Formation of policy With its defeat in the
First Sino-Japanese War (1894–1895), China faced an imminent threat of being partitioned and colonized by imperial powers with a presence in China (which included France, Germany, Britain, Italy, Japan, and Russia). After winning the
Spanish–American War of 1898, with the newly acquired territory of the
Philippine Islands, the United States increased its Asian presence and expected to further its commercial and political interests in China. It felt threatened by other powers' much larger spheres of influence in China and worried that it might lose access to the Chinese market if it were to be partitioned. As a response,
William Woodville Rockhill formulated the Open Door Policy to safeguard American business opportunities and other interests in China. On September 6, 1899, U.S. Secretary of State
John Hay sent notes to the major powers (France, Germany, Britain, Italy, Japan, and Russia) to ask them to declare formally that they would uphold Chinese territorial and administrative integrity and they would not interfere with the free use of the
treaty ports in their
spheres of influence in China. The Open Door Policy stated that all nations, including the United States, could enjoy equal access to the Chinese market. Hay's logic was that American economic power would then be able to dominate the Chinese market and fend off other foreign competitors. In reply, each country tried to evade Hay's request by taking the position that it could not commit itself until the other nations had complied. However, by July 1900, Hay announced that each of the powers had granted its consent in principle. Although treaties after 1900 referred to the Open Door Policy, competition continued abated among the various powers for special concessions within China for railroad rights, mining rights, loans, foreign trade ports, and so forth.
Subsequent development The policy built popular sympathy for China and raised hopes for a vast "China market" and American influence in China's development. The effect of the policy was partly diplomatic, but it also reflected what the historian Michael Hunt calls a "paternalistic vision" of "defending and reforming China." This vision defined China in terms of two struggles, first, a Chinese domestic struggle between progressive reform and feudal inertia, and the second an international struggle which pitted the "selfish imperialism" of Britain, Russia, and Japan against the supposedly benevolent policies of the United States. Over the next decades, American diplomats, missionaries, and businessmen took a special interest in China, many of them envisioning that China would follow the American example. However these dreams proved difficult to realize. American investments, while considerable, did not reach major proportions; the Open Door policy could not protect China against Japanese interference, first the
Manchurian Incident of 1931, then the
Second Sino-Japanese War (1937–1945), and Chinese leaders, while willing to seek American aid, were not willing to play the passive role that the Open Door implied. In 1902, the U.S. government protested that the Russian incursion into
Manchuria after the
Boxer Rebellion was a violation of the Open Door Policy. When Japan replaced Russia in southern Manchuria after the
Russo-Japanese War (1904–1905) the Japanese and American governments pledged to maintain a policy of equality in Manchuria. In 1905–1907 Japan made overtures to enlarge its sphere of influence to include
Fujian. Japan was trying to obtain French loans and also avoid the Open Door Policy. Paris provided loans on condition that Japan respect the Open Door principles and not violate China's territorial integrity. In finance, American efforts to preserve the Open Door Policy led in 1909 to the formation of an international banking consortium through which all Chinese railroad loans agreed in 1917 to another exchange of notes between the United States and Japan. There were renewed assurances that the Open Door Policy would be respected, but the United States would recognize Japan's special interests in China (the
Lansing–Ishii Agreement). The Open Door Policy had been further weakened by a series of secret treaties in 1917 between Japan and the Allied
Triple Entente that promised Japan the German possessions in China after the successful conclusion of World War I. This policy laid the groundwork for
Deng Xiaoping's reforms and were incorporated in 1987 under the "
Four Modernizations" which expanded foreign investment, agriculture, industry, science and technology, and national defense.
Special Economic Zones (SEZ) were set up in 1980 in his belief that to modernize China's industry and boost its economy, he needed to welcome foreign direct investment. Chinese economic policy then shifted to encouraging and supporting foreign trade and investment. It was the turning point in China's economic fortune, which started its way on the path to becoming 'The World's Factory'. Four SEZs were initially set up in 1980:
Shenzhen,
Zhuhai and
Shantou in
Guangdong, and
Xiamen in
Fujian. The SEZs were strategically located near
Hong Kong,
Macau, and
Taiwan but with a favorable tax regime and low wages to attract capital and business from these Chinese communities. Shenzhen was the first to be established and showed the most rapid growth, averaging a very high growth rate of 40% per annum between 1981 and 1993, compared to the average GDP growth of 9.8% for the country as a whole. Other SEZs were set up in other parts of China. In 1978,
China was ranked 32nd in the world in export volume, but by 1989, it had doubled its world trade and became the 13th exporter. Between 1978 and 1990, the average annual rate of trade expansion was above 15 percent, and a high rate of growth continued for the next decade. In 1978, its exports in the world market share was negligible and in 1998, it still had less than 2%, but by 2010, it had a world market share of 10.4% according to the
World Trade Organization (WTO), with merchandise export sales of more than $1.5 trillion, the highest in the world. In 2013, China overtook the United States and became the world's biggest trading nation in goods, with a total for imports and exports valued at US$4.16 trillion for the year. On 21 July 2020,
Chinese Communist Party general secretary Xi Jinping made a speech to a group of public and private business leaders at the entrepreneur forum in Beijing. Xi emphasized that "We must gradually form a new development pattern with the domestic internal circulation as the main body and the domestic and international dual circulations mutually promoting each other." Since then "internal circulation" became a hot word in China. ==Applications in 20th and 21st centuries==