An Assessment of Chinese Thinking on Trade Liberalization

Friday, April 18, 1997

In the past few years, China has been depicted as a protectionist and mercantilist country. To be sure, tariff rates (nominal) in China remain high, and nontariff barriers exist. Nevertheless, it was only ten years ago that China turned away from a completely closed society relying on a centrally planned economic system. The transition from that old system to a market economy could not happen overnight. Trade and investment liberalization can only be achieved in a gradual, incremental way. What is important is that the Chinese elite have increasingly realized the urgency of trade and investment liberalization because of its positive effects on the domestic economy. The leadership has become committed to reforming its trade regime on a unilateral basis. Economic reform and growth, rather than foreign pressure, have necessitated further liberalization. So far, bold trade liberalization programs have been launched and significant progress has been made, especially in the 1990s.

This essay discusses how the Chinese elite's conceptions of trade liberalization and their learning curve evolved; then it outlines the Chinese attitude toward regional liberalization as it evolved under the Asian-Pacific Economic Community (APEC); finally, it describes the trade liberalization steps China has taken and their constraints.

Evolution of Economic Thinking

Under a centrally planned economy, China's markets were closed for nearly thirty years. During this period, China considered it desirable to use high tariffs and quotas to restrain imports, to peg exchange rates, and to use foreign exchange rationing as a trade-restricting device. The dominant economic thinking in China at that time, based on the "self-reliance" concept, held that allocating the country's limited foreign exchange to import selected technologies and to build domestic industries would achieve rapid industrialization.

As economic reforms began, however, the merits of import substitution–driven protection began to be questioned. Moreover, after 1978, policymakers urged more foreign direct investment (FDI) and expanding exports and imports, reforms that required trade liberalization and a market economy that were incompatible with trade protection. Although some protection was inevitable at the initial stage, China's policymakers realized that full implementation of the market mechanism necessitates not only free competition in the domestic market but also a free international trade policy and the integration of China into the world economy.

A central element in intellectual and policy developments in the mid- and late-1980s was the reevaluation of trade and the trading system. "The economic loss incurred by protection had been underestimated," recalled a scholar, "while its positive effects were overstated" (Chen 1996). A perception was growing among academicians and state planners that import controls helped maintain inefficient and high-cost intermediate and capital goods sectors of the state-owned enterprise. Depressed prices for raw materials and production inputs, when combined with the high tariffs for most intermediate and capital goods, have produced high effective rates of protection for these industries and penalized downstream activities. The desire to limit the imports of nonessential consumer goods only reinforced incentives to expand the domestic production of these commodities, thus contributing to excess capacity and irrational investments designed to meet the needs of a regionally segmented market. In the absence of a flexible exchange-rate policy, the trade regime has also been used to control the demand for imports for equilibrating the balance of payments. Ultimately, this kind of an economy cannot obtain the benefits that free access to more-efficient foreign products can provide.

The high rate of protection, some scholars argued, also inhibited the import of capital goods and new technologies, which are necessary for modernization. The "spillover" theory of international trade, introduced into China in the 1980s, postulated that advancements in knowledge made by one economic unit are adopted by (spill over into) another economic unit. Liberalization increased the prevalence of technology spillover as trade barriers declined (Gunter and Meldrum 1993). Such spillovers could decrease the cost of innovations and increase an industry's competitiveness. Some scholars suggest that these externality effects are an important factor behind the superior performance of export-led countries relative to those committed to import substitution. Chinese scholars became convinced that import restrictions eliminate externality effects, limit competition, generate inefficiently administered protection, and ultimately harm export performance (Hai 1995; Zhao 1996). Some side effects of protection included high tariff rates causing rampant smuggling and import quotas and licensing leading to widespread corruption.

Nevertheless, debate continues over whether infant industries should be immediately stripped of their protection, for the adjustment costs could be too high to bear were protection measures not available. Some government officials and industry leaders see protecting infant industry as central to the country's development, especially given what they see as the successes achieved by Japan and other Asian countries that have used this approach.

