Toward a More Open China

—In Commemoration of the 10th Anniversary of China’s Accession to the WTO

From: English Edition of Qiushi Journal Updated: 2012-03-31 13:45
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 Following 15 years of negotiations, China formally became a member of the World Trade Organization (WTO) on December 11, 2001. This was a milestone event in the process of China’s reform and opening up and modernization. The year 2011 marked the tenth anniversary of China’s accession to the WTO. At this new starting point in history, the review of the experiences that we have gained over the past 10 years will have major implications for China’s continued opening up under new conditions and the transformation of its mode of economic development.

 I. China has grasped opportunities and achieved remarkable success in economic and social development since joining the WTO

 China has captivated the world with the progress that it has made in economic and social development since its accession to the WTO. Under the effective leadership of the CPC Central Committee and the State Council, China’s various regions, departments and sectors have thrived under pressure, turned challenges into opportunities, engaged in conscientious efforts to honor China’s commitments, made full use of the rights that China has been granted as a WTO member, and engaged in wider and more involved participation in the international division of labor.

 November 11, 2001, Shi Guangsheng, the then Minister of Foreign Trade and Economic Cooperation, signing the protocol on China’s accession to the WTO on behalf of the Chinese government in Doha, the capital of Qatar. China officially entered the WTO on December 11 of that year, becoming its 143rd member. / Photo by Xinhua

 China has promoted the sound and rapid development of its national economy through the creation of an open market environment. Since joining the WTO, China has been granted all of the basic rights enjoyed by member states, and has obtained an institutional guarantee to ensure stable, transparent, predictable and unprejudiced multilateral trade. Firmly grasping these favorable conditions, China has engaged in a major effort to develop foreign trade and promote bilateral investment by exerting its relative advantages. Over the last ten years, China’s exports and imports have grown 4.9 fold and 4.7 fold respectively. In the years from 2002 to 2010, China absorbed more in foreign investment than any other developing country, while its overseas investment grew at an annual rate of nearly 50%. A rapidly developing open economy has provided the stimulus for the sustained and rapid development of China’s national economy.

 China has significantly enhanced its industrial competitiveness through the restructuring of its industries. The total volume of imports and exports of China’s manufacturing industry has grown nearly five-fold over the last decade. Moreover, products with high technical content, high added value, and proprietary intellectual property rights, such as automobiles, ships and railway locomotives, have come to represent the bulk of our new growth in exports. In agriculture, China has actively implemented a series of measures to strengthen agriculture and benefit farmers, which have allowed us to improve the regional layout of agriculture and further optimize the mix of imports and exports in farm produce. In addition, our main service industries have also seen rapid development. China has now become the world’s third largest importer of services and the fourth largest service exporter.

 China has invigorated the individual entities through the active introduction of competition and cooperation. With wider access to markets, the diversity of market entities in China’s economy has increased following China’s entry into the WTO. We have actively promoted the reform, reorganization and upgrading of state-owned enterprises, made great efforts to develop the private sector, and worked hard to raise the scale and quality of foreign funds absorbed. Chinese enterprises have become more dynamic by rising to the challenges of fierce international competition. The number of Chinese enterprises listed in the Fortune 500 has increased from 12 in the year 2001 to 54 in the year 2010.

 China has improved its market economy by using opening up as a means of promoting development and reform. Over the last decade, China has fully honored the commitments it made when it joined the WTO. It has cut tariffs by a significant margin, reduced non-tariff measures, lowered the overall level of tariffs from 15.3% in 2001 to 9.8% at present, and opened up 100 service trade sectors to foreign participation. China has made active efforts to work towards the basic principles advocated by the WTO, such as unified implementation, transparency, and fair trade. It has launched a large-scale campaign to straighten out and revise laws and regulations, worked faster to develop a steady and predictable trade system, promoted a higher-level of openness in government information, and proceeded with the reform of administrative systems for examination and approval. These efforts have allowed China to create a more open commercial environment and deepen public awareness of both the market and the rule of law. 

 China’s international status has been raised significantly with the increase of multilateral and bilateral economic and trade cooperation. China has been an active and pragmatic participant of the Doha Round of World Trade Talks over the past decade, and has entered into free trade agreements with a number of countries and regions in line with trends in regional economic cooperation and development. By the end of 2010, China had become the largest trading partner of Japan, South Korea, the ASEAN, Australia and South Africa, the second largest trading partner of the EU, and the third largest trading partner of the United States. China has attached great importance to South-South cooperation and provided economic and technical assistance to developing members of the WTO within its capacity. China has also been an active participant in the building and reform of international multilateral mechanisms, and is coming to play an increasingly constructive role in this process. 

