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China Trade Policy in the 1980s
Under the policy of opening up to the outside world, exports,
imports, and foreign capital were all assigned a role in promoting
economic development. Exports earned foreign currency, which was
used to fund domestic development projects and to purchase advanced
foreign technology and management expertise. Imports of capital
goods and industrial supplies and foreign loans and investment were
used to improve the infrastructure in the priority areas of energy,
transportation, and telecommunications and to modernize the
machine-building and electronics industries. To earn more foreign
currency and to conserve foreign exchange reserves, foreign capital
was also used to expand production of export commodities, such as
textiles, and of import substitutes, such as consumer goods.
China has adopted a variety of measures to promote its foreign
economic relations, maximizing the role of imports, exports, and
foreign capital in economic development. Foreign trade
organizations were reorganized, and control of imports and exports
was relaxed or strengthened depending on the balance of trade and
the level of foreign exchange reserves. Heavy purchases of foreign
plants and equipment resulted in import restraint from 1980 to
1983. Because of the expansion of exports in the mid-1980s, a large
foreign reserve surplus, and the decentralized management of
foreign trade, imports surged. Huge, uncontrolled purchases of
consumer goods led to trade deficits in 1984 and 1985, resulting in
the introduction of an import and export licensing system, stricter
controls on foreign exchange expenditures, and the devaluation of
the yuan in order to reduce the trade deficit and ensure that
machinery, equipment, and semifinished goods, rather than consumer
goods, were imported. In 1985 China had foreign exchange reserves
of US$11.9 billion.
China joined a number of international economic organizations,
becoming a member of the World Bank, the International Monetary
Fund, the Asian Development Bank, the General Agreement on Tariffs
and Trade (GATT), and the Multi-Fiber Agreement. China became an
observer of GATT in 1982 and formally applied to participate as a
full member in July 1986. China also reversed its aversion to
foreign capital, borrowing money from international lending
organizations, foreign governments, and foreign commercial banks
and consortia and permitting foreign banks to open branches in
China. The Chinese government maintained a good credit rating
internationally and did not pile up huge foreign debts like many
other communist and developing countries. Between 1979 and 1985,
China signed loans totaling US$20.3 billion, US$15.6 billion of
which it already had used. Most loans went into infrastructure
projects, such as energy and transportation, and funded raw
materials imports. The Bank of China, the principal foreign
exchange bank, established branches overseas and participated in
international financial markets in Eurobonds and loan syndication.
Legal and institutional frameworks to facilitate foreign
investment and trade also were created. Laws on taxation, joint
ventures, foreign investments, and related areas were promulgated
to encourage foreign investment. In 1979 China created four special
economic zones in Shenzhen, Zhuhai, Shantou (in Guangdong
Province), and Xiamen (in Fujian Province). The special economic
zones essentially were export-processing zones designed to attract
foreign investment, expand exports, and import technology and
expertise. In 1984 fourteen coastal cities were designated "open
cities." These too were intended to attract foreign funds and
technology. But in 1985 the government decided to concentrate
resources on only four of the cities: Dalian, Guangzhou, Shanghai,
and Tianjin. Although the special economic zones and open cities
had the power to grant investment incentives, problems with the red
tape, bureaucratic interference, and lack of basic infrastructure
resulted in less foreign investment and fewer high- technology
projects than initially envisioned.
From 1979 to 1985, China received US$16.2 billion in foreign
investment and used US$4.6 billion of that amount. By 1986 China
had over 6,200 foreign-funded businesses, including 2,741 joint
ventures, 3,381 cooperatively managed businesses, and 151
enterprises with sole foreign investment. Of the joint ventures, 70
percent were in production enterprises (manufacturing or
processing) and 30 percent were service industries (primarily
hotels or tourism). Hong Kong provided 80 percent of the jointventure partners, the United States 7 percent, and Japan 6 percent.
Data as of July 1987
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