China's pattern of trade and growth after WTO accession. Lessons for other developing countries

Pages178-210
DOIhttps://doi.org/10.1108/17544400910994751
Publication Date02 October 2009
AuthorLongyue Zhao,Yan Wang
SubjectEconomics
JCEFTS
2,3
178
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 2 No. 3, 2009
pp. 178-210
#Emerald Group Publishing Limited
1754-4408
DOI 10.1108/17544400910994751
Revised 6 July 2009
China’s pattern of trade and
growth after WTO accession
Lessons for other developing countries
Longyue Zhao and Yan Wang
The World Bank, Washington, District of Columbia, USA
Abstract
Purpose – World Trade Organization (WTO) accession marked a new beginning for China’s
economic, legal and institutional reforms and rapid integration with the rest of the world. The
purpose of this paper is to review China’s post-WTO transition experience, synthesize and update
studies on China’s pattern of trade and structural transformation, and provide both positive and
negative lessons for other developing countries.
Design/methodology/approach – The paper has broadly reviewed the latest policy changes after
China’s WTO accession, and literatures on China’strade and economic development issues in order to
understand the Chinese success and its speciality, and draw some useful lessons for both China’s
decision-makers and other developing countries.
Findings – There are two main findings: first, market liberalization alone is not sufficient, and
economic system reform and the liberalization are closely related and complement and promote each
other. Second, experimentations via special economic zones (SEZs) and opening to foreign direct
investment (FDI), which facilitated and supported cluster development and lear ning-by-doing, are
needed for industrial upgrading and export competitiveness.
Originality/value – The paper demonstrates the wisdom of China’s simultaneous pursuit of
domestic economic system reform, and opening to the international market. However, China has also
paid a high social and environmental cost for its rapid growth. It is important for developing
countries to have an exclusive, balanced and sustainable strategy in the future development.
Keywords China, Trade, Economic growth, Economic reform
Paper type General review
1. Introduction
All eyes are on China as the global economy fell into the worst recession in the
recent history. China has achieved in the last three decades sustained economic
growth and the most rapid poverty reduction in the world history. As of 2008, the
real gross domestic product (GDP) expanded at an annual average pace of mo re
than 10 percent[1]. China has grown to be the third largest economy and the third
largest trading nation in the world[2]. A new World Bank study showed that using
the $1.25 per-day consumption measure, the proportion of the population living in
poverty fell from 84 percent in 1981 to 15.6 percent in 2005, and over 600 million
people were lifted out of poverty (Chen and Ravallion, 2008). During the cur rent
global downturn, China’s economy was hit hard, export declined by 20 percent
year on year in the first quarter. However, the economic growth has shown signs
The current issue and full text archive of this journal is available at
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The views expressed in this paper are those of the authors, and not necessarily those of the
institutions to which they belong. The authors wish to thank Justin Lin, Caroline Freund, Will
Martin, Phil Schuler (World Bank), Zhi Wang (USITC),Shang-Jin Wei (Columbia University) for
comments and suggestions; and Bintao Wang for research assistance and Mark V. Stratman for
editing. Two anonymous referees are gratefully acknowledged.
China’s pattern
of trade and
growth
179
of early recovery thanks to the large fiscal stimulus and supporting policies (see
Figure 1).
Our focus is China’s approach to institutional reforms (gaige) and openness to trade
and investment (kaifang), what worked, what did not and why. According to previous
studies, pragmatic policy reforms that established homegrown institutions, which
resulted from the wealth of understanding gained from policy experimentations,
seemed to be key to growth and poverty reduction in the first stage of reforms (Lin,
2007; Wang, 2005). Examples include the household responsibility systems, township
and village enterprises (TVEs) and special economic zones (SEZs), all of which were
institutional experiments implemented in the early 1980s. Along with rapid industrial
growth and upgrading, China’s economic structure is transforming from an agrarian
economy in the 1980s to one of the world’s largestmanu facturing centers (Figure 2).
Pre-WTO (World Trade Organization) preparation and the accession in 2001
marked a new beginning for China as it had to introduce modern and international-
best-practice institutions, and to bring its laws and regulations into conformity with
WTO rules. WTO accession and post-WTO reforms have transformed the investment
climate in China, making it more secure, transparent, rules-based and law-binding.
This has propelled rapid growth in import and expor t, and has attracted more foreign
direct investment. Just before the recent slowdown, total trade has been expanding at
an annual average rate of more than 35 percent and export structu re is upgrading
rapidly since China’s accession.
However, with the global economic crisis caused by a financial crisis started in the
industrial countries, China is also facing serious challenges. Owing to weak exter nal
demand, export and import declined sharply in the second half of 2008 and first
quarter of 2009. Unemployment rose dramatically, hurting the rural migrant workers
in particular. Concerns have risen over a wide variety of issues involving the rapidly
growing current account surplus, continuing imbalances among primary, secondary
Figure 1.
China’s economic growth
rates, 1978-2008
JCEFTS
2,3
180
and tertiary sectors, rising income inequality between urban and r ural households,
declining share of domestic consumption in GDP, as well as environmentalde gradation
and sustainability issues. Trade tension is on the rise with major trading partners as
reflected by the number of anti-dumping and countervailing cases (Zhao and Wang,
2008). From 1 January 1995, to 31 December 2008, a total of 3,427 anti-dumping (AD)
and 215 countervailing duty (CVD) initiations were notified to the WTO by reporting
members, of which there were 677 AD and 23 CVD initiations against China. In 2008
alone, 73 AD cases and 10 CVD cases were initiated against China’s imports[3].
Eight years after the WTO accession, China’s transition period as a new WTO
member is over. It is now the right time to assess China’s experience from
implementing WTO commitment in the last eight years, and to draw some lessons for
currently acceding countries and recently acceded WTO members[4]. However, China
is unique in many senses. It is a large developing country, transitioning from a
centrally planned economy to a market economy with an abundant, well-educated
labor force. China’s incremental and experimental strategies for economic reform,
pragmatic and gradual liberalization have also been unique and unorthodo x.
There are several key questions. How have these strategies, including second-best
institutions like SEZs and supporting policies, affected trade patterns and the quality
aspects of growth including trade imbalances? Has China followed its comparative
advantage defying (CAD) or comparative advantage following (CAF) strategy (see
definitions in Lin, 2007)? What positive and negative experiences and lessons can be
drawn fromthe China story?
This study aims to synthesize and update China’s trade and economic development
patterns after its accession to the WTO, focusing on issues related to the imbalances
China is facing, and to derive some lessons for recently acceded and currently acceding,
developing country members. Notwithstanding all its virtues and success so far, China
may still be in need of economic rebalancing. The Chinese leadership has decided to
alter fundamentally the country’s development strategy by transforming the p attern of
economic growth in an effort to ‘‘building a harmonious society.’’ However, China’s
Figure 2.
Rapid structure
transformation in China

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