China ’ s Accession to the WTO: Experience and Lessons

1. 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

2. Contents • China’s Commitments to WTO • Impacts of China’s WTO Accession • China’s Experience • Lessons and challenges • Prospects of Policies G.Long, DRC

3. Commitments • On trade of goods • Market access of trade in service • Implementing TRIMs • Institutional commitments G.Long, DRC

4. 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

5. 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

6. 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

7. Institutional commitments • Trade and investment facilitation • Transparence • consistent of trade and investment-related laws, rules and policies • Protection of IPRs G.Long, DRC

8. 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

9. 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

10. 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

11. 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

12. 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

13. China is the largest host for FDI in developing countries. Source: China Statistics Yearbook G.Long, DRC

14. FDI wandered in late 90’s 来源：World Investment Report 2000, 中国统计年鉴2000 G.Long, DRC

15. FDI inflow into China G.Long, DRC

16. 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

17. 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

18. 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

19. China’s trade development after WTO accession G.Long, DRC

20. 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

21. 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

22. China’s GDP growth G.Long, DRC

23. Impacts on sensitive industries are acceptable • Agriculture • Automobile industry • Machinery • Petrochemical industry • Steel industry G.Long, DRC

24. China became net importer of agriculture goods Source: China Custom Statistics, G.Long, DRC

25. 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

26. Rapid expansion of auto production Source: China Statistics yearbook, G.Long, DRC

27. China’s became a net exporter of Auto products G.Long, DRC

28. 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

29. 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

30. 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

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33. 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

34. Japan 2 1 China US 2 1 2 Other East Asia econs. International relocation of export-oriented assembling G.Long, DRC

35. 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

36. 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

37. Thanks! G.Long, DRC

38. 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