China’s changing economic relations with the world: introduction

Abstract

How will the unexpected Russia–Ukraine conflict started in late February 2022 redefine China’s economic relations with the rest of the world? This is the central question of the current special issue. Although China is not directly involved, the conflict could change the way the world economy operates. China’s economic relations with the rest of the world, especially with the United States and its allies, started to change years earlier. But the Russia–Ukraine conflict could accelerate such change. When China decided to start economic reform at the end of 1978, it was virtually an autarkic economy. Exports, which accounted for less than 5% of GDP, were mainly resource and agricultural products, and were organized by twelve state-owned export corporations in order to exchange for imports of machinery and equipment products. Inward or outward international investment was literally non-existent. During the following decades, China quickl emerged as one of the most successful economic stories worldwide. Between 1978 and 2008, China’s real GDP growth averaged 9.8%. Its GDP per capita rose from less than US$200 to above US$3,000 during the same period. In 2010, China surpassed Japan to become the world second largest economy. In retrospect, the external sector was a key driver of economic development during that time. In the late 1980s, the Chinese government formulated ‘the great external economic circulation strategy’, leveraging the external capital, inputs, technology and market. And in 2001, China joined the World Trade Organization. As a result, exports rose to 35% of GDP in 2006 and, in the 1990s and the 2000s, China was regularly the largest recipient country of foreign direct investment. Apparently, the reform and open-door policies were the most important factors contributing to China’s economic success during the past decades. The reform policy not only re-introduced incentives for workers and entrepreneurs to work hard but also adopted the market mechanism to allocate resources. And the open-door policy enabled China to participate in the international division of labor as well as taking advantages of international capital and technology. The favorable external environment also played irreplaceable roles in China’s economic development and opening up. These came in two dimensions: one was starting of economic globalization from 1971 and the other was warming of Sino-US relations