BEIJING: This year marks the 40th anniversary of China’s economic reform and opening. In December 1978, China’s “open door” policy signposted a turning point in its economic management and trajectory.
All of these impressive achievements are thanks to the perseverance and far-reaching changes in China’s economy and society, from the decollectivisation of agriculture to the expansion of international trade and the welcoming of foreign direct investment.
The Chinese government has also committed to reforms in banking, securities and insurance. These included diversifying banks’ equity structures and transforming state-owned banks into joint-stock banks. Key securities companies were restructured, while reforms in the insurance sector also progressed.
Another key phase of reform is allowing more foreign participation in China’s capital markets. The country’s capital account is becoming increasingly open in de facto terms. China now has the second-largest equity market in the world. From a total market capitalisation of $513 billion in 2003, it has grown 17 times to $8.7 trillion last year. The country’s domestic bond market is now the third-largest in the world.
Significant progress has already been made to internationalise the yuan. Just over a decade ago, yuan usage was largely confined to the mainland. Today, more than 10 per cent of China’s trade is settled in the currency.
After primarily being a recipient of FDI for four decades, China has now emerged as a major FDI-originating country as well, with non-financial outbound direct investment rocketing from less than $1 billion in 2000 to $170 billion in 2016. China’s “reform and opening” efforts have also allowed it to enter an era of new economic growth, with consumption, innovation and green energy leading the way.
Changes are already taking place. Domestic demand has steadily expanded, with final consumption contributing 58.8 per cent of economic growth last year, nearly four percentage points higher than five years prior.
The country has also become the global leading force in digital technology and innovation, driven by its rising middle class and a young, free-spending, digitally connected new generation of consumers.
China has more e-commerce activity than any country in the world. It accounts for 42 per cent of global e-commerce, a third of the world’s most successful tech start-ups and conducts 11 times more mobile payments than the United States.
There are challenges ahead, including healthcare for its ageing population, as well as making its economy sustainable and green.