By Long Guoqiang

As an international organization devoted to handling international trade relations, the World Trade Organization (WTO) is in essence designed to restrict the trade policies of its members by various kinds of agreements so as to guarantee liberalization of trade. If China wishes to achieve a true balance between its rights and obligations after entering the WTO, the paramount task now is to reform its foreign economic management system. On the basis of investigation, this paper has put forward some proposals on the reform of the foreign economic management systems to be implemented after China's accession to the WTO.

I. Why need foreign economic management systems be reformed?

1. Reform of the foreign economic management system is an inherent need of the development of an open economy.

With the development of China's economy from a closed one to an open one, the contents of economic activities have become richer and richer since the late 1970s, and more and more foreign economic activities have been brought under government management. This has led to the gradual development of a cumbersome foreign economic management system.

Although China has set the development of a socialist market economic system as the ultimate goal of the reform, the pace of reform has been noticeably slower than that of the open-up drive due to influences from various kinds of subjective and objective factors. The reform of the system of government management, meanwhile, has lagged even farther behind the overall progress of economic restructuring. As a component of the economic management system the foreign economic management system is restricted in its reform by the progress of the reform of the economic management system. Each effort to expand market access and each measure to reduce red tape in management will be subject to restriction from the domestic planning system, the investment and fund-raising system, the financial system, and the division of work between government departments. In addition, the current foreign economic management system itself still carries a marked brand of the planned economy.

Government departments are chasing after powers, government officials are haunted by red-tapism, the foreign economic management system is permeated with the management concept of "big government and small market", and there is the tendency of preferring administrative measures to legal means, examination and approval to management and services, and handling of specific matters to macro coordination in the foreign economic management system. The government restructuring in 1998 has produced marked results in simplification of the administrative structure and reduction of staff. So far as the foreign economic management system is concerned, however, the functions of government have remained as what they were, government powers have not been reduced, and problems such as production of piles of documents, overlapping of organizational establishments, and mutual impediment to the performance of functions still exist. These problems have in turn given rise to problems such as multiple links in management, complicated formalities, numerous loopholes, and big costs and poor efficiency. All these no longer suit the need of construction of a socialist market economic system and development of a open economy. With the rapid advance of economic globalization, competition between countries has grown ever more fierce. The lower efficiency of the government management system of a given country will have a direct bearing upon the ability of competition of its enterprises at the international market, upon its investment climate, and finally upon its position in the global economy. Driven by the current of economic globalization, the scale of international trade and investment has grown constantly with new forms and contents. This has created a rare opportunity for countries to bring out their comparative advantages and posterior advantage.

The slow reform of the existing foreign economic management system in China, however, has made it hardly possible for the country to seize the great opportunity created by the economic globalization. Transnational merger and acquisition (M&A), for instance, has become a major form of international direct investment. In China, however, there is not yet any law to govern this new kind of foreign activity, thus preventing China to step up utilization of foreign investment or speed up reform of state-owned enterprises through the form of transnational M&A. The revolution of new technologies, for another instance, has developed extremely rapidly, and a promising future lies ahead for the hi-tech industry. This is also, however, a field where international competition has grown extremely fierce. The hi-tech industry is characterized by small sums of individual contracts, big changes in price, and short time of delivery. Many hi-tech enterprises have adopted the operation of "zero stock".

In China, however, customs and commodity inspection departments are still supervising and managing the hi-tech industry in such a way as they treat the traditional industries, and the low efficiency of the supervision and management system has often impeded enterprises in their timely import of input goods and export of commodities. As a result, some hi-tech enterprises have to transfer some of their high-profit business and research that call for quick delivery to foreign countries. This would have a serious negative impact upon the development of the hi-tech industry in China. This shows that failure to totally reform the existing foreign economic management system will seriously restrict the sharpening of the competitive edge of China’s economy at the international market and cause the country to let slip a golden opportunity during the process of economic globalization. For this reason, reform of China’s foreign economic management system is an inherent demand of China’s economic development and should be taken as a voluntary choice.

