Policy Forum 12 (November 2020)

In the late 1970s, China started the path of economic reforms. China first established four Special Economic Zones in 1980 and Economic and Technical Development Zones in fourteen coastal cities in 1984. In order to attract foreign direct investment (FDI) and to encourage the development of a manufacturing export sector, the government allowed capital import with the ultimate goal to generate spillovers of management skills and technology. Outside of these zones, the government permitted the import and licensing of new technologies and capital goods to improve existing domestic enterprises. At the same time, the Chinese government reduced tariffs and non-tariff barriers on a unilateral basis and extended direct trading rights to more firms, finally allowing China to become a member of the World Trade Organization (WTO) at the end of 2001.

Since China joined the WTO in 2001, trade liberalization has significantly increased the openness of the economy. For example, in 2019, the total trade volume (imports and exports) was 31.54 trillion Yuan. (The exports were 17.23 trillion Yuan, and imports were 14.31 trillion Yuan). This corresponds to about 35% of GDP in that year (Figure 1).

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