China’s development since WTO accession

Prior to joining the World Trade Organization (WTO), the common perception in China was that the WTO belonged to ‘the Club of the Rich’, where wealthy countries imposed rules on poor and weak developing ones.

Now, the WTO is one of the most widely recognised and respected international organisations within China.

Since China’s accession in 2001, the belief that the WTO is a ‘public good’ has taken hold in China, and membership in the WTO is a driving force for market reforms. WTO entry transformed how the global multilateral trading system is viewed, not only by skeptics in the government but, more importantly, in the public mindset. China undertook a major public engagement program to increase the society’s understanding of the multilateral trading regime. And several thousand books were published in the past decade to raise awareness of the norms and rules of the WTO, in addition to modifying laws and administrative practices to align them with WTO commitments.

But the most important factor in reshaping public sentiment toward the WTO in China is the actual gains the country has achieved since joining. Throughout the past decade, China’s GDP grew at an average of 9 per cent per year and is now the second-largest trading nation in both exports and imports. China emerged as a source of outbound investment, as well as one of the hottest destinations for FDI. And beyond trade and investment, China has become a major creditor nation. These achievements show that WTO accession and integration into the global economy have been pivotal to the country’s progress. For China, the gains from WTO membership have exceeded the risks — so far.

China’s support of the WTO will continue to be steady and strong because of China’s rapidly growing interests in an open global trading system; and China’s association with developing countries and emerging economies will strongly shape its role in the global regime. China encourages more consideration of development concerns in multilateral trade talks (including effective implementation of the Doha Development Agenda) and believes that a new consensus should be reached between developed and developing countries — especially on issues such as barriers to agricultural trade.

But some are now concerned about China moving toward protectionist measures and insist it should restructure its growth model. China is facing growing external pressure to increase its domestic consumption as a way of contributing to rebalancing the global economy.

The global financial crisis also changed the perception within China that the external demand-driven development model can continue indefinitely. To deal with declining external demand, the Chinese government implemented a three-year national stimulus package amounting to RMB4 trillion (US$626 billion). But the present situation continues to be fragile and uncertain, due in part to world economic conditions — especially the extended downturn in the US economy and parts of the EU.

What lessons did China learn from the global financial crisis? First, China learnt to manage the risks of integration into the global economy, while also remembering the benefits of global integration. Second, China needs to move away from the existing economic growth model — which is too reliant on exports — to one that is more internally demand-driven. And finally, China learnt to rectify the asymmetrical influence of some countries in the system of international economic governance.

Adjusting the Chinese development model is a painful process. But China is looking toward strengthening internal demand, improving the domestic social security system, moving toward more value-added production by encouraging innovation, and promoting environmental sustainability.

And while China is increasingly committed to multilateralism, it is also seeking regional cooperation in East Asia. Chinese academics view regionalism as providing China with a self-insurance option to absorb the risks of economic globalisation and economic uncertainties; a tool to enhance security relations with neighbouring countries; and a means to increase China’s voice and influence in the international community by cultivating mutual trust and shared interests. In contrast, Chinese authorities emphasise that regional cooperation is not necessarily or inevitably in conflict with global multilateralism, as long as regional trade arrangements facilitate gains in trade and investment liberalisation.

Chinese authorities have overcome their previous skepticism and sovereignty concerns related to regional multilateralism after the 1997 Asian financial crisis. They are now taking a more proactive approach to regionalism. This approach highlights China’s growing support for regional cooperation as a response to competitive liberalisation in other regions of the world.

Striking the appropriate relationship between regional and global cooperation is now one of the crucial challenges in global governance — trying to balance what is desirable with what is realistic in the emerging global order. China’s leaders realise that the country’s economic rise over the past 30 years is not an isolated development or an accident of history.

China will continue to be a positive and driving force in the global multilateral trading system and its track record since joining the WTO sets a good example for other countries, including those currently plagued by an extended economic downturn. China will help demonstrate how the objectives of development and maintaining an open trading system can work together.

Wang Yong is Professor in the School of International Studies, and director of the Center for International Political Economy at Peking University in Beijing, China.

October 6, 2011

Source: East Asia Forum