Macro: 20 years of WTO accession from A member of the New Branch to a standard-bearer of free trade

China Xiaokang Network Exclusive Article

Wen | Mei Xinyu

On the basis of the brilliant achievements made in economic and trade development after China's accession to the WTO, China's own economic development will inevitably enter the historical process of "promoting reform with opening up" and "promoting development with opening up" at a higher level.

Mei Xinyu (Research Fellow, Academy of International Trade and Economic Cooperation, Ministry of Commerce)

This year marks the 20th anniversary of China's accession to the WTO. In a flash, China has grown from a member of the WTO to a well-deserved standard-bearer of free trade in the global trading system.

20 years of success

Judging from the statistics of China's economy and trade before and after china's accession to the WTO, China's accession to the WTO is undoubtedly one of the greatest and most successful stories in the history of global economic trade.

In 2001, on the eve of China's accession to the WTO, China's total exports of goods were worth US$266.2 billion, accounting for 4.3% of the total value of global merchandise exports that year, ranking sixth in the world, lagging behind the United States (US$730.8 billion, 11.9%), Germany (US$570.8 billion, 9.3%), Japan (US$403.5 billion, 6.6%), France (US$321.8 billion, 5.2%) and the United Kingdom (US$273.1 billion, 4.4%). Just 8 years after joining the WTO, China surpassed Germany in 2009 and topped the world's largest exporter of trade in goods, and no other country has been able to surpass it so far, and the lead has been widening day by day. By 2020, China's exports of goods trade will reach US$2,590.4 billion, accounting for 15.2% of the total value of global trade in goods exports (US$17,070 billion), and the indicators of the United States, Germany and Japan in the same year will be 8.4%, 8.1% and 3.8% respectively. From January to October this year, China's trade in goods exported US$2,701.1 billion, an increase of 32.3% year-on-year, and it is still the first among the world's major economic and trade powers.

Looking at the longer span, we can see that Since 2015, China's share of global goods trade exports has basically approached the peak reached by the United States after World War II and in the early 1950s. In 1948, the United States accounted for 21.6 percent of the global export market share of goods trade, but this was largely because industrial production and exports from Western Europe and Japan had not yet recovered from the devastating war. By 1953, the economic recovery work in Europe and Japan was basically completed, and it began to embark on a rapid growth track, and the United States' share of the global export market share of goods trade fell to 14.6%, and it was stable at this level for many years. China's share of the global export market for goods trade was only 0.9% in 1948 and rose to 14.2% in 2015.

Driven by the super-rapid development of foreign trade after China's accession to the WTO, China's manufacturing industry and economic scale have expanded sharply. In 2001, the main business income of China's industrial enterprises above designated size was 8,415.2 billion yuan, and in 2020, it has reached 1083658 billion yuan, and China's GDP has risen from 11,027.04 billion yuan to 1015986 billion yuan in the same period.

Towards a new era of comprehensive opening up to the outside world

Why? From the perspective of the development of social forms, the socialist economy essentially requires an open economy. China started out in a relatively backward state, as a late-developing country, China had to implement a higher degree of protection for its own market at the beginning of industrialization, but protection is not the goal, but only a phased tool. As China's domestic industrial development matures day by day, and as China overcomes one "gap" after another that constrains the economic development and macroeconomic stability of developing countries with outstanding achievements far exceeding the expectations of the world, we have done an excellent job in the 70 years of development to complete the task of "catching up" with the industrialization of the late-developing countries, and the vast majority of industrial sectors are no longer the naïve industries that need certain protection in the past, but have matured; there is no need to continue to be highly protected, but it is necessary to introduce new and more competitive pressures in order to maintain their vitality. In this context, China objectively needs to keep pace with the times, timely transcend the era of more emphasis on promoting the development of domestic infant industries through trade protection, and shift to an era of greater emphasis on expanding opening up, expanding opening up, including the opening up of the sales market, including the opening up of equity, maintaining the cost competitiveness of domestic manufacturing and other industries through larger-scale use of inputs from the international market, guiding external trading partners to integrate with the Chinese market and Chinese rules by sharing China's growth opportunities, and introducing competitive pressure." The catfish effect "strengthens competition in the domestic market and maintains the vitality of the domestic industry."

