But trade was always limited in scope and occasionally, as in the long period from 1370 to 1567, prohibited. Even when the Ming ban on private trade was lifted, foreign merchants could not travel freely and ply their wares throughout the country. They were confined to Macau, then Guangzhou. China, a vast land with a highly-developed system of organic farming, was largely self-sufficient in the necessities of life, symbolised by the uneatably large number of dishes regularly set before the young Emperor Aisin Gioro Pu Yi to show him the abundance of his empire. And it was of course the West, spearheaded by Britain, that forced the gates of China open to trade in the Opium War 160 years ago.

For over a hundred years after that, China was ravaged by invasions, revolutions and civil wars which claimed many millions of lives and made it difficult for hundreds of millions more to live out their lives in peace, let alone prosperity. The Communist government that seized power in 1949 was led by men who were suspicious of the outside world. And whereas Zhou Enlai and Deng Xiaoping had lived in France during the first world war, Mao Zedong had never left China. These leaders saw the opening up of China to trade and investment in the nineteenth century as a disaster which had led to the impoverishment of the masses and the dismemberment of the Chinese nation-state. At the outset, the Communists were nevertheless ready for a limited economic relationship with the outside world. In Mao's speech on the 28th anniversary of the founding of the Communist Party on June 30th 1949, entitled "On the People's Democratic Dictatorship", he said:

But in 1950 North Korean troops marched south, initiating a conflict which sucked in China and resulted in the United Nations trade embargo against China. During the early 1950s foreign assets were seized, discouraging foreign investment, which was no longer welcomed anyway. In 1953 China began its first Five-Year Plan on the Stalinist "heavy industry first" model and at the same time started to nationalise domestic industry. China's only friends were in the Soviet bloc, but that changed during the 1950s, especially after Khruschev's 1956 speech denouncing the atrocities of Joseph Stalin. The prolonged Sino-Soviet dispute resulted in the repatriation of Soviet experts in 1959, which marked the start of a period of intensified isolation which lasted until 1971, when, after the death of Lin Biao Mao made overtures Nixon which resulted in China rejoining the United Nations, of which it was a founder member in 1945, in 1972.

By the mid-1970s, China was tentatively developing its contacts with the West, but the decisive turn came after Deng Xiaoping took over the Communist Party at the end of 1978, reversing most of its economic policies, especially those regarding external economic relations. China would henceforth open itself to the outside world in order to accelerate its economic development. Deng Xiaoping summed up his new pragmatic approach succinctly in a talk with Algerian politicians in 1985:

During the Mao period, foreign trade has been confined to the periphery of economic life. Most people probably never saw an import during that time. Imports were limited to essential minerals, such as chromium, which China did not possess but needed for the stainless steel in its weapons, high tech items which it needed but could not make, and, especially form the early 1960s onward, food. To pay for these, China exported low-tech items, with pig bristles predominant. I remember that in the 1960s virtually the only everyday consumer items bearing the "Made in China" mark that you could buy in England were egg noodles and playing cards.

Trade has been growing more rapidly during the reform period. In 1952 exports and imports were each running at a miserable US$1bn. By 1970 they were just over double that, though world trade had expanded many times since 1952. The limited opening up that occurred in the late Mao period brought exports and imports each to about US$7.5bn, only slightly better. Then under Deng Xiaoping, two-way trade shot up: from less than US$15bn in 1975, it grew to US$38bn in 1980, nearly US$70bn in 1985, and US$115bn by 1990. The rapid growth continued in the 1990s, especially after Deng's southern tour in January 1992, and by 1999 two-way trade was worth US$360bn. Notice also that imports were balanced with exports when the two were too small to be worth worrying about, then in the 1980s imports exceed exports, and in most years in the 1990s there was a substantial trade surplus.
[Click here for chart and figures.]

The other major result of opening up has been a massive inflow of foreign direct investment. During the Mao period, foreign investment was anathema to the leadership. During the so-called "great proletarian cultural revolution" of 1966-69, the deposed president Liu Shaoqi was publicly denounced and subsequently allowed to die in unpleasant circumstances, partly for having allegedly made a speech in the late 1940s welcoming foreign investment.

Now look at the middle chart. Foreign direct investment was welcomed with open arms in the 1980s and the arms opened even wider after 1991. There was no alternative. Deng first tried to lure foreign companies into doing compensation trade deals, but they didn't bite. Equity investment was not an alternative because there were no stockmarkets. Foreign direct investment, at first in joint ventures, then, especially in the 1990s, in the form of wholly owned subsidiaries of foreign companies, was the only way to bring in foreign capital to help fund China's industrialisation and provide it with the necessary technology and know-how.

During the 1980s, FDI inflows rose gradually from only US$1bn a year in the early years to US$3.5bn by 1990, then from 1992 they accelerated, reaching a peak of over US$44bn a year in 1997-98, since when they have levelled off at around US$40bn.
[Click here for chart and figures.]

