Post-WTO economic effects on state-owned enterprises in China

Master's Thesis, 2003

119 Pages


I. Table of Contents

II. List of Tables

III. List of Figures

IV. Glossary

1 Introduction
1.1 Aim & Objectives
1.2 Overall Research Approach
1.3 Structure of the Dissertation

2 The WTO & Free Trade
2.1 Chapter Introduction
2.2 The WTO
2.2.1 Understanding the WTO
2.2.2 The Structure & Working of the WTO
2.2.3 Significance of Joining the WTO
2.3 Chapter Conclusion

3 China & the WTO
3.1 Chapter Introduction
3.2 China’s Long March to WTO Membership
3.2.1 Prolonged Difficulties
3.2.2 Final Accession
3.3 Chapter Conclusion

4 Methodology
4.1 Chapter Introduction
4.2 Overall Research Approach
4.2.1 Objectivity, Validity & Triangulation
4.2.2 Chinese Statistical Data
4.3 Secondary Research
4.3.1 Libraries
4.3.2 Electronic Databases
4.3.3 Newspapers & Periodicals
4.3.4 Internet
4.3.5 Search Terms
4.4 Primary Research
4.4.1 Case Studies
4.4.2 Questionnaires
4.4.3 Interviews
4.5 Chapter Conclusion

5 Macro-Economic Aspects & China’s WTO Membership
5.1 Chapter Introduction
5.2 Macro-Economic Aspects
5.2.1 Positive Impacts
5.2.2 Negative Impacts
5.3 Macro-Economic Implications
5.3.1 Tariff & Quota Reductions
5.3.2 Increasing Competition
5.3.3 Economic Reform, Ownership & Market Share
5.4 Chapter Conclusion

6 China’s SOE & WTO Membership
6.1 Chapter Introduction
6.2 China’s SOEs
6.2.1 SOEs Introduced
6.2.2 Main Problems Faced by China’s SOEs
6.2.3 Pre-WTO Status Quo & Development of China's SOEs
6.2.4 Main Pre-WTO Economic Reforms
6.3 Implications for China’s SOEs
6.3.1 Competitiveness & Free Competition
6.3.2 Corporate Governance
6.3.3 Privatisation
6.3.4 Cooperation, Consolidation & Acquisitions
6.3.5 Property Rights
6.3.6 Downsizing & Unemployment
6.3.7 Attracting & Retaining Qualified Workers
6.4 Excursion: Agriculture, China & the WTO
6.4.1 The Chinese Point of View
6.4.2 The American Point of View
6.4.3 Expected Calculated Effect
6.4.4 Agricultural Reform
6.5 Future Outlook
6.5.1 SOEs: Possible Future Developments
6.5.2 Not all Gloom
6.6 Chapter Conclusion

7 Concluding Remarks
7.1 Contribution & Significance of the Dissertation
7.2 Areas of Further Research & Limitations
7.3 Overall Conclusion

V. Appendices

VI. Bibliography

II. List of Tables

Table 1: WTO member countries as of August 2003 (WTO 2003),

Table 2: Import/ export ratio of China and the USA, adapted from Hufbauer & Rosen (2000),

Table 3: Changing roles of Chinese enterprises, from the China Statistical Yearbook (1999), taken from Chen (2002),

Table 4: Share of total urban unemployment for major sectors (Broadman 2001),

Table 5: Breakdown of farmers’ income in China between 1990 and 2000, taken from Li (2003),

Table 6: Extract of major search terms employed, Appendix One

Table 7: Shares (in %) of SOES in the industrial sector (1997). Adapted from Chen (2002), Appendix Two

Table 8: Major tariffs and their planned reductions in the agricultural sector (Yu & Frandsen 2002), Appendix Four

III. List of Figures

Figure 1: WTO Organigram (WTO 2003),

Figure 2: Dispute settlement procedure at the WTO (WTO 2003),

Figure 3: Share of SOEs/ individually owned companies, adapted from Broadman (2001),

Figure 4: Management autonomy in Chinese SOEs, adapted from World Bank (1996),

Figure 5: The decline of SOEs and the rise of private companies (Broadman 2001),

Figure 6: Employment in Chinese industrial enterprises (Broadman 2001),

Figure 7: Per capita income of framers in China, taken from Li (2003),

Figure 8: Budgetary subsidies to Chinese industrial enterprises (Broadman 2001),

Figure 9: Map of China (Magellan 1993), Appendix Three

Figure 10: Agricultural regions in China. Source: University of Texas Library Online (1989), Appendix Five

IV. Glossary

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1 Introduction

China’s accession to the World Trade Organisation (WTO) can be regarded as the most significant and far-reaching event about China in the last decade, with the potential to radically transform and shape the Chinese economy and social structure. Since the end of the Cultural Revolution in 1978, China has been on a course of slow but steady economic reform. Today, the Chinese population is richer than ever before in history, with the country itself having experienced extended periods of extraordinary growth, even throughout recent events such as the Asian Crisis.

