2. Firmer and Speedier Economic Reform
From the experience of many countries undergoing economic reform, external pressure and obligation have proven useful in countering the opposition of powerful domestic interest groups. In the case of China, the state-owned enterprises are a powerful force against China's march toward a market economy. It would not be an exaggeration to say that the bilateral and multilateral agreements behind China's accession to the WTO are a summary statement of the China's economic reform in the next decade or so. They not only constitute a road map for economic reform in the coming decade, but as international treaties they also serve as the country's commitment to the country's systemic reform and restructuring of the national economy.
Given the conditions of the WTO membership, there will be greater competition between Chinese firms and foreign firms, both in China's domestic market and in the foreign markets. As a result, there will be a large scale re-structuring of industries. Except for a small number of industries selected as infant industries and given some temporary protection, the restructuring to a large extent will be based on China's comparative advantages and disadvantages vis-à-vis other economies. For example, labor-intensive industries would be in China's comparative advantage, but natural resource-intensive industries, capital-intensive industries, and technology-intensive industries are in China's comparative disadvantages. It may have comparative advantage in some of the skill-intensive industries but comparative disadvantage in others.
Likewise, if firms are rewarded and disciplined mainly by market forces, then the ownership structure of firms in China will tend to reflect their relative efficiency in organizing production and delivery of goods and services. The more efficient ownership structure will increasingly be adopted while that less efficient ownership structure will diminish in importance. Since capital flows into and out of China will continue to be restricted before convertibility on the capital account is attained (which may take no less than a decade), the banks will be key in deciding which ownership type gains or loses. If the four state owned commercial banks continue to play a dominant role in the supply of investment funds, their attitude toward firms with different ownership structures is crucial. If their lending decisions are not based primarily on commercial principles, then the march toward more efficient ownership structure may be slow. Apparently, the ownership structure also depends on the government's policy on national and regional government owned monopolies. In any event, sectoral restructuring based on comparative advantages will lead to improved efficiency due to resource re-allocation across industries and ownership changes based on market competition will result in improved efficiency in resource re-allocation across firms.
Although China is still far behind the developed market economies, the latter are definitely the guideposts for China's own regulatory reform and institutional building. WTO membership will contribute to regulatory reform and institutional building in China because WTO rules will be translated into national laws and regulation. In addition, best practices in regulation must be adopted to avoid systemic failures. Finally, WTO membership will help to speed up the enforcement of existing laws on the books. A better legal system, in particular the effective enforcement of the law, will not just benefit foreign investors, but also protect honest Chinese companies and business people from poor ethical standard and outright cheaters.
3. Long-term Growth
The economic benefits derived from China's WTO membership are not confined to static gains in efficiency from the re-allocation of resources among industries and among firms. In the long run, dynamic gains from increased competition brought about by China's entry into the WTO will be even more important. Increased competition on level playing fields will reward efficient and innovative firms, regardless of whether they are local or foreign, private or public. At the same time it will weed out inefficient firms and technological laggards. The protection of intellectual property rights will help to build an engine of economic growth based on technological progress, because it protects the intellectual property rights of both multinational corporations and indigenous Chinese firms. The serious duplication of investment and excess capacity in many industries are due largely to a perverse incentive of investing public funds, but the fact that there is too much money chasing after a limited number of viable investment ideas may also be a factor. That is true, the problem of duplicated investment should be lessened when there are many more new ideas and innovations.
4. Short-term Costs versus Short-term Benefits
Against the economic benefits identified above, there are significant short-term adjustment costs in the form of bankruptcy of domestic companies and increased unemployment. However, it should be pointed out that the companies with a reasonable prospect for survival will likely be re-organized, whereas the bankruptcy of hopeless firms will release resources to new firms for growth and existing firms for expansion. A social security system and a health care system will be necessary to provide a safety net for the unemployed. It would be less costly to society to pay workers the same wages without their producing goods that do not meet consumer demand. As an example, the quality of some completed apartments in China is so low that consumers will not buy even at very low prices. According to some commentators in newspapers, the solution would be to tear down the low quality apartments so that new apartments desired by consumers can be built on the same sites.
It should also be pointed out that China's WTO membership would reverse the recent trend of declining FDI, which has caused a lot of concerns among the policy makers. The Government has increasingly encountered the difficulty of reversing the deflationary pressure by its prime pumping alone. A more stable external economic relationship would mean that foreign markets could be relied upon to utilize the excess capacities faced by many industries, provided that the quality of products is good enough to meet the demand of foreign consumers. In addition, the development of products to meet the consumers' new or latent needs will generate many gainful jobs, in contrast to jobs that result in unwanted products. In particular, the opening of the service industries to foreign investors, by speeding up the development of these industries, will create many new jobs that can partially offset the loss of jobs by bankrupt firms.
5.Entry into WTO, an Important Choice for China to Merge into Global Economy
China's entry into the World Trade Organization is a strategic choice of importance for China to actively participate in the economic globalization. It is a symbol to show fully the lofty vision and firm determination of the Chinese Government in further deepening the reform and opening wider to the outside world and an active stance in its participation in international division of work and cooperation. To join the WTO and develop the opened-up economy is an internal requirement for the development of Chinese economy. Recent years have witnessed a soaring development of science and technology, free circulation of commodities, frequent in-and-out flow of capitals in the world and so the regional trade and trade between countries have become more and more dependent on one another. However, an important way to merge into the mainstream of the world economy is to join the WTO as quick as possible so that China can win more interests, a portion that China should win from the international division of work. The WTO has so far over 130 members and the trading value between its members has already come up to more than 90 percent of the world trade value. After China's entry into the WTO it is possible for China to carry on international trade and economic cooperation in the principle of multilateral, steady, and unconditional preferential treatment provided by the WTO member countries and regions, acquiring equal rights as enjoyed by other members. China will therefore be possible to implement an active strategy of "going out of the country", making it to go into international economic affairs in a deeper way and on a larger scale so as to create an international environment ever more favorable for China's modernization construction. China cannot get any development without the world nor can the world get anywhere by parrying China aside. Recent years have seen China swim and sink in a complicated and changeable environment of international economy, and it has succeeded in coping with the Asian economic crisis, realizing faster development in its national economy. And this year has witnessed a slowdown in the growth of international economy but China still sees a good situation in the development of its national economy. The stabilized social environment, extensive market potential and great opportunity for developing business in China will surely offer a vital impetus to the development of the world economy.
6. Conclusions
It cannot be denied that there will be significant short-term costs associated with China's accession to the WTO, but much of the costs will have to be incurred any way. China's WTO membership will impose a timetable within which it must deal with its underlying economic problems. WTO membership will not only provide long-term benefits to the Chinese economy, but also help to solve some short-term difficulties. The challenge of the Chinese government is to manage the short-term problems sufficiently skillfully that as time proceeds the longer-term benefits will dwarf the short-term costs. In such a paper, the WTO deal will only cause isolated nuisances, but not social crises. I truly believe that China will have a splendid future!
Thank you for your attention!
References:
中国服务贸易方略 白仲尧 社会科学文献出版社 1998年版
世界贸易组织术语汇编 上海外语教育出版社 2001年版
国际贸易实务案例大纲. 东北财经大学出版社 1999年版
Decision: Accession of the People’s Republic of China (关于中华人民共和国加入的决定)
Protocol on the Accession of the People’s Republic of China (中华人民共和国加入议定书)
Report on the
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