On the Relationship of the Opening Strategy and the Imbalance of the Internal and External Trade in China

Pan Liang

(Postdoctoral Center School of Business East China University of Political Science and Law，Shanghai200065)

Ⅰ．Introduction

Considering the fact that China suffers a serious，long-term internal and external imbalance at present，the root of the long-term imbalance needs to be found and regulated as soon as possible so that China’economy can be back to the path of sustainable development．Therefore，we need to review the foreign trade，foreign investment，foreign exchange policies in the 30 years after the Reform and Opening up，and analyze the relationship between the opening strategy composed by foreign trade，foreign investment and foreign exchange policies and the internal and external imbalance in the framework of internal and external balance．What’s more，relevant policies and suggestions need to be put forward on basis of the current problems and development orientation of China．Reforms should be further deepened and opening expanded．More suitable opening strategies need to be proposed in the new situation so as to maintain the future sustainable development of China’s economy．

Ⅱ．The relationship between the internal and external imbalance of the economy of China and the opening strategy

1．The external imbalance of China’s economy:twin surpluses

The most prominent feature of the imbalance of China’s external economic development since the 1990s is the“twin surpluses”，namely the surplus of both current account and capital and financial account．Twin surpluses are the most important part of the long-term international balance of payments．The balance of payment of China since 1992 has never shown deficit due to the formation of“twin surpluses”，and the rapid expansion of the current account surplus has constantly reached new scale．

2．The internal imbalance of China’economy:high investment，low consumption，high saving and inflation

Saving and consumption are the two sides of a coin．What’s behind high saving is low consumption．Over consumption leads to pre-mature consumption and over capacity，and over dependence on export leads to the surge of foreign reserve and distorted industrial structure，all of which are the problems to be solved to maintain the sustainable development of China’s economy．Besides，low consumption means that Chinese people fail to fully enjoy the benefit of economic growth．

The rapid economic growth of China since the Reform and Opening up has caught the eye of the world．However，economists often worry about the probable outcome of overheated economy and bubble economy．When it comes to employment，keeping people employed is always the priority of the objective of macro-economic policies．

Different from the objective of realizing economic growth and employment，China has experienced three inflations since 2000．

Ⅲ．The relationship between the internal imbalance and the external imbalance

1．The internal imbalance is the important reason for the external imbalance

Generally speaking，the internal cause determines the external cause．The root of external imbalance lies in the imbalance of internal economy and the domestic economic social environment of China．The external imbalance seems to be more evident than the internal imbalance from the perspective of the imbalance phenomenon．The existence of twin surpluses is more eye-catching than the seemingly stable internal economy．However，the seriously imbalanced external economy has profound internal root，namely the imbalanced internal economy．Compared with the investment growth，the speed of consumption growth cannot keep up with the investment growth．Overcon-sumption leads to over capacity．The current development phase of China’economy determines the fact that we cannot create enough purchasing power to consume so much capacity．As a result，we can only turn to other choice to consume this capacity，namely export．The remedy of insufficient domestic demand by external demand finally leads to the long-term trade surplus．

On the other hand，the internal imbalance of China’s economy not only embodies the imbalance between investment and consumption，but also the positive gap of savings and investment．In other words，the large savings realized by Chinese people’s living frugally has turned into the low-interest financing of European and American countries．

2．The internal imbalance influences the external economy through the opening strategy

The root of the external imbalance of China’s economy lies in the economic growth pattern in the 30 years after the Reform and Opening up，namely the investment-oriented pattern and export-oriented pattern，as well as the opening strategy formulated for the economic growth pattern:export orientation，fixed exchange rate and inviting foreign investment．

The foreign trade development pattern of export-orientation contributes to the rapid development of trade surplus．The abundant labor resource of China and various natural resources have led to the acceleration of the shift of global manufacturing industry to China，promoting the rapid development of China’s processing and trade，thus China gains the name of“world factory”．

The relevant foreign investment and foreign exchange policies have been made to supplement the export-orientation foreign trade policies．On one hand，a nation can hardly realize sustainable development of economy by only relying on abundant labor resource and natural resources．On the other hand，since inviting investment is an important part of the achievements of local government，many governments only pay attention to invite large quantity of investment and ignore the quality of foreign investment．

However，the foreign investments in China also pursue interest like other types of investment．They do not come to boost China’s economy，and instead，attracted by the features of Chinese resources，they choose to enter the manufacturing industry and take advantage of the cheap labor and valuable natural resources．