 We have forged stronger economic ties with the Taiwan, Hong Kong and Macao regions through the sustained development of economic and trade relations. The accession of both sides of the Taiwan Strait to the WTO alongside Hong Kong and Macao has created more favorable conditions for the deepening of economic and trade relations between them. In recent years, the mainland has entered into Closer Economic Partnership Arrangements (CEPA) with Hong Kong and Macao respectively, which have significantly boosted the potential for bilateral investment and economic and trade cooperation between them. The two sides of the Taiwan Strait have signed the Economic Cooperation Framework Agreement across the Taiwan Strait (ECFA), which marks an initial economic breakthrough in the effort to establish a framework for peaceful development across the Taiwan Strait. The signing of ECFA has far-reaching significance for enhancing the well-being of people on both sides of the Taiwan Strait and for promoting the peaceful development of cross-Strait relations.

 II. The experiences and lessons of the past decade 

 The past decade has shown that the decision of the CPC Central Committee and the State Council to join the WTO was absolutely correct. During this time, China has received universal recognition for its achievements and built up a wealth of valuable experience. 

 First, we have held to our commitments whilst using the rules of the WTO to protect ourselves. Over the past decade, we have gradually gone from a new member of the WTO trying to learn and familiarize ourselves with its rules to a mature member of the WTO able to grasp and apply these rules. We have gradually entered the core negotiation circle of the Doha Round of World Trade Talks, and achieved a markedly increased voice and level of representation. We have also actively utilized the trade relief measures and dispute settlement mechanisms provided by the legal framework of the WTO to safeguard the legitimate rights and interests of our industries. In addition, we have improved our framework of industrial polices in line with the rules of the WTO and thus provided our industries with a larger space in which to develop. Fact has demonstrated that observing the rules and honoring our commitments has not constrained the pace of our development, but on the contrary, has given us an institutional platform on which to safeguard our rights and interests in development and promote the restructuring and optimization of our economy.

 Second, we have maintained a commitment to opening wider whilst remaining in control of the pace and dynamics of this process. We have adhered to the principle of opening up on an active basis. While attaching importance to cooperation and the borrowing of experience during the process of competition, we have also established transitional periods and/or exceptional terms and conditions for certain sensitive industries and fields so as to give domestic industries the appropriate chance to adapt. Fact has demonstrated that China’s accession to the WTO has enabled China to align itself with the objective rules of economic development and grasp the rare opportunities for development brought by economic globalization. As a result, not only have we seen no decrease in our capacity to withstand economic risks; on the contrary, our risk prevention capacity has actually been strengthened with the rise of our comprehensive strength.

 Third, we have engaged in regional economic cooperation whilst participating in multilateral trade. We have always treated the preservation and promotion of the multilateral trading system as the cornerstone of our participation in global economic competition and cooperation. At the same time, we have also worked pragmatically to promote regional and sub-regional economic cooperation and the establishment of free trade zones, thereby realizing the parallel and mutually reinforcing development of multilateral, bilateral, and regional trade. By adhering to the international trend of giving emphasis to both multilateral and regional trade, we have been able to seize the initiative under the backdrop of setbacks in the Doha Round of World Trade Talks and the in-depth development of regional cooperation. Whilst sticking to our overall orientation towards free trade, we have adopted flexible measures to promote regional economic integration and expanded the dimensions of our mutually beneficial cooperation.

 Fourth, we have assumed our international responsibilities whilst seeking self-development. Over the last ten years, China has not only grasped opportunities to accelerate its own development, but has also devoted itself to expanding the common interests of various parties, provided foreign aid within the scope of its capacity, and played a constructive role in the response to global issues such as the international financial crisis. In this regard, China has assumed a level of international responsibility that accords with its rights and obligations. Fact has shown that China’s strategy of opening up for mutual benefit is not a passive step that China, following the rise of its international status, has taken in response to the notion that world powers should assume greater responsibilities, but an inherent requirement for China’s deeper participation in the international economic, financial and trade system and the progressive expansion of China’s interests.

 III. The continued use of opening up to promote the transformation of the pattern of economic development and structural adjustment 

 Both the internal and external environments for China’s economic development have undergone a series of changes since China joined the WTO ten years ago. Internationally speaking, the overriding trend of economic globalization has not changed, but the number of factors leading to protectionism in trade and investment and constraining globalization has increased. The world economy has entered a period of low growth and the development patterns of many countries are in need of adjustment. The international division of labor and cooperation in industry has deepened, and global issues such as climate change, energy and natural resources security and food security have become more acute. The strength of developed economies has declined in relation to the growing strength of developing countries as represented by emerging economies, and this has made the contention for interests in the international political and economic landscape more prominent. Domestically speaking, China has gradually become a middle-income economy, and its economic and social development has begun to exhibit the features characteristic of this new stage. China’s traditional advantages, such as its labor force, are diminishing, and the country is confronted by the pressure of maintaining the overall level of employment as well as structural imbalances in employment. Imbalances between the supply and demand of resources such as land, fresh water, energy, and minerals have become more prominent, and resource and environmental constraints on economic growth have become more intense. In addition, though China’s economic aggregate is enormous, it lacks the capacity for innovation. The need to accelerate the restructuring, transformation and upgrading of industries is extremely pressing.  