Alongside other international organisations in operation today, the World Trade Organisation has played an important role in liberalising and regulating global markets. The WTO covers numerous aspects of economic and trade globalisation, and is generally seen as advancing global liberisation through multilateral rules. The positive effect the WTO has on international trade can be seen in the desire of countries to belong to the WTO, or to remain a part of the organisation for existing members.

China’s marketisation and international integration are often perceived as being below the optimal level. With WTO membership, China can rightfully expect to become a full and respected member of the international trading arena, much in the same way as the country made its political reappearance on the international stage through its United Nations (UN) membership in 1972. Entering the WTO is thus widely regarded as being of significant importance for China, both in terms of gaining access to foreign markets, but also to use firm WTO rules to fight off economic entrenchment. Essentially, WTO membership has the potential to fundamentally transform the existing socialist market system in China into a market system. International companies can, in turn, gain access to the Chinese market according to global trade rules, bringing increasing amounts of Foreign Direct Investment (FDI) to China on the way.

Of particular interest in this area is the current development of China’s state-owned enterprises (SOEs). These are generally seen as uncompetitive and not operating according to market principles; Corporate Governance and sound human resource policies are often non-existent, further adding to the dismal state of these companies. SOEs are often regarded as one of the most negatively affected group of companies of China’s WTO membership. With WTO accession, new opportunities but also challenges arise for these corporations. They can now, for the first time, open branches in formerly restricted areas of China and of course overseas. At the same time, these SOEs will be subjected to drastically changing market conditions, to which they will have to adjust in order to compete both at a national and international level.

1.1 Aim & Objectives

The broad aim of this dissertation will lie on investigating the economic implications that China’s WTO membership has on China itself. However, as any casual observer of China might agree, the country develops and moves at such a fast pace, especially in the area of economic reform, that this paper would not be able to do justice to this complex topic.

Therefore, the specific objective of this dissertation is to investigate and highlight the expected, actual, and needed implications and reactions in the sector of China’s state-owned enterprises. The developments in this crucial sector are expected to shed a light on the wider implications for China. Whilst the nature of this research is on reviewing actions and implications on a broader scale, namely for the whole area of SOEs rather than on one specific industry, a short case study will be used as a specific example to illustrate recent developments.

Logically following from the above, a further, secondary, objective of this report is to understand the workings of the WTO and of the transforming Chinese economy, essentially being able to appreciate the underlying yet fundamental implications China’s WTO membership has on the Chinese economy.

1.2 Overall Research Approach

This dissertation has employed a variety of sources mainly of secondary and qualitative origin, though quantitative data has also received attention where appropriate. The main information sources ranged from journals, newspapers, electronic databases, to books. Primary data collection was regarded as not appropriate, due to the nature of both the research question and the SOEs involved in this research, but also the proximity of events (China only joined the WTO in December 2001) investigated. Sufficient and foremost relevant data was obtained through this approach, thus not affecting the overall outcome of the study.

1.3 Structure of the Dissertation

This dissertation is structured as follows: Chapter two will introduce the World Trade Organisation, its major functions and structure, and the main benefits for countries looking to join the organisation. Next, Chapter three will highlight China’s long struggle to join the WTO, and its final accession in December 2001. Chapter four then introduces the methodology adopted, and explains why secondary research was sufficient for the purpose of this research problem. Following this, the macroeconomic aspects and implications of China’s WTO membership are discussed in Chapter five. Chapter six, which also builds the main part of this dissertation, focuses on the expected, actual, and needed implications for China’s SOEs. Lastly, Chapter seven concludes this dissertation and highlights areas of possible further research.

2 The WTO & Free Trade

2.1 Chapter Introduction

This following chapter will introduce the main areas and aspects of the World Trade Organisation. The significance of the WTO to free trade in the world will be made apparent, and understanding will be created for why countries strive to belong to the organisation as a member country. This understanding is particularly important in the light of subsequent parts of this dissertation (for instance Chapter three), where China’s accession and dealings with the WTO will be discussed in more detail.

