China's Opening up after 40 Years: Standing at a Historic Turning Point

• DOI: http://doi.org/10.1111/cwe.12235
• Author: Jiandong Ju,Xinding Yu
• Published date: 01 March 2018
• Date: 01 March 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 23–49, Vol. 26, No. 2, 2018

23

China’s Opening up after 40 Years: Standing at a

Historic Turning Point

Jiandong Ju, Xinding Yu*

Abstract

This paper comprehensively reviews China’s openness since 1978 from three aspects:

trade, foreign investment and global production sharing. We point out that the economic

development of China is now standing at a historic turning point. Specically, economic

changes in China are discussed from four dimensions: (i) from China being a world

assembly line to a world manufacturing powerhouse; (ii) from China being a world

capital receiver to a world investor; (iii) from China being a world factory to a world

market; and (iv) from the situation of “made in China” to “innovated in China.” At

the same time, the global economic system has also reached a turning point. A “North

America–Europe–Asia” tri-polar system has formed, in which the USA, Germany and

China, respectively, serve as the regional core economies.

Key words: foreign direct investment, global production sharing, reform and opening-up

policy, trade, turning point

JEL codes: F10, F15, O10

I. Introduction

Following the implementation of the reform and opening-up policy in 1978, China’s

“growth miracle” continued for the next four decades, with remarkable changes in terms

of economic size, economic structure as well as China’s role in the world economy.1

The growth miracle of China has long been a hot topic in economic research (Lin et al.

1996; Feenstra and Wei, 2012). The opening up of trade and investment has provided

essential support for the development of China’s economy. As depicted in the two-

*Jiando ng Ju, Professor, PBC School of Finance, Tsinghua University, China. Email: jujd@pbcsf.tsinghua.edu.cn;

Xinding Yu, Associate Professor, School of International Trade and Economics, University of International

Business and Economics, China. Email: yuxd@uibe.edu.cn. We thank Yacheng Yang and Chunrui Liu from

Tsinghua University for providing very helpful research assistance. This work was supported by the National

Natural Science Foundation of China (No. 71503047), the Beijing Social Science Foundation (No. 15JGC162),

and the Fundamental Research Funds for the Central Universities of the University of International Business and

Economics (No. 16YQ02).

1In this paper, “China” refers to “Chinese mainland.”

Jiandong Ju, XindingYu / 23–49, Vol. 26, No. 2, 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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gap model in Chenery (1967) and Chenery and Strout (1968), many developing

countries suffer from either a shortage of domestic savings to provide finance for

investment opportunities or a shortage of foreign exchange to pay for imports of

capital and intermediate goods. China’s opening-up policy has filled these two gaps

simultaneously. Besides this, there have been additional gains through the inflow of

new technologies, increased competition in the domestic market and more foreign

market opportunities.

China seized the opportunities brought by the opening-up policy and entered the

stage of high-speed growth. Today, China is the largest or the second largest country

in the world in terms of GDP, trade, investment and consumption. China’s role in the

global economy has shifted from that of a big trading country to a major producer,

capital investor, consumer and innovator. The economic development of China has

reached a turning point.2

In the meantime, the global economic system has also changed dramatically. China

has replaced Japan as the core economy of the Asian economic network. A new tri-polar

world order has formed, comprising North America, Europe and Asia, for which the

USA, Germany and China are at the core.

The present paper reviews China’s high-speed growth in trade, foreign investment

and global production sharing during the past 40 years. In particular, we emphasize the

key changes in China’s current economic development stage and the global economic

system. Our paper proceeds as follows. Sections II, III, IV and V discuss structural

changes in trade and production sharing, foreign direct investment (FDI), consumption

and innovation, respectively. Section VI examines the changes in China’s economic role

in the global economic system. Section VII concludes.

II. From a World Assembly Line to a World

Manufacturing Powerhouse

1. Growth Miracle in China

The high-speed growth of international trade is an essential factor in promoting

China’s economic development. As shown in Figure 1, the growth of China’s GDP and

international trade is highly synchronous. After adopting the opening-up policy in 1978,

China’s GDP and trade volumes started to grow steadily. The growth miracle appeared

2Several recent papers also focus on the turning point of China’s economic growth, such as Cai and Du (2011),

Lemoine and Unal (2017) and Qian et al. (2017).