China into the World Economic System

Abstract

China in 1978 embarked on a major economic transformation, seeking to alter the stance of the previous 30 years and engage economically with the rest of the world in several dimensions—trade, foreign direct investment by private firms, external borrowing by government from both private and public sources, and education. Each of these represented a major change in policy. The transformation in the intervening 22 years has been dramatic and palpable, as can be seen in the sky-lines of the major cities. On official figures, agricultural output has jumped more than two and a half times from 1978 to 1998, and industrial output increased more than nine-fold. The service sector, discouraged under central planning, increased eight-fold. Exports during this period grew from $10 billion to $184 billion, making China now the world's ninth largest trading country (just ahead of Belgium). The current account was roughly in balance over most of the last 20 years (although in surplus since the currency consolidation and anti-inflation program of 1994), but thanks to large inward foreign investment, foreign exchange reserves have grown to $160 billion, second largest in the world after Japan. China experienced various bouts of inflation, followed by policy constriction; prices during 1999 declined by 3 percent, exceptional for a developing country.