Accelerating the Development of New Institutions for a Higher-Standard Open Economy

At its third plenary session in July 2024, the 20th Central Committee of the Communist Party of China (CPC) declared that we must continue to advance reform through opening up. It called for leveraging the strengths of China’s enormous market to enhance our capacity for opening up while expanding international cooperation and for developing new institutions for a higher-standard open economy.

I. The significance of developing new institutions

Developing new institutions for a higher-standard open economy represents a strategic move of major and far-reaching significance adopted by the CPC Central Committee with Xi Jinping at its core with a view to advancing China’s strategy of national rejuvenation amid global changes of a scale unseen in a century. This move aligns with the trends of the times and responds to the country’s development needs.

An important component of building a high-standard socialist market economy

One important goal of our effort to improve the socialist market economy is to ensure that economic entities under all forms of ownership have equal access to factors of production in accordance with the law, compete in the market on an equal footing, and are protected by the law as equals. By developing new institutions for a higher-standard open economy, China can draw on prevailing international rules to promote the improvement of legal systems in areas such as property rights protection, market access, fair competition, and social credit. It can also develop institutions and systems that will enable full, effective, and fair competition between various types of business entities, freer and more orderly flow of goods and production factors, and the development of a business environment that is market-oriented, law-based, and internationalized. All this will provide important support for our efforts to build a high-standard socialist market economy that is well-defined, systematic, and complete in nature.

An intrinsic requirement for high-quality economic development

Having transitioned from a phase of high-speed growth to one focused on high-quality development, China now finds itself in a critical period for transforming its growth model, optimizing the economic structure, and making the change to new growth drivers. This all-encompassing historic shift is raising the bar for our opening up approach, model, and planning. By developing new institutions for a higher-standard open economy, we will be able to pursue a broader agenda of opening up across more areas and in greater depth. We will be able to more effectively bring in advanced foreign technologies, talent, and managerial expertise, optimize the allocation of resources and production factors on a broader scale, and accelerate the development of new quality productive forces and a modern industrial system. All of this promises to generate powerful momentum for high-quality development.

A necessity for creating a new development dynamic

Given our deep integration with the world economy, it is inevitable that China’s domestic economy will be affected by changes in the international environment. It is, therefore, vital to promote positive interplay between domestic and international flow by boosting the dynamism and reliability of the domestic economy and engaging in the global economy at a higher level. By developing new institutions for a higher-standard open economy, we can ensure mutual reinforcement between internal and external opening up and deeper integration between the “bringing in” and “going global” strategies and the domestic and international markets. This will enable us to further tap the domestic economy, create more opportunities for opening up to the outside world, foster stronger links between domestic and international economies, and make better use of domestic and international markets and resources, all of which will provide more favorable conditions for creating a new development dynamic.

A strategic measure for fostering new advantages in international cooperation and competition

With a new round of technological revolution and industrial transformation well underway, international trade and economic rules are undergoing rapid adjustments, and competition among countries is intensifying in areas relating to markets, resources, talent, technology, and standards. To develop new institutions for a higher-standard open economy, we need to promote greater opening up with regard to flow of goods, services, capital, and talent and steadily expand institutional opening up in terms of rules, regulations, management, and standards. This will help raise China’s level of trade and investment cooperation and boost collaboration in new areas, such as the digital economy, green development, and technological innovation. It will help bolster China’s ability to attract global resources and production factors, elevate its position in global industrial, supply, and innovation chains, and provide an important guarantee for the development of new operational and management models for an open economy and new advantages in terms of markets, production factors, and institutions.

