Reform, Re-emergence and Rejuvenation: The Road of Chinese Dragon

To cope with and achieve robust and sustainable development in the long run, China needs to deepen overall domestic reforms

Bernard Dewit

Bernard Dewit is founding member and general secretary of Europe China OBOR Culture& Tourism Development Committee. He is the chairman of the Belgian-Chinese Chamber of Commerce and lawyer at the Brussels Bar and senior partner of Dewit Law Office. He is also the accredited foreign arbitrator for the China International Economic and Trade Arbitration Commission (CIETAC), as well as Shanghai International Arbitration Center. In 2017, he was awarded the Friendship Prize by the central government of China.

As Confucius said: “At 40, I had no more doubts.” On the 40th anniversary of China's remarkable reform and opening-up, it is a great time to reflect on the path traveled and envision the way forward. Increasingly, this reflection is not only important for China, but also for the rest of the world.

It is crucial to understand China's reform and opening-up in a well-grounded historical context. Undoubtedly, China had its glory for several thousand years. In the 18thcentury, Adam Smith said China had long been one of the richest, that is, one of the most fertile, best cultivated, most industrious, most prosperous and most urbanized countries in the world. However, from China's defeat in the Opium Wars in the mid-19thcentury to the birth of the People's Republic of China in 1949, China had a painful time — the “century of humiliation”.

Under such a historical setting, the major task shared by Chinese leaders was and still is to restore and upgrade. Mao Zedong, Deng Xiaoping, Jiang Zemin and Hu Jintao were all in the marathon relay team, as is President Xi Jinping now. When the baton was passed to Deng Xiaoping in 1978, China was on the verge of economic and social collapse — economic stagnation. Under such a difficult situation, Deng knew that he had to take pragmatic action — a prudent shift from centrally-planned egalitarian socialism toward a market-oriented economy. Despite debate and obstacles, he insisted that it doesn't matter if a cat is black or white; as long as it catches mice, it's a good cat. In an experimental and incremental manner, Deng introduced and implemented the concept of the socialist market economy to incorporate the market into the planned economy.

Since the reform and opening-up policy, China's economic development has been a dual-track process — domestic reform and integration into the global economy. Under Deng's lead, domestic economic reforms were carried out in two stages. In the first stage (the late 1970s to the early 1980s), the reforms consisted of the decollectivization of agriculture, permission for entrepreneurs to start businesses, and preliminary opening-up to foreign investment. However, most of the industries remained state-owned. During this period, I visited China for the first time in 1985. My first impression of Shanghai was that it was big but a bit monotonous — people dressed more or less the same and the city went to sleep very early in the night. I didn't know that the city would quickly transform into a colorful city that never sleeps.

In the second stage (the late 1980s to the 1990s), the reforms consisted of semi-privatization of some state-owned industries, and loosening of price controls and regulations to some extent. Deng toured southern China to press for faster economic reforms in 1992 and this sparked a fresh wave of market growth when the private sector mushroomed remarkably. During this period, my engagement with China became more and more intensive. In 1987, as a European lawyer, I had a fieldwork tour of China for two months. Following the beginning of China's open-door policy, the Belgian-Chinese Economic and Commercial Council (BCECC) was established in the 1980s and I became chairman of the BCECC in 1996.

At the same time, by implementing the opening-up policy, China benefited from its integration into the global economy and the process of globalization. And equally important, in turn, the world also benefited from China's integration. In 1990, the first ever stock market in China — the Shanghai Stock Exchange —was opened. In 1996, China allowed the yuan to be convertible on the current account, enabling the free flow of money for imports and exports. Next, China became a member of the World Trade Organization (WTO) in 2001. Its accession to the WTO not only empowered domestic reforms but also ensured much greater competition in the market.

China's foreign currency reserves became the world's biggest in 2006. When the terrible global financial crisis hit in 2008, China, as a key G20 member, made a great contribution to global financial governance. Beijing also hosted a successful Summer Olympic Games in 2008.

