The trade and exchange rate policy has become one of the most important instruments for socialist China in achieving her economic development since 1979, when she decided to adopt the “open-door” policy. Like most developing countries, China has also become entangled, perhaps, for different lengths of time, in trade and payments regimes of considerable complexity. The foreign exchange earnings have also been regarded as a central concern for the purpose of economic growth, so that policy decisions affecting the foreign trade and payments sector have, roughly speaking, hinged upon the abundance or scarcity of the reserve stock of foreign exchange in China.
The author has observed that the course of China’s trade policy in the 1979-86 period could be divided in four phases, following a zigzag path. Moreover, the up-and-down struggle, synchronized with the changes in exchange control regimes, between decentralization and recentralization has made the above contrast more acute. The delineation of various phases could be summed up in several characteristics such as: an imperative ban on imports and exports; quantitative restrictions on international transactions; allocation of foreign exchange; licenses for imports and exports; a contingent up-lift of surcharge (e.g. adjustment tax) as well as tariff and other discriminatory favors or disfavors granted among industries (e.g. rebates or subsidies). Among those instruments, quantitative control, upon which China has relied very much, has had a more effective and faster impact than price control in managing the balance of payments. Indeed, it is an essential attribute of a socialist bureaucracy that it can keep its economy more fully under control than a market economy can.
However, the zigzag change in China’s trade policy has made its investment climate more risky. After all, it is not only urgent but also a very complex job to decide to what extent and at what speed the liberalization and decentralization should be set. Before reaching a consensus, the conflict between the conservatives and the reformists will not be appeased.