The China-Kazakhstan Logistics Cooperation Base at Lianyungang, a coastal city in East China, June 26, 2024. As the first physical project implemented after the launch of the Belt and Road Initiative, the base has grown into a crucial platform for transit, warehousing, and trade between China and Central Asian countries over the past decade. PHOTO BY XINHUA REPORTER JI CHUNPENG

A practical step for safeguarding and developing an open world economy

Developing an open world economy is well-aligned with the international division of labor and the trends of economic globalization and global multipolarity. It is an irreversible historical tide. Our efforts to develop new institutions for a higher-standard open economy constitute an important initiative in China’s pursuit of a mutually beneficial strategy of opening up, which seeks to create new opportunities for the world through China’s development. As such, these efforts will help promote the formation of an open, diverse, and stable world economic order and facilitate strong, sustainable, balanced, and inclusive growth in the global economy. All this demonstrates how China, as a major country, is committed to coordinating its domestic policies with its international responsibilities and provides a vivid example of how China strives to promote a global community of shared future.

II. An analysis of the new circumstances confronting us

To develop new institutions for a higher-standard open economy, we must accurately assess the new changes in the international landscape, adapt to the new trends in economic globalization, and fully grasp the new requirements for domestic reform and development.

Solid development foundations

Since the 18th CPC National Congress in 2012, China has enhanced the top-level design for coordinating in-depth reform and high-standard opening up. This has led to striking progress. Deeper reforms have been advanced across the board. Improvements have been made to the institutions underpinning the market economy, such as those for property rights protection, market access, fair competition, and social credit. Efforts have been made to achieve breakthroughs in reforms in key areas and at crucial links. All these achievements have paved the way for faster progress in developing a unified national market and steady improvements in the socialist market economy. With an average contribution to global growth of over 30% between 2013 and 2023, China has firmly maintained its position as the world’s second-largest economy and the largest manufacturer. Further strides have been made toward high-standard opening up, with the full implementation of the Foreign Investment Law and regulations regarding its implementation, the continued reduction of the negative list for foreign investment, and the smooth introduction of the negative list for cross-border trade in services. Major steps have also been taken to liberalize and facilitate trade and investment, and important achievements have been secured in developing new platforms for opening up, such as pilot free trade zones and the Hainan Free Trade Port. We have promoted high-quality development of the Belt and Road Initiative (BRI), with over 150 countries and more than 30 international organizations joining the BRI family. A connectivity framework featuring six corridors, six route types, and multiple countries and ports has been put in place, and a raft of landmark projects have been built and put into operation, including the China Railway Express (CR Express), the China-Laos Railway, the Jakarta-Bandung High-Speed Railway, the Budapest-Belgrade Railway, and the Port of Piraeus to name a few, representing new progress and achievements in China’s pragmatic cooperation with other countries. China has remained the world’s leading trader of goods and largest holder of foreign exchange reserves for many years now; it is also one of the top destinations for foreign direct investment as well as a leading outbound investor. These achievements reflect the rapid development of the country’s open economy.

Important strategic opportunities

Peace and development remain the prevailing themes of our time, and openness and cooperation are still the defining historical trends. International economic connectivity and exchange remain objective requirements for global economic development. However, the world economic landscape is evolving at a rapid pace, with the international balance of power trending toward equilibrium. The international influence of emerging markets and developing economies, with China as a representative case, is steadily increasing. Between 2000 and 2023, the economic output of this cohort jumped from 21% to 41.5% of the global total. A new round of technological revolution and industrial transformation is now in full swing, as evidenced by explosive growth in multiple countries and sectors. In China, nationwide R&D investment exceeded 3 trillion yuan in 2023, with the ratio to GDP increasing from 1.91% in 2012 to 2.65% in 2023. China has climbed from 34th to 12th place in the Global Innovation Index in the same period. Whereas it once lagged behind in key areas such as 5G, quantum computing, and green energy, it is now on par with the frontrunners and is leading the pack in some sectors. This has created favorable conditions for China to participate in and help channel the development of international economic and trade rules and standards. The vision of a global community of shared future is being embraced by more and more people every day. As this Chinese-proposed initiative has become a point of international consensus, its power to inspire, shape, and influence has grown significantly, and it has become a source of positive energy for the international community.