2.2 The WTO

2.2.1 Understanding the WTO

The World Trade Organisation came into being on January 1st 1995. It was the outcome of the lengthy (1986-1994) Uruguay round of trade negotiations under the umbrella of the General Agreement on Tariffs and Trade (GATT). GATT was established after the end of the Second World War in 1947, with the main signatories being America, Europe, and Japan, which joined in 1955 (Emmot 2003). The WTO, GATT’s successor, extended GATT in two major ways: Firstly, GATT was only one of the three major trade agreements that created the WTO (the other two being the General Agreement on Trade in Services (GATS) and the agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS)) (McDonald & Burton 2002). Secondly, the WTO was put on a much sounder institutional footing than GATT, with far more internationally binding rules that member states have to adhere to.

The WTO today is a fully-fledged supranational institution with a corporate body recognised under international law (Grady 1999). Alongside other international organisations in operation today, the World Trade Organisation has played an important role in liberalising and regulating global markets (WTO 2002, 2003). It has evolved to cover numerous aspects of economic and trade globalisation such as commodities trade, services trade, investments relating to trade, Intellectual Property (IP) rights relating to trade, mechanisms on trade policy deliberation and dispute settlement, transparency of regulations, and sustainable development (Lingguang 2001). For the future, observers such as Wallach (1999) expect that the WTO will “continue to advance global liberisation through multilateral rules”. Main Functions of the WTO

In simple terms, the WTO deals with the rules of trade between nations. Its main function is, according to the WTO (2002) itself, to ensure that trade flows as smoothly, predictably, and freely as possible. WTO agreements, negotiated and signed by the bulk of the world’s trading nations, set the scene for ‘Trade without Discrimination’. As such, the WTO incorporates the principle of the ‘Most Favoured Nation’ (MFN) treatment, implying no special deals to trading partners, guaranteeing that all members of the organisation are treated the same (McDonald & Burton 2002). Further, it promotes fair competition and encourages development and economic reform (Grady 1999).

At the heart of the WTO lies it multilateral trading system, which encompasses the organisation’s agreements. These agreements are the legal ground rules for international commerce. Easiest understood as binding contracts, they guarantee member countries the most important trade rights. They also bind governments to keep their trade policies within agreed limits for the benefit of all WTO members, a system that has its origin in GATT, and has thus been in place for well over 50 years today (Grady 1999).

According to the WTO (2003) itself, it sees its main purposes as:

- Administering trade agreements;
- Acting as a forum for trade negotiations;
- Settling trade disputes;
- Reviewing national trade policies;
- Assisting developing countries in trade policy issues, through technical assistance and training programmes; and
- Cooperating with other international organisations.

Today, the WTO has 146 members (see Table 1 below), accounting for over 97 percent of world trade, with about 30 more countries, most notably Russia and Vietnam, currently negotiating to join in the near future (Emmot 2003, The Vietnamese Investment Review 2002).

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Table 1: WTO member countries as of August 2003 (WTO 2003)

2.2.2 The Structure & Working of the WTO

Under the WTO, decisions are typically made through consensus amongst all member states. At the top of the WTO sits the Ministerial Conference, which meets roughly once every two years. Below the Ministerial Conference is the General Council, consisting of ambassadors and heads of delegation, based in Geneva. This council meets several times a year (it meets additionally for Trade Policy Reviews and dispute settlements when needed). Further down still are the Goods Council, Services Council, and Intellectual Property Council, which report to the General Council. Lastly, various specialised committees, working groups, and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements (Lloyd 2001). Figure 1 below depicts the current structure of the WTO as described above.

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Figure 1: WTO Organigram (WTO 2003) WTO Secretariat

The WTO Secretariat, situated in Geneva, employs around 550 permanent staff, and is headed by the director-general, currently Mr Panitchpakdi. Its annual budget is roughly 155m Swiss Francs (about €100m). Its main duties are to supply technical support for the various councils and committees and the ministerial conferences, to provide technical assistance for developing countries, to analyse world trade, and to explain WTO affairs to the public and media (WTO 2003). It also provides legal assistance in the Dispute Settlement Process and advises governments wishing to become members of the WTO. Most-Favoured-Nation Clause (MFN)

One of the most important features of the WTO is its Most-Favoured-Nation clause. Under the WTO’s agreements, countries cannot normally discriminate between their trading partners. If a certain favour, or punishment, is granted or imposed on one member country, it has to be extended to all WTO members states (McDonald & Burton 2002). The importance of this for the whole working of the WTO can be seen in the fact that it constitutes the first article of GATT. However, MFN is also a priority in GATS (where it is Article 2), and in TRIPS (where it is Article 4) (WTO 2003). As these three agreements cover all main areas of trade handled by the WTO, MFN is thus one of the most important and omnipresent concepts of the WTO. Trade in Goods - GATT

