In a report delivered at the opening of the 18th National Congress of the Communist Party of China in Beijing on Nov 8, CPC General Secretary Hu Jintao said one of the five key factors that can strengthen socialist market economy and transform the economic development model is the comprehensively improvement of an open economy.

Given the emphasis on increasing domestic demand in recent years, the report's wording - "comprehensively improve the level of an open economy" - underlines the importance of external demand in promoting China's economic and social development. Compared with the previous message to "expand the scope of opening-up", the new report conveys the risks associated with an export-oriented economy. It also makes it clear that the goal is to enhance China's position in the global economy and increase its revenue from foreign trade.

In times of globalization, a rising power that doesn't pay enough attention to the development of an open economy might be digging its own grave. This is particularly true for China, a rising economic power which has been highly dependent on foreign trade for many years. The importance of foreign trade lies in the direct use of external resources to maintain employment and GDP growth, even though the global recession caused the decline of trade surplus and turned the direct contribution of foreign trade to China's GDP growth negative.

Despite having the highest economic growth rate among major powers for the past three decades, in the long run China will see an economic slowdown. If China doesn't develop an open economy to acquire a strong position in high-growth markets, its industries will not be able to maintain their vanguard status. Also, China's hard-won advantage in the interest-distribution pattern of global trade will be compromised.

Japan's economic downturn and its pillar industries' poor performance is, to a large extent, the result of the country's inability to fully develop external markets. China should not repeat the same mistake.

The meaning of "expand the scope of opening-up" is to make full use of external resources for China's economic and social development, and enhance its position in the international division of labor system and the interest-distribution pattern of the global economy. "Expand the scope of opening-up" is only a means, not the basic purpose. The basic purpose is to promote China's interests. Therefore, we should have the power to decide the field, order, degree, object and prerequisite of opening-up, and whether the process can be reversed.

In the early stages of reform and opening-up, China had only a few overseas economic interests and the then degree of overseas markets' openness was enough for its foreign trade, small in comparison, to prosper. Plus, there was hardly any outbound foreign direct investment. So China didn't need to use its diplomatic resources, limited as they were, to negotiate with trading partners on the details of goods trade and investment.

Today, after more than 30 years of reform and opening-up, China's domestic capital needs external markets to open their doors wider, and the days of foreign exchange gap have become history and the side effects of opening up the commodity and investment market have become clear. Diminishing marginal returns and rising marginal costs of opening-up have become a real problem. China's economic interests abroad are already considerable and growing fast. And China's trading partners' degree of openness has touched the ceiling.

That's why the one-sided emphasis on "expand the scope of opening-up" - without urging trading partners to fulfill their obligations to open up their procurement, sales and investment markets to China - would be tantamount to applying brakes on ourselves. This is what makes this the right time to switch to "comprehensively improve the level of the open economy".

China has become the world's largest exporter, but still has room for growth in certain fields - in particular, the emerging industry, and the intermediate inputs and complete equipment sectors will see a marked increase in their exports in the next 10 years.

To "comprehensively improve the level of an open economy" does not mean one-sided pursuit of industrial and export commodities' structural upgrade. Rather it means that we should continue our efforts to stabilize the traditional labor-intensive industries and their exports, and raise domestic added value and export benefits. The reality that is China's vast population makes it mandatory not to focus only on developing so-called high-tech industries. It also tells us that China must have fairly large-scale traditional labor-intensive industries.

Besides, China's unbalanced regional development has created favorable conditions for the extension of traditional labor-intensive industries, and the huge domestic market and industrial structure have created the scope for increasing domestic added value and export benefits. Of course, the extent of the advantage we derive from these conditions to reach our goal will depend on our efforts.

The author is a researcher at the Chinese Academy of International Trade and Economic Cooperation,

affiliated to the Ministry of Commerce.

(China Daily 11/12/2012 page10)