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2006-12-08 | All chapters

After 5 Years in WTO, China Gets Good Report Card
Alan Wheatley, Reuters, 8th December 2006

Since joining the WTO five years ago, China has brawled over bras with Europe and America, clashed with them over car parts and endured countless dressing-downs for illegally copying movies, music and other intellectual property.

What's more, Beijing was the target of more than one third of new anti-dumping probes launched by its fellow World Trade Organization members in the first half of this year.

Yet the impression of constant conflict belies what officials and businessmen say has been a surprisingly smooth accession that has given a huge boost to Chinese trade and investment and, by extension, contributed to a golden age for global growth.

"A tree that falls down makes more noise than a forest that is growing," said Giorgio Magistrelli, executive general manager of the European Chamber of Commerce in China, in explaining why trade rows grab more headlines than the steady efforts that China has been making to meet its market-opening commitments.

Since joining the Geneva-based trade watchdog, China has cut its average tariff to 9.9 percent in 2005 from 15.3 percent in 2001. It has also scrapped or revised more than 3,000 rules and regulations and opened swathes of the economy to foreigners.

China's trading partners say that Beijing still has a long way to go and grumble that, all too often, the government meets the letter of its WTO commitments but not the spirit.

The EU complains about a lack of protection for intellectual property rights, product standards that put roadblocks in the way of foreign producers, and caps on investment in some key sectors.

"There's always room to improve," said Magistrelli. Still, he gave China a score of 8 out of 10 for its efforts until now.

WHO WOULD HAVE THOUGHT?

The American Chamber of Commerce in China singles out inadequate implementation of WTO pledges; footdragging in opening services such as distribution and financial products; and insufficient transparency in setting rules and standards.

But Teresa Woodland, a member of AmCham's board of governors, also said China deserved credit for its accomplishments to date.

"I looked at what they had committed to do and it seemed like a huge task. Yes, there are still issues. But I never imagined they would have come as far as they have," said Woodland, the founding principal of management consultancy WuDeLan Partners.

For China, the WTO was a means to an end.

By pledging to lower tariffs, open its markets and comply with a compendium of international trade laws, China's leaders used WTO membership as a lever to plow ahead with a raft of politically contentious market-oriented reforms.

The banking system is a good example of the pain and the reward of reform. Beijing has spent more than $400 billion since 1998 cleaning up the balance sheets of the top three state banks.

Nationalists complained that stakes in the lenders were sold to foreigners for a song, and hundreds of thousands of jobs have vanished as the banks cut their sprawling branch networks.

Question marks remain about the quality of the banks' loan portfolios, but all three have listed successfully on the stock market and are now in incomparably better shape to compete when foreign lenders are allowed to do yuan business with individual Chinese from next Monday.

"Joining the WTO has been a milestone for China, and the achievements in the last five years have been beyond the expectations of both Chinese and foreigners," Commerce Minister Bo Xilai said this week, according to the 21st Century Business Herald newspaper.

GOOD FOR THE WORLD

Reassured that China was playing by global rules, foreign direct investors have poured more than $1 billion of capital a week into China since it joined the WTO, transforming the country into the workshop of the world.

Since 2001, trade growth has averaged almost 30 percent a year; the percentage of the population living in poverty fell to 10 percent in 2004 from 16 percent in 2001; and China has vaulted Britain and France to become the world's fourth-largest economy.

Apart from being a resounding success for China, joining the WTO has injected fresh dynamism into the global trading system, according to James Adams, the World Bank's vice-president for East Asia and the Pacific.

The World Bank calculates that China contributed 21 percent of global trade growth in 2001 and 29 percent of economic growth.

"These are unprecedented accomplishments, and I think they derive heavily from the more competitive, more open trading system that exists today," Adams said in Beijing this week.

Competition, of course, brings losers as well as winners.

Just as European and U.S. manufacturers complain that cheap Chinese imports are destroying livelihoods, Chinese trade experts fear some of their own sectors such as automobiles could simply not compete if foreign rivals were allowed to set up their own manufacturing, distribution and service networks.

"It is too early to say that China's industrial firms are fully able and confident to deal with incoming competition right now," said Ren Yifeng, deputy secretary-general of the China Society for WTO Studies, a Ministry of Commerce think-tank.