How can developing countries benefit from globalization: the case of China

How can developing countries benefit from globalization: the case of China

Gaining from globalization: lessons from the Chinese experience

China’s experience has often been used as a successful example to prove that developing countries can actually benefit from globalisation. This paper examines how China has benefited from globalisation and the lessons that can be shared with other developing countries.

The paper finds that:

  • China has only opened up progressively, to match the degree of opening up with the level of development
  • opening up was undertaken step-by step, starting geographically with special economic zones, then advancing gradually in various industries from the more competitive manufacturing industry to the weak agriculture and service sectors
  • the opening up of the financial field was slow
  • reforms – of foreign trade administration, corporate sector and government institutions - were conducted in line with the level of opening up
  • attracting foreign direct investments (FDIs) was considered very important as part of China’s opening up policies
  • China favors FDIs to portfolio investment as portfolio investments entail risks that can threaten the economic systems of recipient countries

Based on China’s experiences, the paper recommends that for a developing country to benefit from globalisation, it should:

  • realise that for developing countries, the ultimate end is development, not just opening up or protection
  • implement an opening-up policy that fits the country’s own level of development where domestic industries are protected from undue foreign competition and where trade is open to foreign participation before finance
  • increase the country’s abilities to absorb foreign capital and other advanced elements and maximize the benefits of opening up by carrying out reforms in line with the stages of opening up
  • avoid risks posed by portfolio investments and take advantage of the benefits that FDIs can offer in capital formation, technological upgrading and management standards improvements by choosing FDIs over portfolio investments

The paper emphasises that China did not liberalise its entire economy to benefit from globalisation. This is an important factor that is essential to the Chinese experience and the paper suggests that this factor needs to be considered by other developing countries.