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China ’ s Accession to the WTO: Experience and Lessons. Long , Guoqiang Deputy Director General and Senior Fellow, Dept. of Foreign Economic Relations, Development Research Center, March, 15, 2006, Beijing, WBI. Contents. China ’ s Commitments to WTO Impacts of China ’ s WTO Accession
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China’s Accession to the WTO: Experience and Lessons Long, Guoqiang Deputy Director General and Senior Fellow, Dept. of Foreign Economic Relations, Development Research Center, March, 15, 2006, Beijing, WBI
Contents • China’s Commitments to WTO • Impacts of China’s WTO Accession • China’s Experience • Lessons and challenges • Prospects of Policies G.Long, DRC
Commitments • On trade of goods • Market access of trade in service • Implementing TRIMs • Institutional commitments G.Long, DRC
Commitments on trade of goods • tariff reduction:Average tariff rate of industrial goods lower to 9.4% in year 2005; Average tariff rate of agriculture goods lower to 14.5% at early 2004 • eliminating non-tariff barriers: quotas • Liberalize Trading right • eliminating export subsidies G.Long, DRC
Trade in service • Liberalizing location restrictions • Liberalizing restrictions on foreign ownership share • Liberalizing restriction on business scopes • Broadest coverage of sectors in developing members G.Long, DRC
Implementing TRIMs • Eliminating performance requirements on foreign invested companies: local contents, export requirements, balance of foreign exchange • China will not condition their approval of an investment on whether a company: ----Provides offsets, ----transfers technology ----uses locally produced goods, or ----conducts research and development in China G.Long, DRC
Institutional commitments • Trade and investment facilitation • Transparence • consistent of trade and investment-related laws, rules and policies • Protection of IPRs G.Long, DRC
II, Impacts of WTO accession • Theoretic benefits and costs • Impacts on institutional reform • Impacts on foreign investment • Impacts on trade • Impacts on economic growth G.Long, DRC
benefits • External incentives to institutional reform • Lower the cost for import • Intensify domestic market competition • More attractive investment climate • Promote industries restructure to those with comparative advantages G.Long, DRC
costs • Surge of import: external shock • Adjustment cost of uncompetitive industries: bankruptcy, unemployment, social instability, etc • Lose of tariff revenue • Foreign control on strategic industries G.Long, DRC
Impacts on institutional reform • Reform the regulations regarding trade and foreign investment according to WTO commitments; • The central government has reviewed 2300 laws, regulations and rules, in which, 325 were revised and 830 were abolished; • Re-design the function of government to meet the requirement of market economy system. G.Long, DRC
Development of FDI in China • China has been the largest host for FDI in developing countries since 1993. • FDI wander since late 90’s • FDI’s role increasing in capital inflow • Greenfield Investment dominates FDI G.Long, DRC
China is the largest host for FDI in developing countries. Source: China Statistics Yearbook G.Long, DRC
FDI wandered in late 90’s 来源:World Investment Report 2000, 中国统计年鉴2000 G.Long, DRC
FDI inflow into China G.Long, DRC
Structure change of FDI • 70% in manufacture, • More than 750 R&D centers by TNCs • More domestic market-16seeking investment • More M&A taken place • Intensified competition not only between FIEs and domestic companies, but also among FIEs G.Long, DRC
Reasons for more FDI • Traditional attraction still there: cheap labor force, land, industrial base, etc; • Investment climate improved after WTO accession: --soft climate: transparency; WTO consistent laws, regulations; expectable policies, etc; --better market access --less restriction on FDI and more efficient approval process; --industrial cluster; --rapid expanding domestic economy; G.Long, DRC
Impacts on trade • DRC: exports and imports are forecast to be 24% and 18% percent higher, respectively, than if China remained outside the WTO • U.S.ITC: exports will rise by 12% and imports by about 14% • labor intensive products increase G.Long, DRC
China’s trade development after WTO accession G.Long, DRC
Reasons for rapid trade development • Increase of FDI, which takes 58% of China’s export • Liberalization of trade right to domestic companies, especially private companies; • Intensified competition increase China’s international competitiveness; • Over capacity; • Rapid economic growth G.Long, DRC
Impacts on Growth • DRC research group: WTO will boost China’s average annual growth rate by a full percentage point. • US International Trade Commission: 4 percent increase of GDP • benefit will distributed unequally on different regions and sectors G.Long, DRC
China’s GDP growth G.Long, DRC
Impacts on sensitive industries are acceptable • Agriculture • Automobile industry • Machinery • Petrochemical industry • Steel industry G.Long, DRC
China became net importer of agriculture goods Source: China Custom Statistics, G.Long, DRC
Automobile industry • Production of automobile increased from 2.34 million in 2001 to 5.7 million in 2005, became the 2nd biggest auto market in the world. G.Long, DRC
Rapid expansion of auto production Source: China Statistics yearbook, G.Long, DRC
China’s became a net exporter of Auto products G.Long, DRC
III. China’s Experience • Make full use of opportunities of market opening and handle the challenges:grace period is very important • Implement all commitments seriously • Promote domestic institutional reform to make full use of comparative advantages and enforce international competitiveness under the framework of market economy, overcoming the obstacle of interest groups G.Long, DRC
China’s Experience • Improving investment climate, avoiding the substitute effect of investment by trade • Keep macro economy developing stably and rapidly • Establish alert system on the surge of import in sensitive sectors • Strategies to offset the external shock: Western China Development Plan, Reviving Rusty Industrial Bases in Northeast Area, Reform of SOEs, State Banks, G.Long, DRC
IV. Lessons and Challenges • Missed the best time for the reform of the system of RMB exchange • Facing increasing trade frictions: anti-dumping, specific safeguard, quota on China’s export of textile and garments, TBTs, IPRs • Imbalance of bilateral trade relations: US-China trade, etc. • Too heavy relying on external market • Potential risk of relying on foreign invested companies of technology innovation, and foreign control of strategic industries G.Long, DRC
year Companies affected by TBT (%) Products affected by TBT (%) Export lost by TBT (bi. USD) 2000 66% 25% 11 2002 71% 39% 17 TBT: a new trade barrier facing by China’s export Source: MOFCOM’ enterprises survey G.Long, DRC
Japan 2 1 China US 2 1 2 Other East Asia econs. International relocation of export-oriented assembling G.Long, DRC
Relying on foreign invested companies • For example, in ITC sector, foreign invested companies take 81.9% of sales, 81.1% of output, 83.8% of profit, 68.4% of employment and 90% of export of the whole sector G.Long, DRC
V. Prospects of China’s trade policies • Peaceful development and win-win strategy • Pro-free trade in global trade system • Struggle for full market economy treatment • Pro-active regionalism strategy • Further trade liberalization • Manageable floating exchange system • International cooperation to smoothen price fluctuation of primary commodities G.Long, DRC
Thanks! G.Long, DRC
Announcement: This file is prepared for the use of WBI training program on March 15, 2006 only. Any part of the file should not be revised or used for other purpose without the written permit of the author. Long Guoqiang G.Long, DRC