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Saturday July 19, 2014 MYT 12:00:00 AM
Saturday July 19, 2014 MYT 6:55:21 AM
by datuk seri mustapa mohamed
Trade and open markets power China ahead. By embracing openness, China has transformed itself and perhaps even the world.
MY first impression of China when I first visited in 1985 was one of backwardness. There were bicycles and Mao suits everywhere.
I was fortunate because my second visit was 22 years later, in 2007. Frankly, I was astounded by what I saw. People went about in the latest fashions and cars had replaced the bicycles.
Fast forward to 2014 – when I again visited in conjunction with the 40th anniversary of Malaysia and China’s bilateral ties, accompanying Prime Minister Datuk Seri Najib Tun Razak – and we found that the pace of development was just as frenetic.
Incidentally, this was my second visit to China this year and I still have a couple more trips planned.
China is now the second biggest economy in the world and in Purchasing Power Parity (PPP) terms, the largest.
The World Bank estimates that the number of Chinese living under the international poverty line (US$1.25 a day) fell from 43% of the world’s total poor population in 1981 to 13% in 2010.
China’s Gross Domestic Product (GDP) per capita doubled to 38,354 yuan (RM19,672) from 2009 to 2012 alone.
Change, it seems, is the only constant in China. But how did this come about?
I would argue that it’s because they embraced reform and openness.
Under Deng Xiaoping, China sought “socialism with Chinese characteristics”: in effect, opening itself and its markets to the wider world.
One significant initiative which China embarked upon was joining the World Trade Organisation (WTO) in 2001.
This was a watershed and was not an easy decision for China.
Accession, especially in China’s case, is a lengthy and thorough process. Negotiations for China to join WTO took 15 years.
Countries often had to make significant concessions to the entire WTO membership and no exceptions were made for China.
However, the Chinese government proved willing to dismantle much of its restrictive institutional regime.
But WTO membership for China was not just to get better access to international markets.
It was also a defensive measure: to prevent unilateral actions from being taken against their goods by trading partners.
For instance, as a member of the WTO, China is protected from unilateral tariff hikes.
Other countries with grievances against it will have to bring their case to WTO’s tribunals.
Among the requirements for WTO entry, China also had to reduce its bound tariffs on industrial goods to an average of about 9% by 2005. Agricultural tariffs were cut to 15% while most quotas and licence requirements were eliminated.
All in all, China had to relax over 7,000 tariffs, quotas and other trade barriers.
Furthermore, it had to open up its markets to foreign firms and end state-controlled distribution of products.
China, significantly, made more market-opening commitments for services than most WTO members had.
From a centrally planned economy, China has now embraced capitalistic economic principles.
At the same time, China moved to strengthen its own capacities. It moved away from agro-based exports to manufacturing.
Also, the first of many Special Economic Zones were established in 1980, including today’s iconic Shenzen.
All of these were bold and unprecedented moves, all the more so given China’s strong nationalism and its traditional aversion to foreign entanglements. But open up it did and the results are clear for all to see.
In 2013, the WTO reported that China had overtaken the United States as the largest trading nation in the world, with total trade valued at US$4.16 trillion (RM13.23 trillion).
In that year, China’s total exports value was US$2.21 trillion (RM7.03 trillion) compared to US$1.58 trillion (RM5.02 trillion) for the US.
China, in fact, is now the largest trading partner for more than 120 countries, including Malaysia.
China is also the biggest market for automobiles, with 20 million cars sold in 2013. In comparison, the US sold only 14 million cars.
Indeed, from 2002 (after it joined the WTO) to 2013, the growth of its total trade rocketed to an annual average of more than 21%.
Its GDP for the corresponding period grew from US$1.3 trillion (RM4.13 trillion) to over US$9 trillion (RM28.6 trillion) in 2013.
Of course, China’s leaders had no way of knowing that all of these reforms would bear such remarkable fruit.
It was a risk they had to take, but it was one that paid off handsomely.
By embracing openness, China has transformed itself and perhaps even the world.
The lessons from China for Malaysia and other countries are clear: we have to be willing to embrace change.
Otherwise, the only other option is stagnation and decline.
Datuk Seri Mustapa Mohamed is Minister of International Trade and Industry. The views expressed here are entirely the writer’s own. Fair and reasonable comments are most welcome at firstname.lastname@example.org
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