A Year after China’s Admission to the WTO

▽Opening schedule gets more brutal〓China is the only WTO member country whose fulfillment of its marketing opening promise is being checked every year for 8 years after it became a member. The more demanding the conditions for market opening, and the more brutal the timeline for opening, the more resistance China is expected to put up.

According to the Korean embassy in Beijing, most of China’s major markets are supposed to be opened within 5 years after it joined the WTO. When it comes to the opening of regional markets, big cities like Shanghai, Beijing and Shenzhen will take the lead, followed by provincial cities. For instance, with respect to trading in wian that foreign banks have been most interested in, it will be allowed within 2 years of admission to the WTO for Chinese corporations, and within 5 years for the general public.

The economic leadership in China lowered the import tariffs for about 5,000 items starting this past January, thereby cutting the average tariff rate from last year’s 15.3% last year to 12%. 2,300 related laws and regulations have been revised.

Concerns over unexpected side effects of market opening, however, left the financial and service industry sectors almost untouched. Last month Japan’s Dai-Ichi Life Insurance and Germany’s Geling Insurance announced that they would finally pull out of the Chinese market. Now the timeline for opening in this sector got much tighter.

▽The ability of the 16th National Congress of the Communist Party of China to control the economy is to be tested〓A year after China joined the WTO, the number of foreign investors has increased by about 20% over the previous year. It is evidence that foreign entrepreneurs did not think that the WTO would have a serious impact on the Chinese economy.

Despite the lowered tariff barrier, the trade balance surpluses are expected to increase by about $10 billion over last year. Two thirds of goods imported by China are raw materials for export, and in fact, they have been exempt from tariffs since before its admission to the WTO.

It is, however, unclear whether the Chinese economy will fare well under the WTO system. China’s President, Hu Jintao, said at the 16th Chinese Communist Congress, “We will quadruple our GDP by 2020.” This goal can be achieved only if the Chinese economy grows by 7% every year. To achieve this target while opening areas with great repercussions like the financial, service, and agricultural sectors will require considerable wheeling and dealing in terms of policies. China’s economic experts predict that China will △ reinforce non-tariff restrictions as it limited the import quota for automobiles to $8 billion a year, or △ make the most of retaliatory measures such as imposition of anti-dumping tariffs. Prior to its admission to the WTO, there were only three cases of anti-dumping investigations per year on the average, but after China became a WTO member, there were 9 such cases in just 10 months.

The knotty problem is the elimination of non-performing debts and the reform of state-owned enterprises, which are sure to worsen in the process of market opening. Mr. Mansu Ji of the Korea Institute of International Economic Policy worried “To keep growing by more than 7%, the government will rely more on expenditures, and therefore the public finance sector, which has been said to be sound, may get insolvent.”

Young-Ee Lee Rae-Jeong Park yes202@donga.com ecopark@donga.com