The views of the Chinese government and public have changed over the years, but most Chinese believe the country’s World Trade Organization membership has benefited China.When assessing China’s World Trade Organization (WTO) membership, it is helpful to examine the past 10 years in the context of major world trends, such as globalization. It is also important to explore the relationship between China and the multilateral trading system and the implications of WTO membership on China’s ongoing economic and social transformations. Though China has faced problems as it has opened to world trade, the overall gains from WTO membership have exceeded the losses. Because of China’s rapidly rising interests in an open global trading system, the country’s support of the WTO will likely remain strong in the next decade.

Public perception of the WTO

Many people in China have changed their views of the WTO over the years. In the 1980s, many Chinese viewed the General Agreement on Tariffs and Trade (the precursor to the WTO) and the WTO as “clubs of the rich,” in which wealthy, developed countries imposed rules on poor, weak developing nations. Negotiations over the terms of China’s WTO accession took more than 15 years, but the drawn-out negotiations served as a driver of market-oriented reforms and helped educate the public and the government about the multilateral trading system. To ease the overall doubts about the long-term benefits of the multilateral trading system, the Chinese government and academia made many efforts to educate the public, including publishing several thousand books about WTO rules. The government also modified more than 2,300 national laws and regulations to adapt to WTO commitments, while localities modified or canceled 190,000 related local laws and regulations, to improve policy transparency and ensure conformity with WTO rules.

Rapid economic growth has been the most convincing factor in reshaping popular opinions of the WTO, however. Since China joined the WTO in 2001, the country’s gross domestic product (GDP) has increased at an average rate of more than 10 percent per year, and China has become one of the largest trading nations. In 2000, the last full year before China joined the WTO, China was the world’s seventh-largest exporting country and the eighth-largest importing country. In 2010, China became the world’s largest exporter and second-largest importer of goods.

Investment activity also showed a similar surge after WTO accession, with China becoming one of the hottest destinations for foreign direct investment (FDI). In the post-WTO accession decade, China attracted $653.1 billion in FDI, with an average increase of 9.5 percent a year. In 2010, FDI coming to China reached $105.7 billion, nearly 1.3 times the 2000 level. At the same time, the country began to emerge as a major world investor. In 2010, Chinese outbound investment reached $67.8 billion, with accumulated outbound investment totalling more than $300 billion dollars (see China Data: Trade and Investment Since 2001). China has become a big creditor nation as well. For example, China has purchased more than $1 trillion in US Treasury bonds, becoming the US government’s largest creditor.

Analysts generally consider China’s WTO accession and corresponding integration into the global economy as two of the most important factors that contribute to China’s rapid economic growth. Past surveys have shown that the notion of the WTO as a “public good” has become more widespread in China since the country’s 2001 WTO accession. The public now considers the WTO as one of the most widely recognized international organizations in China, along with the United Nations and the World Health Organization.

Concerns about opening up

Though recognized as beneficial to China’s economic development, the WTO regime and globalization have raised questions for many people in China. For example, some government officials and analysts have argued for a better balance between the objectives of free trade and development and between WTO members from developed countries and developing countries. Through the rapid growth of processing trade, China is positioned between developed and developing countries, in that it shares some trade concerns with both groups. In the eyes of PRC officials, a more open trade regime will help maintain export competitiveness. At the same time, however, China sees the need to accommodate WTO developing nations’ requests to further development objectives.

Impact of the global financial crisis

The global financial crisis has also changed the PRC government’s perception of the risks and benefits of being a player in the global economy. For example, when export demand fell, PRC leaders realized that China must transition away from an export-led growth model and develop a more domestic-demand driven economy. To deal with declining external demand, the PRC government implemented a stimulus package that totalled ¥4 trillion ($626 billion) over three years and allowed China to maintain a high economic growth rate in 2009 (9.2 percent) and 2010 (10.4 percent).

The financial crisis also sparked increased desire by developing countries in the WTO to press for more balanced international institutions to rectify the disproportionate influence of some large-trading countries in the international economic governance system. Many observers in China believe that the West, and the United States in particular, has a dominant influence within international economic institutions such as the International Monetary Fund, the World Bank, and the WTO—with developing countries largely underrepresented. To help stabilize the global economy, many Chinese believe that China should continue to press for reforms of international economic institutions that will benefit all, which includes increasing the representation of developing countries within these institutions.

