China's WTO Updates
WTO Entry Boosts China's Economy

China's World Trade Organization (WTO) entry has boosted its economic growth and advanced its legal and governmental reforms.

Galvanized by its WTO admission, China's macroeconomic situation has improved remarkably. Its gross domestic product (GDP) grew by 7.9 per cent year on year in the first three quarters of this year.

Last year many people were worried over China's trade situation in the wake of its WTO entry. Some famous institutions and scholars predicted a less than 6 per cent growth rate for China's trade sector.

The fact is China's exports increased by 19.4 per cent in the first three quarters of this year. Its total trade volume during that period was US$445.1 billion, an 18.3 per cent increase year on year.

These figures contrast sharply with the stagnant world economy. In 2001, the world trade volume dropped by 1.5 per cent compared with the previous year. It is estimated that this year the growth rate will be merely 1 per cent.

A WTO report released on October 10 this year said that China has become the fourth largest trade body in the world following the United States, European Union and Japan.

The rapid growth in China's trade volume is directly attributable to the improved trade environment following its WTO entry.

China's average import tariff rate was cut from 15.6 per cent early this year to 12 per cent. The former trading instability brought by bilateral negotiations has been roughly written off by a more stable multilateral trade framework. And many of the quota restrictions of other countries have been lifted on Chinese products with comparative advantages.

The influx of foreign investment has also increased rapidly. The multinationals have become more confident in investing in China after its WTO accession.

Initially people had forecast that foreign investment into China would drop due to global income tax rate cuts and China's tax rate unification reform granting equal treatment to domestic and foreign enterprises.

In the first nine months of this year, however, China's actual utilized foreign investment registered at US$41.2 billion, a 22.55 per cent increase year on year. It is estimated that the total foreign investment influx into China will exceed US$50 billion this year, making the country the largest foreign investment destination in the world.

Foreign companies' improved confidence in China arises from the stable returns they can get from the Chinese market.

The country's WTO entry makes it an irreversible trend to integrate its economy into the global economic framework. Its rich, low-cost labor resource and the vast market, both of which provide much scope for profit, make foreign investors more confident in investing in China.

Another change brought by China's WTO entry is that the private sector, which has been discriminated against for many years, gained rapid growth.

The legal status of private enterprises as an organic component of the national economy was only acknowledged by the revised Constitution in March 1999. They have been barred from direct foreign trade operations. Their financing had also been restricted by various policies, which seriously blocked their smooth growth.

After China joined the WTO, the WTO equal treatment principle requires the government to grant equal rights to all enterprises no matter they are State-owned or private ones.

All domestic enterprises, for example, will be able to engage independently and freely in foreign trade within three years as restrictions on foreign trade operations, except the trading of vital commodities such as crude oil, grain and tobacco, will be lifted gradually within the period.

Under these conditions, the number of private enterprises granted foreign trade licenses has increased rapidly. In Zhejiang Province, for example, 80 per cent of the 1,700 enterprises that were granted the right to conduct foreign trade this year are private firms. In the first nine months of this year, the foreign trade volume of those private companies was 3.5 times that for the same period last year.

China's WTO membership has also brought about fundamental changes to the government.

The economy has long been affected by abuse of governmental functions and confused and obscure laws. These problems conflict with WTO rules.

To meet the requirement of its WTO membership, the government has initiated a campaign to clarify and unify governmental regulations to meet the WTO rules. In the first half of this year, more than 2,300 regulations were abolished or revised by 30 departments under the State Council.

Despite those encouraging developments, some unfavorable factors emerged after China's WTO entry.

Chinese products that have comparative advantages have been suffering as a result of an increase in anti-dumping allegations and the block of green barriers - import restrictions on the grounds of environmental and food safety.

WTO statistics show that in the first half of this year, 15.4 per cent of the 104 anti-dumping cases filed by WTO members were targeted at Chinese products. During the same period, China's foreign trade volume accounted for only 4 per cent of the world total.

While the price disorder of Chinese enterprises is partially responsible for the increased anti-dumping allegations, the main reason is that some countries willfully lower anti-dumping standards, on the pretext that China is a non-market economy, to block its imports.

The anti-dumping measures and green barriers have written off part of the benefit brought by lowered tariff rates and increased import quotas of other countries.

Moreover, the agreement between China and the United States on China's entry into the WTO allows for the United States to adopt emergency measures to limit imports from China if those imports are deemed to be increasing too rapidly and may potentially jeopardize local production.

This entitles the United States to take limiting measures without due procedures, a more convenient way to block Chinese products than by recourse to anti-dumping and green barrier regulations.

The author is an associate professor with the Economics School of Shandong University.

(China Daily November 18, 2002)


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