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China, WTO The Next 5 Years
2007/01/16
Text by Chen Nan
On December 11, 2006, China celebrated its first five years as a member of the World Trade Organization (WTO), which has had a profound effect on world trade.
Given this effect, perhaps many around the world viewed the 16 hours of live television broadcasts dedicated to that day. Five years on, it is clear that WTO membership will bring far more to China than could be elucidated in a mere 16 hours.
It took China 15 years of gruelling talks to join the WTO. When China was finally accepted as a member, it was granted a three–five year “transitional period” for certain sectors to prepare for outside competition. The possible effects resulting from membership and the transition were far from certain.
Still, Deng Hongbo, director of China’s World Trade Organisation Affairs Centre, asserted, “No country has benefited more from the WTO membership than has China.” Five years was a short time in terms of measuring changes in economic strength, Deng added, but WTO membership has already dramatically changed the socioeconomic landscape of this ancient society.
Economy expands
China quickly became the world’s third-largest trading nation; it ranked sixth in the world when it entered the WTO in 2001. It has rapidly become integrated, permanently, with the global economic system and the significance of its growth in trade is huge. Over the past five years, China’s economy has nearly doubled in size, with its annual output surpassing US$2 trillion in 2005.
A December 11 report in The Wall Street Journal said, “The world’s most populous nation is now its fourth-largest economy and third-largest exporter.”
Statistics show that China’s trade volume amounted to US$509.8 billion in 2001 with a surplus of US$22.5 billion. In the first 11 months of 2006, the country’s trade volume had already exceeded that for all of 2005 at US$1.593 trillion, with a record trade surplus of US$157 billion.
China’s embrace of the world trade system has accelerated an influx of foreign direct investment (FDI). As a magnet for overseas investors, China has absorbed more FDI than any other developing country in the past 15 years. In 2001, it attracted US$46.6 billion in FDI. In 2006, the figure was US$72.4 billion. Though much attention has been paid to relatively inexpensive Chinese shoes and textiles now available in Europe and the United States, improvements in quality and productivity have been made despite the relatively low wages paid to Chinese workers. Although this is perceived, in some quarters, as threatening to entire industries abroad, the increasing FDI rates indicate that many foreign enterprises recognize China’s growing consumer market as much as a low-cost manufacturing base. Further, the business climate within China is improving with impetus provided by the WTO, the 2008 Olympic Games and many other events and socioeconomic factors.
New era of opening up
In the trade of goods, average tariff rates were reduced to 9.9 percent in 2006 from a pre-WTO 15.3 percent. China completed the elimination of non-tariff import measures––import quotas and licences––at the beginning of 2005. With regard to trade in services, the government has promulgated and revised laws and regulations related to banking, insurance, securities, telecommunications, architecture, distribution, legal services, tourism, transportation and other service sectors, providing a legal basis for the assured expansion of market access.
In its latest efforts, China opened its financial markets to foreign banks, with eight foreign banks applying to become the first foreign institutions licensed to handle retail business in the Chinese renminbi currency. It allowed several qualified firms to begin wholesale sales of crude and refined oil products beginning on January 1, 2007, in competition with the State monopoly. As of September 2006, 25 Chinese cities had allowed foreign banks to engage in renminbi-denominated business operations and 111 foreign banking institutions accepted the challenge. The European Union and United States urged China to do more to protect intellectual property rights and open up its markets, and China responded positively.
China’s rapid economic growth in recent years has created many more opportunities for foreign investors and has strengthened global economic development. According to World Bank figures, over the past five years, China has contributed an average of 13 percent to global economic growth per year.
Facing global competition
When the country entered the WTO five years ago, hopes were high and so were worries about the possible negative effects of foreign competition. Yet, the success of some domestic industries has cemented the confidence of policy-makers and domestic firms who no longer fear engaging in foreign competition.
The limited growth of China’s car industry following its opening up to new competitors from home and abroad speaks louder than any protectionist voices. Five years ago, cars were a luxury few Chinese could dream of owning. Now, as the number of car sales soars by several hundred thousand annually, all global auto giants state that China is a market that they cannot afford to bypass. As a whole, the country has become more confident in the face of foreign competition.
As important are the changes in every facet of Chinese life, economically, socially and politically, that have accompanied the country’s WTO membership. There are obvious changes in the ways the people think about the world, in consumers’ spending habits, businessmen’s way of doing business, civil servants’ work styles and in the government’s handling of foreign affairs in the course of China’s fast integration with the global economy.
WTO membership has guaranteed that China, a large, developing socialist country, is committed to a path of market-oriented economic reform and is preparing to open itself to even greater integration with the global economy. Despite doubts, negative opinion and eternal pressures, those changes will sustain China’s long-term growth story.
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