4 - Evaluation of the open-door policy

Summary

More than ten years have elapsed since the inauguration of the open-door policy. Commodity trade, services trade and foreign investment in China have increased by leaps and bounds, but thorny problems remain. Unsustainable trade deficits have emerged in the liberalization phase of each of the three reform cycles, and the reforms suffered setbacks as a result of administrative measures taken to stabilize the economy. The growth of foreign investment has been below expectations and symptoms of economic inefficiency abound in both trade and investment. The achievements and deficiencies of the open-door policy in the areas of trade and investment are detailed below.

The rapid increase in trade

The increase in exports and imports since 1979 has been extremely rapid. From 1978 to 1988, China's exports (imports) have grown at the average annual nominal rate of 17 (18) per cent in terms of the US dollar, increasing slightly less (more) than fivefold in the ten-year period. Due to the repeated devaluation of the yuan, the US dollar provides a more reliable yardstick with which to measure the growth of China's trade. Though the US dollar appreciated strongly against major currencies from 1978 to early 1985, this has been largely offset by its subsequent depreciation. Measuring the growth of China's trade by the US dollar or by a trade-weighted basket of currencies gives similar results over the period 1978–88 (Sung 1988:19).

The ratio of China's exports (imports) to its GDP has also risen rapidly since 1978.