The challenges Ahead: China's Membership in WTO
Shen Boming, Guangdong University of Foreign Studies, People's Republic of China
Abstract
China's accession into the WTO will bring tremendous changes to China. China will face many unprecedented challenges. Importation of large quantities of agricultural products will hurt its farmers, some industries will be shocked by low tariffs of competing products, state-owned enterprises will be under various pressures, the monopolized or semi-monopolized non-efficient service industries will lose their profits, more people will be out of jobs, the government will shift its role and make changes from a command way to a market way in managing the economy which the officials are not so familiar with, more and more talented persons will move from domestic institutions to foreign-invested institutions, so called brain drainage. China has also to cope with the fluctuation effect of the world market and tries its best to maintain a stable and sustainable economic development. Besides, it is predictable that China will confront more trade disputes with other trade powers. Of course China is a responsible member of the international community, China will stick to its commitments in line with WTO rules and regulations. Challenges and opportunities are co-existing. So long as we take proper measures to tackle the challenges, challenges may be converted into opportunities. I am sure gains will outweigh losses.
Key words: China's Accession into WTO, Challenges, Prospects
Part I: Introduction
On November the 10th, 2001, in Doha, Qatar, as the fourth WTO Ministerial Conference Chairman Mr. Kamal's wood hammer lightly knocked the table and announced "so it is", China was officially accepted into WTO, one of the world's three most important international economic organizations, and on December the 11th, 2001, China became a formal WTO member.
China's accession into WTO is a historic event in China's development as well as a historic event in WTO. Just as Mr. Pascal Lamy, EU trade commissioner, said in his statement in Doha 10 November 2001 that China's accession "is the WTO's greatest leap in the history of the organization". This event has much significance to the world trade and the world economy, since China is one of the leading economies in the world. (See table 1) China is also one of the fastest-growing economies in the world, for more than 20 years, it has achieved an average growth rate of GDP as high as 9.0%. Besides, with about 1.3 billion consumers, China's potential market is tremendous.
Table 1: China's Rank in the World
Population(million) / Area (square km) / GDP (billion $) / Export (billion $) / Import (billion $)World / 6267 / 133378000 / 31336.9 / 6162.4 / 6438.8
China / 1295 (1) / 9600000 / 1080 (1) / 266.2 / 243.6
China's Rank / 1 / 3 / 6 / 6 / 6
Sources: World Bank: World Development Report 2002, pp233-239
WTO: International Trade Statistics 2002
http://www.gazetteer.de
Note: (1) statistics for the year of 2000, others for the year of 2001
For the entrance into this organization, China has spent 15 years. It is yet hard to say how the WTO accession will benefit China. Some experts predict that the WTO entry will help increase China's economic growth rate by 1 to 1.5 percentages. I firmly believe that China's entry into the WTO has a profound significance to China's economy. It will give China tremendous force to push the reform process and to further open its market. By joining the WTO, China will export more goods, attract more FDI and promote tertiary industries. Entry into the WTO will help China develop a fair, just and open market environment which is of long-term significance to the country's economic stability and development. China's entry into the WTO means more business opportunities for overseas enterprises.
We can even give a longer list for the benefits. But these are only possibilities. Making the possibilities into reality, it depends on the performances of China's governments at all levels and the enterprises.
Part II: China's Main Commitments
Upon its WTO accession, China has made a number of commitments. Here I want to mention some.
1. China will substantially reduce its tariffs.
According to the accession agreement, China will substantially reduce tariffs both for industrial and agricultural products. (See table 2 bellow)
Table 2: Tariff Reduction
Year / Average tariff level / Average tariff for industrial products / Average tariff for agriculturalProducts
2000 / 15.6% / 14.7% / 21.3%
2002 / 12.7 / 11.7 / 18.5
2005 / 10.1 / 9.3 / 15.5
Source: Schedule CLII-People's Republic of China, MOFTEC , 2001
2. China promises to eliminate non-tariff measures.
China will phase out a number of non-tariff measures it used to take, such as quotas, import licensing, price controls, export subsidies, state-trading practice, designated trading, trade-distorting investment measures etc.
