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How WTO membership made China the workshop of the world

China's entry into the World Trade Organization (WTO) a decade ago primed it for high-speed growth. Other countries have seen benefits as well – but say China has also become adept at getting around the rules.

By Staff writer / December 14, 2011

A visitor at the China Import and Export Fair in Guangzhou (once known as Canton) checked out hair dryers this fall. Declining demand for consumer goods in the US and Europe may hurt China’s export-driven economy.

Bobby Yip/Reuters

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Beijing

Ten years ago this week, when China joined the World Trade Organization (WTO) and opened its economy to the world, many Chinese commentators warned that the country was "dancing with wolves," laying itself bare to attack by ravenous competitors in a foolhardy and possibly fatal misstep.

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Today, the tables have turned. "Those who dance with wolves," opined an editorial in Monday's issue of the People's Daily, the ruling Communist Party's official organ, "can show a hero's mettle."

Indeed, China has become the workshop of the world, while whole industries have disappeared from America and Europe. Membership in the WTO, which sets global rules for trade and investment, has proved to be an unmitigated success for China, priming the economy for its fastest-ever 10 years of growth. Foreign businessmen, though, see a more nuanced picture.

"They've figured out how to get around the rules," says James McGregor, senior counselor with the APCO business consultancy in Beijing. "The state-capitalist system they have developed is incompatible with much of the WTO structure."

It is hard to imagine the world economy today without China in the WTO, if only because its membership reflects the fact that "China can't leave the world, and the world needs China," as deputy Commerce Minister Yu Jinhua said last month.

The WTO has "deeply integrated China into global production networks," says Scott Kennedy, who heads Indiana University's Research Center for Chinese Politics and Business. "We'd have seen a very different pattern of globalization if China had not been in [it]."

The benefits that Beijing has reaped, even at the cost of significant concessions to its trading partners during the 14 years of negotiations that led to its WTO accession, are obvious. Its trade has leapt fivefold over the past 10 years, and China is now the biggest exporter in the world and the second-largest importer, after the United States.

Most of China's success due to WTO

"Seventy percent of China's economic achievements this decade can be attributed to our membership in the WTO," says Zhang Hanlin, head of the WTO Studies Institute at the University of International Business and Economics in Beijing.

That trade boom has helped other nations, too. Chinese imports "have become a major driving force for global economic growth," argues a government white paper issued earlier this month, and created 14 million jobs abroad, Mr. Yu estimates.

Foreign companies that have invested in China have saved on costs, which has kept inflation low in consumer countries such as the US, and China has loaned more than $1 trillion of its trade surplus to Washington, allowing consumers to continue to spend.

Though millions of jobs have been lost in the West, "overall, the positive side is far better than the downside" for China's trading partners, argues Professor Kennedy.

Not that China has completely kept all the promises it made when it joined the WTO. At the top of foreign companies' complaints is Chinese firms' brazen theft of their intellectual property, which the government has failed to stop.

Microsoft chief Steve Ballmer said recently that though almost as many computers are sold in China as in the US, software piracy is so rife that Microsoft's revenues in China are just 5 percent of its US revenues.

Things To watch:

1. In July 2010, China capped exports of rare earth elements at about a quarter of their previous levels. These min-erals are essential components of many high-tech products, and China controls nearly 95 percent of world production. Washington, Brussels, and Tokyo have said they will take Beijing to the World Trade Organization if the quotas are not relaxed.

Beijing lost an earlier case that Washington brought to the WTO against Chinese export restrictions on bauxite (aluminum ore), magnesium, and other raw materials. China is appealing that ruling; the final decision will set a precedent for a rare earths case.

2. Before China joined the WTO, the US insisted on the right to impose "special safeguards" to limit any Chinese imports if they "threatened to cause market disruption to a US industry." Washington last did this to cut back on Chinese tire imports, and the WTO approved the move in September over fierce Chinese objections. The safeguards provision runs out in two years: Watch for Washington to use it again while it still can.

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