Obstacles and Opportunities in the Pursuit of China’s Economic Opening

China is undoubtedly facing dramatic changes on the world stage. The United States is increasingly mobilizing resources and alliances in the Indo-Pacific region to intensify its strategic competition to combat what it considers to be a “high threat to China.” The Biden administration deviated or abandoned almost all of his predecessor’s policies, with the exception of China’s.

Author: Xu Mingqi, CCIEE

Tariffs during the Trump era and export restrictions on China’s imports continue, and the legacy of Trump’s Indo-Pacific strategy continues through the promotion of the quad and the formation of the AUKUS Security Agreement to combat China’s influence. China’s policy makers recognize these measures as challenges in China’s external environment, and their stability is paramount to the development of the Chinese economy.

However, China remains optimistic and believes in the predominant strength of common interests with its trading and investment partners. China argues that the US-led separation not only undermines the interests of the United States and its allies, but also violates the basic economic rules governing international trade and investment. Political and security considerations do affect global production and trade patterns, but they do not change the power that drives economic globalization, the pursuit of comparative advantage. Based on these beliefs, China continues to support the principle of free trade.

The Chinese economy is deeply integrated into the world economy through its participation in the global production chain. The ratio of trade to GDP fell from a peak of 64.2 percent in 2006 to 31.4 percent in 2020, which remains one of the highest in the world’s major economies. China adheres to the view that maintaining stable economic growth and development through reforms and open measures will benefit both China and its trading and investment partners. Therefore, China is actively promoting the Regional Comprehensive Economic Partnership Agreement and is keen to participate in more free trade negotiations.

Many developed countries criticize China Unfair trading practice And because of its relatively closed domestic market. All this criticism is not groundless. China’s market economy is still immature in terms of legal and regulatory infrastructure, and economic development remains low compared to the advanced Western European market economy that has evolved over a century.

However, as the Chinese economy enters a more developed stage after a very high growth period, it is confident that it will upgrade its domestic laws and regulations to better meet the trade and investment requirements of the 21st century. By further opening up the Chinese market, China could help offset US pressure and maintain a stable external environment for economic development over the next decade.

The Chinese government is certainly making an effort to do so. The annual China International Import Expo, launched in 2018, demonstrates the policy intention to further open the domestic market and the denial of the mercantilist trade policy. The Foreign Investment Act of 2019 also allows foreign investors to receive comprehensive national treatment. Since 2013, China has established new free trade areas, especially in Shanghai, Shenzhen and Hainan, to test a more open economic system. In many of these zones, trade-related domestic regulations have been simplified or abolished, and average tariff levels have been lowered to promote trade liberalization.

Chinese application Participating in a comprehensive and progressive agreement on the Trans-Pacific Partnership is an important move in this direction. Many external observers understand this decision as one element of China’s policy to offset US geopolitical pressure.But from an economic point of view, it really is Logical decision Upgrade China’s market system with the same rationale as China joined the WTO in the late 1990s.

Despite geopolitical competition, China is still eager to take advantage of its economic progress by seeking opportunities to expand and strengthen its trade-investment relationship. For example, the US Indo-Pacific Economic Framework aims to develop a set of standards for key industries such as supply chain resilience, digital economy, export control, and environmental protection. Most countries in the region welcome US leadership in economic development, but what they most want is greater market access and trade promotion. Due to the lack of this important factor, it is not easy to separate China from the global supply chain.

Recent measures to further open up China’s service sector and financial markets have generally been overlooked, as Western media coverage is dominated by geopolitical competition hot topics. Fearing where economic reforms were once unrealizable, the speculative shocks that cause financial crises and social instability, China now has a mature economy and opens a historically closed industry. It is more suitable and will be strengthened by market-oriented regulations.

Contrary to some speculation, China’s trade policy will not return to the closed market principle for the next decade, as increased openness is essential for both China and the global economy.

Xu Mingqi is Vice President of China International Economic Exchange Center and Senior Researcher of Shanghai Institute of International Financial and Economic Research.

This article is published in the latest version of Quarterly East Asia Forum“East Asian Economic Partnership Agreement,” Vol. 14, No. 1.

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