China and the World Trade Organization

For nine long years China made determined but unsuccessful efforts to rejoin GATT, having gone through 21 rounds of protracted negotiations. China failed to become a founding member of WTO when it superseded GATT in January 1995. In 1989 GATT was about to work out the final terms of protocol for China's entry as a reforming socialist economy. But the Tiananmen event made the developed country members, led by the US, politicize the issue of China's membership. They also wanted to prise open the vast China market as a condition for China's entry; i.e. China to be admitted as a developed economy. China for its part regarded the price of its WTO membership as too exorbitant without being allowed a reasonable timetable for adjustment. Minister Wu Yi considered the US demands ‘absolutely unacceptable’. Hence the impasse over China's WTO membership continued. Apart from the imperative of trade diplomacy, however, the perceived benefits of WTO membership to China are difficult to capture. They are mainly general and long-term in nature, e.g. facilitating China's further economic reform and integrating China into the global economy. However, the costs and risks to China could be considerable, much depending on the exact protocol terms of China's membership. In general many state-owned enterprises and township-village enterprises would suffer from stiffer foreign competition. The effect of WTO on Chinese agriculture would be minimal, while the impact on the manufacturing sector could be quite disruptive. The service sector could fare even worse if no protective measures were to be taken. That explains why China needs to insist on developing-country terms of entry. Without doubt, China will eventually accede to WTO. It is a gross anomaly for this global multilateral trade body to continue excluding China, the world's 11th largest trading nation, on which also hinge the two other great trading entities of Hong Kong and Taiwan. There is increasing awareness of this point in the EU; and it will sooner or later also prevail in Washington.     

Vertical Specialization and Trade Growth in Northeast Asia

As the global economy has become further integrated, the international production chain has become more sophisticated, with diversified stages of production located in different countries. Economic theorists have argued that the fragmentation of the global production chain is partly attributable to the high growth in international trade over the past several decades. In this study, we examine vertical specialization in China, Japan and Korea, and its contribution to these nations' trade. Using a multilevel model, it is illustrated that vertical specialization has encouraged increases in trade among all three countries. In particular, China's outcome is remarkable considering how recently it became a member of the WTO.     

Short-run and long-run effects of exchange rate change on trade balance: Evidence from China and its trading partners

As one of largest exporting countries in the world, China has experienced a large amount of trade surpluses for the past decade. However, a growing criticism has been focused on the manipulation of Chinese Yuan (RMB) exchange rate by the Chinese government. While China implemented the exchange rate reform policy in July 2005, the question, whether its currency is undervalued remains as a debatable issue. Different from previous studies by focusing on individual trading partners, this paper tests the short-run J-Curve hypothesis and long-run trade balance effect of real exchange rate between China and its eighteen major trading partners using a panel dataset over the 2005–2009 period. We adopt the methodologies of panel cointegration test, fully modified OLS for heterogeneous cointegrated panel (panel FMOLS) and panel error correction model (panel ECM) to investigate the above examination. Our empirical results lend support to the inverted J-curve hypothesis between China and its trading partners. However, we find that a real appreciation of RMB has a decreasing long-run effect on China's trade balance in only three of the eighteen trading partners, while it has an increasing long-run effect in five of the eighteen trading partners. These mixed findings, therefore, lead to the empirical evidence that the real appreciation of RMB has no overall long-run impact on China's trade balance.     

Why Chinese Exports Face So Many Trade Remedy Actions: An Empirical Study Based on Multi‐country and Multi‐industry Data

This paper offers a comprehensive analysis of the reasons for the large number of trade remedy actions taken against China. Using a multi‐country and multi‐industry dataset, the present paper shows that the macroeconomic situation of China's partners has a great influence on the probability of trade frictions arising with China. Moreover, the more powerful the industry is, the more likely it is to take trade remedy actions against China. The empirical results reveal that China has been hurt under the operating mechanism of the WTO, and the number of free trade agreements is negatively related to the initiation and approval of trade remedy actions. Basically, the determinants for countervailing and double remedy measures are identical, while they are different from determinants of antidumping measures. Accordingly, strengthening communication with trade partners will alleviate friction between China and its trade partners. Meanwhile, making use of foreign lobbies' power, actively integrating into the international trading system and participating in regional trade agreements are effective ways for China to deal with the “new normal” of trade frictions.     

