Trade and Development: The Political Economy of China’s Open Policy

Abstract

China’s opening up to the outside world has been a feature of the economic reforms from the start. From 1949 until the late 1970s the country was completely closed to Western foreign investment. International trade continued after 1949, despite American embargoes, but was tighdy and centrally controlled. But China in the reform period is a major recipient of direct foreign investment and exporter of light manufactured goods. The presence of foreign firms and of imported consumer goods brings an exposure to Western and Japanese culture and business practices. International trade increasingly means that exporters must conform to international standards of quality, and domestic producers face import competition. For the planners, international trade means that world prices influence the domestic price structure and the economic-decision making of consumers and enterprises. Such changes have profound political implications too. The Chinese communist party (CCP) in the reform era has sought legitimacy in economic terms — its ability to deliver the goods — rather than in ideological terms. Western ideas of democracy, the ‘fifth modernisation’, contributed to the demonstrations which ended in the Tiananmen crackdown of 4 June 1989.

We are grateful for very helpful comments from Chen Yao of the Chinese Academy of Social Sciences in Beijing and from Zhang Leyin of the University of Greenwich, UK. Of course, any errors are our own.