External Sector Reforms Increase Openness

• Pages: 218

Page 218

A key element of China's economic reforms during the past two decades has been the gradual liberalization and opening of the external sector. Prior to 1978, China's exchange and trade system was based on foreign exchange and trade plans that were integral parts of the overall economic planning system and that regulated the allocation of foreign exchange as well as exports and imports. The role of imports was to fill domestic shortfalls in raw materials and capital goods; exports were planned to generate the foreign exchange necessary to pay for imports, with the trade balance generally in moderate surplus. With external borrowing strictly controlled through the foreign borrowing plan, external debt relative to GDP was very low, and the economy was practically closed to foreign direct investment.

Since the late 1970s, the authorities have introduced wide-ranging reforms to open the economy. Policies have focused on the exchange system, the trade system, and foreign direct investment. Much has been achieved. The exchange regime has been transformed into a market-based system with current account convertibility, and the trade system has been freed from...