Building high-level open economy in new global landscape
A bird’s eye view of a fully automated container terminal in Qingdao, Shandong Province on Oct. 8, 2020 Photo: CFP
China is pursuing a new economic development pattern of “dual circulation,” which smooths domestic circulation and lets domestic and international circulations reinforce each other. This is a major strategic adjustment made amid the changing external global landscape characterized by shrinking consumer demand. As China’s economy has over 30% dependence on foreign trade, this new development pattern came as a visionary measure to mitigate growing external uncertainties in the multilateral trade system.
The model hinges on further interlinking international circulation with domestic circulation, so that resources within and outside of China can be better exchanged. The new pattern will not only improve international circulation, but also better facilitate globalization and the international division of labor.
Growing uncertainties
Globalization, since the end of World War II, has allowed more enterprises in more countries and districts to benefit from an interconnected production and circulation system. A North-South circulation has gradually taken shape, with developed countries as the providers of capital, technologies, and management expertise, while developing countries serve as manufacturers, processors, and exporters. However, the traditional North-South circulation pattern is now faced with increasing uncertainties as globalization suffers setbacks in a deteriorating environment for international cooperation.
As the 2008 financial crisis hit countries and all members of society to varying degrees, the income divide has further widened. This results in mounting social tensions, increased mistrust of globalization and more trade restrictions, as well as the rise of populism and protectionism. From 2009 to 2019, about 1,900 anti-dumping investigations and 332 anti-subsidy investigations were initiated by G20 economies. These investigations impeded the originally level playing field in global trade and its sustainable development. Between 2010 and 2019, the growth of world merchandise trade only averaged 2.7% per year, far lower than the 5% growth reached between 2000 and 2009.
Trade conflicts have not only affected international trade in goods, but also damaged global supply chains and industrial chains. Trade in intermediate goods accounts for 2/3 of global trade, and the various forms of trade protectionism have not only added costs to trade but also intercepted some supply chains and disrupted international circulation. The outbreak of COVID-19 prompted many countries to adopt temporary or long-term mobility restrictions and lock-down measures. These measures have added to frictions against international circulation, causing more obstacles to occur in raw material supplies, manufacturing, and distribution.
Ultimately, diverse interests drive the headwind against the globalization. After the financial crisis, global economic growth has slackened. The pace of development, economic strength, and international influence of countries have all changed dramatically. Meanwhile, the complementarity between economically advanced countries and emerging economies has faded, with the late-comers becoming increasingly competitive.
Against this backdrop, some developed countries with increasingly lower advantages in terms of population and economic policies realize that their competitiveness has weakened in the changing global pattern. When they failed to maximize their interests in the free market and the multilateral trade system, these countries resorted to protective policies and exclusive blocks to sustain their economic hegemony. In this circumstance, suppressing their potential competitors seems to have become their “optimal choice.”
As traditional international circulation faces new challenges, a strong international organization needs to stand out to restore international order, and balance all parties’ interests.
Open economy
The new era calls for stronger connections between the international and domestic markets. This means China needs to stick to an all-dimensional, multi-tiered and wide-ranging opening up while developing a higher level of open economy.
First, we need to rely on domestic markets while driving external circulation. This is not a passive response towards external uncertainties, but a meticulous and strategic plan based on China’s future growth and strength in its new development phase. Since the reform and opening up, China’s export-oriented economy has gained high-speed economic growth. But problems have also mounted.
Currently, China’s development priority is gradually shifting from export-oriented to domestic-demand-driven growth. According to China’s National Bureau of Statistics, the yearly average contribution of domestic demand to the country’s economic growth more than doubled, exceeding 100% from 2008 to 2019. The sound development of internal circulation will allow domestic companies to become more competitive in international circulation. It will also make the country more capable of attracting high-end production factors outside China.
Second, we need to extend regional cooperation to propel globalization. Rattled by the pandemic, geopolitical issues, and a deteriorating global cooperation environment where the WTO faces the rising threat of marginalization, a North-South international circulation is being obstructed. This requires China to find a new path forward by joining hands with other developing countries, accelerating regional development strategies, broadening and deepening regional cooperation, compensating for deficiencies in traditional international circulation, and establishing a multi-layered external circulation.
Exemplary models of regional cooperation include the Regional Comprehensive Economic Partnership, the Belt and Road initiative, and the Asian Infrastructure Investment Bank. These pioneering endeavors of mutually beneficial cooperation have bridged China with other countries, and have opened up more channels for China in international exchange and cooperation. While propelling regional cooperation, China should facilitate and liberate investment, as well as economic integration. It should carry out more multi-layer cooperation endeavors with other countries by improving mutual trust and cultural inclusiveness.
Third, China should work on its science and technology so as to transit from “made in China” to “created in China.” Science and technology are the primary productive forces. Since the reform and opening up, China’s economy has developed by leaps and bounds, behind which science and technology are the main drivers. Achievements in high-speed trains, C919 airliners, mobile internet, and cloud computing have all indicated that China has entered the ranks of innovative major countries with international influence.
Yet we still need to be soberly aware of the gap between China and industrialized countries in the West. China still lags behind in many fields, including core components. China’s manufacturing industry is still pinned down by these weaknesses. As its traditional advantages recede, China needs to promptly strengthen its new edges in order to remain competitive in the global arena. Science and technology are at the forefront of business, both in terms of breaking Western countries’ blockade on techniques and gaining a foothold in the industrial division regionally and globally.
Technological breakthrough depends on independent innovation. The government should play a guiding role by strengthening policy support and integrating resources. This does not mean working behind closed doors. Instead, we need to think and act globally, and leverage external resources to fuel our creativity. We also need to prioritize talent training and imports, and avoid brain drain while encouraging overseas Chinese talent to return to China.
Fourth, we should promote institutional openness and develop a higher-level open economy through institutional openness. When the openness of goods and factors of production develops to a certain level, it must be extended to the institutional level, contributing to the development of a higher-level open economy based on rules and institutional openness.
The key to institutional openness is to promote the alignment of domestic rules and regulations with international rules and practices, while adapting to the international market system and trade modes. First, we should further relax control over market access, ensure the timely implementation of opening-up measures as promised , and relax restrictions on manufacturing, service, and agricultural industries.
In addition, we should create a more competitive business environment, attracting investments mainly through an improved business environment rather than preferential policies. We should enhance alignment with international rules, strengthen the protection of property rights, and improve policy transparency.
For regions falling outside the negative list for market access, they should be accorded national treatment. Pilot free trade zones and free trade ports with Chinese characteristics are China’s experimental fields for deepening reform and the starting point for institutional openness, where we can explore the supply of new institutions, in terms of pilot alignment with international standards, supervision, risk prevention and control, and more.
Through these practices, we can establish reproducible methods and modes, and build a demonstration zone for high-level openness.
Yin Mei and Zhang Erzheng are from Yangtze IDEI at Nanjing University.
Edited by WEN RONG