Unlocking full market potential
China must push further higher-level opening-up amid the need to lift domestic consumption
To implement the strategy to expand domestic demand and fully develop and unleash the potential of consumption, it is imperative that China open its door wider, especially by pushing institutional opening-up.
The expanding domestic market of China in recent years is largely attributable to the efforts made in opening-up on a larger scale and at a deeper level.
First, China has been promoting the facilitation of trade and investment. The country has fully delivered on the promises it made when joining the World Trade Organization: it has lowered its overall tariff level and slashed the institutional costs of imports.
During the 13th Five-Year Plan period (2016-20), China lowered its import tariffs on 1,585 taxable items. The overall tariff level dropped from 9.8 percent in 2010 to 7.4 percent in 2021. The nation implemented all measures stipulated in the Trade Facilitation Agreement.
Second, China has opened more areas to foreign investment since 2012, and eased the restrictions on foreign investors by pushing institutional innovations such as the negative list for foreign investment access, which was first put forward in 2013. It should now promote higher-level opening-up with the focus on developing the service trade.
Third, China has made vigorous efforts to foster a world-class business environment since 2012 and intensified reforms to streamline government administration, decentralize power, improve regulation and upgrade services.
The country has relentlessly pushed for free cross-border flows of factors of production and refined the legal systems underpinning the market economy. Also, the Foreign Investment Law has become the basic law for foreign investment management, and serves as a fundamental guarantee for protecting the rights and interests of foreign investors.
Fourth, China has been promoting the alignment of Chinese rules and standards with international practices. Since 2012, it has rolled out a raft of policies to align with high-standard global rules, including adjusting and regulating subsidy policies, and scrapping differentiated treatment for domestic and foreign businesses.
Facing pressure from the new round of global competition of rules making, China has deepened the reforms of its pilot free trade zones and free trade ports. At the same time, upgrading free trade zones has become an important part of China’s efforts to carry out institutional opening-up. So far, China has signed 19 free trade agreements with 26 countries and regions, and is negotiating on 10 FTAs and studying the feasibility of eight free trade zones.
China has also promoted the implementation of the Regional Comprehensive Economic Partnership agreement and applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economic Partnership Agreement.
Since the RCEP took effect at the beginning of last year, many policy dividends have been unlocked. In the first 10 months of 2022, China’s imports and exports to other RCEP members grew 8.4 percent year-onyear, and its imports and exports to the Association of Southeast Asian Nations member countries increased by 15.8 percent.
The primary task of institutional opening-up is to align domestic rules with high-standard global trade and economic rules, and to accelerate the building of a unified, open, competitive and orderly modern market system. To further unleash the tremendous vitality of China’s ultralarge domestic market and build up a high-standard market system, the country should start reforming its system of rules, and strive to build a more systematic and strategic system of institutional opening-up. The key to China’s pursuit of higher-quality and higher-level opening-up lies in furthering reform to promote trade and investment liberalization. The country should focus on improving the system of property rights and market-based allocation of production factors, lift hidden barriers to market access, and promote free flows of production factors. The country should further shorten the negative list of foreign investment and ease market access to fully unleash the potential and vitality of domestic consumption.
As the world undergoes momentous changes and the competition between China and the United States intensifies, the changes to international trade and economic rules reflect the major adjustments and changes in the global economic order. Since 2018, a series of ultralarge free trade agreements have been signed worldwide, including the CPTPP, the US-Canada-Mexico Agreement and the Japan-EU Economic Partner Agreement.
These deals cover a wide range of diversified sectors, and involve trade cooperation of high standards, with the fields covered by the rules shifting from traditional “border measures” such as tariffs, quotas, customs supervision and non-tariff reduction, to “post-border measures” such as those about the trade in services, competitive neutrality, intellectual property rights, government procurement, State-owned enterprises, transparency and environmental standards.
The country should work toward meeting the highest international standards, improve and reform “post-border measures”, and align domestic industrial, innovation and competition policies with international rules, thus creating a marketoriented, law-based and internationalized business environment, and provide new dividends to the world through its growth.