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2011-12-13 | All chapters

Growing criticism over stalled progress
Financial Times, 11th December 2011

China’s accession to the World Trade Organisation is regarded as probably the country’s most significant economic event since it began market-based reforms in the late 1970s.

 

Few disagree that the changes it ushered in have been hugely positive for China and also for many companies and countries that deal with it.

 

But as it celebrates the 10th anniversary of accession, Beijing faces growing criticism from trade partners and investors who say progress has stalled and reforms are being rolled back.

 

“Increasingly, trade frictions with China can be traced to China’s pursuit of industrial policies that rely on trade-distorting government actions to promote or protect China’s state-owned enterprises and domestic industries,” said Michael Punke, the US ambassador to the WTO in a speech last month. “In fact, China seems to be embracing state capitalism more strongly each year, rather than continuing to move toward the economic reform goals that originally drove its pursuit of WTO membership.”

 

To be fair, even vehement critics acknowledge Beijing did meet the majority of specific accession commitments in the first five years or so.

 

Before it joined the body, trading with the outside world was monopolised by a few state agents, punitive import quotas and tariffs remained, and most Chinese people were not allowed to own passports or travel abroad.

 

“China joining the WTO brought drastic changes, not just to the Chinese economy but to the global economic landscape as well,” says Dirk Moens, president of the European Union Chamber of Commerce in China, an organisation that was set up specifically to monitor China’s compliance with its WTO commitments. “Overall, the accession was very successful – some people say it was the WTO’s most successful – and China has been quite careful to comply with the letter of its accession protocols.”

 

But while it is difficult to point to specific violations of the accession agreement, many companies and trade partners feel that China has not adhered to the spirit of the deal, particularly in recent years.

 

The disquiet has been heightened by the enormous trade surpluses China has racked up each year since it joined. Although these have started to shrink since the 2008 financial crisis they remain a constant source of tension with trade partners.

 

In a recent EU Chamber survey of European companies in China, just 25 per cent said they believed Beijing was implementing its commitments under WTO, while 31 per cent said they believed the government wanted to be compliant but was unable to implement its commitments effectively.

 

Another 23 per cent said they did not believe China was even trying to be compliant and had intentionally created loopholes to get around the rules.

 

In the last few years, these critics say the attitude towards overseas investors has grown increasingly hostile despite Bejiing’s WTO promise to grant “national treatment” to overseas businesses.

 

“China has not yet made a complete transition to a market economy and in recent years we have really seen a period of reform fatigue set in among policymakers following a very intense period of opening,” says Christian Murck, president of the American Chamber of Commerce in China.

 

On entry in 2001 China said it would join the Government Procurement Agreement “as soon as possible”, thereby opening an estimated $1,000bn market to foreign businesses, but Beijing has not yet made a serious proposal that would allow it to join the agreement.

 

In financial services, China has used a range of regulatory hurdles and cumbersome licensing requirements to shut out foreign players, particularly in the insurance sector, where four out of five foreign insurers are losing money.

 

In its original WTO agreement, a key promise China made was to provide greater protection for intellectual property rights, yet pirating of foreign products and theft of commercial and trade secrets remains rampant.

 

But that battle continues with the US keeping up the pressure fore Beijing to do more.

 

“US firms want fair opportunities to export to China’s markets and a level playing field for competition,” Hillary Clinton, the US secretary of state, said a speech last month.

 

The US is pushing China to “end unfair discrimination against US and other foreign companies, and we are working to protect innovative technologies [and] remove competition-distorting preferences.”