27. Chinese Trade Policy After (Almost) Ten Years in the WTO: A Post-Crisis Stocktake

Abstract

This paper interprets China's overall trade policy since its accession to the World Trade Organisation (WTO) almost a decade ago, and more recently in the wake of the global economic crisis. The first section briefly summarises policy trends leading up to WTO accession, as well as recent trade and foreign direct investment (FDI) patterns. The second section looks at China in the WTO: its record of implementing WTO commitments; its participation in the Doha Round; and in dispute settlement. The next section looks at China's trade-related reforms outside the WTO, especially unilateral measures and preferential trade agreements (PTAs). Section Four highlights challenges for China's trade policy: in the context of domestic reforms; in the WTO; in PTAs; in its key bilateral relationships; and in the context of global macroeconomic tensions. Section Five puts Chinese trade policy in a bigger domestic political-economy and geopolitical context. Section Six concludes. In sum: China has a mixed record on WTO implementation; a flurry of litigation has followed several years of diplomatic reconciliation in dispute settlement; and China has been passive in the Doha Round. In contrast, it has been very active with PTAs, setting off a “domino effect” in east Asia. But its PTAs are “trade light”, driven more by foreign policy than commercial considerations. Finally, unilateral liberalisation – the driving force of external opening in the 1990s – has stalled. There has been very little “WTO-plus” liberalisation, while measures of selective protection, especially related to foreign investment and industrial-policy targeting, have increased. China’s response to the global economic crisis has reinforced these trends, but it does not represent a dramatic increase in protection or fundamentally reverse China’s opening to the world economy. China’s short-term challenge is to contain protection at home. That will send positive signals to contain protectionism worldwide. Beyond that, China’s challenge is to stimulate further unilateral liberalisation related to domestic structural reforms. That means tackling non-border, but still trade-related, regulatory barriers, especially in investment and services. Cleaning up PTAs and strengthening participation in the WTO are important auxiliary objectives. This should be seen in the context of further liberalising the Chinese economy and “rebalancing growth”. But this does not appear to be Beijing’s agenda today. Not least, such “second-generation” reforms strike much closer to vested interests at the heart of the Party State in China. Nevertheless, pro-market reformers should work to make it tomorrow’s, or the day-after-tomorrow’s, agenda. Finally, two-way “constructive engagement” in China’s key bilateral and regional trade relationships is vital to contain protectionism and smooth China’s further integration into the global economy. The US obsession with RMB undervaluation and China’s current-account surplus is not an exercise in constructive engagement – indeed quite the opposite.