China’s Economy in the Post-WTO Environment
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China’s Economy in the Post-WTO Environment

Stock Markets, FDI and Challenges of Sustainability

Edited by Lilai Xu

The book explores the implications of both the extension of the market into key parts of the Chinese economy and the integration of China into the global economy. The main focus of the book is on the role and nature of China’s financial system and its ability to transform enterprise and household behaviour and the performance of investment finance, notably in the context of a two-way flow of foreign direct investment. All the extensive chapters highlight the issue of sustainability – some see the incompleteness of market reform as a problem; others are more willing to accept a pragmatic blending of the operation of the free market and government intervention.
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Chapter 10: From Policy-driven Opening to Institutional Opening – A Discussion on Policy-imposed Distortion in China’s Economic Development

Youwen Zhang


Youwen Zhang INTRODUCTION China has been successfully opening its economy to the outside world for three decades now. During this time, China has grown from a poor, economically undeveloped country into an emerging influential power in the modern world economy. Furthermore, the country’s goals in ‘opening up’ the economy, and the theme, have changed over the 30 years. It needs to be recognized that, until now, China’s success in economic terms has been pushed forward by the continuous implementation of targeted policies. Although China has eliminated many serious market distortions through its economic reform and opening to the outside world, its mandated special policies have created new distortions that are policy imposed, which have combined with distortions already present to undermine many of the benefits of an open economy. This chapter examines the existing distortions resulting from the opening-up process in China and the impact of such distortions on the economy. Priority is given to the analysis of institutional causes of new distortions and the identification of the key characteristics of an open economic system. It is proposed that the core of building an open economy in China is to eliminate policy-imposed distortions. It is also argued that industry policy, regional policy and scarce factor development policy should replace the existing factor owner differentiation and market preference policies in order to maintain sustainable economic growth and social development in China. 201 809344 XU PRINT (M2688).indd 201 26/07/2011 13:11 202 China’s economy in the post-WTO environment POLICY-IMPOSED DISTORTION AND...

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