Written by Wen Hai
Translated by Ting Hu, Kenghua Huang
Source from China Economic Review
 
The Fifth Plenary Session of the 19th Central Committee of the Communist Party of China (CCCPC) proposed to implement a high-level opening-up to the outside world and develop a new situation of win-win cooperation. On March 3, 2021, "high-level opening-up" was listed among the hot words in the People's Daily article "eight hot words looking forward to the 2021 national ‘two sessions’". So, what is "high level"? What is the difference between China's high-level opening-up in the future and previously? What opportunities and challenges will China's high-level opening-up bring to consumers and enterprises? How should the government speed up and deepen reforms to achieve a high level of opening-up?
 
1. The different stages of China's opening up 

Different historical stages and objectives have seen a varying degree and level of China’s opening up and the period up to the 14th Five-Year Plan can be roughly divided as follows: In the period before the 14th Five-Year Plan, China's opening-up can be roughly divided into three stages.
 
In the first stage, from 1979 to 1992, the main focus of opening-up were to relax foreign trade control and open up foreign investment. The state's foreign trade monopoly, which aimed at "interchange of needs and adjusting surplus and deficiencies" in the planned economy era, gradually transformed into mobilizing foreign trade aimed at mobilizing the business enthusiasm of foreign trade departments, encouraging enterprises to "earn foreign exchange through export" and promoting China's economic construction. At the same time, the Second Session of the Fifth National People's Congress held in 1979 formally passed the "Law of the People's Republic of China on Sino-Foreign Joint Ventures", declaring China's opening up to foreign direct investment. After that, the State Council repeatedly issued documents to expand the autonomy of local governments in examining and approving foreign investment on their own, and offered many preferential policies and tax reductions. Foreign direct investment (FDI) gradually changed from "permission" to "encouragement". It could be said that this stage of opening to the outside world had just begun, and it was also limited. The main measures were to encourage export to earn foreign exchange, purchase advanced equipment, and introduce capital and technology, to promote China's industrialization process.
 
In the second stage, from 1993 to 2001, the opening-up was mainly carried out around China's "return of customs" and the goal of joining the World Trade Organization (WTO). The features of this stage of were reducing import barriers and encouraging foreign investment. Therefore, on July 1, 1994, the "Foreign Trade Law of the People's Republic of China" was formally implemented, the RMB exchange rate was merged, and the RMB became subject to conditional convertibility under the current account. The import and export mandatory plans were canceled, the trade barriers reduced, and the tariff dropped from nearly 40% to about 15%. International trade not only encouraged exports but also began to expand imports. After 1994, China's foreign investment policy was further adjusted, attracting FDI from regional preferential policy to market orientation. Infrastructure, basic industries, high-tech industries, technological transformation projects of state-owned enterprises, and middle and low-end residential projects were changed. There were three main goals of opening-up at this stage: one was to speed up accession to the WTO, and the other was to improve people's living standards and the industrial structure.
 
The third stage, from 2002 to 2019, was characterized by gradual integration into the world economy and becoming an important part of the global industrial chain under the framework of the WTO. On December 11, 2001, China officially became a member of the WTO. Her foreign trade system also entered a new stage of comprehensive reform based on WTO rules. Not only did China further reduce its tarrifs its tariffs to 12% (the current weighted average tariff is only 3.5%), the general trend in foreign investment policies became more open, more transparent, and more stable. According to its WTO commitments, China has not only expanded the scope of foreign investment in production but also opened many service areas (such as finance, communications, and retail) that, in the past, foreigners were not allowed to invest in. For foreign enterprises investing in China, the government began to implement national treatment and cancel policies formulated for foreign investors that were not in compliance with the WTO (such as localization requirements, export ratio requirements, and technology transfer requirements.). At the same time, Chinese companies began to go abroad, and FDI continued to increase. The feild and scope of the opening-up at this stage was relatively broad, and the intensity was relatively large. On the one hand, it was the requirement of China's accession to the WTO. On the other hand, Chinese enterprises also gained a broader international market from China's accession to the WTO, and Chinese consumers also gained more benefits from expanding imports.
 
