Role of the Open Door Policy in the economic transformation of China

Question 1

The Open-Door policy enabled the creation of special economic zones that encouraged FDI and technology transfer which facilitated greater investment and productivity within the economy leading to rapid growth

Answer 1

1980
Special economic and flexible measures of opening to the outside world were implemented
Created 4 SEZs in Shenzhen, Zhuhai, Shantou and Xiamen

1984
14 additional coastal port cities were opened to offer foreign-invested enterprises where there were preferential treatment
1985
Yangtze River Delta, Pearl River Delta, Xiamen-Zhangzhou-Quanzhou Triangle

1988
Hainan Special Economic Zone

Promotion of rapid economic growth due to high FDI leading to rapid devt
→ accumulated investment in capital construction in the first 4SEZs > 30B
→ FDI in 14 coastal opencities > 10B
→ Gross value of industrial output increased 8 times to 49.5Bin only 5 years with average growth rates reaching 50%

Question 2

The Open Door policy led to the creation of favourable conditions for foreign investments which led to increased competition and investment into the country that spurred economic growth

Answer 2

Provision of special tax incentives for foreign investments

China compromised its established ISI policy by opening up areas of hitherto strictly-controlled domestic goods and market service markets to FDI

FDI ventures were allowed wholly or partly to target output for domestic sales eg Volkswagen Santana, Pilkington Glass
15% tax waived for the first 2 years of profitability and a 50% tax exemption provided further incentive ini the 3rd and 4th years
No import duties attached to production materials or equipment

→ rate of FDI growth increased from 2.3% to 40.6%

Question 3

The Open Door policy finally culminated in China’s accession into the WTO in which beforehand, it enabled market liberalisation that attracted foreign businesses to offshore into China

Answer 3

Accession into the WTO

Agreed to reduce tariffs on industrial goods to an average rate of 8.9%
Agreed to liberalise service sectors like financial, telecommunications, distribution and legal services

→ created an attractive environment for capital, technology and talent from overseas to build an open economy
→ total ministry data for China’s foreign trade was 99.5B in 1991 from the initial 20.6B in 1978