 First, we need to fully understand the necessity and urgency of opening up and take greater initiative to open wider. A common feature in the development of various countries over the last century, and especially the major countries, has been an adeptness to promote self-development through the utilization of the international market and resources. Under the backdrop of economic globalization, opening up is the path that all countries must take to realize development and prosperity since it embodies the inherent logic and universal law that governs the development of the world economy. China’s development throughout the last over 30 years of reform and opening up bears strong testament to this fact. Compared with ten years ago, China now boasts stronger foundations and more mature conditions for opening to the outside world. We should strengthen our confidence in opening up and build on the foundations and relative advantages that we already enjoy to form a consensus behind a new round of opening up. Based on an overall assessment of various advantages and disadvantages, we should speed up the formation of new ideas and measures for opening up in the effort to make the best use of this precious period of strategic opportunity.

 Second, we need to maintain an appropriate balance between several relationships in line with the objective laws of economic development. The first is the relationship between opening up and innovation. Innovation can be divided into three different types: original innovation, integrated innovation, and the re-innovation of assimilated foreign technologies. These three types of innovation are connected to one another as the components of an organic whole. Original innovation provides the driving force for scientific and technological innovation, while the latter two stress increasing one’s own capacity for innovation by borrowing from the innovations of others, which is an inherent embodiment of the concept of opening up. The introduction, assimilation and re-innovation of advanced foreign technologies in line with local conditions is a path that less advanced countries must take in order to catch up with and surpass developed countries. Therefore, opening up and innovation are like interconnected gears that together provide the impetus for sustained economic growth. Opening up drives forward innovation, and innovation is inseparable from opening up.

 The second relationship is between opening up and security. Under the backdrop of economic globalization, the economies of various countries have merged together and become more dependent on one another. Owing to their closer links with external environments, open economies are more prone to external influences than less open economies are. However, open economies are much more capable of self-adjustment, and can benefit from the much stronger mutual checks and balances that result from close economic integration, giving them greater room to maneuver and a stronger capacity to withstand external risks. Therefore, the degree of economic openness and dependence on foreign trade cannot simply be equated to external dependence and economic risks. We should continuously enhance our capacity to manage an open economy through macro-control, and work faster to improve institutions and mechanisms that will maintain the secure operation of the national economy in an open environment, so that we can keep the risks of opening to a minimum while grasping opportunities for development.

 The third relationship is between opening up and structural adjustment. At present, China is in a crucial period for the transformation of its pattern of development and the restructuring of its economy. As such, China is confronted with a series of deep-rooted issues, such as accelerating the adjustment of the balance between domestic and foreign demand. In order to address these difficult issues, we need a clear and objective judgment of the factors that we are endowed with, the stage of economic development we are at, and the conditions of market competition both domestically and internationally. Generally speaking, in the period of time to come, we shall fully realize industrialization and urbanization with the conditions that we have been endowed with, namely, a population which accounts for 19% of the total world population, per capita ownership of cultivated land equating to just 40% of the world average, and per capita water resources equivalent to one quarter of the average world level. Therefore, this is bound to be a process of opening up that is inseparable from the gathering, exchange, and integration of global factors. Only by taking the initiative to plan from the perspective of domestic and international markets and resources as a whole will we be in the position to actively participate in the circular flow of global economy, develop new advantages in international economic cooperation and competition, and continuously enhance the capacity of the national economy for sustainable development. Therefore, openness is an inherent part of scientific development.

 Third, we need to work quickly to propose a new guiding thought and overall strategy for opening up for a new period in line with the new situation and new requirements. At a new starting point, China should grant wider market access and optimize its tariff structure in order to promote a sounder balance in the growth of imports and exports. We need to steadily promote a higher level of openness in service sectors such as finance, medical care, education, tourism and care for the elderly, and use competition to drive forward the upgrading of our industries. We need to further optimize the geographical layout of areas open to foreign participation, and promote the coordinated opening up of coastal, inland and border regions, so that different regions can specialize in distinctive but mutually-complementary areas of development. We need to raise the quality and level of foreign funds utilized, speed up the implementation of our strategy of “going global,” and develop new advantages in international cooperation and competition. We need to speed up the development of institutional guarantees for opening up and establish mechanisms to guard against external risks and ensure the safety of an open economy. We should endeavor to play a constructive role in the multilateral trading system, continue to implement a strategy of developing free trade zones, actively participate in the reform of the system of global governance, and safeguard China’s fundamental and long-term interests.

(Originally appeared in Qiushi Journal, Chinese edition, No.23, 2011)

Author: Minister of Commerce of the People’s Republic of Chinas

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