Opinion

Magali Silva


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2018/08/13Reform and Opening-Up in China: Learn and Adapt

 



After 40 years of its reform and opening process, China is today the second largest economy in the world. With a population of 1.4 billion people, China laid the foundations for its modernization in four key areas: agriculture, industry, national defense, and science and technology. The internal (rural and urbanization policies) and external (creation of especial economic zones –EZZ, opening of large and medium sized coastal cities to the world, easier access for foreign direct investment, and China’s entry to the World Trade Organization in 2001) allowed for its GDP per capita to grow 9% every year.

 

In the early 1980s China had 770 million poor people living in rural areas, which represented 80% of its total population. With indicators in decline in production and productivity, its productive system needed a transformation to ensure its viability. A significant change is given with the creation of the EZZ. Geographically delimited, they have a single administration, low taxes, energy, technology and skilled labor, and a tariff regulation system separated from the operational management of customs. The first EEZZ were established in Guangdong and Fujian. They are provinces situated very close to Hong Kong with a high proportion of their population migrated to European countries and the United States, and whose diaspora was responsible for bringing foreign direct investment (FDI).

 

Elements such as the high infrastructure quality provided by the State; having comparative advantages in production factors; cluster formations, IDE promotion centers; research diffusion; innovation policies for solutions in the productive process; in addition to a significant reform of land tenure (1981), which made it possible for companies to access rental agreements for 20 to 50 years with possibility of renewing through auctions, contributed to its success. However, in this process promoted by a regime of incentives some excesses were given leaving high environmental liabilities. To solve this, China has initiated a progressive correction in compliance with signed international level agreements.

 

Investment in human resources, research, and development training was crucial in this process, as well as having a huge domestic market and an education reform, which included the internationalization of many Chinese universities and exchanges with international universities. China’s transformation and innovative development process continues today at rates that only the technological revolution will determine.  However, it still faces major challenges, including the recent trade wars, which will demand more fiscal resources to promote a change in its growth driven investment engine to another fueled by consumption in an economy that saves 45% of its GDP; respect for intellectual property rights, inclusive and green growth, as well as reforms in the services sector, particularly in financial services and telecommunication activities.

 

China’s Comprehensive Strategic Partnership with Peru, the close business relationship within the Peru- China FTA, and the cultural ties that unite us are not only a great opportunity to continue increasing our access to one of the largest markets in the world, but also to keep on learning and adapting the lessons of its aperture process in the construction of institutions and infrastructure that our country needs. It is our responsibility to seize this opportunity.

 

Magali Silva is a Peruvian economist and former Minister of Foreign Trade and Tourism of Peru.

 

Article published in El Comercio, July 28, 2018.