Commitment to regional cooperation and multilateral regimes

Though China is committed to multilateralism through the WTO, the country increasingly has been engaged in different forms of regional cooperation in East Asia and elsewhere, following the examples of the European Union, the United States, and many developing countries. Before the Asian financial crisis in 1997, China was sensitive to sovereignty issues and somewhat sceptical of regional cooperation. The Asian financial crisis, however, encouraged PRC leaders to adopt a more proactive approach to such cooperation. China has now reached 10 free-trade agreements (FTAs) with 31 counties and areas, with the China-Association of Southeast Asian Nations FTA the most prominent. China’s 12th Five-Year Plan (2011-15) defines regional cooperation as a top priority of foreign economic relations. This latest emphasis on regional cooperation has developed as a response to competitive liberalization in other regions of the world—to help developing countries catch up to developed countries.

Chinese academics tend to interpret China’s regional cooperation in more comprehensive perspectives. Some academics believe such cooperation serves as a form of insurance, by absorbing some of the risks of the global economic and business cycles. Others believe it is a useful tool to enhance security relations among neighboring countries, because regional cooperation cultivates mutual trust and common interests. Regional cooperation is also seen as a way to increase China’s voice and influence in the international community.

In general, officials and academics in China do not believe regionalism conflicts with multilateralism if the regional FTAs help to liberalize trade and investment. Many PRC officials perceive, however, that the best way for countries to liberalize trade is for all WTO members to work together to strengthen the multilateral trading system and benefit all players.

China’s role in the WTO

PRC leaders and analysts argue that China’s membership in the WTO has expanded the universality of WTO membership and strengthened the multilateral trading system. As the second-largest economy and a major trading nation, China’s WTO membership—and governing of its economic activities by WTO norms—supports the organization.

China’s role in the WTO will be shaped by its association with other developing countries, including emerging economies. Since the PRC government views China as part of the developing world, the government believes multilateral trade talks, including in the WTO’s current round of trade negotiations, should more thoroughly consider the needs of developing countries. Some of the specific needs include more trade for development and intellectual property rights (IPR) terms that support public health. The PRC government believes developed and developing members must reach a consensus on how to balance the concerns of development with the goals of opening more markets.

Criticisms of China as a global player

Many of China’s trading partners have raised issues with China’s participation in global trade. For example, some trading partners are concerned about China engaging in “protectionist” measures while it aims to restructure its growth model. Foreign companies complain that the PRC government boosts domestic companies and gives domestic companies an unfair advantage in China’s government procurement market (see Domestic Innovation and Government Procurement Practices). Global players also complain that the PRC government is not doing enough to protect IPR—mainly that enforcement of IPR rules is inconsistent and weak.

Despite these complaints, FDI statistics indicate that China remains an attractive destination for foreign investment. Also, recent policies show that the government is working to improve China’s trade and investment environment. For example, in recent months PRC leaders have been more responsive to international business complaints about regulations that link indigenous innovation with government procurement and have been loosening such regulations. The government also launched a special nine-month IPR protection campaign (see China’s Special Campaign to Combat IPR Infringement). In recent years, the PRC government has aimed to avoid violating WTO rules while implementing measures to restructure China’s growth model and contribute to global rebalancing.

Greater transformation ahead

China’s economic rise in the last 30 years is not an isolated event. Many Chinese attribute the country’s economic gains to the pragmatic spirit of the political leadership, the creative and industrious spirit of Chinese people, and the contribution of international capital, talent, and management.

China’s WTO accession has had a huge impact on the country, however, fostering tremendous transformation and expanding the country’s participation in the global economy. The prospect of greater economic and social transformation is unfolding, particularly if the PRC government extends its support to the expanding private sector in China. Chinese society has also come to demand greater governmental accountability and increased regulatory transparency. Though uncertainties remain, China will move into a future that shares more political and economic values and practices with the rest of the world.

In the next decade, analysts expect China to be integrated more fully with the global economy. To ensure the world market remains open to Chinese exports and investment, China will open the country further, based on WTO rules. And, as time goes on, it is likely that China will start to play a larger role in exercising responsible WTO leadership. A more open, diverse, and prosperous China will make a greater contribution to world peace and development.

[author]Wang Yong is a professor at the School of International Studies and director of the Center for International Political Economy at Peking University in Beijing.[/author]

Posted by Ben Baden