The costs for protection, however, could be higher than the adjustment costs, an argument supported by some empirical studies. According to findings obtained by foreign economists in selected developing countries, reducing production costs in protected industries has proved slower than in unprotected industries. And the price of protection is twofold higher than the foreign exchange saved from protection (Zhao 1996). In the case of China, industries enjoying longer-term and higher tariff protection appeared less competitive than those with shorter-term and lower tariff protection. For example, the automobile industry, protected by between 180 and 220 percent of the tariff rate and heavily subsidized by the government, has become the most backward in terms of technology and productivity. Meanwhile, the shipbuilding industry, with only a 14–20 percent tariff rate, was the most competitive (Zhao 1996). We can therefore conclude that protecting import-competing industries represents a kind of intervention into the allocation of resources that leads to price distortion and low efficiency.

This does not mean, however, that China needs no protection at all. The "infant industry" concept is not a Chinese invention. It was Friedrich List, the German economist, who stressed protecting infant industry during industrialization a century ago (Hunsberger 1964). In early phases of their development, several East Asian economies combined export development with import protection. Japan, Korea, and Taiwan, for instance, provided substantial import protection to their infant industries through trade barriers and financial incentives. Development theories in the 1950s and 1960s endorsed this approach (World Bank 1994).

Nor should government intervention be abandoned in any case. Given the imperfections in the markets of credit, labor, and technology in many developing countries, it is wishful thinking to assume that the markets in these countries will provide correct price signals. In fact, state intervention is called for, if only to overcome the distortions imposed by market imperfections (Chakravarty 1988). Even now, new international trade theory embraces the "strategic trade protection" concept, whereby governments select a number of long-term and strategy-oriented industries for protection. Japan and other developed countries followed this policy during the postwar period, although such protection was short term and moved from one industry to another, referred to by Givens as "the narrow moving band" (Krugman 1990). The objectives of protection were to generate spillovers and increase productivity and competitiveness within a short time.

The World Bank has also credited government's role in supporting export development and sustaining outstanding economic performance in East Asian nations: "Looking ahead, both liberalization and government efforts to ensure adequate regulatory frameworks will be important" (World Bank 1994).

The challenge that the Chinese government faces is to pick the right products, not necessarily industries, to protect in the context of a strategic development policy. Such protection might be less costly if industrial or consumer policies were used instead of trade barriers (Hai 1995).

Since the early 1990s, Chinese development theorists have increasingly endorsed more trade liberalization (Chen 1994, 1996; Hai 1995; Wang 1996; Zhao 1996). Their thinking was reinforced by the positive role played by FDI. The experience of most East Asian countries indicates that they are unlikely to give up protection without a credible alternative for acquiring technology. That alternative exists in that industry now can be promoted more effectively through FDI than through import substitution. China is using FDI for developing competitive industries such as in textiles and electronics.

The trade-FDI link in East Asia is often illustrated by the "flying geese" hypothesis, according to which the dispersion of technology that influences trade patterns is transmitted through FDI from the lead country to follower countries (Akamatsu 1960). Lead-country firms combine their technological advantage with the low factor costs in follower countries and begin manufacturing their "second-tier" products offshore. The combination of foreign capital and cheap production costs makes the follower country's products more competitive in world markets, and thus its exports rise. Japan is usually regarded as such a lead country, followed by the newly industrialized countries of East Asia, followed by Malaysia, Thailand, and, finally, China. The distribution of production is determined by comparative advantage and the ability of the host countries to absorb the technology embodied in the FDI flows in increasingly open trading systems. Foreign investors pressure the host country's government to relax import restrictions, which often contributes to a more open trade regime. Foreign direct investment, therefore, is attracted by liberal trade regimes, contributes to export growth, and creates pressure for further trade liberalization. The World Bank called these processes a "virtuous circle."

