The latest phase in Chinese history began in the mid-1980s. As is well known, this
has been a period of accelerating integration into the global economy through greater
openness in trade and especially in foreign direct investment. As seen in Figure 5, the
trade ratio, after showing no trend for 35 years, began a steady increase from the mid-
1980s both because of reductions in nominal tariffs and because of increases in import
volumes. Between 1984 and 2000, the value of exports grew 11% per year. Changes in
FDI flows are even more astonishing.We do not of course have long-run time series
for these; but from an almost isolated economy in the late 1970s, China has become
the largest recipient of FDI among developing countries. In order to speed up integration
with world markets, China has implemented a coastal-biased policy, such as
establishing special economic zones in coastal cities and providing favorable tax breaks
to coastal provinces. Obviously, the policy is biased against inland regions and may