2 The new pattern of China's opening-up
 
Starting from 2020, the launch of the 14th Five-Year Plan and the proposal of the 2035 long-term goal meant that China's opening-up has entered a new historical stage. The fourteenth five-year plan adopted by the ‘two sessions’ and the long-term goal proposal for 2035 put forward that we should adhere to the implementation of opening to the outside world in terms of a wider scope, a wider field, and at a deeper level, relying on China's large market advantages, promoting international cooperation, and achieving mutual benefit and win-win results. Fundamentally, this can be said to explain the meaning of "high-level opening to the outside world."
 
Specifically, the high level of opening-up means opening up across a larger range, wider area, and at a deeper level. To ensure this opening-up, it is not only open in the "free trade zone", but also throughout the whole country; not only should manufacturing industry be open, but also financial, legal, and medical services; it is not only open in terms of concrete practice, but also through reform at the system and institutional level. In summary, in the future reform and development of China, opening up should reach a higher and more comprehensive level. Different from the previous goals of serving domestic economic construction, high-level opening-up has two most important characteristics: first, to identify and abide by the international rules and adhere to the globalization of multilateralism; and, second, through opening up the Chinese market, all parties to international cooperation can benefit.
 
Why is China doing this? There are two main reasons. One reason is that China's goals have changed. Before the 18th National Congress of the Communist Party of China (NCCPC), China's main goal was to pursue its own development and strive to build a well-off society. After the 18th NCCPC, the central government began to put forward the idea of "building a community of shared destiny for mankind". In September 2015, General Secretary Jinping Xi delivered an important speech at the United Nations Headquarters in New York, pointing out that: "in today's world, all countries depend on each other and share weal and woe. We should inherit and carry forward the purposes and principles of the UN Charter, build a new type of international relations with win-win cooperation at its core, and build a community of shared future for mankind." On March 11, 2018, the first session of the 13th National People's Congress wrote into the constitution: "promoting the construction of a community with a shared future for mankind." It can be seen that China's opening-up is no longer just for China itself, but for the common development and progress of the world.
 
Another reason is that the world environment has changed. In the past two decades, with the rapid rise of China and the relative decline of western countries, great changes have taken place in the attitudes of various countries towards China. In the early days of China's reform and opening up, especially in the 1980s, from the perspective of restraining the Soviet Union, the western countries led by the United States were relatively friendly to China, and they also believed that China was a developing country, and they were willing to open their markets and invest in China. Although the Soviet Union disintegrated in the 1990s, China was still actively reforming and its economic strength was weak. The western world did not regard China as an important competitor. At the beginning of this century, especially in the more than ten years after 9/11, the United States devoted its main energy to the ‘War on Terror’, while western countries were also busy dealing with the financial crisis and debt problems. However, China has been growing at a high speed, and its comprehensive strength has become the second in the world. Under such circumstances, the western countries headed by the United States no longer regard China as a developing country and do not recognize China as a market economy. Their expectations and requirements for China have changed. They are uneasy about China's rise and pay more attention to their own interests in economic and trade relations with China.
 
In the face of changes in the international political and economic situation, China has two choices: one is to go its own way and not hesitate to decouple from the economies of other countries; the second is to expand opening-up, adhere to reform, and cooperate with all countries in the world for win-win results. There is no doubt that China is now choosing the latter. China's development cannot do without the world, and the prosperity of the world needs China. As President Jinping Xi has reiterated repeatedly on international and domestic occasions, "opening up brings progress, and openness brings progress, while isolation leads to backwardness." Furthermore, "the pace of reform will not stagnate, and the open door will only grow bigger and bigger."
 
3. How to Achieve “Larger, Broader and Deeper” High-Level Opening-Up
 
First, there is still a need for changes to the concept. Although China's reform and opening-up has been in place for more than 40 years, and the flag of opening-up has been held high, people still have many doubts about why there should be opening-up. Part of this doubt comes from a belief for thousands of years in the small-scale peasant economy, where people were always thinking that self-reliance could provide enough food and clothing, and where people were always trying to do what they could by themselves, thinking there was no need to import from abroad. Another part of this doubt comes from mercantilism, which believes that only exporting products or investing in foreign countries to earn other people's money can create value. Opening the market to import products or introducing foreign capital is an opportunity for foreigners to make money and create value. A third part of the doubt comes from the international situation in recent years. Since Trump became president, the United States has been continuously suppressing China. Many industries in China have been "strangled" by developed countries. Western countries have also abandoned Chinese technology in the name of national security. Under these circumstances, some people are naturally skeptical about the need for "larger, broader, and deeper" opening up to the outside world.
 
