After the formal acceptance of China to the World Trade Organization (WTO) on 11 December in 2001, the majority of Chinese and Western press praised the mammoth progress in the ambition to worldwide international free trade (Solinger, 2003). Mike Moore, the former Director-General of the WTO, proclaimed the advantages of China’s access to the WTO in an acutely optimistic way: “The benefits for China are clear. Opening its markets to foreign trade and investment will make it richer.” (Moore, 2000). The Chinese government also perceived the potential advantages for domestic economy. On the one hand foreign trading partners would enlarge their business activi-ties in China, if China’s authorities and businesses would operate within agreed rules and standards. Thus the increasing trade revenues could stimulate economic growth and development. On the other hand China could increase its political power by verifying to be a member of the community of the great trading nations which further would encour-age the Chinese as well as the Asian influence on world’s policy on trade (Holton; Lin, 1998).
The entry to the WTO exerts great impact on China’s businesses; small and medium sized firms as well as on state-owned enterprises. The Chinese companies more and more become element of international added value chains. International competition influences the efficiency of companies and privatization not stops in front of the doors of state companies. The paper will present what it took China to join the WTO and point out the main effects for the Chinese manufacture, financial and agriculture sector.
Table of Contents
I. Introduction
II. What China took to join the WTO
III. The Main Effects of the WTO Membership for Chinese Businesses
Conclusion
Objectives and Topics
This assignment explores China's motivations for joining the World Trade Organization (WTO) and analyzes the significant impacts this membership has had on various Chinese economic sectors since its accession in 2001.
- Motivations for China's WTO accession
- Integration into global value chains and trade liberalization
- Effects on the manufacturing and agricultural sectors
- Developments within the Chinese financial and banking industries
- Role of Foreign Direct Investment (FDI) in China's economic transformation
Excerpt from the Book
III. The Main Effects of the WTO Membership for Chinese Businesses
After almost 15 years of negotiations China achieved the benevolence to become a member of the WTO. Yet that benevolence was not for free. To take advantage of the broad economic opportunities, China had to comply with certain requirements. On the one hand, China had to commit to open market access for foreign investments, goods and services as well as reductions of tariffs and achieve various liberalization targets according to China’s integration in the world’s trading framework. On the other hand, China had to establish higher transparency on national legal and administrative issues (Farah, 2006). However, the successive decline of the Chinese protectionism caused a plurality of positive effects to many of the Chinese businesses.
After China’s WTO entry the controversial advantages of China’s domestic enterprises eroded. China offered and still offers broad incentives for FDIs. For instance China has a separate tax code for foreign companies, allowing foreign investors to pay reduced taxes on their profits. Until the end of 2006, foreign funded enterprises (FFE) had to pay 15 percent whereas domestic firms paid 33 percent. Yet at the end of December 2006 the Chinese government submitted a draft about the unification of the tax rates to 25 percent for both domestic and foreign companies (WTO, 2007b). However, since the WTO entry, China has also removed the barriers in sectors that were limited or inaccessible to foreign enterprises, e.g. in the financial sector, including banking and insurance, the telecommunication sector as well as manufacturing and transport (WTO, 2007a).
Summary of Chapters
I. Introduction: This chapter introduces China's accession to the WTO and outlines the government's expectations regarding economic growth, foreign investment, and increased international political influence.
II. What China took to join the WTO: This section details the historical context of China's move toward accession, the necessary economic reforms, and the strategic rationale behind aligning with international trade standards.
III. The Main Effects of the WTO Membership for Chinese Businesses: This chapter analyzes the tangible impacts of WTO membership, focusing on FDI, the evolution of the manufacturing sector, changes in financial markets, and the shifting dynamics in the agricultural sector.
Conclusion: The conclusion synthesizes the findings, noting that while China has grown wealthier and more integrated into the global economy, the transition has created challenges regarding income inequality and increased domestic and international competition.
Keywords
China, WTO, World Trade Organization, International Trade, Foreign Direct Investment, FDI, Economic Reform, Manufacturing Sector, Financial Sector, Agriculture, Market Access, Globalization, Trade Liberalization, Economic Growth, Banking
Frequently Asked Questions
What is the primary focus of this paper?
The paper examines China's path to WTO membership and evaluates the resulting economic effects on Chinese businesses across key sectors.
What were the main reasons for China wanting to join the WTO?
China aimed to boost economic growth, attract foreign investment, modernize its industrial base, and gain greater influence over international trade policy.
Which scientific method is utilized in this study?
The study employs a descriptive and analytical approach, synthesizing existing economic theories and empirical data from international organizations to assess trade impacts.
Which sectors are highlighted as being most affected by the WTO entry?
The manufacturing, financial (banking/insurance), and agricultural sectors are identified as the areas experiencing the most significant structural changes.
What role does Foreign Direct Investment (FDI) play in this context?
FDI is shown to be a critical driver for capital accumulation, technology transfer, and the increased competitiveness of Chinese firms in global markets.
How is the current status of the Chinese agricultural sector described?
The agricultural sector is characterized by ambivalence; while it remains vital, it faces challenges such as lower income growth compared to urban industrial sectors and increased exposure to global price competition.
What does the data suggest about the Shanghai Stock Exchange?
The data indicates that market capitalization and foreign interest in the Shanghai Stock Exchange surged following the 1999 WTO negotiations and subsequent financial reforms.
Did China achieve its goal of becoming wealthier through the WTO?
Yes, the paper concludes that China's assimilation into global trade standards has successfully contributed to substantial economic growth, consistent with international trade theory.
- Quote paper
- Matthias Bauer (Author), 2007, China and the WTO, Munich, GRIN Verlag, https://www.grin.com/document/88822
