How China Opened Its Door: The Political Success of the PRC's Foreign Trade and Investment Reforms

By Susan L. Shirk | Go to book overview

Chapter 2
The Pre-reform System: The Closed Command Economy

WHEN the Communist Party came to power in China, it copied its development strategy and its economic and political institutions from the Soviet Union, the only other large communist country available as a model. Once the development strategy of rapid capital-intensive industrialization centered on steel and machinery was chosen, an import-substitution trade regime naturally followed.1 To achieve the goal of a self-reliant industrial economy, domestic industry was protected from foreign competition by direct controls on imports and investment and administrative allocation of foreign exchange combined with an overvalued currency. These policies, enforced by central planners and a central foreign trade monopoly, built an airtight wall between the domestic economy and the world economy. Only the central foreign trade ministry and its twelve trade corporations were permitted to engage in trading activities; everyone else was isolated from foreign business.

The foreign trade plan was treated as an addendum to the domestic plan, which was calculated by balancing material inputs and outputs. Practically the only imports allowed were capital goods to accelerate China's rapid industrialization or to satisfy demand that could not be met domestically because of the shortages congenital to the centrally planned economy. Imports consisted mainly of industrial equipment, most notably 166 industrial plants imported from the Soviet Union during the First Five-Year

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1.
Perkins ( 1968, p. 187); Lardy ( 1992b, p. 5).

-8-

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