Evaluating the economic consequences of the reforms described in Chapter 3 is difficult. In principle the foreign trade reforms in place by the end of the 1980s should have led to a significant improvement in the efficiency of China's foreign trade. Reforms of the pricing of traded goods have almost certainly greatly reduced the wide and variable gaps separating domestic prices from those prevailing in international markets. Combined with the persistent move toward a more realistically valued official exchange rate and the substantially increased use of auction markets to allocate foreign exchange, a growing share of importers and exporters face prices that more clearly reflect real opportunity costs rather than arbitrary prices set decades ago. Thus one would expect the efficiency of China's trade to rise considerably. Seeing precisely why this should be the case is made clearer by examining how distortions in the domestic market in the early to mid-1980s made it difficult to raise the efficacy of foreign trade by introducing a more decentralized trading system. Inefficiencies stemmed from several sources.

Export planning

Although the decentralization of foreign trade decision-making described in Chapter 3 drastically reduced the share of China's exports subject to mandatory planning (zhiling xing jihua), that process was gradual. As late as 1986–7, more than 70 percent of all exports still fell within the mandatory plan (Wu and Zhang). The planning process appears to have identified these exports without adequate consideration of relative real costs.