China Will Continue to Open Up




I went to Brussels this spring, right after the terror attacks on the airport and metro. It was midnight when I arrived but soldiers wearing body armor and armed with rifles could be seen everywhere, from the airport to the hotel.


The next day on my way to work, I saw a crowd of people in front of the EU headquarters carrying placards. A local friend told me that they were protesting against the TTIP (Transatlantic Trade and Investment Partnership). He sighed and continued, “People in France are also demonstrating because the government is reforming the labor law.” This European trip, though brief, gave me a direct perspective of the setbacks that globalization is experiencing in Europe.



Themed on global economic growth challenges and financial reform, the 2016 Lujiazui Forum commences in Shanghai on June 12, 2016.


Foreign threats and domestic unrest are impediments to globalization. What’s worse, a few “black swan” incidents in 2016 have posed further threats: first Brexit, then the election of Donald Trump, who advocates “America First” and claims he intends to build a border wall with Mexico. The Trans-Pacific Partnership (TPP) was suspended before Trump entered the White House. Many people perceive the dawning of an age of anti-globalization: Major powers are re-focusing on domestic affairs; more and more people are becoming influenced by populism that is anti-elite, anti-establishment, and anti-globalization; barriers to international trade and investment are on the rise; and countries that own the world’s major currencies lack coordination. Geopolitical games, terrorist attacks, unrest among local ethnic groups, and religious conflicts spell trouble for economic networks.


Yet despite these barriers, China has vowed to continue to open up.


Increased Opening-up Impetus


First of all, China has become part of the global economy. It would be impossible, therefore, for the country to break its economic relations with the world and retreat to the domestic market. Forty years of reform and opening-up have seen China’s economy continuously integrate in the world economy.


Since the global financial crisis of 2008, China has been strengthening economic cooperation with the world in spite of an unfavorable trade and investment environment. The pace of the “going global” of Chinese enterprises, people, and capital did not slow down. More than 20,000 Chinese enterprises invest overseas, and more than 100 million Chinese citizens go abroad every year. In 2015, China’s Overseas Direct Investment (ODI) hit a new high of US $145.67 billion with an annual growth of 18.3 percent. The proportion of China’s ODI in global ODI increased from 0.4 percent in 2002 to 9.9 percent that year, ranking a world second for the first time.


Against such a backdrop, China’s domestic economy would suffer from severing its ties with overseas interests, and its capital and people abroad would sustain a great loss. As China continues to open up to the world, China’s open economy, epitomized by the Belt and Road Initiative, develops, too.


To date, more than 100 nations and international organizations have expressed their support for the initiative and their willingness to join, and more than 40 cooperation agreements have been signed. This demonstrates the steady pace of opening-up of the Chinese economy.


Second, the economic interdependence between China and the world is too strong to sever. At the start of reform and opening-up, it was mostly reflected at the lower end of the industrial chain. In other words, the world needed cheap labor from China, and China needed the world’s orders, technology, and management experience. If at that time China had separated its economy from the world, the world would have lost access to cheap, high quality clothes, shoes, and toys, and Chinese workers, especially rural migrants, would have lost their jobs.


Today, China’s economic relations with the world take on a new look due to upgrading of the industrial chain, but the ties are still too close to disconnect. Since 2015, mechanical and electrical products have made up half of China’s exports, with a focus on large single unit and complete sets of equipment. China is also highly competitive in high-speed rail and nuclear power products as well as railroads, vessels, aerospace industry and other transportation equipment industries.


Though the form of economic relations is changing, the interdependence between China and the world is strong. With the upgrading of the world’s economy and the change in economic content, China’s economic relations with the world might spread to areas like currency and finance, and intellectual products, but the fundamental interdependence of China and the world will not change.


Chinese culture is a third driving force for opening-up. The cradle of Chinese culture lay in the vast and flat arable lands where towns and villages had no clear borders, and people had close links. In contrast, Western culture was formed in “mosaic” areas, like coasts, mountains, and forests where cities and villages were discrete and links between people loose. Thus, the notions of nationalism and sovereignty first appeared in Europe, and China was “forced” to accept these notions only after the infiltration of Western guns and capital.


The most fundamental aspect of Chinese culture remains the concept that “the world is one.” Therefore, China accepts globalization not only because of material interests but also because of the intrinsic belief that all human beings should unite.


Chinese President Xi Jinping has advocated building a community of shared destiny, called for an open world economy at the G20 Hangzhou Summit, and re-emphasized the policy of opening-up at the recent Central Economic Work Conference. These proposals are not mere expediency, but absolute economic needs, and rooted in Chinese culture. Therefore, we can say that China’s opening-up is fundamental and lasting.


Confidence in Opening-up


China will continue to open up to the world because we have confidence in globalization. Though arriving late at the “party,” China quickly grasped the essence of globalization. Learning from a failed closed-door policy in history, China knew that the international trend was unstoppable and could not be reversed.


