I. Introduction

The last two decades have seen the relationship between the People's Republic of China (hereafter China) and ASEAN countries undergoing a dramatic evolution. The end of the Vietnam War, the U.S.-China detente, and the Vietnam invasion of Kampuchea are major events which moved many countries of ASEAN to normalize their relationship with Beijing. The changes which took place within China itself have also led to closer co-operation between ASEAN and China.

Many argue that the death of Chairman Mao Tse-Tung and the purge of the Gang of Four escalated the new emerging trend in China and led to the rise of Deng Xiaoping to the supreme position in China. Under Deng, China which had been under the strict socialist path, began to reform her economic system based on the Four Modernization Principles. The modernization of China, which began in 1970, comprises new thinking on the economic system, institutions, and economic relationship with the rest of the world — the so-called ‘open-door policy’. These developments have caused some concern both within China and in the rest of the world. The introduction of the profit motive and the price system into China means that there can be incentives for Chinese to operate according to the market principle. At the same time, China has not solved the problems arising from the parallel operation of the price mechanism system and the planned economy. At present, the price mechanism is limited to certain commodities and localities and it is very difficult to envisage its extension to the whole vast economy.

The introduction of the market system, while generally lauded by outsiders, has also led to a price spiral resulting in a higher cost of living for the Chinese. The economic reforms which China undertook means also that she is more willing to integrate with the international economy. Since China has reached self- sufficiency in many commodities, her exports of surplus items have played a significant role in her economic relations with the rest of the world in general.