Numerous challenges

The momentum for global growth is insufficient, global economic governance is inadequate, and global development is imbalanced. The failure to resolve these three major issues has heightened the level of risk and uncertainty in the global economy. The backlash against economic globalization has caused a certain degree of damage to the ecosystem for open innovation and cooperation and restricted or choked off international economic flow. Conventional and non-conventional security risks are on the rise, while unilateralism, protectionism, and hegemonism threaten the security and stability of China’s external environment. China faces greater challenges in responding to external shocks and promoting smooth domestic and international economic flow. At home, the domestic economy is affected by difficulties and bottlenecks, with constraints still hindering the free flow of resources and production factors. More must be done to build a high-standard market system, and a high-level dynamic balance between supply and demand has yet to be achieved. China’s traditional advantages for participating in the international division of labor and competition have weakened somewhat, and there are significant disparities in the levels of both open economic development and opening up among regions. Greater efforts are needed to build a world-class business environment that is market-oriented, law-based, and internationalized. Institutional opening up must be expanded, as gaps remain between domestic practices and international high-standard economic and trade rules. The foreign-related legal system also requires strengthening, and the effective prevention and resolution of risks remains an essential task in certain key areas.

An exhibitor introduces goods to visitors on the opening day of the Kashgar Central & South Asia Commodity Fair in Kashgar, Xinjiang Uygur Autonomous Region, August 17, 2024. The 14th edition of the commodity fair featured the participation of 158 foreign enterprises from 35 different countries and regions as well as 550 domestic enterprises. PHOTO BY XINHUA REPORTER SHANG SHENG

III. Grasping the basic principles

The overall objective of developing new institutions for a higher-standard open economy is to establish a modern institutional framework that enables comprehensive, effective, and fair competition between enterprises under various forms of ownership; facilitates freer and more orderly flow of goods, services, and production factors; significantly optimizes the market-oriented, law-based, and internationalized business environment; ensures a high level of alignment with international rules in investment, trade, finance, and innovation; improves the system of safeguards for opening up; markedly enhances risk prevention and control capabilities and regulatory oversight with regard to opening up; and promotes more efficient and smoother interplay between domestic and international economic flow. In carrying out this systematic project, we must adhere to the basic principles that ensure opening up is well-coordinated with the following areas.

Development

The purpose of opening up is to promote development, and the level of development determines the degree of opening up. We must plan and advance opening up based on the objective of high-quality development, ensuring stronger coordination between efforts to attract foreign investment and promote outbound investment, and between trade in goods and trade in services. We also need to promote greater integration between goods, capital, technology, talent, and data with regard to opening up. Based on the development levels of various Chinese industries and sectors, we must soundly manage the pace, steps, and intensity of opening up to continue raising our level of openness to the outside world.

Reform

Reform and opening up are mutually reinforcing and complementary processes. Deepening reform provides the institutional foundation for opening up, while opening up, in turn, sets a higher bar for further reform. Neither reform nor opening up should come to a halt. To see that in-depth reform and high-standard opening up advance in tandem, we need to ensure systematic integration and efficient coordination between these two endeavors. We should promote connectivity between domestic and international markets and the sharing of production factors and resources by continuously improving the socialist market economy system. We need to drive new breakthroughs in the reform of systems and mechanisms by means of higher-standard opening up.

Innovation

Innovation is a key objective of opening up, while opening up is an important driver of innovation. With a focus on national strategic needs and the frontiers of international competition, we need to develop a more integrated design for pursuing original, integrated, and open innovation, so as to give full rein to innovation as the primary development driver. Through opening up, China should strive to integrate itself into global innovation networks, accelerate the development of a globally competitive open innovation ecosystem, deepen international cooperation on innovation, enhance our capacity to drive the global allocation of advanced production factors, and foster new quality productive forces.

Security

Security is an essential prerequisite for opening up, while opening up is an important guarantee for security. We must remain firmly committed to a holistic national security approach and fully take account of the increasingly complex and severe international environment. Regarding economic security as the foundation, we should develop regulatory and risk prevention and control capabilities that are well-adapted to high-standard opening up and boost our ability to dynamically protect national security in an open environment. This means fostering positive interactions between high-standard opening up and greater security by promoting faster development through opening up, which in turn, will help to better guarantee national security.