The result of years of trade surplus and foreign direct investment inflows has been the accumulation of a large reserve of dollars and other foreign currencies [Click here for chart and figures]. China's foreign exchange reserves are among the highest in the world, reaching US$161bn in July this year. By comparison, Japan had 338bn, Hong Kong 97bn, Singapore 76bn, Germany US$57bn, the UK US$31bn.

These numbers show that China has adapted very quickly and successfully to a relatively open trading regime during the two decades preceding WTO accession. Exports now account for about 20% of GDP, higher than in many other countries.

So what is the role of international economic relations in post-Mao China? Has there been a real change in attitude towards the outside world? I think not. What has changed is that China's leaders understand that trade and investment links with the outside world allow a faster rate of economic growth than the former policy of self-sufficiency, protectionism and import substitution. The economy did grow during the Mao period, quite impressively. It doubled in size between 1952 and 1959, then doubled again by the time Mao died in 1976, so that it quadrupled over those 24 years. But in the following 23 years it has become more than eight times as big as in 1976.
[Click here for GDP figures and chart.]

There are several strands to the ideology of the leadership in Zhongnanhai. What are these, and how can they help us to understand and predict China's international economic policies?

China is still a one-party state ruled by a communist party. But communism has suffered some hard knocks in recent years. It collapsed in the Soviet Union and Central and Eastern Europe. Its economic record in North Korea is catastrophic. Vietnam has done better, but is still one of the poorest countries in the world. But the worst disaster was actually in China: the 1959-61 Great Leap Famine, which killed tens of millions of people, and the cultural revolution of 1966-69 and the subsequent chaos, especially in the education system, that lasted well into the 1970s. Disillusion with communism had already begun with the 1957 anti-rightist movement led by Deng Xiaoping, these events compounded it many times over. By the 1980s, it was already almost impossible to find anyone who really believed in the ideals of communism in China. You could probably now find more real communists in a medium-sized European country than you could in China.

The party leaders no longer talk of "taking class struggle as the key link", they no longer attack the "landlords, rich peasants, counter-revolutionaries and bad elements", they do not talk of supporting the "poor and lower-middle peasants" as the leaders of rural society. If they do retain the ideal of building a classless society, that goal has been remitted to the indefinite future, like the second coming of Jesus Christ, and it is no longer discussed.

What remains is the core belief of Stalinism: the conviction that society must be led by a one-party dictatorship that brooks no opposition. Hence the banning of opposition parties and Falun Gong. The alternative is luan (disorder), the most hated word in Chinese political thinking. The necessity of holding the country together by force is supported by the quotation from the first line of the Three Kingdoms: "The empire, long divided, must unite; long united, must divide", and by Sun Yat-sen's dictum that the Chinese are like a "sheet of loose sand", which Sun used to justify military tutelage as a necessary prelude to democracy.

At the core of these notions is an unqualified belief in the integrity of the nation-state and territorial sovereignty, stemming from the nationalist response to outside aggression in the nineteenth and twentieth centuries. Other countries are seen variously as threats to be countered by force, subversion or diplomacy, or as resources capable of helping China to develop into a prosperous and powerful nation. Mao talked of "equality and mutual benefit", but in reality China's leaders think like seventeenth century English or Dutch merchants and politicians: they are mercantilists. They believe they should export more than they import so that they can build up treasure (and, in the process, deplete other people's treasure), so that their nation can become strong. Look what happens when a current-account surplus looms: the government throws its resources into an export drive to fend off a deficit, even though current-account deficits are normal for developing countries. This is in line with the "self-strengthening" of 19th century Qing leaders Li Hongzhang and Zuo Zongtang who tried, and failed, to build up China's economy as a base for defence against foreign incursions.

This is not to say that China is incapable of co-operating with other countries on a civilised footing. It does, though, mean that national interest is paramount in China's dealings with the rest of the world. And there are different ways of pursuing national interest, just as individuals in an economy can pursue a variety of strategies to better themselves.

A country can close its doors, fend off foreign competitors and produce everything for itself. China did that in the 1950s and 1960s. Economic growth is not as fast as it could be, but the government is able to keep out all the cultural influences that might undermine its rule and can maintain total control over every aspect of the life of its citizens, who are unaware of alternative political systems and lifestyles in the outside world. This is something worth bearing in mind when it comes to the policy debate that follows my talk.

Alternatively, a country can relax controls on the flow of goods, services and capital, allowing faster economic growth. Such a policy brings with it the risk that culture, as well as wealth, will seep in from outside, undermining the government's thought control mechanisms. But this is a risk worth taking if, as has happened in the past two decades, such a policy enriches the people so that they feel less dissatisfied with the government.