In sum, trade liberalization is not a result of foreign pressure but an intrinsic necessity of economic reforms. A general consensus among Chinese elite is that the initial stage of trade liberalization in China might produce competition and some enterprise failures. But this is the cost the country has to pay to develop a market economy. In the long run, greater openness should help the country reduce the current inflationary pressures and increase the market discipline of state-owned enterprises. An important objective of trade reform, then, is to rationalize the allocation of resources by placing enterprise decisions in the context of international price signals and to boost national welfare.

An Approach to Regional and Global Liberalization

The first ten years of the Chinese economic reforms focused on domestic problems, with little attention to policy or international economic cooperation. Some experts continued to insist that economic cooperation meant the exploitation of underdeveloped countries by the major economic powers.

As China's economy opened to the outside world, however, economic interdependence and free trade were becoming irreversible. Once protection is eliminated, opening markets are just a matter of time. As the world economy grows and interdependence increases, China's interests clearly are linked with an open multilateral trading system. Hence, China is well advised to participate fully in all initiatives to promote trade liberalization, particularly if such initiatives are nondiscriminatory in the Asia-Pacific context. For China, a regional approach to liberalization could increase in its exports to East Asia and sustain FDI inflows with substantial technology transfers. Both developments provide opportunities for export market diversification and dampen the adverse impact of liberalization on the current account in the short term.

Another compelling argument for closer economic ties within the region is the growth of regional blocs throughout the world, with the attendant suspicions of exclusivity and protectionism as voiced by outsiders, the European Union (EU) being but one example. Although Chinese official writers note this trend toward regionalism, the virtues of regional integration are also cited. The Asia-Pacific region includes countries at different stages of development whose raw materials and cheap labor can be combined in synergy with capital and technology. China could thus benefit from cooperation with the region.

In 1991, China became a member of APEC, the only regional economic organization it has joined. Because China had vital stakes in the Asia-Pacific region--80 percent of its trade flow and 90 percent of its FDI come from this region--it decided to take an active part in all the organization's activities.

As the largest developing country in the world, China's salient features of economic development should be taken into account as part of such regional integration. Although China's economy is growing extremely fast, its productivity is low, and its market system is immature and imperfect. Agriculture is particularly backward, and thus its suppliers of products cannot endure foreign competition. Many sectors, such as automobile, electronics, finance, insurance, communications, are still in their infant stage; but the domestic market potential is enormous, and demand for technology and management skills is huge. Given the above domestic constraints, China's approach to the regional liberalization within the APEC framework can be described as follows.

Flexibility. China endorses trade and investment liberalization as an important goal of APEC. At the same time, in view of the diversity of the socioeconomic systems and the differences in the level of development in this region, a gradual, voluntary liberalization based on a principle of flexibility is desirable. The time limit set by the Bogor Declaration--2010 for developed economies and 2020 for developing economies--is flexible and has no binding force. China may need, however, a ten- to fifteen-year transition period for establishing market mechanisms that are compatible with international norms and practices. If China's economy can grow at 7–8 percent annually, the per capita GDP could be expected to reach $2,000 by the year 2010 and $4,000 by the year 2020. It is to be hoped that China can adjust its economy to meet the goal set in the Bogor Declaration by 2020.

The United States, Australia, and Singapore stressed the principle of comprehensiveness, which means no exclusions allowed for either industries or sectors. Most APEC countries insist that the liberalization process should be flexible, leaving some sensitive sectors excluded, at least in the initial stages. China's approach is that no industry or sector should be excluded but that liberalization could be phased in, with certain industries or sectors granted some protection at the initial stage and then gradually reducing the rate of protection. Opening all markets is not realistic; even some U.S. markets are closed to foreign competitors. China and most Asian APEC members endorse this gradual approach and have resisted pressures for rapid liberalization. Moreover, the APEC meeting in Osaka in 1995 seemed to have adopted this gradual approach.

