The role of World Trade Organization in China’s Economic Rise

Business and Economy International/World Opinion and Essay

Newsie Events:– #Opinion

At the end of the 20th century, a century where China, in its quest for economic development, faced a draconian period with fatal economic consequences under Mao Zedong and a radical period with progressive economic changes under the leadership of Deng, the country was still enmeshed within the misery of poverty and other evidence of the third worldness.

The real rapid rise of the Chinese economy began in the year 2001. 19 years down the line, China has become the world’s factory, the biggest economy in the world by purchasing power parity(PPP), and the second-largest economy in the world behind the United States of America, lifting over 300 million persons from poverty in the process.

How did this happen?

Mao Zedong’s draconian policies are out of the way for me. While I am in support of the perspective that argues that Deng, not Mao, laid the foundation for a new China, It was however the acceptance of China into the World Trade Organization (WTO) in 2001 that worked this economic magic.

Before being accepted into the World Trade Organization in 2001, China has been negotiating to be part of the WTO for 15 long years.

Accepting the Chinese into the WTO opened up the Chinese economy properly to the international market. It was this opening and not the closed down communist system supervised by Mao Zedong that made China what it is.

The direct implications of China’s entrance into the World Trade Organization led to astounding growth in Chinese exports. For you to be a developed economy in today’s modern world economy, you must be a production inclined and export-based economy. The entrance into the WTO helped China boost its export level astronomically. It helped reduced the tariffs on China’s import and the tariff placed on China’s products by other countries. This opened up the markets in other countries to the Chinese. One of the conditions of membership of the WTO is liberalisation. Joining the WTO forced China to give up a large chunk of its protectionist policies by opening the Chinese economy to investors around the world.

Now, with the market in China and the lower costs of production in China as a result of access to cheaper raw materials and labour coupled with the favourable value of the Chinese currency, China became an investment haven. With increased Foreign Direct Investment (FDI) came technology transfer and increase in Chinese capital. Some of the biggest producing factories in the world will prefer to go to China, produce and sell back to their home country due to the relatively lower production cost advantage that comes with producing in China.

It was this access to the World Trade Organisation that led to an increase in Chinese exports, resulting in greater economic growth. This gave China better market access to 152 World Trade Organisation (WTO) trade partners. China was given a Most Favoured Nation (MFN) status in the World Trade Organisation (WTO). The MFN clause of the WTO agreements helps prevent discrimination against Chinese exports in other countries. Greater foreign market access created a surge in the export of Chinese products.

From 2002 to 2007, net exports as a share of GDP in China increased from 2.6% to 7.7%. By 2010, China’s current account balance was $305 billion. China’s exports have primarily been labour-intensive manufactured goods due to China’s abundance of inexpensive labour. This focus on labour-intensive manufacturing shifted workers away from the primary sector towards the secondary sector. The percentage of workers employed in agriculture decreased from 50% in 2001 to 11.2% in 2010. Furthermore, the percent of GDP that is attributed to the primary sector decreased from 23.5% in 1994 to 11.7% in 2006.

As more labour-intensive products are manufactured, there is a greater demand for labour to continue production. This higher demand resulted in rising real wages in China across industries. From
2001 to 2006 real annual wages across industries doubled from 12,000 yuan on average to 24,000 yuan, in terms of 2007.

Access to the WTO, however, reduced restrictions on FDI in China, resulting in a new surge in FDI inflows to China. From 2001 to 2002 alone FDI inflows increase by 30%. The growth of FDI has been shown to help accelerate export growth. Foreign-invested firms (FIFs) are some of the largest exporters in China, with their processed exports totaling 45% of Chinese exports. FDI also helps stimulate employment.

Between 2001 and 2006 FIFs provided an additional 11 million jobs in China. The greater access to foreign markets for Chinese exports as well as the increased FDI inflows brought by China’s access to the WTO has greatly benefited the Chinese economy.

Trade Policies changed China’s fortune. This has gone ahead to reiterate the importance of trade in a country’s development.

Nevertheless, China made sure it took advantage of its membership of the WTO and positioned itself to harvest from the deal it entered in 2001.

The formula is this: Get your basics right, improve your production capacity and economic environment, and take advantage of Trade Deals. When you get to that last stage where you want to enter into trade deals, make sure you have the best and toughest negotiators and experts.

Access to the World Trade Organisation changed China’s history. Although they have been claims of deceptive and unfair practices by the Chinese government, China has become an economic power, 19 years after joining the WTO, it has cashed out. Jackpot!

Caleb Onyeabor writes from Enugu and can be reached on WhatsApp via +2347032829241

 

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