Trade in goods has been at the cornerstones of the former GATT and now the WTO. From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other trade barriers; the text of the General Agreement spelt out important rules, particularly non-discrimination amongst member countries. Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in goods. It incorporates sections dealing with specific sectors such as agriculture and textiles, specific issues such as state trading, product standards, subsidies, and actions taken against dumping violations (Lloyd 2001). Trade in Services - GATS

More recently, the newer GATS extends the principles of free trade to service industries such as banking, insurance, telecommunications, or transportation. The above are thus equally protected and governed by the binding rules of the WTO as the trade in goods is governed by GATT (McDonald & Burton 2002, WTO 2003). Intellectual Property - TRIPS

TRIPS, which governs Intellectual Property under the WTO, is another more recent development at the WTO. In essence, it covers trade and investment in ideas and creativity (WTO 2003). Similar to GATS, the basic principle of GATT was taken and applied to copyrights, patents, trademarks, industrial designs, integrated circuit layout-designs, and undisclosed information such as trade secrets that should be protected when trade is involved (WTO 2002, 2003). For instance, TRIPS can be regarded as vital to ongoing investment in China, where IP is traditionally seen as a rather loose term, with low enforcement, and scaring off potential investors in areas where the protection of IP is often crucial to the investment decision.

One recent example of this is Infineon, a German semi-conductor company. Infineon decided against building a new wafer-factory in China, and favoured Dresden in the former eastern part of Germany instead. Though labour and related costs are significantly higher in Germany than in China, the risks associated with building this high-tech factory with state-of-the-art technology in the PRC were seen as being too high ( 2001).[1] Dispute Settlement

Dispute settlement is one of the major areas of the workings of the WTO. The organisation’s procedure for resolving trade-quarrels under the Dispute Settlement Process (WTO 2003) is regarded as vital for enforcing trade rules and therefore for ensuring that trade flows smoothly. Countries can bring disputes to the WTO if they think their rights under the agreements are being infringed. Of more significance however, WTO members have agreed that if they believe another WTO member is violating trade rules, they will use the multilateral system of settling disputes, instead of taking action unilaterally.[2]

Judgements by specially appointed, independent experts are based on interpretations of the agreements and individual countries’ commitments. One of the more recent events under this mechanism is the complaint by the United States concerning the EU’s continued refusal to open its market to genetically modified (GM) products. Encouraged by the Dispute Settlement Process of the WTO, the next steps involve thorough consultation between the opponents. Failing that, the USA and Europe can then follow a carefully mapped out, stage-by-stage procedure that includes the possibility of a ruling by a panel of experts, and the chance to appeal the ruling on legal grounds. Confidence in the system is traditionally based on the number of cases brought to the WTO - around 300 cases in eight years compared to the 300 disputes dealt with during the entire life of GATT (1947-94). Figure 2 below shows the Dispute Settlement Process in more detail.

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Figure 2: Dispute settlement procedure at the WTO (WTO 2003) Development & Trade

Over three quarters of WTO members are developing, less-developed, or least-developed countries. All WTO agreements contain special provision for these member states, including longer periods to implement agreements and commitments, measures to increase their trading opportunities, support to help them build the infrastructure for WTO work, handle disputes, and implement technical standards. A WTO committee on trade and development, assisted by a sub-committee on least-developed countries, looks at developing countries’ special needs (Lloyds 2001). Its responsibilities include implementation of the agreements, technical cooperation, and the increased participation of developing countries in the global trading system. The WO stresses that these special provisions are not in violation of its MFN clause, but merely state a necessary adjustment period for countries that might not have the means to implement and establish certain agreements as quickly and thoroughly as more developed nations (WTO 2003).

2.2.3 Significance of Joining the WTO

Having discussed the main functions and the structure of the WTO, the question arises why being or becoming a member of this supranational body is of such importance to individual member countries. What do prospective members stand to gain from joining, and what keeps existing members from leaving the WTO?

Broadly speaking, the WTO sees its benefits to its members in the following main areas and ways (WTO 2002):

- The WTO promote peace;
- Disputes are handled constructively;
- Clear trade rules benefit all members;
- Freer trade cuts the costs of living;
- Freer trade provides more choice of products and qualities;
- Trade raises incomes;
- Trade stimulates economic growth;
- Governments are shielded from lobbying; and
- The system encourages good government.