3. China has committed to substantially increase market access for foreign service enterprises.
China will open up its service sectors, such as banking, insurance, telecommunication, engineering, law service, accounting service, construction, transportation, wholesale and retail distribution, tourism, repair and maintenance and other services. More and more foreign companies will have opportunities to invest in these sectors. Reinvestment and investment in existing projects are more likely to increase than new schemes. China had approved the establishment of 388,945 foreign-invested companies in China by the end of April, 2002, with contracted foreign capital of US$ 766.6 billion and a total of US$409.4billion actually used, according to MOFTEC statistics. (Meng Yan, China Daily, 2002-5-16, P1 )
4. China also promises to strengthen its protection to intellectual property rights of foreign enterprises and individuals in accordance with TRIPS Agreement.
5. China has committed to undertake systemic reforms.
China will undertake systemic reforms in managing foreign trade and even in the whole economy that will promote transparency, predictability and fairness in business dealings. China will give MFN treatment and NT to other WTO members, concerning trade in goods, services (in line with the Schedule of Specific Commitments on Services) and intellectual property rights. All individuals and organizations involved in foreign investment, including individuals and organizations that has never invested in China, will enjoy at least the same treatment for Chinese enterprises regarding the rights of trade. China will abolish the practice of double-track pricing as well as different treatments for domestically sold goods and exported goods.
6. China is modifying existing domestic legislation.
China is assuming the obligations of more than 20 multilateral agreements adopted by the WTO. China has checked up more than 2000 laws and regulations. Some have been abolished, others have been revised. To meet the requirements of the WTO Agreements, China has made a series of new laws and regulations in a unified and effective manner in line with the WTO Rules.
Part III: Challenges Ahead: China's Membership of WTO
The WTO accession for China and undertaking the obligations inscribed in the schedules of 9 annexes attached to the Protocol on the Accession of the People's Republic of China mean tremendous changes and unprecedented challenges to China. Though we may take these challenges as the cost that we have to pay if we want to reap the resulted fruits, yet we have to take these challenges seriously, carefully manage them, and try our best to convert those challenges into opportunities. The main challenges are as follows:
First, as China promises to implement WTO agreements, to this end, China still has a lot to improve in its legislation system. Up today in some areas China hasn't formulated laws, such as anti-monopoly law, anti-dumping law, anti-unfair-competition law, service trade law etc. Some laws and regulations should be further revised, such as the law of corporation, the advertisement law etc. Laws and regulations should be unified within China's customs territory, should be transparent, fully discussed, and the laws and regulations should be enforceable and must be executed. No official should personally exert influence on the formulation and implementation of the laws and regulations. We have to enforce the laws and regulations very strictly, exactly as the slogan " To administer the country in accordance with the laws". But the officials of the local governments may not strictly do as the national laws and regulations demand.
Second, the WTO entry reflects China's resolution in promoting the market economy. The Chinese government aims at solving the deep-rooted systemic and structural problems hindering economic development through opening widely the domestic market and deepening and accelerating systemic reform. Reform is a kind of revolution. China has to reform its administrative system, the administrative ideas, the administrative structures, the administrative ways and means. In so doing, opposition from interested groups is inevitable.
Third, the shift in the government's role may be the first and the most difficult step for China to take after WTO entry. Entering the WTO means that the Chinese government commits to manage economic issues in line with global market norms. The government's function and behavior in managing the economy will be subject to restriction and standardization of rules and regulations of the international trade body. The government should endeavor to create an environment of fair competition for enterprises with different ownership. It should especially provide equal market access for private enterprises so that they can take part in market competition on an equal standing. Officials usually have a wide range of powers in examining and approving economic affairs, which often results in corruption. This situation must be changed quickly. Laws and regulations will be transparent, administrative procedures will be open to the public. Officials will lose their privileged position, they cannot directly meddle in the allocation of resources, they should ensure the market functions well in resource allocation. It is not easy for the government and the officials to shift their roles. To train the administrative officials to meet with the new situation, to let them understand that they should do according to the WTO rules and regulations, should do according to laws and regulations, to improve their work efficiency is not easy either. So this is also a challenge to government organs and officials.