IV. Major tasks and measures

To make solid progress in developing new institutions for a higher-standard open economy, we should focus on institutional opening up. In actively pursuing new levels of opening up for China, we should focus on deepening institutional reforms in key areas related to international exchange and cooperation—including investment, trade, finance, and innovation—and take steps to improve supporting policies and measures.

Expanding institutional opening up

We will promote alignment with high-standard international economic and trade rules by deepening reforms related to state-owned enterprises, the digital economy, intellectual property rights (IPR), and government procurement. We will improve the underlying institutions for a market system, such as those for market access, property rights protection and trade, data and information, and social credit, in order to create a market system that is built on high standards and a world-class business environment that is market-oriented, law-based, and internationalized. To enhance government effectiveness, we will optimize administrative approval, market regulation, and public services; this will ensure a more stable, transparent, and predictable policy environment. To enhance domestic and international alignment of standards, we will actively adopt international standards and advanced specifications and procedures, develop a series of national standards that are internationally aligned, and work to boost the global reach of Chinese standards. Pilot programs for institutional opening up will be advanced with the aim of better leveraging pilot free trade zones as comprehensive testing grounds for reform and opening up and steadily promoting the development of the Hainan Free Trade Port. On this basis, we will conduct explorations to develop pioneering and integrated institutional innovations and ensure these innovations are effectively replicated and applied elsewhere. China will steadfastly safeguard the WTO-centered multilateral trading system, improve the mechanisms for high-quality cooperation under the Belt and Road Initiative, and participate in the reform of global economic governance. We will also actively move forward with joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement and expand the globally oriented network of high-standard free trade areas.

Advancing reform of the systems and mechanisms for two-way investment

Ramping up the push to attract and utilize foreign investment, we will shorten the negative list for foreign investment as needed, expand the catalog of encouraged industries for foreign investment, and promote broader opening up in the telecommunications, internet, educational, cultural, and medical services sectors. In advancing the reform of foreign investment promotion systems, we will implement high standards for post-establishment national treatment, ensuring that foreign-funded enterprises enjoy national treatment for production factor access, license applications, standards setting, and government procurement. Steps will be taken to facilitate foreign equity investment and venture capital investment in China. We will promote the full implementation of landmark foreign investment projects. We will take a more coordinated approach to the planning and layout of opening up platforms around the country and promote innovations in the management systems and operational models of development zones. We will strengthen the legal and policy framework for overseas investment and ensure that domestic policies are harmonized with bilateral and multilateral investment agreements. We will optimize the support system for overseas investment, expand the functions of the national overseas investment management and service network, and fully leverage the comprehensive service platforms for supporting Chinese enterprises in going global. All this will help simplify overseas investment management and make it more effective. We will cultivate internationally competitive producer services, such as finance, accounting, consulting, and legal services, to provide Chinese enterprises with the high-quality professional support they need to go global. We will enhance oversight of overseas investment to guide enterprises in maintaining compliance in operations and management while also preempting and defusing various risks.

Advancing trade coordination, innovation, and cooperation

We will review and revise the Foreign Trade Law and strengthen coordination between trade policies and fiscal, financial, and industrial policies to create the institutional foundations and policy systems needed to support China’s development as a strong trading nation. Bilateral trade structures will be improved to develop more diverse import channels as well as international trade markets. To accelerate the integration of domestic and foreign trade, we will advance related pilot programs, support integrated trade operations within enterprises, and promote the production of domestic goods using the same production lines, standards, and quality requirements as export products. We will accelerate trade innovations and make a strong push to promote trade in the digital sphere and green and low-carbon products. We will develop integrated pilot zones for cross-border e-commerce, drive innovation in trade in services, implement the negative list for cross-border services trade in full, and push ahead with comprehensive trials and demonstrations for broader opening in the services sector. To promote faster growth of offshore trade, we will develop new types of international transactions in this domain. Steps will be taken to accelerate the development of a modern distribution network that facilitates smooth domestic flow and international connectivity. Platforms such as the China International Import Expo will be leveraged to promote international procurement, investment, cultural exchange, and open cooperation. Regulatory innovations will be implemented in customs clearance, taxation, and foreign exchange to ensure secure, stable, and smooth operations in trade-related industrial and supply chains.

