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Establish a New Opening-Up System

Oct 12,2015

By Wang Yiming

Research Report Vol.17 No.5, 2015

The Recommendations for the 13th Five-Year Plan for Economic and Social Development (Recommendations for short hereafter) approved at the Fifth Plenary Session of the 18th Central Committee of the Communist Party of China focuses on China’s adaptation to the new trend of economic globalization and accelerating the cultivation of new advantages in international economic cooperation and competition. It puts forward new requirements and tasks of establishing a new opening-up system, which constitutes the significant guideline for China to promote all-round opening-up and develop an open economy at a higher level.

I. Profound Changes in Domestic and International Environment Set New Requirements for Accelerating the Establishment of a New Opening-Up System

At present, the external environment and internal conditions for China’s opening-up drive are undergoing profound changes. Accelerating the establishment of a new opening-up system complies with the trend of integrating China into the world economy. It is the fundamental approach to effectively dealing with the changes in the environment both at home and abroad.

1. Establishing a new opening-up system is the necessary requirement to adapt to the changes in global economic pattern

After the outbreak of the international financial crisis, the world economy entered the in-depth adjustment period with increasingly distinct characteristics of differentiated adjustment. In order to walk out of the crisis, developed countries adopted quantitative easing policies (QE) one after another, but took no substantive measures for structural reform, hence winding towards recovery slowly. Developing countries continued to rise, taking growing shares in the world economy, but with slowed pace of structural adjustment and weakened catch-up progress. Developed countries “grow at two speeds”, with US economy embarking on a growing track again, while the European Union and Japan remaining on a low track. Emerging economies grow “towards two different directions”, with India growing fast while Brazil and Russia growing at a negative speed. China’s economy grows at a medium to high speed and is still an important engine of world economy. But it is confronted with a new challenge posed by the changing global pattern. In order to take an initiative in international competition, China has to accelerate the establishment of a new opening-up system and boost its competitive advantage in its systems and mechanisms.

2. Establishing a new opening-up system is the pressing need for China to deal with the increasingly fierce competition in global rules

After the outbreak of international financial crisis, the WTO progress for free trade was seriously hindered, with Doha Round negotiations stalled in a deadlock. The US and the developed countries in Europe turned to promoting negotiations of Trade in Services Agreement (TISA) and expansion of Information Technology Agreement (ITA) they dominated, leading to fiercer competition over the rules for international trade and investment. The US took the initiative to advance negotiations of Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP), meaning to advance its dominance in rule setting. In order to protect their vested interests, developed countries included new issues in negotiations such as labor standard, environmental protection, intellectual property right, government procurement and competitive neutrality. They switched the constraints for members from “border measures” to “behind-the-border measures” so as to raise the entry threshold for developing countries to participate economic globalization. China must not only take more initiative to participate in setting international rules with the aim to protect the interests of developing countries, but also understand that changes in international rules, to a considerable extent, reflect the development direction of international trade and investment. Many aspects of these changes are in accordance with China’s direction of promoting opening up to the outside world. Therefore, China must take a more proactive and confident attitude to accelerate the establishment of systems and mechanisms geared for the rules of international trade and investment.

3. Establishing a new opening-up system is the internal requirement to develop an open economy at a high level

In recent years, China has made great efforts to practice the “Go Global” strategy while introducing foreign capital, technology and management expertise. It has entered the new phase where equal importance is given to both “Bring In” and Go Global” strategies. In 2014, China’s outbound investment hit a record high of $123.12 billion, with a year-on-year growth rate of 14.2%. Compared with the inbound foreign direct investment, China’s outbound investment was dwarfed only by a small divide of $5.38 billion, almost achieving the balance of two-way investment for the first time. It can be predicted that in the near future, China’s outbound investment will surpass foreign capital inflow, and China will become a country with net capital outflow. During the coming period, while adhering to “Bring In” strategy, China should take more initiative to go global, advance the implementation the “Belt and Road” Initiative, and enhance international cooperation in production capacity and equipment manufacturing. China should also make efforts to set up a high-standard network of free trade zones focusing on neighboring areas and orienting globally. To further the aforementioned ends, it is required to accelerate the innovation in systems and mechanisms, and strike a better balance between the two-way interests of “Bring In” and “Go Global”. We should further open up in exchange of the equivalent treatment of other countries to pursue mutual benefit, win-win results and common development.

4. Establishing a new opening-up system is the objective requirement for active participation in global economic governance

After 30 years of reform, opening up and economic development, China has developed into the world’s second largest economy and the largest trader in goods. It has also become the world’s most important destination of cross-border investment and a major country investing overseas. By means of trade, investment and finance, there has been growing interaction between domestic economy and the international one. During the 13th Five-Year Plan period, China will have a closer relationship and growing interaction with international economy. It will also have a more urgent need to join global economic governance. So China should take more initiative to advance the innovation in systems and mechanisms, boost its institutional advantages of opening-up and improve its institutional discourse power in global economic governance.

II. General Requirements for Establishing a New Opening-Up System

The Recommendations points out that “efforts should be made to perfect a legalized, internationalized and facilitated business environment, improve the systems and mechanisms that boost mutual benefit and win-win results and also are adaptable to international trade and investment rules”. The document specifies the general requirements for establishing a new opening-up system in the 13th Five-Year Plan period.

1. Build a legalized, internationalized and facilitated business environment

To build a legalized, internationalized and facilitated business environment, it requires setting up a fair and just legal system, a transparent and efficient administrative environment and a market with equal competition. To put it more specific, legal measures should be taken to regulate opening-up practices and to solve problems in its process. Efforts should also be made to keep improving laws and regulations concerned with foreign affairs, making sure that major opening-up policies are based on laws. It is a must to establish a unified, open market with orderly competition and regulation, to respect non-discriminatory international business practices and to give fair treatment to all market entities including businesses of foreign investment. Besides, in the areas of opening-up such as trade and investment, China should comprehensively advance the facilitation of management system, improve service support system and facilitate the service to market entities.

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