Today’s international trade, with increasingly interlinked and dependant markets, financial institutions, and technology, offer both opportunities and risks to participants around the world (MacPherson 2001). This increasing trade, however, is more often than not a fragile occurrence, with disagreements and disputes frequent and often severe in outcome. Nevertheless, globalisation is a reality today, no matter how much its opponents show their dissatisfaction, and the WTO is at the heart of this phenomenon (Moore 2000a). Whilst it is actually not certain that globalisation will endure the test of time, at present it is the best model under which international commerce runs as effectively and smoothly as possible.

McPherson (2001) believes that the WTO is a major factor in deciding if the world “starts to become a more civilized society under globalization or just keeps evolving into one big commercial enterprise that largely favors the industrialized nations at the expense of others”. With this, the author has struck a key issue that the WTO sees as one of the important missions of the organisation, that of enabling fairer trade between developing and developed nations. In today’s trade order, economic power often translates into political power, thus ensuring that already strong nations can demand and dictate the rules of the game according to their liking. The WTO aims at addressing this imbalance by giving a voice to the otherwise misrepresented members of the international trading community. In practise, this means that the WTO operates a ‘one-country, one-vote’ system, essentially giving each country a say in the dealings and proceedings of the organisation (Magnus 2000). This dedication to developing countries is one of the major attractions for those countries to join or remain in the WTO. Mr Moore of the OECD (2000a) contests that the organisation has in fact made good progress in helping poorer countries, mainly in assisting these nations to “reap greater benefits from the world trading system”.[3]

The MFN clause of the organisation ensures fair trading practices amongst all member countries, whilst condemning unilateral dealings, which tend to favour only a small part of trading nations, possibly only two. The recent development in North America, where the USA is negotiating increasingly on a bilateral basis, mainly with countries in South America and Asia, has caused much resentment amongst other nations. It is a good example of how much more efficient and beneficial such talks could be under the umbrella of the WTO, where the outcome would be extended to all WTO member states.

Integration with the rest of the world, economically certainly as per the definition of the WTO, but, extending from that, politically as well, is another area where many developing countries see the main benefit in the WTO (The Economist 1998). The loss of such integration then is often perceived to be severe, possibly being the main reason why countries, once a member of the WTO, hardly ever leave the organisation (WTO 2003).[4]

More tangibly of course are the benefits in reduced trade barriers such as tariffs and quotas amongst member countries, which tend to significantly boost a state’s trade within the realm of the WTO (The Economist 1998) by increasing access to worldwide markets. Competitiveness is often affected very positively, as is the general trading volume for WTO members.

Enabling a country to push through economic and legal reforms is also helped by WTO memberships. Reforms that might be difficult or even impossible to implement alone, are often prescribed by the rules of the WTO, leaving a country little choice but to obey. This can be especially useful in situations where a domestic deadlock prevents such needed reforms, as is the case currently in Vietnam, who uses WTO accession negotiations for just this reason (The Vietnamese Investment Review 2002).

It must not be forgotten however, that becoming a member of the WTO is by no means an easy undertaking. Detailed rules and regulations must be abided to, and accession negotiations typically stretch over many years. The individual situation of each prospective member nation needs to be assessed on a case-by-case basis, and agreements with many existing members of the WTO negotiated. Indeed, any interested non-member state needs to articulate to the WTO very clearly its trading policies that could affect WTO agreements. The WTO then establishes a working party, which firstly considers the case, and secondly starts parallel bilateral talks with the applicant nation and interested member countries (WTO 2003), which typically include the USA, Europe, and Japan, amongst others whose specific interests will be affected by the new member. Once these bilateral negotiations are completed, a draft membership treaty is created, finalising the terms of the agreement. This treaty will then be put to a vote in the WTO General Council or the Ministerial Conference (WTO 2003), where a two-thirds majority is required to make the treaty binding. The case for China’s accession to the WTO, as described in the following chapter, will illustrate just how difficult it can be for any one country to join this supranational body.

To sum up, the WTO benefits its current members in various ways, ranging from increased access to markets to reduced trade barriers, a voice in international trade, multilateral trading rules, dispute settlement, and economic and political integration all the way to special consideration to less-developed nations. These benefits are also increasingly considered vital by countries looking to join the WTO, such as Vietnam and Russia, or China in the past.

2.3 Chapter Conclusion

This chapter has given an account of the history and the workings of the World Trade Organisation. It was shown how the organisation operates in an increasingly complex and open trading world, and which mechanisms are employed to ensure the smooth trade amongst member countries, including less developed nations. The most important of these mechanisms were found to be the WTO’s Most-Favoured-Nations clause, and the widely used Dispute Settlement Process. Following that, it was highlighted why it is of such importance today for a country to hold membership in the WTO, but also how difficult it is to join this supranational body with its strict trading rules and other regulations.