2. Reform of the foreign economic management system is an inevitable demand to safeguard the economic interests of China during its opening-up drive.

Liberalization of trade and investment is a double-edge sword. An foreign management system should not only provide a system guarantee for strengthening the ability of a country in international economic competition, but also supply a mechanism for fencing the economic interests of the country against infringement. In this sense, it has a direct bearing upon a country’s efforts to gain benefits and avoid losses during the process of economic globalization. No breakthrough progress has been achieved yet in China in the field of reform of the state-owned enterprises and construction of a huge unified domestic market. Neither have any ideal results been achieved yet in the adjustment of economic structures, nor has transformation of government functions achieved its goal. The social security system is also incomplete and imperfect, and the ability to meet the impacts of all-round opening of the market to foreign countries is still fairly weak. As the situation stands, it is necessary to create certain mechanism of protection to guarantee the security of China’s national and economic interests.

The existing foreign economic management system can not meet the need for safeguarding the interests of China during the opening-up drive.

First, the existing system lacks the mechanism for formulation and coordination of foreign economic strategies. Each foreign economic department is attending specific matters of its own and does not pay sufficient attention to major issues concerning national foreign economic strategies. In recent years, for instance, regional trade blocs are being created around the world one after another, but China has remained one of the few countries staying out of the various regional blocs of different systems. It is pressing for China to work out a strategy tailored to the trend of integration of regional economies. Also, the tendency of transnational alliance of industries has gained ever greater momentum. The study on the ways Chinese industries adapt to this new situation of monopoly competition is insufficient. The contents of multilateral, regional and bilateral negotiations are becoming more and more complex, China, however, suffers a serious shortage of talents familiar with the rules of international economy and trade, and lacks due study on these rules and clear-cut foreign economic strategies. As a result, some people responsible for economic negotiations often have no idea of what interests to safeguard, and what to be used as counters in foreign economic negotiations. Nor do they know how to use international rules to strengthen their own positions in negotiations. It is also difficult for various domestic departments to coordinate with departments in charge of negotiations with foreign countries, thus putting themselves into a passive position in these negotiations.

Second, the current foreign laws and regulations are ambiguous, their stipulations are too general, and there is too much leeway in their interpretation. This usually gives a chance to those under supervision and management to establish personal relations or avail themselves of the loopholes. Many local governments have tried to "play edge ball" in the examination and approval of overseas investment and imports, and there have been many cases of local governments going beyond their limits of power to make examinations and grant approvals.

Due to the excessive leeway in the interpretation of laws and regulations, law-enforcing personnel have gained too much power and have become too wilful in the execution of laws. This is easy to give rise to various kinds of corruption and cause losses to state interests.

Third, many foreign management regulations and rules seem to be strict, but are actually full of loopholes or merely empty shells because of the overemphasis on examination and approval with inattention to management. In some industries, for instance, the proportions of exports by foreign-funded enterprises have been used as the preconditions for the approval of establishment. When applying for examination and approval, some of these foreign-funded projects would promise to export due portions of their products. Once approval is granted, no department is there to check whether these enterprises have actually exported their products according to the proportions specified in their contracts. Foreign exchange administration departments, for another instance, check accounts of foreign exchanges used for imports and exports case by case. This costs a lot of labour. In addition, they organize several other departments to carry out joint annual inspections on foreign-funded enterprises. It can not be said that the management exercised by these departments is not strict. Yet, each year huge amount of US dollars of foreign exchanges flow out of China. This phenomenon has come to be known as "scarecrow" phenomenon. What is even worse is that some customs officials have taken advantage of their position as "guards at the national gate" to serve as the accomplices of smugglers. Such big loopholes in the foreign economic management call for high attention.

