February 7: China Compass Conference, Navigating U.S.-China Business Opportunities.
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China and The WTO: One Year Later

January 27, 2003

By Ketaki Sood, Larta Research Economist
Wendy Hall, Larta Staff Writer

China Compass Conference Topic Spotlight:

The Continued Economic Transformation of China, Political Succession for China's Leaders, and China's Engagement in the World


China is going through its first orderly transition of leadership in a century. The next generation of leaders was not educated in the Soviet Union but came of age during the Cultural Revolution. Will China's economy stay the course? Will China meet the challenge of WTO accession? Will the financial system meet international standards? Or will economic and social changes prove to be too disruptive for the government to manage?
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China has been undertaking market and trade reforms since the late 1970s, but the nation's accession to the WTO in December 2001 marked the remarkable progress the country has made in integrating itself into the global economy.

China has consistently taken steps towards transitioning to a market oriented economy. Reforms have included decentralizing trade, unifying its dual exchange rates and slashing tariffs. As a result, China's trade and investment flows have grown rapidly.

China's exports increased from $10 billion in 1978 to $278 billion in 2000. China's foreign direct investment reached $47 billion in 2000, second only to the United States. China's accession to the WTO is expected to further improve the nation's macroeconomic situation. China's exports increased by 19.4 per cent in the first three quarters of 2002, and its trade volume during this period amounted to $445.1 billion, an 18.3 per cent increase from the same period last year. China's tariff rates, which have been falling consistently over the years, (from 42.9 per cent in 1992 to 15.3 per cent in 2001) were further slashed to a low of 12 per cent in 2002. In addition, China has committed to comply with WTO standards and rules and open its domestic markets to expand its trading partners and attract more foreign direct investment.

China's accession to the WTO will benefit the Chinese economy tremendously, and recent studies have shown that the global economy will reap welfare gains from the accession as well.

"The WTO accession is a major factor in shaping the country's growth," says William Overholt, Research Chair at RAND Center for Asia Pacific Policy and speaker at the February 7 China Compass Conference. "A year ago, I think it was looked at heavily as a threat, but what they discovered is that already in key sectors, like cars, it opened the economy and brought about tremendous benefits and relatively limited costs. So China is globalizing faster than any other country in the world. That was true before WTO membership, but it's even truer now."

Although welfare gains are difficult to quantify, studies estimate that welfare gains from the liberalization of merchandise trade as a result of China's accession to the WTO will amount to $4-30 billion a year for China and $20-56 billion for the global economy. Studies have also shown that industrial countries are likely to benefit from China's accession to the WTO and will have greater access to China's markets and improved trade and investment opportunities with the nation. Some developing countries, however, are concerned that China's growing openness will lead to diversions in foreign direct investment and trade to China causing some dislocation in their economies. "The market will be more leveled for foreign investors but the competition will be tougher," says Cheng Wen Cheng, President & CEO, AcrossAsia Multimedia Limited, who is also speaking at the C3 conference. Greater levels of export competitiveness are expected from developing countries that might be adversely impacted by China's growing openness.

Coming Soon From Larta Research : The Chinese Economy and The Impact of its WTO Accession
To be launched the week of the upcoming China Compass Conference, this research paper will provide comprehensive information on the latest economic news from China. More details TBA.