Our shift from the era of protection to the era of openness is based on the total economic volume of China and the rise of China's large enterprise groups. At the macro level, as the world's second largest economic power, the depth and breadth of our domestic market is enough to directly withstand the test of external economic shocks, without the need to rely on protective means on a daily basis. At the micro level, the reason why we can open the controlling rights of enterprises to foreign investors in more industrial fields without worrying about damaging the economic security of our country is because the current volume of systemically important enterprises in China has ranked among the best in the global peers, and there is no need to worry that foreign capital can easily acquire holdings, incorporate them into their own sequence, and then manipulate China's industry; second, because we can now use and develop national security reviews, "gold shares" (stocks with one-vote veto power) and other systems.

The higher level of "promoting reform with opening up" is essentially "self-revolution"

At a higher level, "promoting development with openness" and further opening up the domestic market by a large margin is also because we need to expand the use of cheap, high-grade foreign raw materials and energy in order to maintain the cost competitiveness of our domestic manufacturing and other industries. As a country with insufficient resource endowments, one of the side effects of China's industrialization achievements is that domestic raw materials and energy are increasingly losing cost competitiveness, and combined with the rising cost trend of domestic labor, land and other factor costs, the cost competitiveness of China's manufacturing industry and other downstream industries is becoming increasingly prominent. China's national economic base is the downstream manufacturing industry rather than the upstream resource industry, in order to maintain the cost competitiveness of the downstream modern manufacturing industry, we need to eliminate the upstream raw materials, energy input costs higher than the international market as much as possible.

Not only that, long-term peace and prosperity will inevitably breed a series of monopolistic profit-sharing groups, and the industries that grow up under the protection policy are entirely likely to breed inertia and become bloodsuckers of the national economy. Is it to continue to fall under the wings of protection, or to open the door to withstand the wind and rain of the open economy, so as to build a strong international competitiveness, can play a positive contribution to national economic and social development? Many of our industries face choices. Since the Eighteenth National Congress of the Communist Party of China, China's series of actions from anti-corruption to this year's anti-monopoly have objectively broken a series of monopolistic profit-sharing groups that have been breeding for some time. On this basis, by opening up to the outside world at home and abroad, we can eliminate the remaining monopoly profit-sharing groups or their buds, inhibit the recurrence of monopoly-sharing groups that have been broken, and inject new vitality into the whole country and society.

Bravely serve as the standard-bearer of free trade

Looking at the world, we see that the entire international economic, trade, and political system is undergoing major changes unprecedented in a century. The global multilateral trading system in which international trade survives and develops is not only stagnant for many years, but also faces the potential risk of being torn apart, and the main force that attempts to tear it apart comes from the countries that led the establishment of this system in the past. The international monetary system on which international economy and trade operate is also deeply disordered and facing the pressure of great changes.

After one round after another of unconventional fiscal and monetary policies in the core monetary countries trampling on and removing all the disciplinary bottom lines they once flaunted themselves, we cannot but seriously consider: Was the current change facing the international monetary system the collapse of the Bretton Woods system in the 1960s and 1970s, or the collapse of the gold standard in the 1930s?

Witnessing the long cycle of the global economy entering a stage of low growth and high volatility, witnessing the rise of "anti-globalization" calls, we cannot help but ask ourselves, the wave of protectionism at the end of the 19th century finally triggered the First World War, and the Smoot-Hawley Tariff Act of the United States led to a sharp amplification of the lethality and contagiousness of the great crisis of 1929-1933, and finally triggered the Second World War.

As the largest exporter and the second largest importer, China needs a multi-level integrated multilateral, regional and bilateral trading system, of which the multilateral trading system is the core. As the biggest winner of economic globalization since the 1990s, China does not need or want to act as a revolutionary in the current multilateral trading system, but only wants to play a reformer of the system. The problem is that the risk of systemic changes in the current international economic and trade system is increasing day by day, continuing to accumulate rapidly, and China must strive to protect the current international economic and trade system on the one hand, and on the other hand, it must make necessary preparations for this potential systemic risk. To this end, we need to establish and continue to expand the international division of labor and trade system with China as the core, and taking the initiative to expand opening up to the outside world in an orderly manner and building a higher level of open economy are the necessary conditions for the establishment and development of this system.

("Xiaokang", China Xiaokang Network Exclusive Special Article)

This article was published in the early December 2021 issue of Xiaokang