If we want to achieve a higher level of opening-up, we must pay attention to the existence of these doubts and guide people. We must vigorously publicize the history of reform and opening-up and publicize the benefits of the international division of labor and trade to economic growth and people’s lives from the perspective of both theory and practice. International trade not only enhances the value of exported products, creating a large number of employment opportunities, but it also improves the level of welfare through opening up imports, allowing people to enjoy goods and services that they cannot produce or that had prohibitively high production costs. Facing the unfriendly attitudes of Western politicians, we need to conduct effective communication and greater opening up on the premise of safeguarding national security and dignity to prevent any attempt to "decouple" the Chinese economy from the world. In short, to achieve a "larger, broader, and deeper" high-level opening-up, we must first unswervingly believe in the meaning of opening-up and unswervingly emphasize the concept of opening-up.
 
Secondly, we need to recognize and abide by international rules. As the country develops and grows, the behavior and level of opening up to the outside world should also continue to improve. Just like the development process of any country, China also experienced "barbaric growth" in the early stages of opening up, and behaviors such as disrespect for intellectual property rights, local protectionism, and unfair competition all existed. However, after China’s accession to the WTO, and its economic and corporate strength becomes stronger and stronger, any non-compliance with internationally accepted rules will not be accepted, which will affect the country’s reputation, and thus undermine the opening-up to the outside world.
 
Which international rules must be observed and maintained in opening-up? It is WTO rules that we must abide by when conducting international trade and investment, namely goods trade agreements, service trade agreements, and intellectual property agreements. These reflect the fundamental principles of "free trade" and "fair competition" of the WTO, which have also been endorsed and signed by the Chinese government. The principle of "free trade" includes the reduction and gradual elimination of tariff and non-tariff barriers, and the principle of "fair competition" includes most-favored-nation status, national treatment, anti-dumping, countervailing, and protection of intellectual property rights. These principles are not only reflected in trade policies, but also in domestic industrial policies that affect the fairness of competition.
 
It should be the basis for high-level opening-up in the latest stage to respect international rules rather than seek special treatment. Especially when Chinese companies are competitive, the international community will use rules to monitor the behavior of Chinese companies all the time. Just like participating in the Olympic Games, athletes from all countries participate in the competition under the same rules, and any achievements obtained by violating the rules will not be recognized by other competitors. When athletes are far behind in performance, no one cares about whether they strictly obey the rules, but for athletes who have achieved championship and runner-up results, any violation of the rules will be scrutinized and not accepted.
 
There are also cases in international trade of companies in developed countries not following the rules, but this should not be the reason for Chinese companies to not conform. As a major country that advocates building a community with a shared future for humankind, observing the rules is the basis for earning respect. A high level of opening-up means that we need to do better than others under the rules that everyone agrees.
 
At the same time, equal cooperation and mutual benefit must be emphasized. Although we all know that international trade and cooperation are definitely mutually beneficial and win-win, why are there still so many disputes in trade? Therefore, it can be inferred that the two counter parties in trade or cooperation should not only benefit mutually, but also be basically equal. The Sino-US trade war in recent years has appeared to be a trade imbalance on the surface, but what the United States emphasizes is reciprocity, i.e., reciprocity in tariffs and in market access. Like the rules, when a country’s economy is weak and small, a powerful country generally does not care about the equivalence of interests, but for a rising competitor, a powerful country will generally no longer maintain a high profile but requires reciprocity and mutual benefit.
 
During the first three stages of opening up to the outside world, we were in an early stage of economic development and paid more attention to the benefits we gained from opening up. As a rising and responsible major country in the process of high-level opening-up, we must consider not only our own gains but also the interests of other countries as well as our contribution to world peace and human development. This is also a major country’s international social responsibility. Therefore, to win credibility and maintain sustainability in international economic and trade cooperation, equal exchanges, reciprocity, and mutual benefit will be an important principle.
 
