Managed Openness: Opening China’s Door

Since the late 1970s, marketisation and opening up have acted as twin engines which have brought China dramatic change. It is commonly understood that reform (gaige) refers to a series of socio-economic and political changes: from central planning with Stalinist principles to a socialist market economy or a market economy with Chinese characteristics, and from domination of state ownership to coexistence of state, collective, private and even foreign ownerships. The changes have affected every aspect of Chinese society and covered (if unequally) almost every corner of China: from rural to urban, from coast to inland (Wang M 1998). Opening up has also brought China into the world economic system (Economy and Oksenberg 1999). China has since the mid 1990s been the second largest host country for foreign direct investment after the USA. China’s foreign exchange reserves reached over $US15 billion by the end of August 1999. Foreign direct investment (FDI) in China has played a catalytic role in the development of a market-based economy. FDI and special economic zones have also contributed to the greater integration of China into the world economy through joint ventures with domestic firms (Pomfret 1996; Panagariya 1993). Two important indicators of opening are thus marketisation and trade or investment flows.