31 Jan 2010
Introduction
Today, China is one of the most rapidly progressing world’s economies. The economic growth of the country allows the country to close the gap which separates it from leading capitalist countries of the world. At the same time, the rapid economic development of the country is closely intertwined with the dramatic change in the economic policy of the country which occurred in the 1980s, when China has started economic reforms which positive effects can observed nowadays. In such a context, it is important to understand that the economic reforms and transformations that have already taken place in China lead not only to considerable economic progress of the country, but also to the change of its socioeconomic system, which is traditionally closely intertwined with the political system in China. In fact, today, China attempt to introduce principles of open market economy and adopts the capitalist economic system, which apparently contradicts to the communist nature of the regime ruling in China. In other words, economic policies of the state aim at the development of capitalist economy, while the political system is still communist with the Communist Party being the only political party and power in the country.
Nevertheless, the ongoing development of Chinese economy contributes to the rapid progress of this country since within the last couple of decades China has reached the unparalleled level of the economic development. What is more important, Chinese economy keeps booming and its strengthening creates conditions for the leadership of China as the world economic superpower. Even though today it is hardly possible to speak about the total leadership of China in the global economy, but it is still necessary to underline the fact that the economic development of China is very fast, while the integration of China in the global economy, especially within the last decade, has contributed consistently to the expansion of Chinese economic influence in the world. In this respect, the membership of China in the World Trade Organization (WTO) and the progress of free trade in global terms opens larger opportunities for Chinese economy to enter new markets and benefit from international trade, including trade with leading countries of the world, such as the US, the EU, Japan and others. In such a context, the membership of China in the WTO, which the country gained in 2001, is an important factor that influences the further development of the country. On the other hand, it is important to lay emphasis on the fact that Chinese membership in the WTO affects not only China but also other member-countries and, what is more, Chinese membership in the WTO has not only positive effects but negative ones. Hence, while joining the WTO, China had to take into consideration whether benefits of this membership will outweigh the costs the country would have to pay for it. However, even today, it is hardly possible to give a definite answer to the question of costs and benefits of Chinese membership in the WTO because China has got both, but still it is obvious that to maintain the ongoing economic growth, China needs badly the free access to international markets and the membership in the WTO gives China larger opportunities to meet this strategically, if not to say vitally, important goal.
China’s economic and political growth and the WTO
The membership of China in the WTO faced a number of political and economic constraints, which prevented the country from the normal integration in the international economic community. Nevertheless, China has managed to achieve a considerable economic progress which allowed China to join the WTO. Speaking about the current progress of Chinese economy, it is important to underline that such a tremendous progress of China is practically miraculous, taking into consideration the fact that Chinese economy was on an extremely low level of the development until the late 1980s . In fact, Chinese economy suffered from a serious pressure from the part of the Communist regime that ruled and still rules the country. The command economy that dominated in China until the 1980s practically put the country into the economic downfall, which almost resulted in the civil war and overthrow of the ruling regime. Chinese economy was in decline and by the late 1980s the economy crisis led to the growth of anti-communist movement in the country. Nevertheless, the Communist regime had managed to oppress the opposition, but the necessity of economic reforms was obvious.
In such a situation, when Chinese economy faced a real risk of the total collapse, economic reforms became the major factor that determined the progress of China within the two decades to follow. Basically, the economic reforms that had started in the 1980s led to positive changes in Chinese economy and provided the country with a considerable economic growth and the growth of GDP in the 1980s . At the same time, it should be said that the economic growth of the 1980s and the high rates of the growth of Chinese GDP were, to a significant extent, determined by the depth of the economic downfall of China by the 1980s . Naturally, being in a state of crisis, the national economy responded quickly to economic reforms introduced by the government and the development of business and economy at large was a response of the national economy to reforms initiated by the government.
Basically, the economic reforms laid the foundation of the rapid economic growth of China which was particularly significant in the 1990s and persists till the present epoch. In this respect, it should be said that over the last 30 years Chinese economy has grown at an average annualized rate of nearly 10% . This rate is very high, taking into consideration the fact that the average annualized rate for developed countries, such as the US or the EU hardly exceeds 3-5%. In addition, since the middle of the 1990s the inflation rate in China was similar to that of developed countries, including the US . At any rate, the inflation was effectively controlled by Chinese government and central bank that created conditions for the macroeconomic stabilization and, therefore, stimulated the rapid development of the economy.
On the other hand, along with positive economic trends, there is still a serious problem which have prevented China from membership in the WTO and which still represents a serious threat to the future of China in this organization as well as to the future of China itself . This problem is the Communist regime established in the country, which limits human rights and liberties in the country, while the Communist Party remains the only political party which rules the country. In fact, the current political regime is undemocratic that makes the normal functioning of the open market economy highly problematic in China. In such a situation, the private capital cannot be totally safe in China.
China’s joining the WTO
In spite of existing political domination of the Communist Party, by the late 1990s, China had started the policy of active integration in the global economy. The international trade of China with other country had started to increase considerably, while foreign investments also had started to grow because Chinese government supported the attraction of foreign investments in the national economy. As a result, China became one of the most attractive countries for foreign investments and, at the present epoch, leading companies of the world readily cooperate with Chinese companies or attempt to enter Chinese market.
