How far do you agree that the success of China’s economic growth since 1978 is due to its Open Door Policy?

How far do you agree that the success of China’s economic growth since 1978 is due to its Open Door Policy?

In China’s modern day economic history the Open Door Policy refers to the new policy announced by the late Chinese leader Deng Xiaoping in December 1978 to open the door to foreign businesses that wanted to set up in China. This policy adopted a stance to achieve economic growth through the active introduction of foreign capital and technology while maintaining its commitment to socialism. Since the implementation of this policy by Deng Xiaoping, is can be seen as a turning point in China economy where it was transformed from a previously failing economy whereby 60% percent of China’s 1 billion people survive on less that USD $1 a day which is the international poverty standards, to becoming one of the fastest growing economies in the 1980s. Thus, I agree that the success of China’s economic growth since 1978 is indeed due to its Open Door Policy as it paved the way for subsequent policies to be implemented by the Chinese government such as the Special Economic Zones (SEZ) and Foreign Direct Investments (FDI). At the same time, it must be noted that China’s phenomenal growth is only possible when governmental policies is able to release and harness China’s potentials towards achieving greater wealth for all.

 

  • Special Economic Zones (SEZs)

Special Economic Zones (SEZ) were set up in 1980 due to Deng Xiaoping’s belief that in order to modernize China’s industry and boost its economy, it needed to welcome Foreign Direct Investment. It was then that Chinese economic policy shifted to encouraging and supporting foreign trade and investment. SEZs were then  established in Shenzhen, Zhuhai and Shantou in Guangdong Province and Xiamen in Fujian Province and the entire province of Hainan and these areas were able to enjoy special privileges such as lower tax rates which aims to promote direct foreign investments, boosting its economy. With the success that these economic zones were having, it lead to China opening up even more economic zones that eventually had the same successes that the first SEZ had, improving the economic growth of China.

 

  • Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) is another manifestation of the Open Door Policy which too, ensued the success of the Chinese economy since 1978. Prior to the decades before 1979, FDI was literally nonexistent in China. It was only with the Open Door Policy, the Chinese government then actively promoted and encouraged FDI as it provided the bulk of financing for China’s financing sector. Initially in 1983, the flow of foreign investment was a mere U.S. $1.7 billion, it then increased to $5.3 billion in 1988, and to $11.4 billion in 1991. Eventually, it was known that China has surpassed the United States as the world’s largest recipient for foreign investments. With these influx of FDI into China, it proved to have benefited the country tremendously with the transfer of technology, capital and the opening up of overseas export markets for China. In addition, China was able to use the huge surplus gained through these investments to invest in infrastructural and public projects that further grew China’s economy.

 

  • Determination of the CCP

The authoritarian governance of the CCP and its commitment to develop its economic growth plays a crucial role in ensuring the success of China’s economic growth. This is so as the government realized that economic growth is required to continuously generate employment and revenue for China’s vast populace and that massive populace could result in socio-political instability as it releases pent up socio-political resentments against the party. In addition, continued economic growth could also ameliorate the development and income disparity within the country. This proved to be the perfect opportunity for the Chinese government to ensure their legitimacy as it is able to ensure social stability amongst the people. Hence it was through the sheer determination of the Chinese government that led to the success of China’s economic growth since 1978.

 

  • Ability to integrate into the global economic system

China’s ability to integrate into the global economic system was also another strategy that led to the success of China’s economic growth since 1978. By effectively integrating into the global economic system, China has become one of the world’s largest markets for natural resources and primary commodities, producing a wide range of industrial and manufactured products for the world. With China’s vast market, East Asian economies benefited greatly, whilst China’s exports flood markets of developed countries. As such, this allowed China to effectively assimilate into the global economic system as China was becoming increasing relevant with regards to global trade and business. Furthermore, more than half of China’s exports are handled by foreign invested enterprises, especially from Japan, Korea, Taiwan and Hong Kong. Thus, showing that China has indeed became the integrator of global and regional production networks which can be said to contribute to the success of China’s economic growth since 1978.

 

  • Strong Manufacturing Base

By having a strong manufacturing base, China was able to ensure the success of its economic growth since 1978. China improved their industrial structure by upgrading from low-value-added agricultural sector to high-value-added industries such as manufacturing. By upgrading the industrial structure, it became more focused in the high-value added production sector by allocating its labour force in a more efficient manner. This was done by China having surplus labour and low wages, reducing the operation costs of manufacturing its goods. Hence, this made China a very ideal manufacturing hub.  In electronics and hardware, China is the manufacturing hub for companies like Siemens and Hitachi Global Systems. As such, this significantly contributed to the rapid growth of China economy, leading China to become the world’s manufacturing hub. China is not only the world’s largest exporter, surpassing Germany in 2009, it is also the world’s largest trading nation as measured by the sum of exports and imports, having replaced the United States for the first time in 2014. Hence, with the rapid shift to manufacturing higher end products and collaborations with reputable foreign companies, too, contributed to the success of China’s economic growth since 1978.

Upon analyzing the impact of China’s Open Door Policy on China’s economic growth since 1978, it can be observed that it has indeed improved its economic growth drastically, leading to the economic successes that we see today.