There are four main reasons why China must bolster its efforts to further open up:
1. Opening up determines the success of a rising power’s reforms.
The successful rise of a major power requires constant adjustment and continuous reforms. Opening up exposes a country’s policymakers to other nations’ development achievements and enables officials to devise policies that address defects in their own countries. Having an objective understanding of what works and what doesn’t is key for devising sound policies.
The closed environment of the Cultural Revolution, for example, prevented an objective understanding of how the outside world was developing, resulting in a mistaken belief that class struggle was the way to modernization. Under such misguided thinking, policy adjustments led to retrogression. For 10 years, China missed out on strategic opportunities to help the nation rise.
An open environment, meanwhile, emancipates the mind through knowledge and spurs innovation. During the information age, which coincided with post-Cold War globalization, innovation became the principal driver of social development.
The main reason China’s coast developed faster than its interior was its greater openness and interaction with the outside world. Given this exposure, people there tend to think more outside the box, more easily accept new and unfamiliar concepts and thus help heighten innovation. To continue to rise in the age of globalization, China needs to attract as much world-class talent as possible to strengthen its innovation. Further opening up is a necessary condition for this.
2. Opening up stimulates reform through competition.
When there is little external competition, a rising nation may lapse into maintaining the status quo and lose the motivation to reform. At the start of the Ming Dynasty (1368-1644), China initially opened itself to foreign influence, which enhanced its competitiveness and led to the development of the world’s most powerful navigational capability at the time. But China swiftly instituted protectionist trade policies and banned international maritime trade. Overseas competition disappeared, as did China’s navigational superiority.
When external competition increases, however, the rising state must carry out reforms to stay competitive. Opening up is a way of eliminating backwardness as it pushes internal reform through external pressure. Since China joined the World Trade Organization in the early 2000s, it has faced huge external pressures, which has pushed it to eliminate backward production capacity.
The opening up of higher education forced Chinese universities to compete with foreign universities to attract and retain top faculty and encouraged the Chinese government to formulate an education reform plan in 1998 for building world-class universities. Likewise, the recent U.S. decision to sanction computer chip supplies to the Chinese telecommunications giant ZTE bolstered China’s resolve to strengthen its scientific research. There is now newfound motivation for the government to encourage technological innovation and for enterprises to strengthen independent research and development capability.
Today, China’s foreign trade is more open than its financial institutions. Consequently, the former is more competitive than the latter. China is the world’s largest trader, but the renminbi is not even a principal settlement currency let alone the world’s principal reserve currency. Likewise, state-protected enterprises aren’t yet internationally competitive, but unprotected private enterprises such as telecom firm Huawei are.
As China’s experiences over the past 40 years reveal, the more open a field the faster its competitiveness grows, whereas the more protected a field the harder it is to be competitive.
3. Opening up helps domestic economies adapt to the global economy.
Domestic and international affairs are integrated, and a country cannot adapt to globalization without opening up. In 2006, Chinese leaders made the strategic decision to integrate domestic affairs and international affairs into one, so that national policies would be consistent instead of in conflict with the trends of the times.
The principle of “national treatment” after the Cold War also forced WTO members to manage domestic and foreign enterprises with uniform policies. China thus upgraded its opening-up policy from “bringing in” to “bringing in and going out.” As a result, China’s overseas interests expanded rapidly.
Clashing domestic and foreign policies, however, will prevent a rising nation from expanding its national interests worldwide. For instance, different management policies for domestic and foreign currency transactions would undermine the domestic currency’s international reputation, thus hurting its chances of becoming a main global reserve currency and curbing the nation’s financial influence abroad.
4. Opening up furthers globalization, which makes interdependence less vulnerable.
The danger in economic dependence is that a country may suffer catastrophic consequences from changes in another country’s economic policies. But because post-Cold War globalization has reduced barriers to entering foreign markets and accessing foreign goods, enterprises affected by a foreign country’s policy changes can find alternative markets or products relatively easily. This makes interdependence less vulnerable.
As a rising nation’s international interests grow in speed and scale, the vulnerabilities of interdependence decrease and the security of its overseas interests increase. Similarly, the more open a state is, the more opportunities it has to enter foreign markets and seek alternatives. If there is reciprocal opening up, the rising state would have larger relative benefits than other countries due to its larger overseas interests. But with reciprocal closing up, the rising state would have more to lose.
Whether it’s overcoming the trade spat with the United States or other obstacles, China’s rise can only be guaranteed by continuing to open up. China’s leader has promised that “the more developed China becomes, the more open it will be.” How much the Chinese government turns this into practice will decide the fate of China’s national rejuvenation.