Fourth, China's agriculture will meet with great difficulties. In China there are more than 800 million people living in the countryside and nearly half of them are doing farm work. With the shortage of per capita resources, low domestic support and low productivity, at present China's major agricultural products are not so competitive in the world market. The prices of China's staple crops are 20-50% higher than those of foreign competitors'. In 2001, China imported 13.9 million ton of soybean, 1.65 million ton of edible oil. (China's Customs Statistics, 2001)
As China has committed to substantially reduce tariffs for agricultural products, gradually eliminate non-tariff barriers and quotas, importation for agricultural products is expected to increase sharply.
During the Fifth Session of the Ninth National People's Congress, deputies from soybean-producing Heilongjiang, Jilin and Liaoning provinces in northeast China said: "The negative impact is already there: a shrinking share of the world market, large soybeans imports and domestic edible oil plants turning to imported soybeans for their lower prices and higher oil output." (2002-03-07 news.xinhuanet.com) So you may understand why Premier Zhu Rongji said at the press conference during the 5th session of the 9th NPC, that his top concern is the farmers income increase, and he felt headache on this problem. (2002.3.16, People's Daily)
Fifth, as China opens its market more widely, Competition will be very fierce in most of the industries, such as steel, car, chemical and pharmaceutical, telecommunication, banking, insurance and other industries. Foreign goods and and services and overseas enterprises will compete with domestic products and services and enterprises in quality, brands, design and prices. We know that an adverse impact on a few industries, enterprises and products will be inevitable. Those industries that have enjoyed much government protection, or in the monopolistic position and technologically backward will meet with many difficulties. Some of them will have a hard time. Some will even bankrupt. Especially those state-owned or state-run enterprises will face tremendous challenges. Difficulties will occur in sectors dominated by state-owned enterprises, which are characterized by excessive employment, high inventory levels, low productivity, low capacity utilization, inefficient scale of production and outdated technology. At the end of 1990s, state-owned enterprises remained a pillar of China's economy, employing more than 87million people and generating 38 percent of the national income and 50 per cent of exports. Though China is a big power in manufacturing, but it is mainly processing products for other countries, for foreign invested enterprises, using their brands. China has hardly any world class brands.
Chinese enterprises have no other way but to deepen systemic reform, establish modern enterprise mechanism, innovate in management, technology and production, sharpen their competitive edge. Debt-to-equity swap and sale of small SOEs to private companies, including foreign companies are among the solutions. Otherwise it is very difficult for them to withstand the shocks that they are facing with WTO entry.
Sixth, unemployment is another big challenge China faces now. It is a good thing for China to better allocate resources, to increase the economy's efficiency, but at the same time it is inevitable that China will have more laborers out of jobs.
At present China has several millions of laborers out of jobs because of the reform process, including the reform in administration of various levels, each year newly emerged laborers are more than ten million, then the agriculture sector will dispatch or relieve 5-10 million people each year.
Table 3: China's Unemployment Situation
Item / Numbers / Possible SolutionNew workers entering the labor market every year / 12-13 million / Expanding production, develop the Service industries
Workers laid off by state owned enterprises, yearly / 5-8 million / Training, private business
Already registered jobless workers (end of 2001) / 6.8 million / Re-training, private sectors
Surplus rural laborers, yearly / 5-10 million / Urbanization of the rural areas, service industries,
mid-sized and big cities
Sources: China Daily, 2002.4.29, www.news.xinhuanet.com
The unemployment situation is very serious. According to a recent report made by the China's Academy of Social Science China's urban unemployment rate is 7%, much higher than the official data. The country is seeking ways to improve employment and re-employment. We need to perfect our social security system. Officials are calling for greater efforts from academic circles to help the government tackle the rising challenge, which will continue for a very long time in the country.