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Financial crisis won't stop China's opening up, reform

(Xinhua)
Updated: 2008-12-18 16:05

After 10 years of discussion and planning, China will launch fuel tax reforms in the New Year, part of an effort to streamline its price systems.

It will be just the latest market-oriented major policy move that China has undertaken in its three decades of reform and opening up.

Special coverage: Coping with Financial Crisis 30 Years of Reforms Related readings:  China can keep steady economic growth by overcoming crisis  Senior official underlines challenges amid financial crisis  Wang: China, US should work together in financial storm  China can keep steady economic growth by overcoming crisis

Thursday was the 30th anniversary of that drive, and during those three decades gross domestic product (GDP) grew by more than 9 percent on average annually, a rare feat in global economic history.

But the celebration of these achievements was overshadowed by the world financial crisis, which is deepening and spreading globally, devastating financial systems in developed countries and darkening world economic prospects.

Many economists and commentators have expressed worries that China might overreact to the crisis and veer away from reform and opening up. For example, this point of view was expressed by Fred Hu of Goldman Sachs, who wrote in the Wall Street Journal Asia of the "danger" that "Beijing is extracting the wrong lesson from recent events at home and abroad."

Judging from China's recent macroeconomic moves, especially speeches by its top leaders, it is unlikely that China will change course.

At a ceremony on Thursday marking the 30 years of reforms, President Hu Jintao attributed all the country's achievements in economic and social development to the policies, which he vowed to continue.

"The experience of the past three decades tells us," Hu said, "the decision to adopt reform and opening-up has been in agreement with the people's thoughts, compatible with modern tides, and completely right."

The just concluded Central Economic Work Conference stressed that China must stick to the basic principles of building a socialist market economy and opening up to the outside world.

China deeds match its words. In November, when the economy felt the chill of the financial crisis, the State Council decided to invest 4 trillion yuan ($586 billion) by 2010 to stimulate domestic demand and maintain GDP growth at 8 percent.

China's economy heavily depends on exports, and so far the most serious impact of the crisis on China is shrinking external demand. The government has recognized the danger of over-reliance on exports and has been making efforts to transform the structure of economic growth.

Seen in this light, the crisis is more of an opportunity than a risk. The freshly promulgated policies indicate that the government is paying serious attention to stimulating domestic consumption, especially in rural areas. This move can also narrow the gap between rural and urban areas and income groups.

There is no sign that China will let up on reform. For example, the fuel tax reform, which is to be implemented on January 1, is actually a bold attack on the last two price strongholds that are still under the strict control of the government: fuel and electricity.

This reform also has an impact beyond prices. Since it will cost people more to use energy, the tax change could cut energy use and emissions.

Other major reforms are also being prepared, including those involving derivatives and futures, the social security system and rural medical care.

On the opening side, China has not slowed down, either. So far this year, it has approved 20 qualified foreign institutional investors to enter the market. Also this year, several foreign banks opened branches in China, while China's major commercial banks opened overseas branches.

Chinese companies' overseas purchases and acquisitions are continuing as well, with the latest being Sinopec's $1.5 billion acquisition of Canadian oil company Tanganyika in December.

With its economy increasingly integrated into the world, China has paid careful attention to international cooperation. Over the past two months, President Hu Jintao and Premier Wen Jiabao held talks with leaders of the world's major economies seeking ways to pull the global financial system and the economy out of crisis.

The financial crisis is only one of the unexpected challenges that China has faced this year. Others included the prolonged snowstorms in January, an outbreak of hand-foot-mouth disease over the summer, the deadly Sichuan Province earthquake in May and the melamine scandal that almost destroyed the dairy industry.

China has displayed exceptional resilience in responding to these challenges and the government's response has been increasingly efficient and transparent, winning recognition from all over the world.

The year that's just ending was a critical one for the opening up and reform process, and the country weathered the difficulties with great confidence. The Central Economic Work Conference expressed confidence in adherence to the socialist road with Chinese characteristics and the achievements of the opening up and reform drive.

China is learning from the financial crisis, and government officials and scholars have discussed in the media how and why the crisis happened.

While China will use regulation to prevent market turbulence, it will not stop market-oriented reforms and opening up to the world.