Chinese enjoy the fruits of open policy in a new era

By Chen Gengtao

Seventeen years into China's policy of opening to the outside world, more and more Chinese can hardly live a day without using something that has its origin in a foreign land. They may ride to work in a Santana car, make long-distance calls with a Motorola cellular phone, drink Beck beer, or wash their hair with Lux shampoo.

These products have two things in common. They are all foreign brand names and they are all made in China; most by joint ventures and a few by wholly-owned foreign manufacturers. The Santana car is made by Germany's Volkswagen and its Chinese partner in Shanghai.

The open policy advocated by Deng Xiaoping, China's retired leader, and implemented vigorously by the government over the years, has benefited the Chinese people as well as their country.

More than 17 million people have found generally well-paid jobs in foreign-funded enterprises; an increasing number of ordinary people have U.S. dollar bank accounts; products they consume and use -- from table wines, toothbrushes and shoes, to elevators, televisions and cars -- are of far better quality than before.

Thanks partly to the presence of foreign businesses, which have brought with them investment capital, technology and management expertise, the Chinese economy has been able to grow at an annually rate of 12 percent on average over the past five years.

Last year, foreign-funded enterprises paid close to 70 billion yuan (US$8.4 billion) in taxes, almost one-tenth of national tax revenues.

Also last year, with its total imports and exports amounting to $280 billion, China ranked 10th among the world's top trading nations. China's dramatic rise as a trading nation is owed largely to its open policy: foreign-funded enterprises accounted for about 40 percent of its total imports and exports last year. In the first quarter of this year, their proportion rose to 45.9 percent.

By May this year, China's foreign exchange reserves reached $85 billion.

The open policy is one of two legs with which China is to achieve modernization, according to Deng Xiaoping's design. The other leg is economic reform, which has entered the phase of establishing a market economy.

To open wider

As China begins to execute its new 9th Five-Year Plan this year, and with the 21st century only five years away, the government earlier this year formulated a development program for the next 15 years. The program was adopted by the National People's Congress (NPC) in its general session last March.

On the open policy, the program has laid down a number of principles for the future.

The general principle is "to open wider to the outside world" in the words of Premier Li Peng addressing the NPC session.

Says Lin Qihui, an official of the Special Economic Zones Office under the central government: "This means primarily that China will increase its openness in terms of geographical area and business scope.

"In geographical area, we will promote more foreign investment in cities along major transport lines and the establishment of foreign investment zones in provincial capitals.

"In business scope, we will gradually allow foreign businesses to play a greater role in fields where they have been more or less restricted, such as mining, banking, retailing and insurance."

Another principle is to "improve quality" in terms of the open policy's implementation. This, according to Lin Qihui, means to increase economic efficiency and returns for all projects involving foreign investment.

China will become more choosy in approving new projects. "Projects that use new and high technologies will be encouraged and those that pollute the environment, rejected," Lin says. Also, administration and taxation of foreign-funded enterprises will be strengthened, he says.

Other major principles include: the foreign investment sector is to operate in accordance with market economics; future growth should rely mainly on improved management and the use of advanced technologies rather than on more project launches; and, preferential policies will be replaced by increased vitality of the enterprise as the impetus for future growth.

Indeed, from April 1 of this year, foreign-funded enterprises can no longer enjoy tax exemption for their imported manufacturing equipment. At the same time, China has reduced its tariff rates, from an average of 35.9 percent to 23 percent.

Economists predict that revoking of the preferential treatment will not affect foreign-funded operations that rely mainly on technology, though it will create difficulties for those that have, all along, relied mainly on tax breaks for profits.

Revoking of tax breaks also means that Chinese and foreign- funded enterprises can henceforward compete on an equal footing, the government says.

Investment target

With political stability and a huge market, China is confident of its continued attraction for foreign investors. The government expects to receive another $150 billion in foreign direct investment in the next five years.

That is a lot of money indeed, though a continued influx of foreign investment is but a natural extension of foreign interest in China over the past 17 years.

By the end of 1995, China had approved a total of 260,000 foreign-funded enterprises, almost half of which have gone into operation; and aggregate foreign investment had reached $135 billion, making China the second-biggest recipient of international investment money in the world after the United States.

Over the years, China has established five Special Economic Zones along its coast, opened Pudong New Area -- a Singapore-size piece of land wedged between the East China Sea and Shanghai proper -- and established the Suzhou Industrial Park near Shanghai with the Singapore government as its partner. These have become centers of foreign investment.

Playing host to foreign investors are also 32 state-level economic and technological development zones located mainly in coastal cities. Many of them have become economic powerhouses, too. In the economic and technological development zone of Tianjin, a port city in north China, for example, America's Motorola has been making pagers and cellular phones in great quantities and will soon make computer chips. Its investment in the zone has reached $1 billion.

In fact, foreign-funded operations can now be found almost everywhere across the country, from Xinjiang in the far northwest to Hainan Island in the South China Sea, and from Tibet to Inner Mongolia.

Thanks to Deng Xiaoping's open policy, China has become increasingly integrated with the rest of the world economically. With the "open wider" policy of the Chinese government, the process is expected to continue, at a higher level, in years to come.