The Hindu Business Line : WTO trade policy review: An insight into China's reforms

An eye-opener
China's GDP per capita rose from $148 in 1978 to $1,700 in 2005.
The total trade in goods alone accounted for around 64 per cent of GDP in 2005 and 6.7 per cent of global trade in 2004.

New Delhi , April 26

The Trade Policy Review of China by the World Trade Organisation (WTO) - released recently in Geneva - with its own assessment based on the policy statement by China might be an eye-opener, demystifying the riddles shrouding it, besides providing a fascinating insight into the fastest shift China effected to become a market-oriented economy.

WTO contends that China's economic reforms, begun in 1978, have gradually opened up the economy to both global trade and FDI and allowed the emergence alongside the public sector of a private sector, whose contribution to GDP reached nearly 60 per cent in 2003.

Following this, the economy has grown by an average of over nine per cent a year since then, while GDP per capita rose from $148 in 1978 to $1,700 in 2005.

Little wonder that WTO extols China's performance stating that the nearly nine-fold rise in GDP per capita since 1978 and dramatic drop in people living in poverty conclusively demonstrate "the value of integrating more liberal trade and foreign investment polices into broader macro-economic and structural reforms in order to promote economic development."

Stating that China's ongoing reforms have been lent added impetus by its membership of the WTO in 2001, it said that China's total trade in goods alone accounted for around 64 per cent of GDP in 2005 and 6.7 per cent of global trade in 2004.

Trade policy has gradually shifted away from direct intervention in the economy aimed at promoting import substitution and exports.

Import barriers have been reduced and investment is permitted in a larger number of sectors, particularly if the investment entails high and environmentally sound technologies.

MFN tariff

The average applied MFN (most favoured nation) tariff was reduced from 15.6 per cent in 2001, just prior to its accession to the WTO, to 9.7 per cent in 2005; the average MFN duty rates for agricultural and non-agricultural products were 15.3 per cent and 8.8 per cent respectively in 2005.

The tariff is entirely bound and applied rates are generally at or close to bound rates, lending a high degree of predictability to the tariff.

Based on figures released early this year, the share of industry in China, which includes manufacturing, mining and production, and supply of electricity, gas, and water, accounted for over 40 per cent of GDP in 2005. Manufacturing, much of which is dominated by foreign-invested enterprises, now accounts for over 90 per cent of China's merchandise exports.

Foreign-invested enterprises appear also to account for a greater share of output of higher value-added production.

As per the submission of China to WTO, from 2001 to 2005, China imported goods of a cumulative value of $2,172.8 billion and the transfer of profit out of China by foreign-invested enterprises totalled $57.94 billion.

Commercial services

China has always been a net importer of commercial services with great gusto to foreign services providers. It further stated that the number of State-owned enterprises (SOEs) substantially declined.

There were 174,000 SOEs throughout China in 2001, which skidded by 26 per cent to 138,000 in 2004. Half of the 2,903 large SOEs, which account for 66.9 per cent of the total net assets of all SOEs (including majority Stateenterprises), were transformed into corporations with multiple shareholders.

China has proposed to accord "high priority in its 11th Five-Year Plan to the issues of agriculture, rural areas and farmers, to steadfastly advance the building of new socialist rural areas and resolving the dual structure of rural-urban economy."

The UPA Government with the same goals to promote an inclusive growth strategy across India should persuade its Left party allies to lend a helping hand in this task.