WORLD TRADE ORGANISATION MEMBERSHIP IS A SUCCESS
It is five years since the biggest economic transformation in the modern world was put on to a permanent footing, and China joined the World Trade Organisation.
From China's point of view, WTO membership has been an almost unmitigated success.
However, its dominance of certain sectors of world trade has created a backlash, and some of its gains may have come at too high a price.
China's astonishing export success is not entirely due to WTO membership.
The country had already seen annual exports grow from $20bn to nearly $300bn in the two decades between the beginning of the market-oriented economic reforms and WTO entry in 2001.
During this time, its market access was at the whim of trading partners and it had no access to WTO negotiations and the dispute settlement process.
Still, its pace picked up further after 2001. Last year's combined imports and exports came to $1.4bn and this year's are predicted at $1.7bn, more than three times their level in 2001.
China is one of the economies – which are actually somewhat rarer than governments' obsessions with official trade deals might suggest – that have clearly and rapidly benefited from the lifting of formal tariff and quota barriers.
A combination of cheap and abundant labour, relatively good infrastructure and big incentives for both domestic and foreign direct investment has produced a manufacturing sector perpetually straining at the leash of market access.
When the transition period for the Multi-Fibre Arrangement, a global quota system for textiles and garments, came to an end in 2005, for example, China rapidly increased its share of the global garment market.
There has been some high-profile resistance, with both the EU and the US slapping on emergency “safeguard” quotas to hold back the tidal wave of Chinese exports, but the restrictions are limited in scale and time.
Unless trade restrictions increase markedly, China's dominance of low-cost manufacturing market is likely to continue.
Indeed, along with its increased exports, China has become a favoured scapegoat among other WTO members for the growing imbalances in the global economy, which have seen the US current account deficit rise from what was considered at the time a worrying level of 4 per cent of gross domestic product in 2001 to an unprecedented 7 per cent.
China is the number one target for so called “anti-dumping” actions – emergency import tariffs applied when goods from overseas are apparently being subsidised in world markets to gain global share.
The continuing role of the state in the economy has undermined China's bid to gain “market economy” status. MES would mean that trading partners seeking to prove that Chinese goods were dumped in their markets would have to compare them with prices within China itself.
Currently they can cherry-pick price comparators from a supposedly similar economy, a process that produces data which almost always back the dumping allegation.
The preponderance of low-value-added processing and assembly operations in the Chinese economy makes it a target for protectionist political ire that is disproportionate to its actual size.
China is the world's third biggest exporter on a gross basis, but in fact much of that reflects its position at the end of an assembly line throughout Asia.
Its trade surplus with the US is matched by huge deficits with surrounding economies. This makes it vulnerable to a sharp drop-off in US demand, whether the result of a general economic contraction in North America or to the imposition of protectionist measures against Chinese exports.
In fact, looked at from this perspective, a good chunk of China's much-vaunted export sector looks almost semi-detached, comprising as it does foreign-owned companies assembling imported components to re-export to foreign markets.
Last year, low-value added processing and assembly operations contributed 55 per cent of China's total exports of $762bn, and most of the processing exports came from foreign-funded enterprises.
There are some signs that Chinese exports are beginning to diversify.
Wang Jinzhen, secretary-general of the China Council for the Promotion of International Trade, says that 30 per cent of Chinese exports are now high-tech goods.
“It was OK to get large amounts of foreign investment for low-tech assembly 20 years ago, but we now have to increase the technological level of our production,” he says.
Certainly. this is somewhat true on a geographical basis, although the shift remains modest: Goldman Sachs economists estimate that 24 per cent of Chinese exports have gone to the US in 2006 to date, down from 29 per cent in 2002.
In addition, more multinational corporations are shifting higher-value added operations including research and development to China.
But the opacity of the data means that the magnitude of a real shift in exports away from cheap processing operations for manufacturers is hard to pin down.