3 China & the WTO

3.1 Chapter Introduction

The previous chapter has introduced the significance, the main functions, and the benefits of the WTO. Most developed nations were shown to belong to it, with many more aspiring to be member. China has been negotiating for some 15 years to enter the WTO, but, until December 2001, without success. The following chapter will outline the history of the dealings between the latter and China, while highlighting the significance of China’s WTO accession for the country.

3.2 China’s Long March to WTO Membership

Since the end of the 1970s, with the adoption of its Open Door Policy in 1978 (Hoogmartens 2001),[5] China has been negotiating trade treaties with major trading nations. These were mostly of bilateral nature and rather costly, resulting in trade and other agreements with most countries with which China had diplomatic relations (Kong 2001). In addition, China has often also enjoyed the same trade treatment as established members of the WTO through the Most Most-Favoured-Nation (MFN) clause of the WTO (Kong 2001, Qureshi 1996). Today, WTO accession is seen as the logical consequence for China from an economic perspective; the average income has increased steadily in the past decade, and growth rates have been amongst the highest in the world since the 1980s (BBC News 2001), even through turbulent times such as the Asian Crisis (Morck & Yeung 2000). WTO membership will also allow China to push through difficult yet inevitable changes and reforms, which would otherwise be complicated to implement (Hong Kong Echo 2002). Further, Woo (2001) sees the country’s marketisation and international integration “below the optimal degree”. With WTO membership, China can rightfully expect to become a full and respected member of the international trading arena, similar to its political reappearance through its United Nations (UN) membership in 1972 (Morck & Yeung 2000).

In July 1986, China officially applied to become a member of GATT, a body China had once been an original contracting member of. It was assumed that entry into GATT would present no great obstacles, as admission to the World Bank and the International Monetary Fund (IMF) had previously been rather swift. However, GATT accession was nowhere as easy or smooth, pointing to the “huge gap between the status quo of China’s trade measures and WTO (GATT) requirements” (Kong 2001).

3.2.1 Prolonged Difficulties

The difficulties that surrounded China’s admission to the WTO are often categorised into three areas, namely political, economical, and legal (Yang 2000, Yang 2001, Fan, Lunati & O’Connor 1998, Chow, Tuan & Wang 2001, Hoogmartens 2001), and will be discussed in turn in the following three sections. Political Issues

Political issues had its root in numerous vested and entrenched interests from influential people within China, making it difficult to “break the political log-jam” (Yang 2000). In addition, the Tiananmen Square massacre in 1989 shattered China’s image abroad, and with it the friendly relations the country had enjoyed with its western trading partners, brought about by China’s ongoing economic reforms at a time when most if not all other socialist countries were still practicing strict centralised planning. Yang (2001) argues that without the incident at Tiananmen Square, GATT admission would have been granted to China by the West out of political and strategic considerations much earlier. Economic Issues

Economic issues were observed on two fronts, with opposition to accession both coming from within China and from abroad.

In China, interest groups, mainly concentrated in strongly protected sectors like heavy industries (such as machinery, automobiles, and chemicals) and service industries (such as domestic distribution, banking, insurance, and telecommunications), have applied considerable pressure onto the government to oppose accession. SOEs, along with agriculture interest groups, were also strongly opposed to any GATT progression; the rational behind this was mainly the fear of more efficient competition from abroad (Fan et al. 1998). These lobby groups argued that WTO accession would be detrimental to China’s national interests.

Abroad, the opposition has, not surprisingly perhaps, been roughly reversed: Lobby groups here feared predominantly China’s most competitive and dynamic industries. Thus, industrial countries have been trying, with some but limited success, to include special safeguard provisions to counter these industries into China’s WTO accession protocol. US labour-intensive industries (for instance the textile sector) have been one of the most opposed groups to China’s WTO entry (Chow, Tuan & Wang 2001). Legal Issues

Legal difficulties have stemmed from the fact that China’s regulatory system does often simply not operate within the “paradigm the WTO contemplates” (Hoogmartens 2001). It appears that especially the transitional nature of the PRC’s legal structure has caused delays in the country’s WTO accession. Problems often also arose out of establishing the rule of law in the first place - considering China’s enormous size - coupled with corrupt or plain incompetent local officials (Hoogmartens 2001, Moore 2000b).

3.2.2 Final Accession

As of April 2000, much progress had been made towards accession. Only eight WTO members remained yet to conclude their negotiations with China. Among these, the most important were the EU, Mexico, Malaysia, and Switzerland. As of June 2001, China had signed market access agreements with 36 WTO Members out of the 37 Members originally expressing an interest in negotiating such an agreement.

