improving cross-border resource allocation via institutional opening

context: Rising labour costs in the PRC means greater competition from lower-cost countries in labour-intensive goods. The PRC seeks to move up the value chain into high-tech sectors but faces US technological restrictions. Beijing sees 'institutional opening' as a potential remedy. By promising more foreign business-friendly standards and rules, it is hoped that they would be more willing to set up shop in the country and bring along technological, organisational and industrial know-how. To achieve this, Beijing will need to alleviate foreign business concerns about its mounting security agenda and any future geopolitical complications.

In an article published in Economic Research Journal, Jiang Xiaojuan 江小涓 University of Chinese Academy of Social Sciences professor, Meng Lijun 孟丽君 Tsinghua University Institute of Service Economy and Digital Governance assistant researcher and Wei Bi 魏必 Tsinghua University School of Public Administration doctoral student laid out arguments on how to improve the efficiency of cross-border resource allocation, including

  • 'three tracks' in technological cooperation
    • 'market for technology'
      • the PRC can leverage its massive market to attract foreign investment and technology
    • 'technology for market'
      • the PRC's edge in emerging technology can be a tool to gain access to foreign markets
    • 'technology for technology'
      • the PRC
        • has both sizable import and export amounts of technology-intensive products
        • should capitalise on the need for international division of labour in high-tech goods and engage in cross-border technological development cooperation
        • should focus its efforts in bottleneck areas of technological breakthroughs
  • outflow and inflow of resources
    • the PRC
      • needs to ensure the stable supply of important input resources like fuels and ag products, necessary for industrial production
      • should shift industries that are energy/resource-intensive abroad to relieve pressure on these resources at home and to promote green development
        • this would also help to bring down costs and bring technological advancements to these resource-rich developing countries
  • accelerate the development of services trade 
    • the development of services trade is lagging behind in the PRC, which makes it an important growth area
    • this helps to 
      • upgrade the manufacturing industry
        • e.g. financial services, research services, logistics and distribution services
      • raise consumption levels
        • the proportion of service consumption is low in the PRC
      • upgrade industries with digital technology
        • e.g. e-commerce and digital-enabled services, etc.
  • 'institutional opening'
    • this can enable the market to play a more important role in the allocation of a wide range of resources
      • this is different from the 'policy opening' in the past which only opened up some sectors strategically for policy goals
    • this would mean
      • treating foreign and domestic enterprises fairly to increase the circulation of resources and factors across borders
      • fostering a more stable, transparent and predictable legal environment
      • laws to safeguard the proper functioning of institutions and markets
      • alignment of domestic rules and regulations to high-standard international trade agreements
    • for 'institutional opening' to allocate resources effectively, domestic market systems must be well-functioning or else, the negative effects and economic imbalances of market opening will be magnified e.g. 
      • if the securities market is not efficient and transparent, high-quality Chinese enterprises would prioritise going overseas for listing
      • if the price of a product is artificially suppressed, enterprises will seek to export it in large quantities