Chief WTO negotiator anticipates next decade of China

(Global Times)

08:10, September 16, 2011

A female worker in a textile factory in Huabei, Anhui Province. Photo: CFP
In the next decade, China needs to open up its market further and ensure fair treatment not only for foreign competitors but also for domestic small- and medium-sized enterprises (SMEs), Long Yongtu, China’s former chief negotiator with the World Trade Organisation (WTO), told the Global Times in an exclusive interview.

Long was China’s chief WTO negotiator from January 1995 to September 2001. In November 2001, China was accepted as a full WTO member. Long won the world’s respect for his wisdom and charisma during the negotiations.

“China’s decision to join the WTO greatly boosted its economic growth and also contributed to the world economy,” said Long. “Negotiators of both sides, including myself, didn’t expect at that time that China’s economy would grow so fast.”

China’s economy has grown at an average annual rate of above 10 percent in the past decade, and is now the world’s second largest, having been the sixth largest 10 years ago. Strong trade growth has been the driving force.

China’s trade value of about $3 trillion last year was six times that of 2001 when it joined the WTO. Foreign direct investment (FDI) in China exceeded $100 billion in 2010 for the first time, making the country the world’s second biggest destination for FDI after the US, according to statistics from the United Nations Conference on Trade and Development.

With a stronger economy and surging mergers and acquisitions by Chinese companies in overseas markets, outbound investment has also grown at unprecedented speed, rising to $68 billion in 2010, almost 23 times the $3 billion of 2001.

By 2010, China had fulfilled its commitment to cut the average tariff for industrial goods and agricultural goods to 8.9 and 15 percent respectively, as agreed when it joined the WTO. 

China’s chief WTO negotiator Long Yongtu. Photo: CFP
Automaking competitive

In terms of market openness, the auto industry is a good example, said Long. “Cars are no longer owned by the few. Many families own cars now. It’s the biggest comfort to me as a negotiator, as the policy changes have benefited the people.”

China used to levy a tariff of 150 to 200 percent on imported cars, as well as applying an import quota before it joined the WTO, in order to protect the domestic auto industry. 

After joining the WTO, however, the tariff on imported cars had to be significantly reduced, and is now 13.4 percent on average. “With giant foreign carmakers entering the local market to compete, it is the Chinese automakers and consumers who benefited most. The auto industry can only develop in an open, competitive environment,” said Long.

China overtook the US to become the world’s largest auto market in 2009. In 2010, production and sales topped 18 million units. On average, there is now one car among 17 Chinese people, whereas in India there is one among 56 people.

The country’s automakers are now more competitive, and maybe it’s time for China to lift the 50-50 limit for joint ventures and allow foreign carmakers to set up wholly owned companies in China, Dirk Moens, secretary-general of the European Union Chamber of Commerce, told the Global Times. 

“From a competition perspective, I personally believe that China’s auto industry is strong enough to compete globally. But the authorities might still consider the big picture and think that it’s a little too early to totally open the market as the auto industry has a long supply chain and provides a large number of jobs and the potential impact could be huge,” he said.
Financial reform too slow 

“Looking back, we realize that China’s financial reform could have been expedited and could have played a more important role in economic restructuring if China had been more open,” said Long.

However, in the shadow of the Asian financial crisis of 1997 and 1998, China’s policymakers considered it too risky at that time to open the financial market too soon.

“We estimated during the negotiations that foreign banks and insurance companies might have a market share of between 10 and 15 percent in China within 10 years,” said Long. 

Although there are now some 338 foreign banks operating in China, together they hold less than 2 percent of the country’s total financial assets, according to the American Chamber of Commerce White Paper 2011. By the end of 2010, the market share of foreign-invested insurance companies stood at 4.37 percent in the world’s fastest growing insurance market, down from six percent in 2004, the paper stated. 

“Their market share is too low. Looking back, we set too many restrictions and too tight a threshold for foreign banks, insurance and securities firms to enter China at that time,” said Long.