In this respect, the membership of China in the WTO played a very important role. In fact, China joined the WTO in 2001 and it was a turning point in a way for the development of Chinese economy . The membership of China in the WTO was a signal for foreign investors that China is a reliable country and foreign investments will be protected since, as a member of the WTO, China meets standards and rules established by the WTO which are equal for all countries. Consequently, as China had joined the WTO, investments in China had started to grow since the country was perceived as a reliable partner.
At the same time, it is worth mentioning the fact that China faced a serious opposition from the part of democratic countries, including the USA, which were unwilling to accept China as a member of the WTO. In this respect, political concerns were strongly backed up by purely economic reasons. Obviously, democratic countries could not be certain in the safety of their investments in China and, what is more, companies based in democratic countries could not develop economic cooperation with countries which had a negative public image because it would affect their own image and, thus, their position in national as well as international market. In fact, the reputation is crucial for democratic countries and their companies, while Chinese communism could have a negative impact on their reputation. Nevertheless, due to the favorable conditions created by Chinese government for foreign investments and the evident intention of China to get integrated into the world’s economy, member-countries agreed to accept China as a member of the WTO.
The impact of China on the WTO
China’s membership in the WTO affected consistently the entire organization and its member countries. In this respect, it is important to lay emphasis on the fact that Chinese economy had considerable advantages compared to economies of developed countries, which actually attracted and still attract foreign investors and provides Chinese goods and services with ample opportunities to compete with products of other countries on the global market. What is meant here is the labor force costs in China and local material resources that are used in production of goods and services. To put it more precisely, the cheap labor force in China decreases consistently the price of goods produced in China. As a result, Chinese goods are cheaper and, therefore, more available to ordinary consumers, especially in markets of developing countries, where Chinese goods compete successfully with goods produced in developed countries and even replace them. For instance, the world toy industry is dominated by Chinese companies .
However, it is important to underline that China pays a lot of attention to the scientific progress and the development of high tech and knowledge-based industries. In this respect, China has already started to compete with leading world powers, such as the USA, Japan and the EU. Taking into consideration the low cost of labor force influencing the price of Chinese goods and services, their competitive power is very significant on the world market. Today, there still remains the problem of quality of Chinese products, but China gradually overcomes this problem and the quality of Chinese goods and services steadily increases. Hence, China increases its competitive potential even more that naturally raises the problem of the expansion of Chinese companies, Chinese products and service worldwide that can put other companies and their products and services in a disadvantageous position.
The domestic impact of China’s membership in the WTO
At the domestic level, China’s membership in the WTO basically had a positive impact. In fact, China’s membership allowed the country to maintain the stable economic growth. Firstly, China increased its export opportunities due to the elimination of fiscal barriers imposed on non-members-countries. Secondly, China attracted foreign investments and foreign companies stimulating them to launch their business in China because the membership of the country in the WTO proved the reliability of the country and safety of business in China.
On the other hand, Chinese market was vulnerable to the expansion of foreign companies and products imported from abroad. In this respect, the knowledge-based industry and farming faced particularly serious problems. In such a situation, the Chinese authorities focused their efforts on the accelerating of the development of knowledge-based industry. In addition, China had to increase subsidies to local farmers.
Evaluation of costs and benefits
Thus, China’s membership in WTO has both advantages and disadvantages. On analyzing costs and benefits of China’s membership in the WTO, it should be said that strategically benefits can outweigh costs on the condition that the state will conduct a wise policy preventing misbalancing of the national economy and avoiding excessive state regulation of the national economy. Speaking about benefits, it is primarily necessary to mention larger opportunities to enter new markets, where Chinese products can be sold and where they can have competitive advantage due to the lower price compared to products of developed countries. However, it does not necessarily mean that China will gain international markets. Instead, the membership of China in the WTO is two-fold since along with access to international markets, China opens its own market to foreign products. Hence, China is more likely to lose its position in the domestic market in those industries where it is in a disadvantageous competitive position. On the other hand, it can compensate losses by means of increasing export. Nevertheless, it is important to remember that the competitive potential of Chinese products, their quality and price can be crucial for the future of Chinese economy in the globalized economy.
References:
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Kuotsai Tom Liou. Managing Economic Reform in Post-Mao China. Greenwood Press, 1998.
Park, Jung-Dong. The Special Economic Zones of China and Their Impact on Its Economic Development. Greenwood Press, 1997.
Rodrick, D. Alternatives to Globalization. New York: New Publishers, 2002.
Rolf, K. World Economy: Past, Present, Future. London: Routledge, 2000.
So, Alvin Y. Lin, Nan. Poston, Dudley L. The Chinese Triangle of Mainland China, Taiwan and Hong Kong. Greenwood Publishing, 2001.
Wei, Ge. Special Economic Zones and the Economic Transition in China. World Scientific Publishing, 1999.
Wu, Jinglian. Understanding and Interpreting Chinese Economic Reform. South-Western, 2004.
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