The final accession documents were signed by the WTO Ministerial Conference on November 10th 2001, with China officially joining on December 11 of that year as the 143rd WTO member (Zeng 2001, Sheikh 2002, WTO 2002). With WTO accession, China adopted specific and enforceable commitments that represent open markets mechanisms and economic freedom. As such, it is widely regarded as the most important reform measure in the past twenty years, and the most significant event in the last decade (for instance Barshefsky 2000a, Chow, Tuan & Wang 2001).

Final WTO accession saw all agreements mentioned above become binding treaties for the PRC. Through the MFN clause of the WTO, they will at the same time be extended to all member states of the WTO (Liu & Woo 2001). However, after 15 years of negotiations, China has also secured several transition periods for certain industries and commodities to ease the adjustment process (Vougioukas 2002).

3.3 Chapter Conclusion

This chapter has highlighted the difficulties surrounding China’s 15-year struggle to join the World Trade Organisation. These difficulties were briefly highlighted in three main areas, namely political, economical, and legal. Lastly, it was found that joining the WTO could be considered as the most significant economic reform step for China in the past two decades.

4 Methodology

4.1 Chapter Introduction

This chapter introduces the methodology that has been adopted for this dissertation. The overall research approach will be discussed, with data validity and the reliability of Chinese statistical data also being considered. The next part of this chapter will then give a detailed account of secondary sources for data collection and will state how the research was conducted. The third part of the chapter will describe the most likely sources of primary data that could have been employed, and explains why primary data was nevertheless not a feasible option to gather relevant information.

4.2 Overall Research Approach

Various methods exist to approach a particular research problem, and choices have to be made as to what approach is best suitable for the research problem at hand. In addition, factors such as time and costs are likely to influence the methodology adapted to a certain extend. In addition, the problem of any research project has to be clearly defined, and the aim and objectives of the paper set out in the introduction. Indeed, this paper has started out with just such a statement of aim and objectives in Chapter one, which then allowed the author to focus on the best method to collect and later analyse the data needed to address the overall objectives.

The impact of management studies often depends upon the appropriateness of the research methods chosen (Scandura & Williams 2002). It follows that the researcher needs to give careful thought and consideration to the selection of the right approach if the end-result is expected to be valuable and meaningful. In this dissertation, once the research problem was clearly defined, the most appropriate research method - or a mix of various methods - was selected, a process that Gilbert (2001) called detective work: “Social research involves detective work. You begin with a problem and then ask a number of questions about it, such as ‘what?’, ‘who?’, ‘where?’, ‘when?’, ‘how?’ and ‘why?’”. Specifically, a variety of quantitative and qualitative research methods seemed available to the author of this dissertation, ranging from secondary sources such as journals, newspapers, and books to primary sources such as interviews, questionnaires, and case studies. Secondary and primary sources of data will be discussed in more detail a little later on in this chapter.

Considering the overall availability of data, it was found that often even articles which supposedly reported on the actual impacts of WTO accession and not the expected impacts (such as Chi Lo’s paper ‘Asia's Competitive Endgame: Life after China's WTO Entry’ in 2002) were preoccupied with predicted and expected benefits rather than measurable effects. Additionally, papers, which then reported on the actual effects to date, especially in the area of SOEs, were unfortunately all but plentiful. The most likely explanation of this is the proximity of events: China joined the WTO only in December 2001, thus making it difficult to establish and document measurable impacts.

The publishing cycle of leading journal made it difficult to gather quantitative data. It is expected that more evidence will emerge in the course of 2004, especially in the area of SOEs, where data is as of today still heavily influenced and censored by the Chinese government, but has started to be more openly investigated and watched by international researchers. Nevertheless, enough data has been found to offer a clear and concise picture of the effects on SOEs and their to-date responses to China’s WTO membership. Certainly, sufficient evidence and material has been evaluated concerning areas of improvement and expected future developments for SOEs. From a research point of view, lack of information from journals in certain areas was compensated for through the use of newspapers and, less frequently, government reports, enabling the author to satisfactorily answer the research problem as stated in Chapter one of this dissertation.

