The sheer speed and scale of China’s economic expansion are so extraordinary that they have roused fears in certain quarters. For nearly two decades China has recorded an average annual growth of about 10% and 14% growth in merchandise trade, three times that of world trade in the same period.
No country in history has burst on to the world economic stage as dramatically as China. In December 1978 Chinese leaders adopted their initial economic reform programme. That year the country’s total foreign trade amounted to only $20,6-billion and it ranked 32nd among the world’s trading nations. Foreign investment in China was also negligible.
Today, two years after its historic entry into the World Trade Organisation (WTO), China is the fourth-largest trading nation after the United States, the European Union and Japan.
However, fears that it will be impossible to compete effectively against China’s immense export capacity and market size are largely exaggerated.
Trade is not a zero-sum game. China is not only a major exporter but also a major importer, and its modernisation programme and export industries have required, and will continue to require, billions of dollars worth of equipment, technology and raw materials.
We should not overlook the fact that in the first nine months of 2003, China’s exports rose by 32% while its imports surged ahead by 41%. Judging by these figures, China will soon overtake Japan as the world’s third-largest importer, behind the US and Germany. At a time when the global economy remains fragile, its robust economic performance should be welcomed as an engine for global growth and a source of inspiration for other developing countries.
China’s experience shows in concrete terms that developing countries can and do benefit from economic openness and integration. Those who warned that its integration into the global economy might lead to a ”race to the bottom” or that the country would be flooded by imported agricultural and manufactured products have been proven wrong.
The reduction of tariffs has increased competition in the domestic market with the arrival of new suppliers. This has led to lower prices and larger choice for consumers, and has lowered the prices of essential inputs for many industries, thereby enhancing their competitiveness. In the first two decades of reform the number of absolute poor in China dropped by about 200-million. Per capita income has grown sixfold, and farmers and city dwellers are buying goods that they previously could only dream of.
Of course, not all countries can be as fortunate as China, with a market that represents nearly a quarter of humanity. But the country’s success is directly attributable to its unfailing commitment to wide-reaching domestic reform aimed at modernisation and growth.
This is not the end of the story, however. China is now fast approaching a critical juncture in its development and integration into the global economy. To continue on its impressive path of rapid modernisation, and to realise its goal of doubling its gross domestic product (GDP) by 2010, it will have to face up to a number of important challenges.
First, as it transforms from an overwhelmingly agricultural/rural society into an industrial/urban society, a major challenge for the economy will be to create enough jobs in the industrial and services sector to absorb the surplus labour from agriculture, which generates 17% of China’s GDP and 50% of employment.
Another related challenge is to spread the benefits of rapid development and to avoid a widening of income differences between regions, and between rural and urban areas. As long as these differences remain, Chinese cities will be under tremendous pressure to accommodate people trying to find more opportunities and higher incomes.
Second, the rapid development of the private sector brings with it the challenge of institutional change. To reach its full potential, growth in the private sector has to be matched by an equal development of a stable, market-oriented legal framework and financial sector that is important to the ability of the private sector to thrive. In turn, private entrepreneurs will also have to improve their competitiveness and efficiency, and seek to compete on all fronts, not just on cost.
Third, China has managed to handle these structural changes while ensuring it sustains a stable social environment. It must continue to meet this challenge. Throughout the world there must be a concerted effort to see that more of globalisation’s benefits go to the poor. If economic growth mostly helps those who are already more or less well-off, the resulting backlash could be disastrous for the entire reform programme.
Fourth, as a leading trading nation, China needs the opportunity of market access and the legal guarantee of consistent and non-discriminatory trade rules offered by the WTO.
The WTO, in turn, needs China to play a full and active role to help open markets, strengthen multilateral trade rules and keep international trade policies liberal. The country cannot afford to stand on the sidelines and let others write the trade rules of the 21st century.
This was why China joined the WTO and now, as a fully-fledged member of the WTO, it is in its own interest that it use its position to help ensure fulfilment of the objectives set out in the Doha Development Agenda, without question one of the most ambitious rounds of trade negotiations yet attempted. — IPS
Supachai Panitchpakdi is director general of the WTO