Promoting two-way opening up of the financial sector

We will further open up the banking, securities, insurance, funds, and futures sectors and support the participation of eligible foreign institutions in financial pilot programs, in order to diversify the range of financial products and services and foster healthy market competition. We will promote two-way opening of financial markets to enhance interconnectivity between domestic and overseas markets and facilitate cross-border investment and financing. Efforts will continue to develop the foreign exchange market with a focus on elevating the quality of capital account opening. By improving cross-border RMB investment, financing, and settlement systems and infrastructure, we will lay the groundwork for fostering new types of mutually beneficial partnerships based on free use of the RMB. We will support Hong Kong in developing its offshore RMB market to consolidate its position as an international financial center and support Macao in strengthening its financial infrastructure, including its securities depository and clearing systems. Steps will also be taken to accelerate Shanghai’s development as an international financial hub. We will encourage Chinese financial institutions to go global while also better regulating overseas investment and financing activities. Financial services supporting the Belt and Road Initiative will be optimized, third-party market investment and financing cooperation will be promoted, and joint financing initiatives with multilateral development institutions will be pursued.

Staff members pose for a photo in front of the Chinese-produced ARJ21 jet aircraft, May 31, 2024, to mark its delivery by China Aircraft Leasing Group Holdings Limited (CALC) to Indonesia’s TransNusa Airlines. This was the third such commercial aircraft delivered to TransNusa and represented the first cross-border leasing transaction for a Chinese-made aircraft conducted in renminbi. XINHUA / PHOTO PROVIDED BY TRANSNUSA AIRLINES

Developing an open innovation system and environment

We will work to both develop self-reliance and strength in science and technology and foster openness and cooperation. On this basis, we will build a globally competitive open innovation ecosystem, assemble innovation resources from around the globe, and accelerate the development of new quality productive forces. More actively integrating ourselves into global innovation networks, we will seek to strengthen international cooperation in innovation-related fields such as technological R&D, IPR protection, and talent development. We will improve the legal framework for IPR protection in line with China’s national conditions and global development needs and work for improvements to international rules and standards concerning IPR. We will move faster to build China into a major global center for talent and innovation. In places where conditions permit, we will support the development of open innovation pilot zones and explore avenues for developing institutional mechanisms facilitating free and orderly cross-border flow of innovation factors. We will create open cooperation platforms based on international innovation resources, vigorously pursue international R&D collaboration, and build globally competitive sci-tech innovation centers. We will improve the cooperative mechanisms for cross-border data flow and build a global multi-tiered digital partner-ship network. Based on a commitment to fully participate in global sci-tech governance, China will work to better influence the global innovation policy agenda.

Improving the security system for an open economy

We will improve the national security review and regulatory systems in the economic domain to improve the effectiveness of reviews and regulation and enhance risk prevention and control in key sectors, including trade, finance, and data. We will improve the security risk management mechanisms for trade and create a coordinated multi-stakeholder mechanism for addressing trade frictions. The financial regulatory system will be improved to ensure better identification, early warning, and response with regard to financial risks across different sectors, markets, and regions. We will enhance our ability to protect critical information infrastructure and optimize regulatory mechanisms for cross-border data flow. To better protect overseas interests and preempt and control overseas investment risks, we will improve the overseas investment protection and remedy systems. We will move faster to develop a system of laws with extraterritorial application and improve the legal framework for countering foreign sanctions, interference, and long-arm jurisdiction. We will improve the mechanisms for participating in global security governance and play an active part in the formulation of global security rules. We will promote stronger international coordination on macroeconomic policy to guard against risks from global economic fluctuations and spillover effects of international economic policies.

(Originally appeared in Qiushi Journal, Chinese edition, No. 23, 2024)