China agreed to fully open its banking system to foreign financial institutions by the end of 2006. However, some restrictive measures still exist, including complicated regulatory approval for new products. 

“Due to the lack of foreign competition, China’s banking sector hasn’t become sophisticated enough to transfer large foreign reserves to effective investment. Also, China’s financial industry can’t offer more financial products to people for wealth management. And there need to be more investment opportunities than the volatile stock market and the bubbling housing market,” Long noted.

Had China’s banking sector been more developed and able to provide people, especially young people, with better financial products, people’s spending power and consumption would have been much greater by today, he said.
Trade friction frequent 

Amid uncertainties in the world economy caused by the European debt crisis and slowing economic recovery in the US, many trade disputes have been filed against China, now the world’s main manufacturing center.

The US Commerce Department said on August 30 that it was setting preliminary duties on galvanized steel wire and certain steel wheels from China to offset Chinese government subsidies. Earlier this year, the department imposed duties on drill pipe and wood flooring from China. In 2009, the US government imposed a tariff of up to 35 percent on Chinese tires. The US trade deficit with China was $268 billion in 2008 and $273 billion in 2010, according to figures from the US-China Economic and Security Review Commission and the US-China Business Council.

“Trade frictions only generate less than 2 percent of total trade value. We shouldn’t exaggerate trade frictions,” said Long. 

As long as a country’s measures are compliant with WTO rules and not introduced out of domestic political needs, they shouldn’t be counted as trade protectionism, he said. 

The US is the world leader in international trade, and it’s inevitable that there will be trade frictions with China, which ranks second. 

“You’ll never have trade friction if you do not engage in trade,” Long remarked.

China’s imports totaled $1.4 trillion last year, from which the US benefited most, Long noted. After China joined the WTO, the US granted China permanent normal trade relations status, and modified its law to remove the annual review of China’s trade status, which greatly boosted bilateral trade.

The success in the past proves that “win-win” should be the universal rule. 

“Chinese companies must get used to responding to litigation,” said Long. In July this year, the WTO Appellate Body supported China’s position against the EU’s application of antidumping tariffs on imports of certain metal fasteners from China, marking Beijing’s biggest legal victory over the EU so far at the WTO.
Exports still vital

“In no way should China let go of labor intensive exports,” said Long. 

The increase in exports indicates that Chinese products are still competitive, and there is no country in the world that is willing to reduce its exports. China is still in the process of urbanization, and labor-intensive export industries can create job opportunities for migrant workers, which is vital for urbanization, Long noted.

But China also needs to prevent an increasing trade surplus, which might cause discontent among its trading partners. Reducing the trade surplus does not mean reducing exports but increasing imports. In this way, China can fully utilize overseas markets to bring the world’s best products to Chinese consumers, Long advised.

However, labor-intensive exports have placed China at the low-end of the international value chain, leading to price wars among exporters and reduced salaries, Jia Genliang, an economics professor with Renmin University of China, wrote in a recent article published on wyzxsx.com, a Beijing-based political and economics reviews website.

Jia suggested that China set up protective policies for industries producing high-end products and even consider withdrawing from the WTO.

Ten years after China joined the WTO, ordinary people still can’t afford soaring medical bills and housing, and some goods are even more expensive in China than in developed countries, said Jia, placing a question mark over the success of China’s accession to the international trade group.

The added value of China’s exports remains low. Based on a recent study by the Asian Development Bank Institute, Apple’s iPhone contributed $1.9 billion to the US trade deficit with China. But if China’s iPhone exports to the US were measured in terms of value added – meaning the value added by China to the components – those exports would come to only $73.5 million, Pascal Lamy, director-general of the WTO, wrote in a commentary for the Financial Times in January. 

Equal treatment

China can still improve in terms of the spirit of the WTO, said Long.