Does China＇s Huge External Surplus Imply an Undervalued Renminbi？

A pegged exchange rate regime has been pivotal to China's export-led development strategy. However, its huge trade surpluses and massive build up of international reserves have been matched by large deficits for major trading partners, creating acute policy concerns abroad, especially in the USA. This paper provides a straightforward conceptual framework for interpreting the effect of China's exchange rate policy on its own trade balance and that of trading partners in the context of discrepant economic growth rates. It shows how pegging the exchange rate when output is outstripping expenditure induces China's trade surpluses and counterpart deficits for its trading partners. An important corollary is that given its strictly regulated capital account, China's persistently large surpluses imply a significantly undervalued renminbi, which should gradually become more flexible.     

Cooperate or Antagonize： The EU＇s Dilemma on Anti-dumping and Safeguard Measures against China

I. Introduction During the past two decades, with the gradual intensification of political reform, China’s economy in general and trade in specific are growing dramatically, providing an opportunity for other countries to make contact with China in various fields, especially in trade. In November 2005, Chinese President Hu Jintao had a three-state visit in Europe. He signed a deal with German electronics giant Siemens to supply 60 high-speed ICE trains to China, and Siemens will accordi…     

The roles of cultural and institutional distance in international trade: Evidence from China's trade with the Belt and Road countries

Cultural distance and institutional distance have been playing increasingly significant roles in international trade. Recently, the Belt and Road Initiative (BRI) proposed by China has drawn worldwide attention. This paper examines the roles of cultural distance and institutional distance in China's trade relationship with the Belt and Road (B&R) countries. We estimate the extended gravity model using bilateral trade data at product-level during 2002–2016 between China and 99 trading partners, 38 of which are along the Belt and Road. Using Poisson generalized estimating equations (GEE) econometric methods, we find that firstly, cultural distance and institutional distance inhibit China's bilateral trade with the Belt and Road countries. Secondly, China's bilateral trade with the B&R countries is more sensitive to the change of cultural distance than institutional distance by comparing their beta coefficients. Thirdly, compared to Asian countries on the Belt and Road, bilateral trade flows between China and European countries show less sensitivity to changes in cultural distance, except China's imports from its trading partners. While the trade effects of institutional distance show no difference between China's trade with European countries and Asian countries. Lastly, the announcement of BRI does reduce trade-inhibiting effect of cultural distance on China's trade with the Belt and Road countries, while increase China's exports sensitivity to institutional distance. This study finally suggests relevant cultural exchange driven by the BRI eventually assisting unimpeded trade and deepening the cooperation.     

Renminbi Going Global

The present paper evaluates the international status of the Chinese currency, the renminbi (RMB), by examining its use in the global market. Specifically, the discussion focuses on the recent developments of RMB trading in the global foreign exchange market, cross‐border trade settlement in RMB, the Hong Kong offshore market and China's policies relating to the RMB. The evidence suggests that the use of the RMB overseas, especially in trade financing and in the off‐shore market, has increased rapidly in recent years. However, compared with the size of the Chinese economy, the current scale of the use of the RMB is quite small. Although the RMB has great potential to become an international currency, its acceptance in the global economy is affected by both economic and political factors. Attaining a fully fledged international RMB is still a distant goal.     

How China's accession to the WTO affects global welfare?

Conventional wisdom suggests that, if a large nation reduces tariffs, the Rest of the World (RoW) as a whole should immediately experience gains from trade. However, little simulation evidence has been provided to evaluate the welfare effects of China's tariff reduction upon its WTO accession on each of its trade partners. This paper addresses the above issue under both the perfectly competitive model and the monopolistic competition framework à la Eaton and Kortum (2002) and Melitz (2003). Armed by the method of Dekle, Eaton, and Kortum (2007, 2008) to quantify the individual countries' responses to the “China (trade liberalization) shock” at equilibrium, we could check the extent to which global welfare benefit from the import tariff reduction after China's entry into the WTO. The quantitative results show that, both China and the RoW benefit from Chinese participation into the WTO, with estimated welfare gains falling in a range of [1.4697%, 3.8743%] and [0.0743%, 0.1015%], respectively. That is to say, about 58.24% of total benefits extracted from China's accession into the WTO worldwide flow to countries other than China under perfect competition; while under monopolistic competition, the whole world enjoys a 0.1571% welfare increases if firms' entry is restricted, of which 42.64% are injected into the RoW, an equivalent amount of 23.3903 billion US dollars. Since allowing for firms' entry and exit would lead to adjustments in both aggregate price indices and government tariff revenues, welfare gains of the world significantly increase (0.2474%), but these adjustments would slightly distort the welfare changes for other countries in the sense that only 36.50%, which is equivalent to 32.1008 billion US dollars, overflow to the RoW. As a result, some countries gain more, while some less.     

