China Trends #1 - From Fearing the Wolves to Dancing with the Wolves: China Looks Back at WTO

Asia

Author

Pierre Sel

Associate Researcher - Asia Programme

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After 15 years of arduous negotiation, the People’s Republic of China (PRC) joined the World Trade Organization (WTO) on 11th December 2001. This admission marked a significant step towards China’s integration into the global economy. Nearly eighteen years after the landmark deal, some Western analysts looking back at the decision to let China enter the WTO openly ask if this was a mistake.(1) This piece explores China’s narrative and the salient points of debate in China regarding the consequences for the country of joining the trade organization.

A positive balance sheet

The Chinese metaphor for China’s admission into the World Trade Organization is "entering the world" (入世), reflecting the strategic importance of joining for China’s international position. Indeed, this was one of the historical decisions of the "reform and opening" policy. In a 2018 interview, Chen Fengying, researcher at the China Institutes of Contemporary International Relations, describes China’s admission to the WTO as part of the broader narrative of "reform and opening". For her, the last 40 years of reform divide into four stages: from 1978 to 1991, 1991 to 2001, 2001 to 2018, and “after the 19th Congress”. The admission to the WTO appears as a milestone, a “symbol” and marks the "real beginning of fast-paced economic development, the genuine start of benefiting (利用) from the global economy."From that point onwards, she says, many companies started to "go out" (走出去), globalizing their operations through mergers and acquisitions, cooperation and greenfield investment. China’s admission to the WTO marked the beginning of a "golden decade" for Chinese growth and export-oriented economy. According to Chen Fengying, the 2016 G20 summit in Hangzhou marked the end of the third phase of the reform and opening and the beginning of the New Era, an era in which China is becoming a "contributor" (贡献者) to the world, in particular through the Belt and Road Initiative.

China’s admission to the WTO marked the beginning of a "golden decade" for Chinese growth and export-oriented economy.

If joining WTO has become a symbol of China’s global integration, it also triggered major debates in China during the 1990s regarding the costs and the benefits of globalization. The discussion was also sector-specific, with many asking "how to protect China’s own markets and industry, especially food and agriculture, or also automobile industry." Wei Jianjun, CEO of Great Wall Motors recalls that before joining the WTO, “everyone thought that the Chinese automotive industry would collapse, the pressure was really high, people were saying that "the wolves are coming" (狼来了).

Shi Guangsheng, then-minister of Foreign Trade an Economic Cooperation in charge of negotiating the WTO agreement, enumerates similar risk assessments in a 2018 interview. How could Chinese firms survive the opening of markets and foreign competition? The challenge faced by government was particularly severe. How was a state used to "control everything" going to refocus on "creating a positive economic environment and use appropriate measures to manage the market? [Also], when foreign companies will come to China, they’ll expect equal treatment, so how to protect the Chinese firms then?"

On balance, Shi Guangsheng explains what the perceived benefits of joining the WTO were. At the time, he says, political elites realized that "integrating the WTO was a requirement to build the socialist market economy, to expand economic opportunities and environment," and therefore, the benefits outweighed the cost. Retrospectively, he highlights the three key advantages of becoming a WTO member. First, the WTO simply helped the construction of the Chinese economy. Second, "since China has the conditions for economic development and participation in the global economy, [joining the WTO] opened our doors, and allowed us to use to our advantage (利用 - liyong) the world’s resources, information, capital, market". Finally, Shi Guangsheng defends that joining the WTO allowed China to participate in the elaboration of the rules of the organization, and make sure "that in writing up the rules, we can fully protect our own interests." Huo Jianguo, vice-president of the China Society for World Trade Organization Studies, further agrees with the former minister, and claims the facts show that all the positive effects [of joining the WTO] far surpassed the damage people were worrying about.

Wang Yu (王钰), professor at the Harbin University of Commerce, offers a more academic perspective on the effect of joining the WTO on the economy.(2) The main positive influence according to her is the sudden surge in foreign investment, which in turn "brought substantial amount of capital, advanced technologies, but also modern "thinking" and management experience." Such an abundance of labor force and investment made it easy for China to earn "large markets shares".(3) Chen Fengying further suggests that "the surge of foreign investment forced Chinese companies to reform and hence to be more competitive". Second positive outcome according to Wang Yu, it helped the “marketization” (市场化) of China’s economy. Moreover, economic governance had to be reformed and institutionalized (法制化).

On this issue, Chen Fengying points outs that in a limited time, China undertook the biggest legal and regulatory "cleaning" and "a great shift in its governance, with new governing methods and conception, such as "people oriented" [governance], "to serve the market and society" or "marketization of management."(4) Third, joining the WTO helped "optimize the economic structure", especially "the tertiary sector of industry which is getting closer to the importance of secondary industries", which indicates that China is approaching a "’third, second, first’ economic structure."(5) In other words, an economic structure where the services sector will gradually dominate. In sum, joining WTO "helped enhance China’s international position" and according to Wang Yu, China moved from being a "rule-taker" to "gradually becoming a rule-maker".(6)

Joining WTO "helped enhance China’s international position" and according to Wang Yu, China moved from being a "rule-taker" to "gradually becoming a rule-maker".