4.2.1 Objectivity, Validity & Triangulation

This dissertation has adopted a mainly qualitative approach to research.[6] This method of data-collection was mainly prescribed by the nature of the topic, but also out of necessity due to a lack and unobtainability of a (reliable) set of data. As this type of research is often classified as less rigorous and scientific compared to a more quantitative analysis, the trustworthiness and validity of the sources used in this paper needed be established. One way to accomplish this was the method of triangulation.[7] According to Decrop (1999), triangulation implies that a “single point is considered from … different and independent sources”. Introduced in 1959 by Campbell & Fiske, in its simplest form, then, triangulation refers to the use of more than one source to establish the validity of any finding, and to decrease the chance of using false data as the basis for interpretations made by the researcher. In essence, triangulation can act as a means to increase and ground the acceptance of qualitative approaches (Rossman & Wilson, 1985). In addition, information from different sources and angles also helped to eliminate personal and methodological biases, and enhances this study’s generalisability.

Combined under the umbrella term triangulation, actually four different ways to triangulate in a research problem exist, as first established by Denzin in 1978. They are data, method, investigator, and theory triangulation. As the names imply, data triangulation involves the use of a variety of data sources in a study; method triangulation entails the use of multiple methods to study a single problem; investigator triangulation is concerned with using several different researchers to interpret the same body of data; and theoretical triangulation involves using multiple perspectives to interpret a single set of data.

In this dissertation, only data triangulation seemed a feasible research approach; considering both the time and the resource constraint of the research eliminated method and investigator triangulation. Theory triangulation, whilst supposedly possible, would also have gone beyond the scope of this paper.[8] During this process of Data Triangulation, careful attention was paid to not form any conclusions in any part before the whole research was completed; only then were wider implications considered and conclusions drawn.

In practice, the use of data triangulation has meant that, wherever possible, findings were checked and validated through the use of independent sources which confirmed their validity, or, as Decrop (1999) phrased it, “at least, do not oppose them”. Sources in this context refer mainly to the use of journal and newspaper articles, but also to the use of limited individual contacts (see below) and government reports. They were found in a variety of locations, from article collections, libraries, online databases, to journals. Primary research as part of Triangulation proved not a feasible option (see Section 4.2 above and Section 4.4 below for a more detailed account of the limitations of primary research in this dissertation). The nature of the research implied great access barriers to relevant data - one has to consider that the ideal way to investigate SOEs would be to be able to obtain detailed inside-information from these companies.

4.2.2 Chinese Statistical Data

China is somewhat notorious for its ‘optimistic use’ of official statistics. In theory, data provided by the Chinese government should, like any meaningful statistic, give an indication as to the implications of that particular statistic or data provided. In reality however, experience (based on the findings from various authors consulted as part of this dissertation) shows that Chinese statistics are almost always unreliable, and over- or understate facts to the advantage of China itself. The reasons for this are diverse; one example is the use of statistics about unemployment in China, which is severely understated with the purpose of masking the true extend of the crisis in China, especially amongst its rural population. It is implied therefore that any data used in this dissertation, which is based on official Chinese data, should be treated with prudence, and conclusion drawn from this data must be made cautiously in the light of the above.


[1] Additionally, 450m German Marks (about €225) were offered to Infineon at that time as tax incentives to build the factory in Dresden and not abroad ( 2001).

[2] Typically, a dispute arises when one country adopts a trade policy measure or takes some action that another fellow-WTO member considers to be breaking WTO agreements, or to be a failure to live up to agreed obligations.

[3] For a more detailed discussions of the measurable benefits as seen by the OECD, refer to Moore (2000a).

[4] One exception here being China, who had joined GATT, the forerunner of the WTO, in 1948, only to withdraw in 1949 under the Nationalist government (The Economist 1998).

[5] In December 1978, China opened its doors to foreign businesses, which was previously restricted to the USSR, for investment and technology to revive the Chinese economy. For more information, refer to BBC News (2001) and Hoogmartens (2001).

[6] This ‘approach to research’ is often termed methodology, normally understood as the ontological and epistemological assumptions on which research is based (for example, Noorderhaven 2000).

[7] Next to triangulation, there are other techniques that help enhancing the trustworthiness of qualitative analysis, like testing rival explanations, looking for negative or atypical cases, or keeping methods and data in context (Patton 1990).

[8] It should be noted that the concept of triangulation is not without its opponents. Sim & Sharp (1998) for instance argue that triangulation is not always a feasible approach, or, more to the point, even necessary in many research projects. The authors also point to the difficulty of using triangulation as a tool in a meaningful way. Overall, the authors suggest that triangulation should be approached in a “cautious and critical way“. Saunders et al. (2002) are also fierce opponents of triangulation, arguing that if often does more harm than good.

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Post-WTO economic effects on state-owned enterprises in China
University of Manchester  (Manchester School of Management)
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Post-WTO, China
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Ben Beiske (Author), 2003, Post-WTO economic effects on state-owned enterprises in China, Munich, GRIN Verlag,


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