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China Economy

China has work to do before it can play a leading role in world trade

Trade abroad is difficult to sustain while the nation’s home market remains relatively restrictive to foreigners, and greater transparency is needed

PUBLISHED : Sunday, 20 November, 2016, 1:15am
UPDATED : Sunday, 20 November, 2016, 1:38am

Fifteen years after joining the World Trade Organisation, China wants to be a leader in global free trade. At a time when developed Western economies increasingly prefer regional as opposed to international trade pacts, it’s laudable that Beijing wants to revive an engine of economic growth and globalisation. To be sure, self-interest dictates its ambitions. Instead of being a follower, it wants to help set trade rules in the way the US and the European Union have been doing. But, as domestic reforms have stalled, China will have to convince other WTO members that it deserves a greater leadership role.

Many commitments China made during WTO entry talks are still works-in-progress, prompting the US and EU to hold off on granting it “market economy” status. Without that status, it’s hard to see how China can effectively champion the liberal regime of the WTO. The main sticking points remain the large sectors of industry and investment closed off to foreign investors. Germany is upset that China has been on a buying spree targeting key German and other EU hi-tech companies. Yet, foreign buyers are either barred from entering strategic Chinese industries or face what they consider unreasonable restrictions.

Is China ready to make the great leap forward to set global trade rules?

How did China get to this point while the fate of globalisation hangs in the balance after the worldwide financial crisis? Former premier Zhu Rongji believed WTO membership would provide the engine to propel the nation’s economic modernisation and irreversibly commit it to international trade. Reforming SOEs and banks, setting up stock markets and joining the WTO were all part of Zhu’s programme. His reforms paid off as foreign trade and investment turned red hot.

Alas, economic liberalisation is not irreversible. Its pace has tailed off in recent years. Free trade abroad is difficult to sustain while the home market remains relatively restrictive to foreigners. Meanwhile, regimes governing world trade have become fragmented. Whether by choice or necessity, China needs to play a greater role in helping to revive the global trade regime under the WTO. But it can only do so if it acts with greater global responsibility and transparency, and adopts trade best practices under economic liberalisation.

That said, President Xi Jinping has vowed to take reforms forward despite difficulties like an L-shaped economy and emerging trade protectionism internationally. While China has work to do before it can play a leading role in the WTO, the world body also needs to redouble its efforts to promote free trade.