Focus on Economic Cooperation. APEC, as its name implies, should set economic cooperation as its main target. From the Seattle APEC meeting onward, however, the United States has co-opted the APEC agenda by putting undue weight on trade liberalization and ignoring economic cooperation. This revealed U.S. intentions of having immediate access to Asian markets and being unwilling to assist Asian countries in their economic development. Indeed, many in Asia have complained that APEC's agenda has been too heavily weighted toward free trade and investment--the U.S. main aim. As Asian analysts point out, the developing members and Japan are strongly committed to economic and technical cooperation. If the organization proceeds only with trade and investment liberalization, many APEC members will feel that they have been cheated (Sopiee 1995).

China sees regional economic development, along with trade and investment liberalization, as the twin goals of APEC, but development should not replace liberalization, for the two goals are interrelated. Economic and technological cooperation would contribute to narrowing the gap between member countries, thus facilitating trade liberalization. Developed countries must extend some assistance to developing countries in the areas of technology transfer, building infrastructure, environmental protection, human resources development, improved management, and so forth. Japan's promise of 10 billion yen, made at the Osaka meeting, was widely praised.

In the final analysis, China's view is that liberalization is a matter of opening markets. Only with advanced technology and sufficient funding, provided by the developed countries, can industries of developing countries become more competitive and their markets open up. Unfortunately, the United States has opposed making APEC a vehicle for development projects or "pooling" its development aid with other APEC donors (Ortblad 1996).

Concerted Unilateralism. Since the Seattle meeting there has been a trend toward turning APEC into a regional trading arrangement with binding rules. Most Asian member countries, however, oppose this, as they believe this organization should be open to nonmember countries. Many scholars admit that institution building in APEC is a protracted, painstaking process and that too hasty an effort to erect the superstructure risks toppling the whole framework.1

Unlike traditional trade areas that enforce their agreements through binding mechanisms, APEC relies on consultation and the unilateral commitment of individual countries. The Osaka meeting reasserted the "Asian way" of reaching decisions through consensus.

The best way to achieve trade and investment liberalization involves two different approaches: "collective action," as advocated by the United States, involves collectively agreed-on action plans of liberalization for all members; "concerted unilateralism" allows each member to move forward independently. China, Japan, and other Asian members were inclined to support unilateralism.

In recent years, unilateral initiatives have been favored in many countries of East Asia, where they have been responsible for more market opening than concessions produced through tough bargaining. New Zealand, Indonesia, and China are notable examples (Wain 1997).

In China's opinion, each country should plan its liberalization according to its domestic situation, then decide the priority, scope, sequence, and pace to implement the plan. Concerted unilateralism should have three dimensions: (1) Collective action formulated on the basis of unilateral action plans (i.e., unilateral action as the mainstay and collective action as a supplement). (2) Individual action plans should abide by common principles agreed to by member countries. Where possible, they will be concerted through a process of consultation and review. Hence, the action agenda will include a section setting out objectives and guidelines for both individual and collective actions across a wide range of issues. (3) Establish an appraisal and assessment mechanism. All individual plans must be comparable. During consultation, member countries can compare one another's action plans and revise and coordinate them so that each country moves in roughly the same direction in an even way.

Nondiscrimination. In China's view, the fruits of APEC's liberalization should be enjoyed by all member countries without discrimination. In other words, most-favored-nation (MFN) treatment among APEC members should be unconditional. Otherwise, open regionalism is nothing but empty talk. Linking human rights to China's trading status and an annual review of its MFN status are absurd. The MFN treatment has become a global standard for normal trade. It does not render a favor but assumes reciprocal obligations. More than 120 countries now have lower tariff rates than those under MFN through employing the generalized system of preferences (GSP).

Are Chinas Markets Closed?