China witnessed how some emerging nations once prospered but declined because of their conceit and separation from world development. China also saw how WWI, WWII and the Cold War nearly destroyed the world but how the international flow and exchange of economy, people, and culture resumed after each crisis.


If wars could not stop globalization, then what could? Can an economic entity really become autarkic and stop the permeation of information, capital, and technology? Can populism, which is just a transient way for some people to express themselves and for shortsighted elites to please, really change the development of world history? China does not think so. Therefore, China has confidence in its opening-up and also that other countries will return to the road of opening-up.


In a changing world, especially in an environment of anti-globalization, China’s opening-up will take on a different look. This difference can be summarized in one word – rules.


How to Further Open up?


China will continue to open to the world, and participate in and promote globalization with a focus on the establishment of rules and regulations.


China needs to improve its legal system. The country’s recent legislation on strengthening management of the Internet and NGOs incurred suspicion from abroad. Some saw it as signifying foreign investment brakes on China’s opening-up; others complained that the foreign investment environment in China had begun to worsen.


This demonstrated that the outside world was not used to China’s opening-up based on rules. But to open up thoroughly, rules have to be strengthened; otherwise, there will only be chaos, which will not generate benefits but harm both China and the world.


In the last 20 years, many emerging markets, faced with foreign capital speculation and a deformed domestic economic structure, could not find countermeasures, and suffered from financial and social crises that spread throughout the world.


This lesson resonated with us. During the process of China’s reform and opening-up, some cases lacked rules and regulations. For example, some local governments promised foreign investors huge preferential treatment in land, tax, and labor rights, which seemed to attract capital and broaden opening, but had serious consequences. When the world economy slowed down and the trade environment worsened, those seemingly preferential arrangements became unprofitable.


China gradually strengthened regulations, which increased the difficulties of officials who had made promises and investors who held big hopes. This teaches us that opening up cannot go beyond market laws and regulations, and that we will definitely pay the price in the long run if laws are broken.


Internet companies and NGOs arrived in China after ODI. Therefore, it is best to set rules that are acceptable to both China and foreign corporations. In fact, the trend of rule-setting is a world phenomenon. For instance, Internet enterprises in Silicon Valley are negotiating tax affairs with the EU, and NGOs in the West are trying to adapt to new rules set by emerging and developing countries. When the Chinese say “Even brothers should do the accounts” and Americans say “Good fences make good neighbors,” both mean that progress can only be made when rules are followed cooperatively. It is laws and regulations that have enabled the market economy and globalization to come this far.


Some think it is hard to understand the Chinese government’s rules. In fact, they are very simple: The ultimate goal is not only regional and economic development but also overall development, which can be summarized by “building a moderately prosperous society comprehensively.”


To achieve this goal, the market plays a decisive role, which in turn calls for a change in many old things. This is what is meant by “deepening reforms comprehensively.” The market economy has to operate under laws. Therefore the Chinese government advocates “rule by law comprehensively.” Lastly, to smoothly push reforms and rule by law, the ruling party has to “reinforce party discipline comprehensively.”


The four “comprehensivenesses” mentioned above constitute the current governing strategy of the CPC and the guarantee of China’s opening-up. We believe that every investor who wants to share the bonus of win-win cooperation with China does not want to leave after one transaction but expects to cooperate in the long term, and hopes this cooperation takes place under laws.


When going abroad, China has to learn to negotiate rules. Generally speaking, the Chinese market economy has still not been recognized 15 years after the country joined the WTO. It seems ludicrous, but this teaches us that China needs to learn how to negotiate rules with the international community.


In industrial areas, for example, Chinese steel-making capacity problems continuously met obstacles defined by the West, including anti-dumping investigations of many goods and the setbacks met by overseas RMB businesses. From this we can see that China, as an emerging country, is not yet used to international economic rules, and that developed countries seem to exclude China.


China will not flinch from rules. China will not start trade wars or currency wars. China will learn the rules and use them to negotiate peacefully with interested parties to change old rules and set new ones. When people worried that the U.S. would abandon the TPP and the North American Free Trade Agreement (NAFTA), President Xi continued to appeal to countries for the establishment of the Free Trade Area of the Asia-Pacific (FTAAP) at the APEC Peru Summit last November, which demonstrated a positive attitude and firm action.


To conclude, the anti-globalization movement is gaining momentum and worries many people. Therefore, resistance to China’s flying against the wind is huge. But principles of flight tell us that with the right posture and method, a headwind can sometimes make you fly even higher. It will not be easy for China to continue to open up in an anti-globalization environment, but China is willing to explore ways to promote a new globalization mode with other countries, one that is more efficient, fair, and organized, and which needs the participation and management of emerging and developing countries like China.


KOU LIYAN is deputy research fellow at China Center for Contemporary World Studies.