Fourth, numerous new fields will be opened to overseas investors after China’s entry into the WTO. But since there have not been laws to go by in quite a number of these fields, it is of great urgency to complete China's management system. In addition, some existing management methods have to be abandoned and replaced by new ones. Opening the market of service trade is a new feature of opening-up after China joins the WTO. China is inexperienced, however, in the opening-up of the service trade, does not have all the laws and regulations necessary, and has not defined clearly the limits of management powers. China has promised, for instance, to open its telecommunications market to overseas investors. It does not, however, have any law stipulating market access, supervision and management of the overseas investment. New laws in this regard need to be worked out immediately. Neither does China have any national laws on the management of overseas insurance, and what is relied upon at present is the local regulations of Shanghai. It can be seen that after joining the WTO, China will witness a great increase in the contents and scale of foreign economic activities, and a higher demand for the existing foreign economic management system. If no major reform on this system is launched, contradictions between China's superstructure and economic development will become all the more acute, loopholes in the management will increase, and China’s national interests can be hardly guaranteed.

Fifth, there is an unconformity of interests between the central and the local governments and between the various departments. Local governments and various departments may handle the relations between "opening-up" and "protection" by starting from the partial interests of their own after China’s joining into the WTO, welcome all kinds of overseas investments and imports and do not take any precaution so long as these investments and imports do not harm their own interests. Therefore, the lack of an effective system guarantee may result in a situation in which partial interests punch against overall interests and national interests are harmed.

3. Reform of China’s foreign economic management system is subject to great restrictions from the outside.

In negotiations over the entry into the WTO, China has promised to reform its foreign economic management system in line with WTO rules and basically fulfill the commitment within the period of transition. This has in fact set a timetable subject to strong external restrictions for the reform of China’s foreign economic management system. China boasts a market with the greatest potential in the world. Developed countries have been demanding high prices for China's entry into the WTO and trying every means in negotiations over protocols and work group reports to win legal and system guarantees for their access to the Chinese market. After reaching agreements with China, some major trade partners have immediately set to study ways for supervising China's full fulfillment of its commitment and have already done a lot of work in this regard, they are ready to take advantage of the mechanism of multilateral trade to explore maximum benefits. If China fails to fulfill its commitment and to adjust pertinent management systems on schedule due to insufficient preparations, the major trade partners will take actions immediately and put pressures on China by taking advantage of the mechanism of bilateral government negotiations and settlement of multilateral disputes. They may even impose retaliatory sanctions against Chinese products. Numerous trade disputes will cause China's external economic environment to deteriorate, and harm its international reputation. This is something against the original intention for joining the WTO. For this reason, it is necessary for China to take the whole situation into consideration according to the commitment made in WTO negotiations, put corresponding preventive measures into implementation one by one, and reform the foreign economic management system accordingly.

In one word, no matter whether the issue is viewed from the need to greet challenges from the WTO or the need of the domestic reform and development, it is necessary for China to reform the existing foreign economic management system in line with the commitment it has made and the long-term direction of the reform to establish a market economy system. By doing so, China can take a better part in international division of labor and competition, and a reliable system guarantee can be provided for sharpening the edge of China’s economy in international competition.

II. Focuses of reform during the transition period

In line with the thinking of the "three benefits" developed by Comrade Deng Xiaoping, the overall objective of the reform of China’s foreign economic management system is to sharpen the edge of the economy in international competition, enhance the comprehensive national strength, achieve balance of international payments, and safeguard China's national economic interests and economic security. According to the opinions we have solicited from various circles in our investigations and studies, the following points should be highlighted in the reform of the foreign economic management system at present and during the transition period after China's entry into the WTO:

1. Complete laws and regulations, guarantee unified implementation of economic and trade policies

There are more than 200 national laws, over 700 administrative decrees promulgated by the State Council, and about 30,000-40,000 administrative regulations enacted by central government departments and local governments. According to WTO rules and the commitment made by China, the laws and regulations currently in effect should be sorted out for a relevant purpose and some of their contents should be revised accordingly. At the same time of revising these laws and regulations, a number of new laws and regulations designed to standardize economic activities in fields to be newly opened to overseas investors should be formulated and promulgated so as to bring all foreign economic activities onto a legal track without exception. The stipulations of these new laws and regulations should be as clear-cut and specific as possible to avoid wilfulness and differentiation in treatment during their execution due to too much elasticity or leeway in interpretation. This is to guarantee the unified implementation of economic and trade policies throughout the country.

