Prior to joining the World Trade Organization (WTO), the common perception in China was that the WTO and its forerunner, the GATT, belonged to “the Club of the Rich,” in which wealthy countries imposed rules on poor and weak developing countries. Now, the WTO is one of the most widely recognized international organizations within China, along with the United Nations (UN), the World Bank and some specialized agencies of the UN, such as the World Health Organization.
I would like to share my personal observations on the changes in China brought about by WTO membership, the lessons that China has drawn from the 2007−2009 global economic crisis, including the shift to emphasizing domestically driven growth and rising interest in regional cooperation, and China’s future role within the WTO.
Changes Inside China
Since China gained entry to the organization in 2001, the belief that the WTO is a “public good” has taken hold in China. The 15-plus years of negotiations for WTO accession was a test of China’s patience, but since then, WTO membership has been a driving force for market reforms.
WTO entry catalyzed a transformation in how the global multilateral trading system is viewed, not only by skeptics in the government, but more importantly, in the public mindset.
The Chinese government and academia undertook a major public engagement program to increase society’s understanding of the multilateral trading regime. Several thousand books have been published in the past decade to help raise awareness of the norms and rules of the WTO, in addition to a massive undertaking to modify laws and administrative practices to align them with WTO commitments.
The most important factor in reshaping public sentiment toward the WTO in China, however, has been the actual gains the country has achieved since joining. Throughout the past decade, China’s GDP has grown at an average of nine percent per year. It moved from being the fourth-largest trading nation to the second, in both exports and imports. China has emerged as a source of outbound investment, in addition to being one of the hottest destinations for foreign direct investment (FDI). Beyond trade and investment, China has become a major creditor nation. These achievements demonstrate to the Chinese people that WTO accession and integration into the global economy have been pivotal in contributing to the country’s progress. For China, the gains from WTO membership have exceeded the risks — so far.
My own belief is that China’s support of the WTO will continue to be steady and strong. This will be due, in part, to China’s rapidly growing interests in an open global trading system.
China’s role in the global regime will be strongly shaped by its association with developing countries, including emerging economies. China encourages more consideration of development concerns in multilateral trade talks, and sincere and effective implementation of the Doha Development Agenda. Any new agreement for the current trade round should strike a balance between further liberalization of trade and development. As a country with a traditional belief in harmony, China believes that new consensus should be reached between developed and developing countries — especially on issues such as barriers to agricultural trade.
Rising Protectionism or Responding to Global Uncertainty
Some commentators now seem to be concerned about China moving toward “protectionist” measures. At the same time, many of these observers also insist that China should restructure its growth model. China is facing growing external pressure to further increase its domestic consumption, as a way of contributing to rebalancing the global economy.
The Chinese government is putting concerted attention into ensuring that domestic stimulus measures do not violate WTO rules. Chinese authorities are listening to external complaints that are purported to be based on WTO rules — an advance for the global trade regime.
Having embraced globalization and WTO membership, China has become one of the most open of the major economies, as indicated by the high ratio of trade in Chinese GDP and the high level of FDI in Chinese total exports.
However, the global financial crisis changed the perception within China that the external demand-driven development model can continue indefinitely. To deal with declining external demand, the Chinese government has implemented a three-year national stimulus package amounting to RMB4 trillion. Despite helping to restore China to a “normally high” growth rate in 2009, the present situation continues to be fragile and uncertain, due in part to world economic conditions, especially the extended downturn in the US economy and parts of the European Union (EU).
China has drawn the following lessons from the global financial crisis:
- First, to manage the risks of integration into the global economy, while also remembering the benefits of global integration.
- Second, to transition from the existing economic growth model, which is too reliant on exports. China must work hard to restructure its economy from one driven primarily by external demand to one that is more internally demand-driven, and to contribute to global economic rebalancing.
- Third, to rectify the asymmetrical influence of some countries in the system of international economic governance. To reform the existing international institutions for the benefit of all.
The Road Forward
Adjusting the Chinese development model is a painful process; however, major effort is once again underway to reorient the economy — this time, toward strengthening internal demand, improving the domestic social security system, moving toward more value-added production by encouraging innovation and promoting environmental sustainability.
While the country is increasingly committed to multilateralism at the global level, China has also become increasing interested in regional cooperation in East Asia. Chinese academics view regionalism as providing China with a self-insurance option to absorb the risks of economic globalization and business cycle uncertainties; a tool to enhance security relations with neighbouring countries; and a means to increase China’s voice and influence in the international community by cultivating mutual trust and shared interests
In contrast, Chinese authorities emphasize that regional cooperation is not necessarily or inevitably in conflict with global multilateralism, as long as regional trade arrangements facilitate gains in trade and investment liberalization, even if only incrementally, or initially in one part of the world. Chinese officials also note that China is merely following the precedents set by the EU, the US, the North American Free Trade Agreement, and other regional arrangements in other parts of the developing world.
Chinese authorities have overcome their previous skepticism, and sovereignty concerns, related to regional multilateralism, which were held prior to the 1997 Asian financial crisis. They are now taking a more proactive approach to regionalism. This approach highlights China’s growing support for regional cooperation as a response to competitive liberalization in other regions of the world — the country has to catch up in order not to be left behind. At the same time, Chinese authorities realize it is essential for all members of the WTO to help strengthen the global multilateral trading system so that all sides can benefit.
Striking the appropriate relationship between regional and global cooperation is now one of the crucial challenges in global governance, when trying to balance what is desirable and what is realistic in the emerging global order.
What we can say is that China’s leaders realize that the country’s economic rise of the past 30 years is not an isolated development or an accident of history. Many observers attribute the country’s economic gains to the pragmatic spirit of the political leadership, the creative and industrious spirit of the Chinese people, and the contributions of international capital, talent and management.
The so-called processing trade is a vivid showcase to both the Chinese and the world community of how a “shared prosperity” model can promote the growth of the recipient economy, reshape the mindset of a society that was closed to the outside world and provide benefit to international investors.
We have reason to believe that China will continue to be a positive and driving force in the global multilateral trading system. China’s track record of the past decade since joining the WTO sets a good example for other countries, including those currently plagued by an extended economic downturn. China will help demonstrate how the objectives of development and maintaining an open trading system can work together.
Wang Yong is professor in the School of International Studies, and director of the Center for International Political Economy at Peking University in Beijing, China. He is one of China’s leading authorities on the global trade system and Chinese political economy. Professor Wang wrote the definitive account of Chinese government debates and decision making for WTO accession: “Why China Went for WTO,” in The China Business Review (July−August 1999: 42−45); “China’s domestic WTO debate,” in The China Business Review (January–February 2000: 54–62); and in a Chinese-language book entitled The Political Economy of China-US Trade Relations (2007), published by China Market Press.
This essay builds on the author’s prepared remarks at the WTO Public Forum session on “Greater China and the future of the multilateral trading system,” held in Geneva, Switzerland, on September 17, 2010. Dr. Wang Yong can be contacted at [email protected].