Globalization of China

1
Globalization of China
2
Outline

• The process of globalization
• WTO
• Effect on China
• Effect on the world

3
Chinas Globalization

• Pre-reform
• Plan-based
• Less than 1 percent of world trade in 1977
• Post-reform
• Market-based
• Trade
• FDI
• Outward investment

4
How has China Opened Up?

• Trade barriers
• Formal Tariff (1982, 56 2001, 15)
• Leakage of tariff (Figure 16.1)
• Smuggling (p.637-638)
• Non-tariff barriers (quotas and licenses 1990,
  50 2001, 8.45)
• Authorized domestic traders (1978, 12 2001,
  35000)
• Special zones (export oriented technologically
  advanced)
• Exchange rate (1981, RMB1.5 1994-2005, RMB8.7)
• Joining WTO

5
China Joining WTO

• A mystery
• Non-gradual approach
• Huge sacrifice and almost completely realized
• China becomes the most open big economy
• Ambiguous effect on Chinas productivity

6
Huge Sacrifice

• Unilaterally liberalize to show commitment
• A set of conditions far more stringent than those
  for other countries
• Unlike most developing countries, China is forced
  to include investment subsidies and subsidies for
  inputs in calculating total agricultural
  subsidies (which is already more stringent than
  other countries).
• Eliminate export subsidies for agricultural
  products, something that neither the US nor the
  EU has agreed to do.

7
Double Standard for China

• Restrictions can be imposed solely on Chinese
  exports, even when exports of the same product
  from other countries have increased, and they can
  be maintained without an effective time limit
  (this is normally 8 years).
• Discriminatory terms (for China) in antidumping
• Chinas trade partners may use the non-market
  economy methodology in investigating Chinas
  antidumping
• Special textile safeguard to protect Chinas
  trade partners
• By 2005, the tariff of Argentina, Brazil, India,
  and Indonesia were above 30.

8
Ambiguous Effect on Chinas Productivity

• Hypothesis
• More competition may force SOEs and banks to take
  additional structural reforms (Rongji Zhu).
• Use joining WTO to advance their domestic reform
  agenda.
• Observations
• Weakened selective technology transfer
• Weakened protection for domestic innovation
  (technology standards)
• Productivity shows little sign of improving

9
Effect on China

• Little evidence on the causal effect of opening
  on growth of China
• Weak positive relationship between Chinas growth
  and net exports. The effect of net export is
  minor compared with capital formation and private
  consumption
• FDI only accounts for a small share of capital
  formation
• Increased consumption quality
• Increased competition
• Technology transfer

10
Impact on the World

• Accounting for most of the imports of
  manufactured goods of the US.
• Due to migration of production from other
  economies (e.g. Hong Kong, Taiwan) to China.
• Cheaper RMB in fact benefits the US.
• Chinese economy and the more developed Asian
  economies are more complement than substitutes.
• Chinas export business may have substituted for
  that of economies of similar development levels
  to some degree.