Foreign Direct Investment in China

By Phillip Donald Grub; Jian Hai Lin | Go to book overview

2
The Open-door Policy, Special Economic Zones, and Opened Cities

The open-door policy has had a major impact on advancing technologies in the People's Republic of China; however, the policies for utilizing foreign capital have yielded mixed results. China's open-door policy, which has been pursued since 1979, consists of several major components. Efforts to attract foreign investment constitute one of the most important parts of this policy; other major elements include active involvement in international financial markets and the liberalization of China's foreign trading system. These policies have differed substantially from the pre- reform stage when external financing was limited, trade highly centralized, and foreign investment prohibited. Positive results include improving their management system as well as expanding production and export capacity for the country.


THE OPEN-DOOR POLICY

The deficiencies of China's centrally planned economic system prior to 1979 created the need for an open-door policy. The pre-1979 system was characterized by widespread market distortions, including irrational pricing policies and practices, large bureaucracies, an unmotivated labor force, and a noncompetitive and inefficient marketplace. In order to overcome these problems, various policy initiatives were adopted by the government aimed at reforming the economic systems in both agriculture and industry and opening the economy to the outside world. The major objective of the reforms was to make the economic system function more efficiently by relying more on market forces, while the purpose of the opening to the outside world was to acquire capital, technology, and other

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