In fact, the policy has worked so well that it is in practice irreversible. It is inconceivable that China should once again close its doors to the trade that has brought it such prosperity. The political consequences of reversing reform would be catastrophic for the communist leadership.

Does that mean that once China has gained accession to the WTO it will throw open its doors completely and become a beacon of free trade and free capital movement like Hong Kong? Nobody expects that. No major economy of China's size has developed under such conditions. Britain espoused free trade in Victorian times, but once competitors emerged in North America and Europe it quickly scuttled behind the fence of imperial (later Commonwealth) preference and "fair trade". The Americans preached economic liberty but protected their industries. European countries like Germany, France and Austria-Hungary invented their own economic doctrines justifying protectionism. Japan is a founder member of the WTO and a long-standing GATT member before that, but has become adept at devising non-tariff barriers to keep out unwelcome imports. Another old GATT member, India, until recently maintained a blanket prohibition on the import of consumer goods. So it would be unreasonable to expect China not to take refuge in non-tariff barriers and in economically respectable arguments for protecting infant industries after it joins the WTO.

The open door policy was, then, originally chosen because it presented an opportunity for faster economic growth and therefore a more stable society. Economic policy was paramount. It took some time before China realised that it could use its trade and investment policies as political weapons. There were instances of this even during the Mao period, but these were patchy. For example, the TanZam railway was built in the 1970s to bolster China's allies in Africa and keep the chromium rolling in. When China embarked on reform, that kind of foreign aid project came under criticism as a waste of resources by a country that itself lacked railways. However, the lesson has been dinned into the heads of China's leaders by Taiwan's brazen bribe diplomacy: aid buys friends. Now that China has massive foreign exchange reserves, far exceeding those of Taiwan, it, too, can change policies in tiny Pacific island states.

Money can buy friends in subtler ways. During the regional financial crisis in 1997-98, China played its hand well by rushing to offer financial support for Thailand, demonstrating its good neighbourliness. It is now some years since it supported ethnic rebels in the North-east of Thailand and reviled the Bangkok government as "reactionaries", but China still has more unresolved border disputes than any other country in the region, so it does need occasionally to reassure its neighbours that its intentions are peaceable.

As the brief conflict with Vietnam in the Paracels in the 1970s and subsequent problems in the Spratlys in more recent years have demonstrated, China wants most of the South China Sea and is prepared to fight for it. The war with Vietnam (an ill-advised venture, given that the Vietnamese were battle-hardened, having just defeated the Americans, and the Chinese army lacked maps) also showed China's willingness to accept casualties in pursuit of its foreign policy. But China's overall stance is peaceful because, as the government constantly reiterates, it needs a peaceful environment in which to develop the economy. Deng Xiaoping, in outlining his goal of increasing GNP per head to US$800 by the end of the last century in 1984, said: "In short, we sincerely hope that no war will break out and that peace will be long-lasting, so that we can concentrate on the drive to modernise our country". Looking at the world from China's point of view, sources of potential aggression lie elsewhere. We have heard much talk of the potential Chinese threat to Asian sea lanes, but have you thought how increasingly important these sea lanes are to China itself as it depends more and more in imports of essential commodities such as oil?

An exception to China's generally peaceful stance is Taiwan. This is because China does not see Taiwan as an island that it wants to invade, but as a renegade province that must be brought back under its control if China's territorial integrity is to be maintained. There is therefore a long-term threat of war across the Taiwan Strait. In the meantime, China does not have the military might to pull off a successful invasion, but it has endeavoured to build economic links that make Taiwan dependent on the mainland--a development which Taiwan's leaders have tried, and failed, to stop.

To sum up, China's international economic policies are an extension of its domestic policies. The government has eased controls on commerce with the outside world as part of its effort to enrich and, to some extent, to free its people. As with domestic policy, the means threatens to become the end. At home, the government has permitted private enterprise and the market mechanism to develop as a means of strengthening the state, but that process has led to decentralisation which undermines the Communist leadership. Trade and investment links with the outside world have led to an accumulation of foreign exchange reserves which may make the government feel strong, but they have also allowed in cultural influences which have undermined years of "political education" and indoctrination.

The next step, therefore, will probably not be the Dengist dream of a rich, militarily powerful China taking its place as the next superpower. It is more likely to be a political change that will remove some of the obstacles placed upon economic policy by the Communist leaders of today. It is difficult to predict what the post-Communist government will be like. It is conceivable that its external economic policies will be not much different from those of today. The key factor will always be national interest.

I end with the beginning of a short and perceptive speech by Winston Churchill at the time that the Soviet Union joined Nazi Germany in occupying Poland in September 1939. Rather than just condemn Stalin for his treachery or throw up his hands in incomprehension, Churchill said:

If China's actions occasionally appear mysterious, it is worth remembering the key: Chinese national interest.