Economic implications of China’s accession to the WTO

China – the world’s eighth largest importer, the sixth largest trading power in 2001, with a population of 1.3 billion people – joined the World Trade Organisation (WTO) in 2001. What are the implications of this entry for China and the rest of the world? Will it lead to a surge in exports from China? Or, will it lead to job losses in the Chinese economy? This paper assesses the possible economic implications of China’s entry into the WTO.

The paper first examines the structure of China’s foreign trade and notes that:

• foreign trade has grown rapidly in the last two decades
• foreign funded companies account for half of China’s merchandise trade
• Chinese exports have a high import content

In addition to these economic realities of China’s foreign trade, the paper notes that a free expansion of foreign trade is hindered by China’s accession conditions. The paper reviews these conditions and finds that:

• the potential for expansion of textile exports is limited by restrictions on Chinese exports of textiles and clothing
• till 2013, WTO members will be able to use special safeguards to address rapid increases in Chinese imports that cause or threaten market disruption
• countries can initiate anti-dumping measures if they feel that imports of Chinese products constitute ‘dumping’ in their market

The paper concludes that a Chinese export surge is unlikely and the challenges posed by Chinese accession to the WTO, will, in the short run, be greater to China than for its trading partners. Furthermore, due to the high import content of China’s exports, any increase in exports will be linked to corresponding increases in imports, benefiting foreign companies.

The paper observes that WTO accession will create difficulties for many Chinese industries and lead to significant social and economic dislocation, but at the same time, the problems are surmountable. The economic reforms and the opening up of the economy should have prepared the country for economic shocks. Moreover, the paper notes that:

• manufacturing relocation to China is increasing
• as tariffs in most sectors are already low, market access and tariff reduction will mostly be felt by the automobiles, agriculture, telecommunications and services sector
• the effects of opening up will be alleviated by the government’s policy of macroeconomic expansion