Indeed, the result of the 40 years of arduous reforms is astonishing — China has upgraded from a poor and isolated country to a prosperous and interconnected nation. With regard to economic growth, China began an unprecedented economic catchup at double-digit growth for decades. China is now the world's second-largest economy amounting to approximately $12.24 trillion in 2017 (see Table 1), and the largest if measured in purchasing power parity terms. Another significant achievement is that China has lifted millions of people out of poverty and dramatically improved people's living conditions. Furthermore, China has positioned itself as the world's leading manufacturer and the foremost trade partner for many countries. It has also become the second-largest foreign investor in the world and its economy interconnects numerous global value chains. In a nutshell, after the 40 years of reform and opening-up, China has (re-) emerged as a major global economic, trade and investment power.

Table: Statistical overview of 40 years

Source: World Bank

To fully rejuvenate, 40 years is not enough. Despite the tremendous achievements mentioned above, the other side of the coin is that China faces a number of challenges: domestically, an aging society, rising labor costs, widening income gaps, widespread pollution, inefficiency of some state-owned enterprises, increasing financial complexity and liquidity risks; globally, weak trade, inward-looking policies and tendencies, commodity price volatility, high private and public debt, illicit financial flows and lack of inclusiveness of economic growth all pose uncertainties for China's further development and going global.

To cope with these challenges and achieve robust and sustainable development in the long run, China needs to deepen overall domestic reforms. However, the road will become ever more complex, sensitive and onerous. Under this scenario, President Xi has vowed to strive to deepen overall reform and to open further to the world. Xi has strengthened and improved the Party's coordination and leadership over deepening reform, and incorporated institutional changes to the reform task. All the reform endeavours are aimed at the Two Centenary Goals set at the 18thNational Congress of the Chinese Communist Party (CPC). They refer to the targets of building a moderately prosperous society in all respects by 2021, the centenary of the CPC, and building a modern socialist country by the centenary of the founding of the People's Republic of China in 2049.Under Xi's leadership, with the 40 years of experience, I believe China will advance three dimensions of reform: sustainable reform, comprehensive reform and global governance reform.Sustainable reform: To drive productivity and create growth and jobs sustainably, reforms need to ensure market efficiency and be environmentally-friendly. For instance, instead of pursuing quantitative growth at the price of environmental pollution, an innovation- and efficiency- driven economy is preferred. China needs to advance supply-side structural reform and implement innovation-friendly policies and support investment for science, technology and innovation. Due attention has to be paid to promoting decarbonization of the economy and respect standards based on environmental impact assessments. Connectivity policies should reduce negative externalities such as environmental impact, congestion, noise, pollution and accidents. In short, connectivity has to be economically, fiscally, environmentally and socially sustainable in the long term.

Comprehensive reform: Comprehensiveness is about all aspects of a sound economy, people, society and system. It means optimizing reforms in all aspects — economic system and ecological civilization, democracy and legal system, culture, social system, Party building and discipline inspection system. People's interests and rights should be at the core. To further comprehensive progress, it needs to adhere to good standards of transparency and good governance based on rules, regulations and appropriate public consultation.

Global governance reform: Effective global governance and sufficient global public good will are necessary to tackle increasing global problems and a global governance deficit. China's steady economic development makes it willing and able to be a “responsible stakeholder” to tackle intricate global problems. However, China has encountered a decades-old global governance system — which has not been reformed in tandem with the dynamic changing of the global economic reality. China needs a more effective global governance system. China and other emerging markets and developing countries need to push reform of the existing structures of global governance in different areas more attuned to the reality within a reasonable timetable. Furthermore, seeking synergies between China-led projects (such as the Belt and Road Initiative, the Asian Infrastructure Investment Bank and the New Development Bank) and its global strategic partners' projects (such as the Juncker Plan) will better shape global governance.

To sum up, as both an observer and a participant, I have witnessed the process through which China has upgraded from being poor and isolated to prosperous and interconnected in 40 years. The past 40 years were bumpy but rewarding, the way forward will be onerous but promising. 2019 is the 70thanniversary of the founding of the People's Republic of China. I look forward to seeing China accomplish all the tasks laid down in the 13thFive-Year Plan (2016—2020), develop new blueprints for its future and play a bigger positive role in the world.