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'The Big View' September 2011 (Part 2)

China’s 10th year in the WTO: A driving force that is changing China

By Wang Yong, Peking University , Beijing China

China has been in WTO for ten years since 2001. It is significant to put China’s WTO membership in the broad context of world developments of last decade, and to explore the implications of the relationship between China and the multilateral trading system and the further implication of WTO membership to China’s future transformation.

WTO working with globalization has changed China

The belief that WTO is public good, has been increasingly popular in China since the country was admitted to WTO in 2001. China took over 15 years in negotiation over the terms of the accession, which proved to be a test of patience, a driving force of market oriented reforms, and some public education to reshape the mindset of the people and the government about the multilateral trading system. The former political and popular assumption in China used to be that GATT or WTO was “the club of the rich”, in which rich countries dominated and imposed rules on the poor and weak developing countries. But by now, the WTO has become one of the most widely recognized international organizations in China, along with the United Nations, WHO and so on. In order to change this mistaken concept of the multilateral trading system, the Chinese government and the academia have made a lot of efforts. China has arguably published several thousands of books to publicize the rules of WTO in China, not to mention tremendous job to modify laws and practices to adapt to the WTO commitments.

The most convincing factor in reshaping the popular concept of WTO, however, has been the actual gains since the country joined the WTO. In most years, the GDP grew at 9% per year. China becomes one of the largest trading nations in the end of the decade, either as an exporter or as an importer. While China becomes one of the hottest destinations for foreign direct investment, the country emerges as one of major outbound investors. Besides the fields of trade and investment, China has become a big creditor nation as well. When people account for these achievements, the accession to WTO and becoming part of the global economy are usually taken as one of the most important factors in the contribution to this progress. When China opens its door wide to the world, the world opens its door to China as well. Most people tend to see more gains than risks to the country by the WTO membership.

The lessons China learned from the global financial crisis

Embracing the globalization and the WTO, China has become one of the most open major economies, partly indicated by the high ratio of trade in GDP, and accordingly by the high contribution of FDI in China’s total exports. The impact of the global financial crisis has changed the perception that such an external demand-driven development model could be everlasting. In order to deal with the declining external demand, the Chinese government carried forward a three year stimulus package as high as 4 trillion RMB yuan. Because of this, China has become one of the countries which have bottomed up to a normal high growth rate in 2009. At this moment, we still see some uncertainties about the economy.

China seems to have learned the following lessons from the global financial crisis:

First of all, we have to caution the risks exposed by the integration with the global economy, while recognizing the benefits of being part of the global economy;

Secondly, we have to give up the old economic growth model which depends too much on exports. We have to work hard to restructure the economy from one external demand driven economy to one more internal demand driven one, to adapt to the pressure of global economic rebalancing;

Thirdly, we have to work for a more evenly developed international institutions, to rectify the asymmetrical influence of some major countries in international economic governance system. We need reform the current international institutions for the benefits of all.

Adjustment of development model is painful, but we see that great efforts have been made by China, more oriented toward internal demand and social security, and creating more value added by innovation, and being more environment friendly.

China as a big player of regionalism game

In the same time when the country is committed to multilateralism, China has been increasingly engaged in different forms of regional cooperation in East Asia and elsewhere, to follow the suits of the EU, the US and a lot of developing countries. Before the Asia financial crisis of 1997, China was very sensitive to the issue of sovereignty and highly sceptical of the moves such as regional cooperation. It was the Asia financial crisis that helped Chinese leaders to adopt a more proactive approach to regionalization.

Chinese academia tend to interpret the implications of regionalization in different perspectives, to take it as a self-insurance arrangement to absorb the risks of the global economy and business cycles; a useful tools to enhance the security relations with neighbouring countries, by cultivating mutual trust and common interests, and a way to increase China’s voice and influence in international community.

China does not perceive that regionalism is in conflict with multilateralism, if regional FTA arrangements are generally able to liberalize trade and investment. It is meaningful to highlight one thing, that is, to China, its policy on regionalism is a product of competitive liberalization in different regions, and the country has to catch up with these developments in order to ensure it would not be left outside. Naturally, a better way is to work with all the members of WTO to consolidate the multilateral trading system that benefit all sides.

China membership has strengthened WTO

China’s membership in the WTO has obviously expanded its universality of the membership of this important organization; and the continuous commitments to the rules of the WTO have greatly strengthened the MTS. China’s support will be continued, judged on the growing interests of China in keeping the international trading system open.

China’s role in the WTO will be played with other developing countries including emerging economies. As part of developing world, China obviously supports a more consideration of development in multilateral talks, and sincere and effective implementation of DDA in the Doha round. Any new agreement reached by WTO should strike a due balance between the objectives of liberalization and development. As a country coming out of a tradition of belief in harmony, China believes a consensus should be reached between developed members and developing members.

While some concerns appear about China’s “protectionist” measures, we see China is still perceived as one of the most attractive destinations to foreign investment. Aimed to encourage the restructuring of the growth model and to make a contribution to the global rebalancing, the Chinese government will be more careful to make sure that any policy measures would not violate WTO rules. The leaders are believed to listen to the complaints based on WTO rules.

China’s economic rising in the last thirty years is not an isolated development. We attribute it to the pragmatic spirit of the political leadership, the creative and industrious spirit of Chinese people, and very important, the contribution of international capital, talents and management. The so-called processing trade is a vivid showcase of how much a “shared prosperity” model can promote the growth of one economy and reshape the mindset of people used to be closed to the outside world. It is believed that China will continue to be a driving force to the MTS; and that China may have set a good example to other countries plagued by the economic crisis, by showing the ways how the objectives of development and maintaining an open trade can work together.

Greater transformation ahead

The 10 years WTO membership has put China in an unstopped process of expanding participation in the global economy, and a prospect of greater economic and social transformation is unfolding. We see the clear signs of accelerating reshaping of the interrelationship among state, market and society, to put the transformation in a simple way. China has become a more vibrant and dynamic economy, and a civil society is increasingly in growth, reflected in the public reactions to the recent high speed train incident, partially helped by the widespread use of microblogging and other state-of-the-art technologies. While state-owned big business has increased its influence in key sectors of the country’s economy in the wake of global financial crisis, we also see the critics and urges for more support extended to private economy and small and medium enterprises to balance the state owned economy. While the state gets its upper hand in name of political and social stability against the contagion of the Arab Spring, the Chinese society has become more demanding for reform of the government system to be more accountable and for more transparent and clean governance structure. In general, it is the WTO accession that has triggered China’s tremendous transformation in the last decade. Though a lot of uncertainties remain ahead, China will move into a future which shares more values and practices with the rest of the world, both economically and politically. A more open, diversified and prosperous China will undoubtedly make a greater contribution to the world peace and development.

 Wang Yong is Professor at School of International Studies, and Director of the Center for International Political Economy, Peking University, Beijing China. He can be reached at yowang@pku.edu.cn.