2. Increase transparency, predictability and stability of policies

Transparency and predictability of policies are one of the basic requirements of WTO.

During the process of formulation of China’s foreign economic management policies now in work, opinions have not been fully solicited from various circles. As a result, some of these policies have to be postponed or amended after promulgation, thus giving people an impression of changeableness of the policies. Governments base their management mainly on classified documents. The contents of the policies are not transparent in themselves, and the process of execution of these policies is even less transparent. Once in difficulty, enterprises do not know where to seek advice or help, and may even do not know the existence of certain regulations until they are punished for violation of these regulations. Under a new foreign economic management system, it is necessary to introduce the hearing system during the formulation of laws and policies so that opinions can be solicited extensively from various circles, the wilfulness and blindness of policies can be avoided, and the stability and authority of policies can be strengthened. It is also necessary to introduce the announcement system.

All policy regulations should be published in designed publications so as to keep their openness. The transparency of the foreign policy regulations of some professional management departments, in particular, should be increased, and increase of the transparency in formulating and executing policies should be listed as a focal point of the efforts of these departments to improve their work. Unified law and policy consulting centers should be set up to interpret the specific connotations of laws and policies in a unified way and guarantee that enterprises can learn about changes in policies at any time. Judicial procedures should be perfected, and the transparency of judicial procedures should be increased. Courts handling administrative lawsuits should be designated or newly set up to guarantee that enterprises can protect their interests in accordance with law.

3. Clearly define government functions and coordinate division of work between government departments

Under the existing system, government exercises too much and too wide control over foreign economic activities without stressing the main points. The division of work between government departments is not clear enough, and their functions overlap each other. As a result, government departments often pass the buck to each other and enterprises do not know whom to turn to. To transform government functions, earnest efforts should be made in the study of the focal points of the government in foreign economic activities, and to clearly define the range and limit of power of government management. After China's entry into the WTO, some functions of government management under the existing system should be removed or weakened, and some should be handed over to chambers of commerce, specialized associations, or other kinds of intermediary organizations. The role of chambers of commerce as a bridge between enterprises and government departments should also be strengthened. In line with the need of the new situation, some government functions should also be added or strengthened. Division of work between government departments should be rationally determined, and the principle of "charging one task to only one department" should be resolutely upheld, thus avoiding interference from many sides and passing of the buck to each other. The rights and responsibilities between central and local governments should be clearly defined by strict laws and regulations. It is not necessary for the organizational establishments of local governments to correspond fully to those of the central government. Instead, efforts should be made to merge their functions over foreign economic management wherever possible according to the successful experience of the special economic zones and some of the development zones so as to reduce the number of organizational establishments and management links.

4. Improve management and efficiency Although piles of regulations and rules are in effect, rows and rows of examination, approval and supervision departments are operating under the existing system of foreign economic management, the efficiency of management is not satisfactory. More often than not, control is out of place where it should be in place. Once a problem emerges, all departments would come to interfere. But since such interference is not so relevant, micro economic interests would be sacrificed and high management costs would be caused. The reason for this lies in the outdated concept about management and the one-sided understanding of strengthening management as expanding the limit of power over examination and approval and the range of management and control, and subsequent overemphasis on the form with negligence of the content. After China's entry into the WTO, the participants in foreign economic activities will greatly increase. For this reason, government departments at all levels should update their concept about management and change their practice of exclusive emphasis on examination and approval to attention to examination and approval combined with equal focus on management and service. Efforts should be made to shift all-inclusive management to selective management. Advanced management methods such as computer networking should be adopted wherever possible so as to reduce management links, lower costs, and improve efficiency.

III. Difficulties and strategies for the reform The new foreign economic management

The new foreign economic management