It was 10 years ago this Sunday, Dec. 11th, when China joined the World Trade Organization.
Since then, the country has grown to become the world’s second largest economy and millions of Chinese have been lifted out of extreme poverty. But while China made dramatic reforms after joining the global trade club, analysts say the process of moving away from being a state-planned to a more open economy has not been a definitive success, and many challenges remain.
The view from Beijing
From China’s perspective, the past decade has been a period of historic change.
According to a recent opinion piece in the state-run China Daily, since becoming a WTO member, China has become the world’s number one investment destination, with outbound investment nearly doubling every two years since 2002. Chinese companies, the article adds, are increasingly making their mark, with 54 now listed among the world’s Fortune 500 companies, compared to 12 when it joined in 2001.
Such rapid growth has had a dramatic impact on the global economy and surprised Chinese officials.
“I have to say that exceeds far more what we expected at that time, especially the size of China’s economy, the size of China’s exports and imports, and the market expansion of some of the industries, like cars, from two million to 18 million within ten years,” says Long Yongtu, chief negotiator of China’s accession to the WTO.
Lingering U.S. trade deficit
But China’s economic rise comes at a cost to the United States and other traditional manufacturing nations. The country’s massive production of inexpensive exports means other nations’ goods are undercut, causing their industries to suffer.
U.S. exports to China are growing, but the trade deficit with China has boomed. There is also concern among WTO member nations that while Chinese companies are gaining more access to the global economy, foreign companies in China are having a different experience.
Michael Punke, U.S. ambassador to the World Trade Organization, says that over the past five years other members of the WTO have seen a troubling trend of intensified state intervention in the Chinese economy.
Many of the trade disputes with China can be traced, he says, to Chinese policies that promote or protect state-owned and domestic enterprises.
Patrick Mulloy, a member of the U.S.-China Economic and Security Review Commission, says the issue of forced technology transfers – the contract-based acquisition rather than domestic development of new technologies – is of particular concern.
“The government will say, you want to be a friend of China, put more manufacturing here, put more research and development here, be a friend of China, help us grow our economy,” he says. “And the companies will say, ‘Well, I might be able to afford to give them this type of technology because I am really holding this part back,’ but then you have 100 companies transferring technology and helping China move up the food chain. It’s good for China and if I were them I would be doing the same thing, but it’s not good for us and it’s contrary to China’s WTO commitments.”
Foreign companies operating in China frequently raise concerns about the myriad licenses that businesses are required to apply for, and the problems faced receiving them in a fair and timely manner.
Undervaluation of Chinese currency has also long been considered an obstacle to free trade, and U.S. lawmakers are working to pass legislation that seeks to punish Beijing for keeping its currency artificially low, which makes the cost of its exports cheaper.
China’s industrial subsidies also remain a contentious issue, which, competitors say, make its products cheaper and more attractive to buyers.
And despite Beijing’s 2006 pledge to allow foreign credit card companies access to its market, they have yet to deliver on the promise.
Mulloy says such barriers to trade demand action.
“These are things this country really has to get to grips with and understand,” says Mulloy. “China is not our enemy, but they have a strategy and they are moving their people up a food chain of economic growth as quickly as they can and we have no counter strategy and that’s our problem.”
A topic of debate
With U.S. unemployment high and the economy waffling, trade with China has become an increasingly prevalent subject of debate in U.S. campaign politics — a topic that’s likely to persist as the 2012 presidential election draws near.
Mitt Romney, one candidate for the Republican Party nomination, has repeatedly criticized China’s trade practices and says the U.S. is already in a trade war with the world’s second largest economy.
But Daniel Ikenson of the CATO Institute, a libertarian think tank headquartered in Washington, D.C., says these disputes are just part of the process and a good reason to have China in the WTO.
“The relationship is maturing. The world’s second largest and largest economy has grown, [and] there are going to be frictions, they are going to be complaints,” he says. “We’ve had many more trade disputes with Europe and Canada than with China. That’s the way mature relations settle their differences.”
He cites growing social unease in China and the government’s ability to maintain control as a greater concern. While China continues to see rapid economic growth, there is also growing public discontent with corruption, environmental pollution and property policies and real estate properties.
If China implodes, Ikenson says, that will really have an adverse effect on the rest of the global economy.
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Categories: The Western Press