Does China have the highest tariff rates in the world? Yes, its nominal average tariff was 43 percent in 1992. No, its effective tariff was only 4.6 percent in the same year. This paradox reflects the distorted tariff structure that originated from the old system and the new measures taken by authorities trying to open China's economy.

In a closed, centrally planned economy, the tariff was regarded as the embodiment of sovereignty. Its functions were to ensure government revenue and to protect domestic industries. Liberalization could cost the government much revenue. Acting on this principle, China implemented a high tariff policy during 1949–1979. In the process of economic reform, however, the thinking on the function of a tariff in policy and academic circles has changed. A tariff is no longer regarded as merely a source of government revenue but as a tool for regulating imports and exports, expanding foreign economic relations, and rationalizing the domestic industrial structure. The consensus is that high tariffs will not generate increased government revenue. According to the composition of imports, they were not the subsistence goods that China is unable to produce and supply. Given the large elasticity of supply, high tariffs on these goods will restrict imports and thus decrease tax revenue. As a result of this thinking, the country consistently cut tariffs after 1991.

At the beginning of 1992, China's average unweighted tariff was 42.5 percent; when weighted by the value of trade, the average tariff was 32 percent. The 1993 tariff cuts reduced the unweighted average to 36.4 percent (see table 1) and the weighted rate to around 20 percent.2

Table 1: Comparison of Tariff Rates: Selected Countries
Maximum (%) Average (%)
China (1993) 85 36.4
Indonesia (1991) 60 20.0
Philippines (1992) 50 24.0
Korea (1992) 30 10.0
Brazil (1992) 50 17.0
Mexico (1990) 20 13.0
Source: International Monetary Fund, 1994

The high tariff rate, however, never generated high government revenue, for China's tariff collection rates are low. The actual tariff receipts going to the state coffer as a share of imports were only 4.8 percent in 1992--down from 10.1 percent in 1986 (see table 2). The effective tariff rate in 1995 declined even lower, to 3 percent,3 much lower than the rate in most developing countries. In general, developing countries' tax systems are characterized by a high degree of dependence on border taxation; China is atypical, with its share of customs duties of total government revenues only 5.1 percent in 1992 and 6.3 percent in 1994.4

Table 2: China's Actual Tariff Rate
Imports Tariff Revenue Tariff Revenue
(billion yuan) (billion yuan) (as % of imports)
1978 18.74 2.88 15.3
1980 29.88 3.35 11.2
1984 62.05 10.31 16.6
1985 125.78 20.52 16.3
1986 149.83 15.16 10.1
1987 161.42 14.24 8.8
1988 205.51 15.50 7.5
1989 219.99 18.15 8.3
1990 257.43 15.90 6.2
1991 339.87 18.73 5.5
1992 444.33 21.28 4.8
1993 598.62 25.65 4.3
1994 996.81 27.27 2.7
1995 1104.77 29.18 2.6
Source: Zhongguo Tongji Nianjian (Statistical yearbook of China), 1996, pp.228,580.

The gap between the nominal and effective rates indicates high levels of import duty exemptions and rebates. In the mid-1980s the Chinese authorities drafted internal policies aimed at encouraging imports and started to operate a well-developed system of duty exemptions for exports and duty concessions for imports. Under such a system, most imported goods were not subject to taxation or, if so, at reduced tariff rates. For example, equipment and raw materials imported by foreign-owned enterprises and joint ventures constitute about 48 percent of total Chinese imports and are given 50 percent duty concessions. This privilege was dubbed as "supernational treatment." Capital goods imported for large domestic industrial and infrastructure projects also were granted reduced tariff rates. Overall, more than 70 percent of total imports enjoyed some kind of tariff exemption or reduction in 1995 (Zhang 1996).

This system had positive results for export promotion, increasing imports, and attracting FDI. From time to time, however, its drawbacks appeared to have exceeded its benefits. Various tariff exemptions have complicated the tariff structure, weakened the regulating function of tariffs, and created a selective, opaque trade regime. Although China is still labeled as the country with highest tariff rate, its tariff system generated extremely low tariff receipts by international standards.

