chinese Characteristics, Jiang Zemin’s Report to the 16th National Congress of the Communist Party of China on November 8, 2002.
[6] “Suggestions of the CCCPC on Formulating the Eleventh Five-Year Plan for National Economic and Social Development”, adopted at the Sixth Plenary Session of the Central Committee of the Communist Party of China on October 11, 2005.
[7] Hold High the Great Banner of Socialism with Chinese Characteristics and Strive for New Victories in Building a Moderately Prosperous Society in all Respects, Hu Jintao’s Report to the 17th National Congress of the Communist Party of China on October 15, 2007.
[8] “Suggestions of the CCCPC on Formulating the 12th Five-Year Plan for National Economic and Social Development”, adopted the Fifth Plenary Session of the 17th Central Committee of the Communist Party of China on October 18, 2010.
[9] Firmly March on the Path of Socialism with Chinese Characteristics and Strive to Complete the Building of A Moderately Prosperous Society in All Respects, Hu Jintao’s Report to the 18th National Congress of the Communist Party of China on November 8, 2012.
[10] Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era, Xi Jinping’s report to the 19th National Congress of the Communist Party of China on October 18, 2017.
[11] The Party Group of the Ministry of Commerce of the People’s Republic of China, “The Comprehensive Improvement of the Level of China’s Open Economy since the 18th National Congress of the Communist Party of China”, Seeking Truth, Issue 20, 2017, p. 26.
[12] Sheng Bin & Li Feng, “What Are the ‘New Characteristics’ of the New System of China’s Open Economy?” International Economic Review, Issue 1, 2017, p. 134.
[13] Wang Yang, “Building a New System of Open Economy”, People’s Daily, 6th ed., November 22, 2013.
[14] Several Opinions of the CPC Central Committee and the State Council on Developing a New System of Open Economy, issued on May 5, 2015, Xinhua News Agency, Beijing, September 17.
[15] “Outline of the 13th Five-Year Plan for the National Economic and Social Development of the People’s Republic of China”, Xinhua News Agency, Beijing, March 17, 2016.
[16] “Building the Belt and Road: Concept, Practice and China’s Contribution”, Office of the Leading Group for the Belt and Road Initiative, May 10, 2017.