China Pushes New Growth Engines
The Belt and Road is a farsighted idea with great potential for inter-government cooperation and multilevel connectivity
Ivona Ladjevac
Ivona Ladjevac is the head of Regional Center Belt and Road, Institute of International Politics and Economics, Belgrade, the Republic of Serbia.
After four decades of endurance and an indomitable will to develop, China rose from being a poor developing country to a major economic power and influential actor on the global stage.Its remarkable growth justifies the belief that the 21st century belongs to China.
The Third Plenary Session of the 11th Central Committee of the Chinese Communist Party held in December 1978 stands as a historic turning point for development for modern China.
China, led by Deng Xiaoping, a “farsighted realist” (Naughton,1993), who wisely claimed that, “it does not matter if a cat is black or white, as long as it catches mice”, entered into a new phase in which the criteria for judging the success of China’s reforms shifted from the nation’s political ideology to a pragmatic stance.
“In economic policies, I believe that we should allow regions,enterprises, workers and peasants to gain more income and live a better life through hard work. If some people’s standard of living is raised first, this will inevitably be an impressive example to their ‘neighbors’, and people in other regions and units will want to learn from them. In this way, the entire national economy will develop continuously under the new wave, and the nation’s people will soon be better off” (Deng, 1993).
Decisions that were made could be summarized as the “Four Modernizations Scheme”, comprising modernization of agriculture, industry, science and technology, and national defense.
Unlike the former Soviet Union and Eastern European countries, which focused on reforming state-owned enterprises, China started its reforms with non-state-owned sectors, allowing the founding of market-oriented enterprises to promote economic growth.
Additional value was assured by carrying out reforms in a progressive manner. There were no simultaneous implementation throughout the country. Trial runs were organized in certain areas or economic departments, and only measures with proven results were implemented gradually in the rest of the country.(https://www.daowen.com)
The reforms were first carried out in China’s rural areas. In September 1980, the government allowed farmers to decide on their own whether to abide by the household responsibility system.This decision granted farmers the option of selling their remaining grain in the market after turning in taxable grain and finishing mandatory or contractual acquisitions. By the end of 1984,the household responsibility system covered approximately 98 percent of China’s farmers. The government later gave farmers greater freedom by expanding their crop choices, and even allowing them to give up farming to set up small-scale factories.Taking advantage of these favorable conditions, China saw a rapid rise in township and village enterprises nationwide. The development was even more pronounced in coastal areas and on the fringes of major cities.
To attract foreign investment and gain technological and managerial experience from other countries, the government granted foreign businesses favorable tax and tariff policies in special economic zones (SEZs). These zones were initially established in China’s coastal areas and the first four were promoted in 1980 in Shenzhen, Zhuhai, Shantou and Xiamen (Crane, Albrecht, 2018).The success of this model gave impetus to the government to implement an open-door policy for 14 additional coastal cities in 1984. It also designated the Yangtze River Delta, the Pearl River Delta, the Xiamen-Zhangzhou-Quanzhou Triangle in south Fujian as Open Economic Zones in 1985 (Dowling, 2008), and Shandong Peninsula and the Liaodong Peninsula in 1988. The government also designated the entire Province of Hainan an SEZ in 1988 and gradually an expanded belt of open areas was built around its coastal regions.
In 1990, with a view to developing the Yangtze valley into another open belt, the government decided to open the Pudong New District in Shanghai (Yang, 1993). Pudong then served to drive the development of the middle and lower reaches of Yangtze River basin. It is clear that China started the process of its opening-up by establishing SEZs in select cities, the successful model of which was then expanded to coastal areas and the Yangtze valley, thereby presenting a progressive mode of opening-up that started with cities, the expanding to belts and ultimately to regions.
A series of activities in the 1980s not only managed to gradually open up China’s domestic market to foreign capital, they also successfully promoted economic reforms. To cope with competition in the international market, Chinese enterprises had to improve their product quality, lower production costs and raise management standards. To survive the fierce competition from global imports and exports, the mainland had to establish a structure of commodity prices similar to those found in its global competitors and accelerate price reforms. Deng inspected China’s southern provinces in early 1992 during which he delivered a number of speeches, demanding more proactive implementation of reform and opening-up policies. A resolution was passed at the 14th National Congress of the CPC held in October 1992, stating that the key mission for China in the 1990s was to establish a “socialist market economy”.
