This paper examines the interconnection between China's economic reforms and its evolving foreign policy from the late 1970s through the early 2000s. Beginning with the sweeping reforms initiated in 1978 that drove average GDP growth of 9.5% per annum, the paper traces how rising economic strength compelled Chinese leaders to reorient their foreign and security policy objectives. It analyzes the role of the open-door policy, foreign direct investment, and trade liberalization in transforming China into a major regional and global economic actor. The paper further explores China's shifting diplomatic posture — from relative isolationism under Mao to proactive multilateral engagement — its response to the 1997–98 Asian financial crisis, and the growing debate among Chinese strategists about assuming great-power responsibilities in the international system.
There have been radical changes in the internal political and economic landscape of China over the last two decades (Lampton, 2001). The growing economic stability and increased output have significantly elevated China's status among its trading partners. It has also become obligatory for the Chinese government to ensure that economic development restructures political discipline — an ideology that suffered a severe jolt with the fall of the Soviet Union (Part Two — Chinese Foreign Policy). Ever since the inception of economic reforms in China in 1978, there has been a considerable enhancement in China's Gross Domestic Product, averaging approximately 9.5% per annum.
It is pertinent to examine the factors responsible for such remarkable success. That success is attributed to the adoption of institutions and policies by the Chinese government that created opportunities for resourceful Chinese citizens and their foreign counterparts to direct their energy toward the development of the Chinese economy. The productivity of farmers increased considerably from 1979 onward. Township and village enterprises were considered the most dynamic element of growth in the 1980s and early 1990s. Most private and foreign enterprises flourished. State enterprises began to contribute approximately 28.5% of total gross industrial output value, while collectively owned, individually owned, and other types of enterprises accounted for 39.4%, 15.5%, and 16.5% respectively (Chow, 2000).
The success of China's economic reforms is attributed to the freedom granted to non-state sectors to develop within a market economy environment. The open-door policy is an essential element of the economic reform process. It encourages foreign investment and promotes foreign trade. Foreign investment has brought new capital, new technology, managerial skills, and labor training to China. This has introduced contemporary managerial strategies, business techniques, and a legal structure conducive to commercial activity. Additionally, it has generated competition in the domestic market, compelling domestic enterprises to become more efficient.
Foreign trade has been facilitated by the availability of low-cost, high-quality labor in China, enabling the production of goods sold at higher prices in world markets — thereby increasing compensation to Chinese workers. It has also enabled the adoption of foreign technology and high-quality capital goods for use in Chinese production, along with the importation of high-quality consumer goods. The availability of high-quality capital goods enhances productive efficiency, while premium consumer products improve consumer welfare, acting as a significant competitive force in the Chinese market and driving improvements in domestically produced goods (Chow, 2000). China thus becomes an outstanding trading nation in the region, central to economic development and the promotion of regional stability (Chinese Foreign Policy).
It has been equally significant that Chinese international policy has undergone wide variation. There occurred a persistent and considerable shift in Chinese foreign and national security policy during the second half of the twentieth century as the country gradually moved through the eras of Mao Zedong, Deng Xiaoping, and Jiang Zemin. The era of reform witnessed a persistent and gradual variation in Chinese foreign and security policy-making institutions and processes, which led to the generation and execution of Chinese foreign and security policy in a markedly different manner from that of the Mao era (Lampton, 2001). The effective economic reforms executed in China drew tremendous international attention (Wang, 2003).
Chinese foreign policy of the mid-1980s resulted from four interrelated assessments. First, reform-minded Chinese leaders concluded that China could attain power and prosperity while safeguarding its national identity only through increased engagement in world affairs. Second, they emphasized that the international environment permitted a focus on domestic development, particularly because the Soviet Union was preoccupied with other emerging situations, leaving ample opportunity for China to enjoy a stable environment in East Asia for the foreseeable future. Third, they noted that China would benefit from successful participation in the international economic system and from soliciting growing foreign involvement in its own economic development. Finally, it was argued that China could pursue persistent, independent, pragmatic, and purposeful policies not only toward the three major powers of concern — the Soviet Union, the United States, and Japan — but also toward other crucial areas such as Korea, Indochina, and Taiwan.
The overriding foreign policy goals of the reformers arising from these considerations were to forge a peaceful security environment in support of ambitious domestic economic development. The reformers sought to promote economic relationships with all prospective trading partners. They were primarily concerned with safeguarding Chinese sovereignty and autonomy while managing the constraints imposed by enhanced commercial and security links with the external world (Okesenberg, 1986).
A common premise among several observers of contemporary China — including foreign leaders, business people, and scholars — is that progressive economic interdependence persistently creates diplomatic circumstances in which considerable restraints are placed on Chinese activity. Such persistent economic interdependence is expected to produce not merely a basic shift in how China understands the nature of international politics, but also more accommodating behavior in its foreign policy. In these circumstances, the elements of interdependence generated by China's increasing involvement in the global economy act as a safeguard against Beijing becoming a source of instability in East Asia (Lampton, 2001).
Beijing acknowledges the importance of enhancing China's image abroad and the consequences of this enhancement for reinforcing the domestic economy. China's new leaders staked their legitimacy on attracting improved levels of foreign direct investment and achieving all-round economic development. With this objective in view, China persistently sought to develop its relationships with the United States and other countries. China successfully applied its soft power to consolidate its influence in Asia and to improve its image worldwide. The new diplomatic approach concentrated on a more proactive and multilateral strategy in achieving its objectives. Traditionally, Chinese leaders such as Mao Zedong and Deng Xiaoping rarely traveled abroad. In contrast, the current Chinese approach to bilateral relations and multilateral organizations entails a new dimension of flexibility and sophistication (Carr, 2004). China has drifted away from an insular, inward-looking posture into one that plays a significant role in global affairs, striving to participate in the full range of debates regarding relations among sovereign states. China has consequently joined numerous intergovernmental organizations and sought to be involved in the major agreements and treaties that govern state conduct (Lampton, 2001).
"FPPC principles, ASEAN relations, and multilateral engagement"
"China's stabilizing response to the 1997–98 regional crisis"
"Chinese strategists advocate assuming great-power responsibilities"
China finds enhanced integration with the global economy beneficial for its economy as much as — if not more than — any other comparable economy. The efficacy of China is quite intricately bound with the economic health of others and with global policies that promote open trade, investment, global sourcing, and the free flow of information. China's enhanced economic strength and global prominence need to be integrated into the international community. The United States and other countries are required to work with China to channel its rising power into a source of regional and global security as well as economic and political stability. The integration of China into the international economic community will not be without friction, and it is imperative that the United States send clear signals to China regarding what is expected in a mutually beneficial, long-term relationship — remaining vigilant in identifying problems and striving to resolve them cooperatively.
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