In China, 80 percent of foreign-owned and Chinese joint ventures, which enjoy tariff exemptions, have engaged in processing for exports. Generally, this processing accounts for 50 percent of China's foreign trade. This has inflated the total volume of trade as well as the surplus. The real foreign exchange receipts have declined because the largest part of the profit went to foreign partners. Inflated surplus has often served as a major cause of trade friction with other countries, especially the United States.

Exemptions for domestic enterprises are under administrative control, usually at the discretion of various planning and commerce departments at central and local government levels. The arbitrary distribution of these special rights has often caused unfair competition, irrational allocation of resources, and widespread corruption. One unintended consequence of these policies has been the development of "gray channels" through which goods evade customs and duty payments.

As a result of these outcomes, a new thinking on tariff policy emerged in the early 1990s that involved a reevaluation of the merits of high tariff rates and their many exemptions. The general trend of this thinking was to urge further relaxation of import restrictions. That meant substantially cutting nominal tariffs and, at the same time, eliminating exemptions, thus putting an end to those abnormal conditions in which the effective tariff rate was lower than the nominal rate.

Some studies suggest that although such tariff reforms would decrease customs collections, trade liberalization would ultimately expand imports, thus broadening the tax base and increasing tariff receipts. Perhaps more important, lower tariffs will reduce smuggling and help rationalize the industrial sector by encouraging profitable companies to import raw materials more cheaply than in the past and exposing unprofitable firms to international market forces.

In November 1995, President Jiang Zemin announced at the APEC meeting in Osaka that China had decided to cut tariffs by at least 30 percent, at the same time revoking various tax exemptions. These tariff reductions, which came into force on April 1, 1996, cover approximately four thousand commodity lines that bring China's average tariff rate down from 36 percent in 1995 to 23 percent. The new duties on average represent a 40 percent decrease from the 1994 rates. In November 1996, Jiang Zemin declared at the APEC meeting in Manila that China will cut its average rate to 15 percent, the level maintained by most developing countries, by 2000. This is a major step for unilateral liberalization in compliance with the agreements reached at previous APEC meetings.

In addition to tariff reduction, China's entire trade system has also undergone major changes. Since the start of the economic reforms, China's trade system has moved from planning and carrying out all trade through a handful of foreign trade corporations (FTCs) to one in which the role of planning is much diminished. Since 1985, export planning has been eroded by the decentralization of FTCs. Foreign trade can be conducted by local government and local FTCs on a contract basis. All FTCs are responsible for their profits and losses, and they no longer monopolize foreign trade. More than five thousand domestic enterprises and hundreds of foreign-funded firms now have the right to engage in foreign trade.

On the import side, the coverage of the plan fell from 40 percent of all imports in 1988 to 20 percent in 1992; later, the government announced its decision to eliminate mandatory import plans, reduce the scope of import controls on machinery and electronics equipment, eliminate licensing and quota requirements for some products, and simplify import procedures. On December 31, 1995, 176 nontariff measures, 30 percent of the total import quotas and licensing, were phased out.

In addition, reforms of exchange rate management, including the unification of rates and the abolition of retention quotas, have resulted in currency convertibility for current accounts. This has eliminated an important source of economic rents and the need for government intervention in the allocation of foreign exchange.

These developments demonstrate that over the last few years China has made big strides toward unilateral liberalization. Nevertheless, China's trade restrictions--both tariff and quantitative--remain relatively high. Foreign countries also point to some three hundred

nontariff measures, including licensing requirements, import quotas, and certification requirements.

In fact, China's market is far more open than that of Japan, Korea, or Taiwan at comparable stages of their development. Although China has a trade surplus with the United States, it incurred a $12.2 billion global trade deficit in 1993 and has done so in two of every three years since the late 1970s (see chart 1). It makes little sense to argue that the Chinese market has been closed when China has been running a large current account deficit (Lardy 1994).

