Many problems plague China's 'market-socialist' economy, especially the inefficiency of state-owned enterprises, the large number of non-performing loans held by the four big state-owned banks, high unemployment and widespread corruption.
If the leadership's goal is to achieve sustainable growth, those problems must be tackled. What is needed is institutional change that expands the role of the market and reduces the misallocation of resources endemic to the state sector.
China's leaders have come to accept the growing importance of the non-state sector. Economic growth rates are much higher in the market-oriented coastal areas than elsewhere in China. According to Long Yongtu, vice- minister of foreign trade, 'China's economy must become a market economy in order to become part of the global economic system.' Private ownership, the sine qua non of a free market, is now explicitly sanctioned in China's constitution, although it is not afforded the same protection or status as state ownership.
China's accession to the World Trade Organisation in December 2001 was seen as an opportunity to expand the private sector and improve long-term growth. However, under pressure from the United States and the European Union, China committed itself to 'WTO-plus' rules, which may slow its progress towards a free-market economy.
According to Nicholas Lardy, the author of Integrating China into the Global Economy, the terms that China agreed to with regard to safeguards and anti-dumping are 'more onerous than those accepted by any other member''. In China's protocol of accession, the transitional product-specific safeguard clashes with normal WTO practice.
Instead of having to show 'serious injury' from Chinese exports, members need show only 'market disruption'. US trade law defines market disruption as an increase in imports that is 'a significant cause of material injury, or threat of material injury, to the domestic industry'.