Opening the door wider to the world

As the world economy becomes increasingly inter-connected with the growth of global industries, and as the global value chain extends to different parts of the globe, China is an indispensible part of the global economy. The world market will also play a decisive role in the international allocation of resources. China needs all the best resources in the world, including energy, products, technology, services, capital, management, knowledge and so on. Therefore, the Third Plenary Session promoted further economic opening. The plenum’s decision stipulates the lowering of the threshold for foreign investment, promoting the development of free trade zones and opening up inland, coastal and border areas. In other words, different parts of the country should open to foreign investors and to flows of merchandise, services, financial resources, technologies and talents with a minimum amount of government intervention. This will undoubtedly lead to a new phase of opening and international cooperation across the whole country.

The reforms will add a strong and long lasting impetus to China’s FTAs efforts. Besides strong support for the Doha round, it will promote regional and bilateral FTA negotiations in full swing, including CJK with Japan and South Korea, RCEP with ASEAN 10, FTA with Australia, and BIT with the US and EU. This will all promote a much larger free trade marketplace and benefit China’s trade partners.

While the domestic reforms need a compatible modern financial system, the opening to and integration with the world economy is also pressing for an open, international, compatible financial system. The RMB exchange rate mechanism will be increasingly open to international market forces. Interest rates in international business will be liberalized, based on market forces. Full RMB convertibility will also be on the agenda. During this process, China should lose no time in improving its international monetary management and risk control.

Changes in China, chances for world

There is little doubt that all of the above-mentioned reforms, if realized, will considerably raise China’s economic productivity, and ensure a strong, sustainable, balanced growth, with the ultimate goal of a better life for all. As the world second largest economy, growth in China will spill over to China’s trading partners in particular, and to the world at large. China will most likely account for 12% of the world’s total GDP in 2013. A 7% annual growth in the rest of the decade will add 0.84 pct to world growth each year, or add $ 600 billion to China’s market size. With increasing numbers of sectors open for foreign investment or operation, foreign companies will have chances for many years to come. According to the latest MOFCOM data, China’s FDI inflows from the world hit $88.6 billion in Jan.-Sep. 2013, an increase of 6.22% over a year ago; US FDI increased by 21.3%; and EU FDI was up by 23.0%. GM, for example, had a China market sales volume of 2.9 million units in 2012, outstripping home sales (2.6 million), and thus made a huge profit of $9.19 billion. As a result, GM bought back all government shares and rebounded strongly from bankruptcy protection just 4 years ago.

A decisive role for the market will also promote Chinese companies investing worldwide, thus benefiting host countries all over the world. During the first 9 months, China’s outbound non-financial investment reached $61.6 billion, 17.4% over a year ago. Chinese direct investment in the US shot up by 250%, and in the EU up by 108.1%. According to a Rhodium Group estimate, every billion dollar investment from China could create 2,000 jobs in the US. It can be expected that, with progressive reform, China’s outbound investment volume will surpass its inbound investment, and thus become a net capital exporting country in a couple of years. It will create tens of thousands of jobs and add billions of dollars in economic growth to various host countries and make a lasting contribution to strong, sustainable and balanced economic growth in the world.

The auther is co-director of China-US/EU Study Center, China Association of International Trade.