Resilience through multilateralism

WTO membership has facilitated China’s economic reform, and world has enjoyed the benefits

Before joining the World Trade Organization in December 2001, China had gone through an extended and arduous negotiation process lasting 15 years.

President Xi Jinping, in his keynote speech at the World Economic Forum 2017 in Davos, said the country had initial doubts about joining the WTO but eventually came to the conclusion that “integration into the global economy is a historical trend”.

“To grow its economy, China must have the courage to swim in the vast ocean of the global market,” Xi said.

History has shown that it was the correct strategic path to facilitate China’s integration into the global economy and to provide support and incentivize deeper reform of the socialist market economy.

China has, as expected, benefited from its WTO membership. Through its structural reform efforts and the global market access opportunities, China climbed rapidly to become the world’s largest exporter by 2010, way before most predictions.

Since 1978 when China started to open up its economy, China’s economic performance, in terms of overall growth, lifting people out of poverty and international competitiveness, has been unsurpassed.

Progress has been made to clean up shadow financing activities, while the renminbi has been accepted as a global currency by the International Monetary Fund including it in the basket of Special Drawing Rights.

Amid all these positive outcomes, China has been mindful of its unfinished reform agenda.

The urge to deepen reform gained more traction from the report “China 2030: Building a Modern, Harmonious and Creative Society”, a joint effort by a research team from the Chinese government and the World Bank.

The report offers honest commentary on China’s key strategic economic challenges, ranging from the need for more competition within the economy, continuing reforms of State-owned enterprises, to systemwide innovation, sustaining green growth, social protection, and, in particular, for China to stay engaged in its integration with global markets.

With the launch of China’s 12th Five-Year Plan (2011-15), the reform process deepened and pressed forward with greater speed.

With regard to technology, China has accelerated its climb by investing heavily in research and development to move away from traditional labor-intensive manufacturing.

Some countries perceive China’s efforts to become a dominant player in advanced technology as a threat. In its massive endeavor to reach technology targets, China may therefore need to take caution in its technology transfer efforts and in its heavy subsidies generated by this active industrial policy.

Led by China, Japan, South Korea and India, for example, Asia will close the technology gap with the West sooner or later. Trade competitiveness would be enhanced and developing countries would be able to cross the middle-income hurdle and compete more on an even basis with the industrialized world.

Developing countries used to complain of the lack of an even playing field at the multilateral trade level. But now it seems that leading economies like the US and EU would take over this complaint, even to the level that they demand holistic reform of the WTO.

What is alarming is the threat posed by unilateral trade restrictions that can lead to a global contraction of trade volume, resulting in falling world investment and eventually to global economic slowdown.

Any economy, however large, cannot solve its trade deficit by using trade restrictions to penalize its trading partners.

To balance its dependence on external with domestic demand, China has kept up with reforms targeting service sectors and SOEs.

After continuous substantial SOE reforms in the 2000s, China still maintains State supervision over some key strategic industries, for example, those linked to national security and the financial sector.

The reform of SOEs remains the core undertaking of the whole reform process. State-owned industries accounted for 28 percent of China’s industrial assets but delivered only 18 percent of the total profit.

Xi’s pledge to reinvigorate the SOE reform process at the 19th National Congress of the Communist Party of China in 2017 was a timely strategic push.

China’s grand outreach plan to the world, as encapsulated in the Belt and Road Initiative, touches two of the strategic areas mentioned in the World Bank report “China: 2030”.

The connectivity platform of the initiative would not only maintain strong trade and investment links with the rest of the world, but also create a new regionalism that could buttress the weakening and waning impact of multilateralism.

Through providing relevant infrastructure investment for other developing countries, while at the same time linking less-developed western regions in China with Central Asia and Europe, the BRI can also address the issue of inequality.

As the initiative wades into sensitive areas like the debt burden of the recipient countries, the security issues along the maritime route, and the role played by SOEs in foreign construction projects, it must maintain the open ownership principle, full transparency and lean on the multilateral agreements from the WTO, such as the one on trade facilitation.

Based on China’s long history, 18 years in the WTO should be deemed still too short to pass any definite judgment on the impact of the membership. But it can be said that since its accession in 2001, China has made great strides toward full compliance with the multilateral rules and regulations.

And as WTO membership has facilitated China’s massive economic reform to become one of the strongest trading nations, the world has also enjoyed the benefits of China’s membership.

President Xi has been right in reiterating that China’s development hinges closely on the strength of the multilateral system.

China will play its part building on the lessons learned from the past 18 years, and together with other members forge a well-equipped WTO to deal with the challenges of the world’s rising trade conflicts, including the disruptive effects set to arise from the digital economy in the years to come.

As WTO membership has facilitated China’s massive economic reform to become one of the strongest trading nations, the world has also enjoyed the benefits of China’s membership.

SUPACHAI PANITCHPAKDI