Since its accession to the World Trade Organization (WTO) in 2001, China's growth and development has built heavily on its increasing integration into the global economy. Export growth in the three years prior to the 2008 financial crisis was nearly 30 percent. Although its export growth was negative during the crisis, China has since rebounded to pre-crisis rates and it is now the world's second-largest trading country after the United States (ahead of Germany). In addition, cumulative foreign direct investment (FDI) inflows into China since the 1990s have grown to more than $1 trillion. China's processing trade has also grown progressively in importance and the quality of its exports has been upgraded. Today, over 90 percent of laptop computers originate in China, and exports of information technology products account for nearly 50 percent of China's exports.
It remains unclear to what degree China's 2001 WTO accession contributed to this growth process. In terms of formal improvements in access to foreign markets, it can be argued the accession yielded China relatively little, with no major reductions in barriers to trade abroad. Most-favoured-nation status, while not guaranteed by WTO membership, was de facto in place. The terms for accession were largely one-sided, with China committing to tariff reductions and bindings, phase-outs of subsidies to state-owned enterprises, reduction in production subsidies in agriculture and liberalization in key service areas (banking and telecoms).
But in providing China's institutional commitment to market-oriented policies, now deemed necessary for compliance with WTO accession terms, accession was likely key in providing the political support for the domestic policy changes that allowed China to grow via ever-deepening international engagement.
What of the future? Can the WTO really help China – or its other members – in continuing outward-oriented, trade-led growth? The challenge today is very different from 2001. A decade ago, China's trade was small and FDI was still in its relative infancy. Membership in the trade regime allowed for rapid trade and FDI growth from a small base. Today, that base is already large and the challenge is to continue to grow. Maintaining 30 percent export growth, for China, implies the doubling of exports every two and half years. FDI inflows, while still growing, now account for a near majority of Organisation for Economic Co-operation and Development outflows. Trade protectionist pressures continue to grow in Europe and North America with the reverberations of the 2008 financial crisis, and both demand ever-expanding Chinese market penetration. Add to this the prospect of trade protectionist measures linked to global climate change policy initiatives, and the outlook for China's future export growth is stark.
While a central challenge for China is how to enhance its future trade and FDI flows further, nonetheless, China needs to maintain its current trade and FDI flows. Can the WTO help China in a meaningful way to meet these challenges? While the WTO has provided a global trade regime under which China's exports have grown rapidly, the WTO has not been able to prevent significant new trade measures against China. By some counts, China is now the target for around 25 percent of global anti-dumping actions (many from other developing countries, including Turkey, India and Brazil). China has been targeted with selective safeguard actions on clothing and tires under the Chinese WTO accession terms. It is now the subject of possible US trade actions under Section 301 of the US 1974 Trade Act, opening new avenues for protectionist pressures on China. In addition, China has been the object of more WTO dispute cases than Beijing has brought against other countries. And finally, to this list must be added the trade pressures linked to remnimbi revaluation.
What China, more so than any other member country, needs first and foremost is strong international discipline on trade measures against it, if it is to have continued trade and GDP growth. The WTO structure provides some degree of discipline, but the questions are: how strong is this discipline and what degree of openness can the WTO guarantee for the next few decades? Some key protectionist measures (for example, anti-dumping) are, to all intents and purposes, outside the WTO structure. Penalties and enforcement are still relatively weak, despite the changes to dispute settlement achieved in the Uruguay Round. China, in turn, might be more willing to make concessions in non-trade areas (such as climate) if accompanied by strengthened trade disciplines. But the conundrum is, can the WTO, in its present format, really deliver on openness for China as well as the rest of its members?
New trade arrangements might evolve in other fora, such as the G20. But how this might happen is opaque for now. Trade measures such as carbon-motivated border adjustments could evolve outside of the WTO structure (and conflict with the WTO). China seeks additional growth to raise its living standards further, and to deal with its large number of remaining poor. Trade continues to be key to China's growth strategy. The challenge for China is whether to simply embrace the WTO, as it is currently cast, and use it for achieving its goals or seek to change and strengthen the organization or try to move trade policy processes globally beyond the WTO into other fora? China's future growth — and that of the world economy — may depend on which path it chooses to follow.
John Whalley is a distinguished fellow at The Centre for International Governance Innovation.