Foreign exchange is the most important economic leverage of external economy．Steady foreign exchange can boost the export．The reform of foreign exchange policies has greatly mobilized the positivity of foreign trade export and created favorable environment for various export enterprises．

The priority of foreign trade policies of China has been encouraging earning foreign exchange through exports in a long run．Besides，foreign enterprises can enjoy more favorable policies，which are very favorable conditions for the large-scale en-trance of foreign enterprises．

3．The external imbalance react upon the internal imbalance

The constant enlargement of international balance of payment surplus leads to the large-scale accumulation of foreign exchange reserve．Encouraged by the export-oriented policies，the central bank adopts the steady exchange rate policies so as to maintain the stable economic growth．The high foreign exchange reserve is bound to increase the central bank asset，which forces the central bank to constantly issue Ren Min Bi to purchase foreign exchange in order to regulate the demand and supply of foreign exchange market．On one hand，the over-issued currency has caused the increase of commodity prices and inflation;on the other hand，credit and loan has been stimulated to boost economy，thus triggering over-heated economy and accelerating the internal imbalance of economy．

Ⅳ．The new opening strategy aiming at the internal and external balance

Currently，the rise of China has become an undeniable fact and China’s economy has become an important part of world economy．Despite that China has entered the wave of global economic integration;we should keep aware that China has a low status in the global economy．In terms of internal environment，there are still problems such as keeping reasonable economic growth rate．In order to solve these problems，we need to persist in Reform and Opening up，improve systems through deepening reforms，enlarge opening，and compete in the international market more comprehensively and deeply，so that the“soft power”of China’s economy can be improved．Therefore，we have to change the opening strategy which is not suitable for the current economic development goal，transform the opening thinking pattern，and adopt new opening strategy with the aim of the internal balance and external balance．

1．The negative effect of the former opening strategy

First，influenced by the export-oriented opening strategy，the one of the most evident external risks of China’s economy is the over-dependence on foreign trade，which has become a consensus．The over-dependence of foreign trade is coupled by high external risk．Once the foreign demand plummets，while internal demand cannot be successfully initiated，it will exert great negative influence on China’s economy．

Export-oriented foreign trade strategies not only lead to the over-dependence of China’s economy，but also trigger many disputes in trade．European and American countries launch attack to China in foreign exchange and environmental protection，hoping to restrict the growth of China’s economy and create unfavorable political and economic environment．

Second，the upgrading of China’s industrial structure has been delayed．Profits have been reduced and the improvement of productive efficiency and scientific ad-vancement can hardly be realized．

Guided by the export-oriented strategy，domestic resources have been invested into the industries relevant to export and processing，thus leading to the imbalance of the development of domestic industrial structure．

Third，the independence of currency policy has been weakened．Affected by the long-term international balance of payment surplus，the rapid accumulation of foreign exchange reserve has caused great stress for the exchange rate of Ren Min Bi．

2．Establishing the new opening strategy

(1)Pursuit of trade balance—foreign trade policy

The new foreign trade development concept should be adopted．The attention should be shifted from the trade to the balance of export and trade．

The service trade should be developed greatly and the trade structure should be optimized．Striving to develop service trade can not only improve the deficit of China in service trade，but also optimize the structure of export commodities and stimulate the adjustment of domestic industrial structure．

Besides，we should weaken the protective trade policy and advocate free trade．

(2)Improve the quality of attracting foreign investment and accelerate the step of“going out”— foreign investment policy

“Going out”strategy is bound to become the opening strategy of China in the future．The implantation of this strategy will help Chinese enterprises to improve their international competitive edge and operation capacity．

(3)Gradually return to actual exchange rate—foreign exchange policy

First，slight appreciation should be kept to return to actual exchange rate;second，gradually expand the volatility range of the exchange rate of Ren Min Bi;last，strengthen cooperation with other countries and use Ren Min Bi as the settlement currency．

Notes:

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〔7〕余永定:《經(jīng)濟(jì)全球化與世界經(jīng)濟(jì)發(fā)展趨勢(shì)》，北京:社會(huì)科學(xué)文獻(xiàn)出版社，2009年。

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〔9〕畢吉耀:《如何看待和應(yīng)對(duì)全球經(jīng)濟(jì)失衡》，《宏觀經(jīng)濟(jì)研究》2006年第9期。