in the Economist. This article discusses both the economic and political impacts of China's WTO accession. An interesting quote in the article is from former Chinese Premier Zhu Rongji, who notes 4 months after China had joined the WTO that "[w]estern hostile forces are continuing to promote their strategy of Westernising and breaking up our country". In the eyes of some Chinese officials, the WTO is a key part of such Westernising conspiracy. Fortunately, the CCP officials can take comfort in the fact that the WTO has not been able to bring about any meaningful political change in China. As I have argued in my paper on the
, it is naive to think that the WTO can effect political changes in China.
, China has been "shaking" existing rules and even started "making" new rules in the WTO since its accession. However, it seems that the WTO has not been able to "shake" loose the current political system in China.
THE World Trade Organisation (WTO), like many clubs, denies patrons the right of automatic readmission. Having quit the organisation’s predecessor shortly after the Communist revolution of 1949, China had to wait 15 long years to gain entry after reapplying in the 1980s. The doors finally opened on December 11th 2001, ten years ago this week.
The price of re-entry was as steep as the wait was long. China had to relax over 7,000 tariffs, quotas and other trade barriers. Some feared that foreign competition would uproot farmers and upend rusty state-owned enterprises (SOEs), as to some extent it did. But China, overall, has enjoyed one of the best decades in global economic history. Its dollar GDP has quadrupled, its exports almost quintupled.
Many foreigners also prospered. American foreign direct investment reaps returns of 13.5% in China, compared with 9.7% worldwide, according to K.C. Fung of the University of California, Santa Cruz. China imposes lower tariffs on average than Brazil or India. The gap between what it can charge, under WTO rules, and what it does charge is also unusually small. So unlike its peers, China could not raise tariffs much even if it wanted to (see chart).
Yet in America, China’s single biggest trading partner, sentiment towards the country has turned starkly negative. In a recent poll, 61% of Americans said that China’s recent economic expansion had been bad for America; just 15% thought it had been good. This partly reflects China’s controversial currency regime. By keeping the exchange rate down, China’s critics allege, it has gained a substitute for the mercantilist measures it gave up to join the WTO.
Foreign frustration is partly a sign of China’s success. As its economy has grown and matured, the stakes have risen. Foreign firms lament losing trade battles they might not bother to wage in a less lucrative market. They also face competition from local upstarts in markets where no such rivals previously existed.
Electronic payments are one example. China’s first ever payment card was issued in 1986 by MasterCard. Foreign brands remained dominant at the time of China’s WTO entry. But shortly afterwards, China’s central bank established a domestic competitor, China UnionPay, and gave it a de facto monopoly over the handling of local-currency payments between merchants and banks. This setback might have been easier to take for foreign companies had the market not since grown tenfold, to $1.6 trillion, according to The Nilson Report, an industry newsletter.
China’s economy has evolved faster than anyone hoped. But its economic philosophy has not. Long Yongtu, who helped China win admission to the WTO, recently said that China is now moving further away from the organisation’s principles. To modernise its economy, it has remained wedded to industrial policies, state-owned enterprises, and a “techno-nationalism” that protects and promotes home-grown technologies.
Many foreign companies feel they must compete not with Chinese firms but with the Chinese state. Between them, China’s central and local governments own over 100,000 companies and implicitly favour many more. Thanks to the WTO, foreign firms are no longer required to hand over technology in exchange for entry to China’s market. But many still feel an informal pressure to do so. China is also keen to promote its own firms by enforcing its own technological standards, such as for 3G mobile phones.
Many of these interventions violate the spirit, if not always the letter of WTO rules. In response, America often pushes back bilaterally rather than in Geneva, according to a former American trade negotiator. This is partly because companies worry they will face retribution from China’s government if they provide evidence against it in a trade case. It is also because much of what China does falls into a grey area that is not easy for the WTO to police.
China, on the other hand, is growing more comfortable with the WTO machinery. In its early years as a member, it shied away from confrontation, points out Henry Gao of Singapore Management University. In 2006, for example, America threatened to file a complaint over China’s duties on kraft linerboard. China lifted the duties the next working day. But now the Chinese have learned the ropes, they have also become more proactive. “Now they defend themselves,” says Nicholas Lardy of the Peterson Institute, a Washington think-tank. “They initiate cases. And when they lose, they comply.”
In some cases the discrimination is no worse than before, it is simply more visible. As part of its WTO agreement, China now circulates draft laws and regulations for 30 days to collect comments. That has made it easier for foreigners to spot foul play. America recently complained that China had failed to notify the WTO of nearly 200 subsidy programmes, such as those supporting green-energy technology. It knew this in part because China, following its newly transparent practice, had disclosed many such programmes online, the former negotiator said: “Similar policy announcements wereneibu (for limited distribution) in the past.”
China’s trade policies may look a little uglier than WTO members had hoped when they opened the club’s doors ten years ago. But that is partly because the lights have been turned on.
It is exactly 10 years since China concluded negotiations to join the World Trade Organisation, after a decade and a half of demurring. Commerce minister Chen Deming chaired a celebratory forum in Xiamen this week entitled “Openness, co-operation and win-win”.
Not quite. Yes, China is co-operating. After a diffident start, it has evolved from a passive taker of the existing rules to a member that will “shake” the rules for its own interests or even make new ones, notes Henry Gao of Singapore Management University. That is a good thing. And if “openness” implies compliance with the commitments China made in its accession package, here, too, the record is broadly positive.
Granted, China is better at complying with rules that require a specific action, such as scrapping or reducing tariffs, than those that require adherence to principles, such as not favouring domestic enterprises, or treating all WTO members equally. No nation has entered into bilateral trade agreements over the past 10 years quite as enthusiastically as China.
As for “win-win”, well, China is certainly winning. In 2000 it was the world’s seventh largest exporter and eighth largest importer of merchandise; in 2010 it was number one and two, respectively. (It has leapt to four and three in services, from 10 and 12.) As ING points out, accession to the WTO marked an acceleration of real annual gross domestic product growth from 9 per cent (1992-2001) to 11 per cent (2002-2008). Two-way trade for most nations in China’s orbit has also risen dramatically. But, as America’s increasingly critical assessments of China’s WTO compliance suggests, those trading partners do not always feel like winners. During its relatively brief membership, the world’s second-largest economy has responded to 22 complaints – more than the next three put together.
