The rapid growth of China's foreign trade between 1979 and 1985 was attributable partly to the dramatic reforms of its foreign trade system. Under the reforms, some foreign trade decision-making power was decentralized, but the central government still was responsible for setting overall import and export targets, securing domestic goods for export, and determining the allocation of foreign exchange among different uses. In implementing the foreign trade plan, the central government might resort to discretionary measures, including the adjustment of export procurement targets and the strengthening or loosening of import controls. It might also resort to economic measures, adjusting the export and import incentives provided to enterprises and local governments with a view to influencing their export and import decisions (see Section 2.3).

Undoubtedly, the use of economic measures to regulate foreign trade was a significant departure from the prereform foreign trade system, which was characterized by state monopoly and inflexible import and export plans. Such a change was part of the economywide reform which allowed above-plan production and sales of individual products to be determined by market forces. Because of the introduction of the market mechanism to foreign trade planning, one might expect the economic efficiency of foreign trade, in terms of its effects on the output growth of the economy, to increase, thus inducing China to continue to adopt the open door policy. However, the analysis in this chapter shows that this did not appear to have been the case, considering the heavily regulated framework under which market forces operated.