16 July 2018
WTO Review Offers Praise and Criticism of Mainland China’s Reform Efforts
The World Trade Organisation recently issued its seventh trade policy review analysing the economic environment, trade and investment regime, and trade policies and practices of mainland China. The multi-lateral body observes in its report that mainland China has continued to be a “major driver” of global economic growth although such growth has been moderating as the economy adjusts to the “new normal,” as growth rebalances from investment to consumption, from external to internal demand, and from manufacturing to services. Mainland China continues to be one of the world’s largest recipients of foreign direct investment, with Hong Kong accounting for approximately 80 percent of total FDI inflows. Major recipients of investment inflows include manufacturing, real-estate, leasing and business services, and wholesale and retail trade. Mainland China is also a significant overseas investor, the report notes, with most outflows going to Hong Kong, the United States, the Cayman Islands and the British Virgin Islands. The main sectors invested in are leasing and business services, banking, manufacturing, and wholesale and retail trade.
The WTO review includes both praise and criticism of mainland China’s efforts to reform its economy. On the positive side, Beijing has continued to make efforts to reform and harmonise its customs procedures, with about a third of total imports now being declared through single windows. Clearance times of imports have dropped from an average of over 22 hours in 2016 to an average of 16.7 hours in 2017. Mainland China is also focusing on the quality and sustainability (rather than the quantity) of growth by seeking to continue the process of structural economic reform, which includes the promotion of private sector participation in the economy as well as the reform of state-owned enterprises, while maintaining the prevalence of public ownership.
Under the 13th Five-Year Plan (2016-2020), mainland Chinese authorities also intend to promote competition, fiscal reform and financial sector reform to increase private capital participation in banking and expand the provision of financial services, and are also seeking to make the exchange rate and interest rates more market-oriented. The WTO notes that reforms have advanced across many areas, including the introduction of measures to reduce overcapacity, strengthen local government borrowing frameworks and address financial sector risks.
Then again, the report indicates that state involvement in the mainland Chinese economy “remains considerable.” According to a notification submitted in 2015, state-trading requirements concern grain, sugar, tobacco, rice, maize, cotton, coal, crude oil, processed oil, chemical fertilizers, tungsten, tea, silk, antimony and silver, among other products. Moreover, the state retains a majority share in all but one of the 100 largest publicly listed companies. In the area of intellectual property rights, the report observes that IPR enforcement “continues to be a major challenge” for mainland China. Mainland China’s main laws concerning IPR have remained largely unchanged since the previous WTO review but Beijing has continued to strengthen its enforcement efforts, both at the administrative and judicial levels. The report states that during the review period mainland Chinese authorities issued various notices and measures with a view to strengthening their capacity to protect and enforce IPR and 11 additional specialised IPR courts were established by the Supreme People's Court in various cities.
In their interventions during the trade policy review process, many WTO members highlighted the importance of mainland China’s contribution to global growth over recent years as well as its active role in the WTO and its participation in discussions on such important matters as electronic commerce, micro, small and medium enterprises, and investment facilitation for development. Members also welcomed mainland China’s recent reform initiatives aimed at broadening market access and investment opportunities and the greater involvement of the private sector in the economy, as well as its commitment to fossil fuel subsidy reform. Moreover, several members commended mainland China on the Belt and Road Initiative, which they see as an avenue for mutual co-operation and growth.
At the same time, members called on mainland China to assume the increased responsibility linked with being a major player in the multi-lateral trading system. While mainland China’s continued liberalisation of its foreign investment regime was appreciated, members encouraged Beijing to further enhance access conditions to foreign investors by relaxing joint venture requirements and enhancing the predictability and consistency of regulatory practices and technology transfer requirements. Many members also expressed “serious concerns” about the preponderant role of the state in general and of SOEs in particular, with some members asserting that the state’s influence in the mainland Chinese economy has increased in various sectors.
Questions were also raised regarding mainland China’s support and subsidy policies and local content requirements, including those that may be part of the 2025 plan. Other areas of concern included IPR enforcement, market price support and public stockpiling measures used for certain agricultural goods, administrative licencing and approval processes, inconsistency in certain sanitary and phytosanitary measures, restrictions on certain agricultural products, cross-border data restriction and data localisation requirements, and the scope and impact of mainland China’s cybersecurity legislation, among other measures.
In response to members’ concerns over SOEs, mainland China’s Vice Minister for Commerce Wang Shouwen countered that “SOEs can be found in many WTO members” including the United States, Canada and France. He added that if a WTO member considers that a mainland Chinese SOE benefits from special government subsidies and its exports affect a domestic industry within that member’s jurisdiction, “the member could just conduct countervailing investigations”. Wang also stated that mainland China is making “tremendous efforts to address domestic overcapacity,” noting that overcapacity “is a global economic issue of both cyclical and structural nature.”