China's further opening to help world trade system

Gao Pan
China's renewed pledge to further open up its market for free trade and investment will help maintain an open international trade system.
Gao Pan

Amid rising trade tensions between the United States and its major trading partners, China’s renewed pledge to further open up its market for free trade and investment will help maintain an open international trade system, a World Bank official said.

“Trade has been an important factor” for the success of the whole world economy over the past 30 years as so many countries “benefited from increased openness,” Bert Hofman, the World Bank’s country director for China, Mongolia and Korea, said in a recent interview with Xinhua.

Particularly, countries in East Asia “have done so well” in economic growth and poverty reduction because of their openness for foreign investment and trade, said Hofman, the bank’s former chief economist for the East Asia and Pacific Region.

As global trade tensions mount, “it’s important that the international trade system remains intact because that’s important for our mission, for poverty reduction, and for developing countries as a whole,” he said.

Hofman believes China can do something itself to contribute to maintaining an open international trade system “as it has already done,” such as further opening up the economy and addressing concerns about foreign investment in China.

“I think China has been moving on that quite rapidly, even in specific sectors they have opened up further,” he said, adding China’s policies toward openness can “take a different nature” as it moves toward an upper-middle income country and becomes a little bit closer to the technology frontier.

At the annual conference of the Boao Forum for Asia last month, China unveiled a series of new measures for further reform and opening-up, including easing foreign equity restrictions in the automobile industry and significantly lowering import tariffs for vehicles.

“Liberalizing the automotive sector will help China absorb and develop the newest technologies in a much more efficient way compared to what it does in the past,” Hofman said, noting it’s “very positive” for China to remove foreign ownership limits on firms making fully electric and plug-in hybrid vehicles in 2018.

In his view, such move will attract both production of electric vehicles and research and development efforts of automotive companies into China, which would help China achieve its targets in climate change and decarbonization of the economy.

“We’re very appreciative of the fact that the government of China has announced that they will be allowing full ownership of manufacturing facilities in China,” Elon Musk, chief executive of US electric carmaker Tesla, said in an earnings conference call earlier this month.

“We also expect to announce the location of a Tesla gigafactory in China soon,” said Musk, who has been seeking to set up a wholly-owned plant in the world’s largest electric-vehicle market.

Given there’s increasing demand for financial services, healthcare and education in China, Hofman believed that further opening up the service sectors would also help the Chinese economy and Chinese citizens.

“China has benefited a lot from opening up in the past ... to continue that path of opening up is, we feel, very good for China,” he said.

Looking back at forty years of reform and opening-up in China, Hofman outlined three key lessons that other emerging market and developing countries could learn from China’s success.

First, China has taken a series of measures to sustain fast economic growth, including opening up for exports and foreign investment, building up human capital, maintaining a level of macroeconomic stability and a relative high savings rate that provides enough money for investment that is needed for rapid growth.

Second, the country subscribes to long term thinking. Other countries also need to think about what reforms exactly fit their specific circumstances.

Third, China has used external leverage to effectuate domestic reforms. The obvious example is China’s entry to the World Trade Organization in 2001.

The author is a Xinhua writer.


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