There are two cornerstones of the WTO: absence of discrimination, and most-favored-nation treatment. In many ways, small private companies in China don’t get the same treatment as large State-owned enterprises (SOEs), said Long.

SMEs account for 90 percent of all Chinese enterprises, offering about 75 percent of the total number of jobs and playing a key role in maintaining social stability. 

Yet preferential policies are often given to large SOEs, as they create wealth and contribute more tax revenue.
“In China, fair distribution of wealth and social stability is more important than wealth creation,” said Long. “It is time to give SMEs national treatment,” he noted. 

Banks are willing to make easy money with large SOE customers and avoid dealing with SMEs at high costs, as most SMEs are also private companies. 

This unequal treatment has existed for a long time. Long suggested that policymakers should even consider giving SMEs preferential treatment such as tax cuts as they create most of the jobs. 

“We promote the concept of equal treatment externally, but we adopt discriminative policies against smaller domestic enterprises,” he said.

“If China fails to treat domestic companies equally, some foreign SMEs interested in entering China will hesitate to do so, for fear of discriminative treatment. China’s enterprises investing abroad also wish to get fair treatment. How could we ask foreign counterparts to grant our companies equal treatment without treating our own enterprises the same way?”

“WTO principles emphasize transparency, but some policymaking processes are not transparent enough. The win-win principle is also important, and irrational regional competition should be avoided, as it’s against the fair competition principle of the WTO,” he said. 

Most Popular

• Massive manhunt on after prison break n…
• Japan premier talks tough on China's mi…
• FBI hunts hacker over Scarlet Johansson…
• Wenzhou train crash probe blames human …
• Four given death sentences for terroris…
• China vows to boost European investment
• 19 fallen Chinese expeditionary soldier…
• Left-behind girl desires for parents' l…
• Qiantang River tide — World's spectacul…
• Expert was a cheat, say accusers

Opinions

1. China's investments boost US economic recovery
2. Woman cuts watershed for China’s charities
3. Food safety supervision overwhelms food crime
4. China's actions in Libya show diplomatic maturity
5. Living in Beijing more expensive than New York?
6. Middle East turbulence not over yet
7. Trajectories of China, US diverged after 9/11
8. China's role in world monetary system positive
9. Sting of inflation hits campuses
10. The poor need the state, family and philanthropy

What's happening in China

Scientists under the microscope?

1. Death toll in bus overturn in Shanghai rises to 11
2. Bullet train ticket sales going online
3. China prepares for 5th Car-Free Day
4. Production halted as poisoning investigated
5. Red Cross needs rebirth: student

PD Online Data

1. Lusheng Dance of Miao
2. Nujiang: Lisu & Pumi Minorities
3. Lijiang: Naxi Minority
4. Xishuangbanna: Dai Minority
5. Tibetan Minority

  【1】 【2】 【3】 【4】 【5】 【6】 

Email|Print|Comments（Editor：梁军）

Increases the bookmark

• twitter
• facebook
• Sina Microblog
• digg
• Google
• Delicious
• buzz
• friendfeed
• Linkedin
• diigo
• reddit
• stumbleupon
• Qzone
• QQ Microblog

Related Reading

1. ADB cuts China's growth forecast to 9.3 pct for 2011
2. Inflation turning point to come, but monetary tightening should continue: experts
3. Taming inflation still China's priority: central bank
4. Opinion: China's economy has landed, safely (2)
5. Opinion: China's economy has landed, safely
6. Brokerages predict China's CPI to be no higher than 6 pct in August

Leave your comment0 comments

1. Name
2. 
   

Weekly review

1. China issues white paper on peaceful development
2. New western colonialism emerges in Libya
3. Opinion: China's economy has landed, safely
4. 9/11 marked turning point in world landscape
5. Beijing orders thorough probe into oil spills
6. Why were we too slow responding to Bohai oil spill?
7. No date for fully convertible yuan
8. The week in pictures