4. Significance and Challenge of High-Level Opening-Up
 
In the new stage of historical development, our opening up to the outside world should also change from the early extensive and limited mode to a "larger, broader, and deeper," as well as more standardized, high level. However, opening up to the outside world at a higher level also raises higher and stricter requirements of ourselves. So, why should we do this? What is the significance of high-level opening-up?
 
First of all, it is conducive to improving people's living standards. The report of the 19th NCCPC pointed out that the main contradiction in current society is that between the people's growing demand for a wonderful life and unbalanced, inadequate development. After more than 40 years of reform and development, Chinese people have entered the stage of pursuing quality of life. Relative to people's desires, the resources of any country are scarce, and no country can produce all the goods and services that its people require. Through foreign investment and import, diversity of goods and services can be greatly increased and the country’s shortcomings offset. Generally speaking, a country with a higher per capita income needs to expand its opening-up to meet the people's demand for a high-quality of life. All developed countries are typically highly open countries. As it gradually becomes a high-income country, China also needs to open up at a high level.
 
Second, it is conducive to technological progress. In today's world, the rapid development of science and technology is largely due to the hard work, exchanges, and cooperation of companies and scientists from various countries. China's rapid development over the past 40 years has largely benefited from foreign investment and international exchanges in the field of education and scientific research. A high-level opening-up to the outside world, emphasizing compliance with rules and protection of intellectual property rights, will have a positive role in promoting broader international scientific and technological cooperation and innovation. We cannot deny the positive effect of opening up on scientific technological progress despite the "stranglehold" behavior of certain governments. We cannot regard forced self-reliance under such circumstances as the best strategy for technological progress.
 
Third, it is also conducive to improving international relations and promoting world peace and development. In recent years, anti-globalization and populism have been prevailing, and some Western politicians, led by the United States, are setting off an anti-China wave, which is likely to promote a new round of the Cold War. In addition to the fact that the United States wants to maintain its world hegemony, most Western countries also hope that China will recognize and follow international common rules, open the Chinese market on a larger scale, and share the dividends of China's economic growth. China is running counter to the trend of anti-globalization by promoting a high-level opening-up based on rules and mutual benefit. This will surely attract more investment and exports to China, which will benefit the economic growth of other countries. This is conducive to alleviating and improving China’s international relations, conducive to break down the United States’ new Cold War attempts, and conducive to world peace and development.
 
Of course, it is not an easy job to implement such a high-level opening-up. Especially in the current international situation where anti-globalization and populism prevail, it is bound for us to face many challenges. One of these challenges is how to deepen China's economic system reform. As a socialist market economy, China has a large number of state-owned enterprises, and the government has a strong ability to plan and regulate the economy. For this reason, Western countries believe that the Chinese government has various types of support for state-owned enterprises, and there is unfair competition between Chinese and foreign enterprises. China is not a freely competitive market economy. Therefore, how to achieve the "competitive neutrality" of state-owned enterprises may be a key issue for whether we can truly achieve a "larger, broader, and deeper" high-level opening-up to the outside world.
 
The second challenge is how to improve the global competitiveness of Chinese companies. If China implements a "larger, broader, and deeper" opening-up, it means that various special protection policies for Chinese companies will be reduced or even eliminated. Facing the competition of global multinational companies under the same rules, are Chinese companies ready with their R&D, innovation, product quality, legal awareness, and so on?
 
The third challenge is how to handle the relationship between politics and economy. In the current situation of serious political confrontation, how can we continue to adhere to the "larger, broader, and deeper" opening-up policy? How can we assure that multinational corporations achieve "political neutrality" and adhere to international cooperation without being affected by politics? These issues are not only challenges for the government but also issues that the people are required to handle well during opening-up.
 
In short, in the new stage of China's economic development, facing major changes unseen in a century, the central government has proposed that building a new pattern of high-level opening-up is a courageous, intelligent, and far-sighted strategic decision of great significance and far-reaching influence. However, to truly implement this measure and achieve a "larger, broader, and deeper" high-level opening-up, it also requires courage and wisdom, and the unremitting efforts of the government, enterprises, and people across the country.