678 { China’s Quest
Following the example of earlier East Asian industrializing states, the PRC
after 1978 adopted policies that encouraged exports. A large portion of the
foreign currency generated by those exports was then taken by the state (in
exchange for renminbi) and directed by an elaborate system of foreign cur-
rency allocation to import technology. Much of that new technology was then
used to further strengthen China’s competitive capacity to export. A pow-
erful virtuous cycle was thereby created, all driven by the competitive zeal
of Chinese entrepreneurs. There was, of course, more to China’s rise than
this. China’s huge domestic market and the emergence of Chinese firms to
supply that demand may, in fact, have been more important than export and
technology import. But in terms of China’s international economic relations,
it is useful to focus on export growth and its link to wide-ranging technol-
ogy acquisition in a virtuous cycle. This became a powerful driver of China’s
post-1978 rise as a leading global economic power.
The United States played an important role in the success of East Asian
development, both for Japan and the Four Tigers and, later, for the PRC, by
allowing exports from the East Asian economies to enter the US market on a
privileged basis—as discussed earlier for Chinese textile exports during the
initial stage of China’s opening.
For several decades, Washington tolerated utilization of tariff and nontar-
iff barriers that produced chronic trade imbalances that assisted the efforts
of East Asian late industrializers. Washington permitted exploitation of cur-
rency rates both to encourage East Asian exports and simultaneously to limit
imports. Utilization of different exchange rates for exports and imports was a
key policy instrument of the East Asian model. For many years, Washington
similarly acquiesced to Beijing’s undervaluation of the renminbi favoring
Chinese exports and limiting imports. Successive US administrations com-
plained and threatened action unless Beijing allowed the renminbi to appre-
ciate, but the United States never declared China a “currency manipulator,”
an action that would have triggered severe tariffs against Chinese goods. The
United States also facilitated China’s entry into the leading economic institu-
tions—the IMT, the World Bank, and the WTO. Within the framework of
these institutions, the United States helped Chinese officials gain the exper-
tise to become effective. And in the area of higher education, the United States
facilitated China’s dispatch of tens and ultimately hundreds of thousands of
students to US universities. There was a political quid pro quo for East Asian
enjoyment of US economic beneficence: East Asian late industrializers sup-
ported the US military-political presence in East Asia.The Economic Success of China’s Opening to the Outside WorldIndicators compiled by the World Bank demonstrate China’s post-1978 suc-
cess at economic development. Figure 25-1 illustrates the growth of China’s