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Impacts of Globalization on Developing Countries: The Case of China

Tokyo Workshop

November 31 and December 1, 1998

Co-organized by the World Bank and
the Overseas Economic Cooperation Fund (OECF) of Japan

Abstracts of Papers Presented

Impacts of Globalization on Developing Countries: The Case of China
Fan Gang

After first exploring the benefits and opportunities of globalization for developing nations, Dr. Fan Gang argues that certain requirements must be fulfilled (institutional, human and social capital) before the benefits of globalization could be realized. If trade and financial reform exceed the capacity of a nation’s institutions to bear risk, then an "incompatible opening" could occur. Differences in the extent to which developing and developed countries have met such requirements might result in nations being on an "unequal footing". Thus, reform might be seen as an iterative process, which is adapted to existing institutions and gradual modification of these institutions, rather than a precisely sequenced one with clear markers. Strengthening competitive market structures, evolution of legal institutions, and improvements in market management capabilities are required to assure the benefits from openness. This gradual process of opening foreign investment and service sectors has been emblematic of China’s development for the past 20 years. The paper explains how such an iterative process has helped China in the past, while drawing lessons from Chinese experience for other developing countries. Dr. Fan Gang also looks ahead and identifies the next phase of China's gradual reform. Reforming the financial sector—especially the banking system—and provision at social safety net programs—such as the "urban re-employment center" to prevent possible massive unemployment—are the next steps for China.  He recommends speeding up the reform of the existing institutions in developing countries so that the benefits from globalization can be secured as soon as possible. In this regard, international organizations can assist developing countries in building the legal frameworks and by providing institutional supports to reduce the risk of openness.

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