From the end of the 1990s to early years of the 21st century, the focus of reforms shifted to state-owned economic sectors, and the government implemented a number of measures, including shutting down state-owned enterprises operating at a loss and establishing a social security system for laid-off workers (Morison, 2018).
By the 21st century, China’s reform and opening-up policies had substantially improved the living standards of citizens in the coastal areas of eastern China. However, the development of its western provinces still lagged behind. In its report on the 10th Five-Year Plan (2001—2005) published in March 2001, the government proposed specific measures for the development of the western regions. The objective of the development program was to enhance the overall level of production and living standards for people living in western China to narrow the economic gap between the western and coastal areas. Ever since the launch of the program, western China has seen significant investments in a variety of projects related to infrastructure,education, resource development and environmental protection,among which the Qinghai-Tibet Railway, the West-East Electricity Transfer Project and the West-East Gas Pipeline are the largest projects.
China joined the World Trade Organization (WTO) at the end of 2001, marking another milestone in its promotion of the opendoor policy (World Bank, 2004). As a member of the WTO,China needed to accept the rules of a globalized economy (lowering tariffs, further opening up its market, including the service industry, amending relevant domestic regulations and legislation in accordance with WTO requirements).
Accession to WTO also was a turning point in changing the Chinese perspective on investments abroad. Once again Deng Xiaoping’s teachings about being globally active and being able to change were emphasized. So during the 10th and 11th fiveyear plans, the “Going Global” policy was stressed as one of the priorities. It was a strategic move by the government that was a signal to Chinese companies to be prepared and seek business opportunities outside the country. The opportunity to go out was first given to state-owned companies. By doing so, the government had control over those investments: where they would go,what sectors they would invest into, under which financial conditions and so on. Private companies waited for permission to go global until 2003. They directly invested in foreign markets,set up factories overseas, employed local labor, and acquired foreign companies and infrastructure. It is evident that the “Going Global” policy’s results are impressive: in 2016, China for the first time rose to the position of the second-largest source of outward foreign direct investment (UNCTAD, 2018).
While China has become an active player in international trade,the Chinese economy has also become more susceptible to the international financial markets and its days of being immune to global events are over. The 2008 global financial crisis severely damaged China’s export volume. The mainland saw a cascading collapse among small and medium-sized enterprises due to poor performance in the export sector, with the textile industry taking the worst hit. This was the most serious external impact on the Chinese economy since the country implemented its reform and opening-up policies. To survive the crisis, the government launched a 4-trillion yuan investment program in November 2008 to expand internal demand and spur economic growth by accelerating infrastructure development in rural areas, expanding transportation networsk, and introducing projects to improve ecological conditions (Zheng, Chen, 2009). With regards to the financial sector, in light of the vital part played by financial reforms in the structural reform of the economy, the Chinese government has proposed a number of measures to build a comprehensive system to govern its financial market. These include increasing access for domestic and foreign firms to the financial sector, promoting a system whereby exchanges rates and interest rates are market-driven, as well as ensuring financial security and stability. These measures bring additional benefits as they promote the globalization of the yuan, creating a future where the yuan is the chosen currency for international settlement, investment and reserves.
China is keen on developing a new growth model that will secure sustainable economic growth with the emphasis on more private consumption and innovation as the new drivers, sustainable and healthy economic growth demand constantly designing and implementing reforms that correspond to specific needs and circumstances.
In this context, President Xi Jinping’s Belt and Road Initiative first mentioned in 2013 is a farsighted idea. Two years later, the government issued the Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road (National Development and Reform Commission, 2015).Accepting differences among participating countries, respecting their own resource advantages, but also insisting on mutual complementarity of their economies, it has attracted many countries. The success of BRI is undeniable as BRI economies account for one-third of global GDP and trade and close to twothirds of the world’s population. As mentioned before, the 21st century belongs to China.