Source: Zhongguo Tongji Nianjian (Statistical yearbook of China), Beijing, 1996, p. 580.

It is unrealistic and unfair, however, to demand that China abolish all barriers at once. To understand China's growth and development objectives in the global trading system, it is important to emphasize how different the circumstances are for China and the developed countries. China has a huge population and a low per capita income. Its industry, agriculture, and service sectors are still underdeveloped. Social dislocations and disturbance could worsen if protections for certain industries were lifted, perhaps destabilizing the region if not the world.

History has shown that economic liberalization in most countries has been an incremental and progressive process. China accepts that different rules should apply for different countries at various stages of development. Take Japan; it took seventeen years to reduce Japanese tariffs to the levels required by the General Agreement on Tariffs and Trade (GATT). When Japan acceded to GATT in 1955, its one-third tariff cut was the first in this century and it still had many high tariffs. Despite its 40 percent cut in the Kennedy Round, Japan's tariffs remained higher than that of other developed countries until 1972, when it promulgated a unilateral 20 percent reduction that made its tariff level similar to other Organization for Economic Cooperation and Development (OECD) countries. South Korea and other developing countries also acceded to GATT under exceedingly generous terms. The harsh conditions and double standards used by Western powers to regulate China's accession to GATT violate the principle of nondiscrimination.

As indicated above, China has been committed to cut tariffs to the levels maintained by most developing countries. To be sure, there are still nontariff barriers, but they persist everywhere. Neither Europe nor North America can claim to have open markets in terms of nontariff barriers. Moreover, it appears that such barriers are hard to define and measure. Neither the World Trade Organization (WTO) nor GATT, its predecessor, was capable of reducing these barriers. Although the United States is critical of nontariff barriers in other countries, one sees an increased use of U.S. protective measures--quotas, antidumping and countervailing duties, safeguards, trade sanctions, and linking trade retaliation to noneconomic issues--against its trading partners.

The United States has admitted that the scope of trade openness must hinge on prevailing economic conditions. As U.S. trade representative Mickey Kantor stated, in the 1950s and 1960s the United States could afford to open its market because it controlled 40 percent of the world economy; but in the 1990s its share of the world market has declined to 20 percent, and it can no longer afford it.5

If so, cannot other countries decide the extent and pace of their market opening according to their own economic conditions?

We should not argue over which country is protectionist and which is a free trader. Any country moving toward unilateral liberalization or liberalization within multilateral arrangements should be actively encouraged. There is no universal form of liberalization. The broad trends across the world, however, are toward greater economic openness.

1 See Alejandro Reyes and Murakami Mutsuko, "Seeking a Community," Asiaweek, December 1, 1995.

2 See Yan Fan, "Unifying Nominal and Actual Rates--Direction of Tariff Reform" Caimou Jingji (Economics of finance and trade) (Beijing), no. 5 (1996).

3 In 1995, China imported $132 billion worth of foreign goods but collected only 30 billion yuan. See Jingji Ribao (Economic daily), February 12, 1996, pp. 215, 537.

4 See Zhongguo Tongji Nianjian (Statistical yearbook of China) (Beijing: China Statistics Publishers, 1996).

5 See the New York Times, May 18, 1995, p. A1.


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About the Author

A visiting scholar at the Hoover Institution in 1995–1996, Jialin Zhang specializes in international economics, China's economic reforms, and Sino-American trade relations. He resides in Shanghai, China, and is a senior fellow of the Shanghai Institute for International Studies as well as director of the board, Council of Policy and Strategy in Shanghai. He is the author of another Hoover Institution essay titled China's Response to the Downfall of Communism in Eastern Europe and Soviet Union (1994), as well as "Guiding Chinas Market Economy" in Current History (September 1994).