INTRODUCTION

This chapter summarizes China's progressive opening to foreign trade and investment in the years since 1978. These reforms led China's foreign trade to soar from $21 billion in 1978, when China at best was a marginal player in global trade, to more than $1.1 trillion in 2004,whenChina became the world's third largest trading economy (National Bureau of Statistics, 2005, p. 161; World Trade Organization, 2005, p. 16). We will briefly review the history of Chinese trade and investment policy from 1978 to 2001 and note the impact of important policy changes on expansion of trade and investment. Because accession to World Trade Organization (WTO) marked an important watershed in the evolution of Chinese policy in this realm, we will also include a discussion of the key features of the agreement under which China joined the WTO and an assessment of the progress China has made to date in implementing its obligations. The WTO accession agreement opens up important components of the service sector of the Chinese economy, and these will receive special emphasis. We will also address the high-profile debate over China's currency regime and discuss the implications of China's expanding trade and foreign investment for the rest of the world.

In providing this overview, we will be emphasizing several themes. First, China achieved a greater degree of openness to foreign trade in manufactures prior to WTO accession than is generally acknowledged, even in much of the best recent scholarship.