Other articles published by local newspapers offer interesting accounts of the WTO’s influence on China’s economic development. For example, Changsha Evening News (长沙晚报) features an insightful article entitled "how did entering the WTO change our lives?" The journalist first quotes a local entrepreneur, who explains how everyone went from "fearing the wolves" to "dancing with them" (与狼共舞), then recounts how foreign retail brand like Walmart, Carrefour and Metro gradually came to town, bringing more products at a cheaper price. Yet, Wang Yu identifies at least three main negative influences of the WTO on China. First, the trade tensions [between China and other countries] not only didn’t stop, they worsened. He states that "there were only a few countries using anti-dumping lawsuits against China, but gradually more and more countries adopted such attitudes towards China’s exports, to the point it became a systematic problem."(7) Second assessment, the gap between the rich and the poor widened. Every region did not equally enjoy the benefits from globalization, which then contributed to the ever-increasing income inequality. Finally, the author states quite simply but frankly that since it joined the WTO and became the world’s factory, China’s environmental and natural resources situation "worsened".(8)

China’s contribution to WTO and the world

But China’s WTO narrative would not be complete without addressing the issue of compliance, and how it is portrayed in China’s mainstream media discourse. Indeed, as Wang Yu pointed out, trade frictions with the US and other partners increased. Our sample of Chinese WTO articles shows striking similarity in the way the compliance question is tackled. In a word, China not only fulfilled most of its commitments, it also became a "contributor" to the world’s economy. For example, Li Wei, director of the Institute of America and Oceania Study under the Ministry of Commerce argues that "China actively put into practice the concepts of free trade, entirely fulfilled its commitment, in such ways that it brought important opportunities for global trade and made an important contribution to the world".

This semantic shift matters in Xi Jinping’s "new era" when China wants to edict its own rules and engage with the world on its own terms.

This is the standard discourse on China’s implementation of WTO commitment. Usually, this narrative is supported by a few figures, such as the lowering of tariffs from 15% in 2010 to 9,6% in 2018 ; or, as the deputy director of bureau of foreign trade of Institute of World Economics and Politics of the Chinese Academy of Social Science Su Qingyi explained, the PRC established a representation office in most of the WTO specialized departments to "serve commerce" (服务贸易), worked hard to provide legal guarantees for intellectual property. Moreover, Sun Qingyi reminds us that China paid more than 28 billion USD in IP rights to foreign companies.

Of course, scholars agree that all commitments haven’t been respected. For example, Sun Qingyi agrees that in many sectors, such as research and development, mining, telecommunications, the markets are only partially opened. But in their opinion, what matters is that the work is already well advanced, and "on time" regarding its WTO commitment. When it comes to defending China’s work and contribution to the WTO and the world, it is striking that dozens of articles use the same figures (tariffs, global imports share) and examples to make their point, with sometimes entire articles being a simple list of "realizations."

Yet, "China is still targeted and some countries by some countries for not having fulfilled the agreements’ commitment, which is unfair." Indeed, according to Li Wei, "the anti-dumping measures taken by some countries are in contradiction to their own commitment to the WTO." This is especially interesting as the country tries to brand itself as a "contributor" (贡献者) to the world, and not only a promoter (推动者). This semantic shift matters in Xi Jinping’s "new era" when China wants to edict its own rules and engage with the world on its own terms. The trade war and increased confrontation with the United States fits into this narrative, as China tries to portray itself as a champion of free trade and multilateralism. If we look back at some articles from 2011, published to celebrate ten years of "entering the world", the narrative is similar with two major differences. First, the language is now much less assertive and self-assured. Of course, the "developed countries" are still blamed for setting the rules, but, and here comes the second difference: it is stressed that China needs to continue its reform. Indeed, in an article, Wang Xinkui, professor affiliated with the Shanghai University of International Business and Economics, defends China’s efforts to fulfill its commitments, but stresses the need to pursue reform, to pay attention to the sustainability of the country’s exports-based economic model, and the dangerous isolation of China when it comes to trade disputes.

To summarize, it makes no doubt that joining the WTO was a crucial historical decision, encapsulated by the abbreviation "entering the world" (入世). Joining the WTO is indeed portrayed as an historical landmark, which paved the way for China’s role as a "contributor" to world. However, the official narrative makes it clear that the transition period that started with China’s admission in the WTO has ended, and that a “new era” has started with Xi Jinping and his BRI, portrayed as a new step of China’s involvement in the global economy.

References

(1) Philip Levy, "Was Letting China Into the WTO a Mistake?", Foreign Affairs, 2 April 2018.

(2) Wang Yu, "WTO influence on China – 20 years after joining the organization: assessment and perspective" ( WTO 对中国的影响———入世十二年后的回顾及展望), Harbin University of Commerce, Duiwai Jingmao, Vol. 4 No. 226, 2013

(3) Ibid, « 许多外资纷纷进入中国，带来了充足的资金和先进的科学技术以及现代化的思想理念和管理经验，与充裕资源相结合，使中国经济爆发出巨大的能量 » Wang Yu, "WTO influence on China – 20 years after joining the organization: assessment and perspective" ( WTO 对中国的影响———入世十二年后的回顾及展望), Harbin University of Commerce, Duiwai Jingmao, Vol. 4 No. 226, 2013

(4) Ibid, Zhang Huai Shui and Zhao Qiao, "Interview with Chen Fengying, Researcher at the China Institutes of Contemporary International Relations: after joining the WTO, building a new platform for global economic prosperity" (每经专访中国现代国际关系研究院原所长陈凤英：中国入世后为全球经济繁荣搭建新平台), Daily Economic News, 17 August 2018.

(5) Ibid, Wang Yu, (三二一的产业结构) - referring to an economy in which the services sector is the most important, followed by the industrial one and finally agriculture.

(6) Ibid, Wang Yu, « […] 逐渐成为规则的适应者和制定者 »

(7) Wang Yu, "WTO influence on China – 20 years after joining the organization: assessment and perspective" ( WTO 对中国的影响———入世十二年后的回顾及展望), Harbin University of Commerce, Duiwai Jingmao, Vol. 4 No. 226, 2013

(8) Ibid