China＇s Trade Acceleration and the Deepening of an East Asian Regional Production Network

China＇s recent surge in trade has been associated with its deepening but contrasting trade relations with its two groups of key trading partners. On the one hand, China＇ s trade surpluses with the USA and the EU have risen rapidly, reaching US$144bn and US$91bn in 2006, respectively. On the other hand, China is importing heavily from its Asian neighbors. This diverging pattern of trade relations between China and its main trading partners reflects the continuous expansion and intensification of a complex cross-border production network in Asia, particularly for consumer electronics. In the process of deepening manufacturing sharing, China serves as an essential export platform for firms headquartered in the more advanced economies. These firms export intermediate goods from the relatively more advanced Asian economies to their affiliates in China where these inputs are assembled and then shipped to key export markets, including primarily the USA and the EU. One apparent outcome of the growing processing and assembly trade is the increased interdependency among Asian economies, which are now more dependent on each other than ever. It has also led to substantial structural changes and technological upgrading in China＇ s traded goods.     

How will China shape the world economy?

We will provide an outlook for China's role in the world economy over the coming decades, an exercise which would not be possible without an analysis of the prospects for China's continued economic growth. Based on international and historical comparisons, we argue that today's China meets all three key conditions for continued economic growth, including a stable government that is supportive of a market economy; high and increasing quality of human capital, and openness to developed economies. Dependent on China's continued growth, we explore how China will impact many other economies through trade and investment, creating winners and losers in the world economy. Moreover, we argue that China will become a more active player in changing global economic governance not only through participating in reforms of existing institutions but also by leading efforts to establish new ones.     

China in Asia

China's surge to become the world's second largest economy and largest trading nation contributes greatly to Asia becoming the world's largest economic system. China is the nexus of intra-Asian trade and direct investment flows. China's rapid growth in the recent decade relied on a state-directed investment model, akin to the state-run Big Push growth model. As in most big push experiences, intermediate term success leads to economic stresses. China's leaders can no longer ignore obvious signs of rising malinvestment, corporate debts, environmental degradation, and social disparity, all amid an aging population and tightening resource constraints. China's economic slowdown also forces economic adjustment upon its neighbors, rendered more difficult by China's policy ambiguity and volatility. Sill, China can be a positive long term influence in Asia, especially as it carries its market reforms to completion.     

Past Successes and New Challenges： China＇s Foreign Trade at a Turning Point

Since 1979, China has recorded a remarkable trade performance, which has been driven by international processing and the offshoring strategies of foreign firms. The diversification of Chinese exports and their technological upgrading have been phenomenal However, there is also inertia, illustrated by the persistent dualism of the trade sector, the unrelenting specialization in downmarket products and the deteriorating terms of trade. These weaknesses have helped its partners to adjust to the rise of this new trade power. In the past decade, China＇s economy has faced the adverse effects o fan export-led growth and the global crisis has revealed its vulnerability. China is now forced to rebalance its economy. This will imply major changes in foreign trade, in favor of ordinary trade and away from processing. In the foreseeable future, China is unlikely to become the driver of international demand but will remain the engine of Asian economic integration.     

The impact of China's trade liberalisation on the greenhouse gas emissions of WTO countries

We examine the effects of China's trade liberalisation, post entry into the WTO, on the greenhouse-gas (GHG) emissions of its trading partners. Using complementary estimators we establish that China's liberalised trade had significant effects on the GHG emissions of its trading partners. Increased exposure to Chinese exports increased the growth of consumption-based emissions while reducing production-based emission. The increase in consumption-based emissions was larger than the decrease in production emissions. Consumption emissions increased both through a scale effect (consumption increased) and a composition effect (consumption became more emissions intensive). Decomposition analysis suggests that the link between exposure to Chinese exports and the increase consumption-based emissions is the emissions embodied in imports: The emissions embodied in imports increased and imports became more emissions intensive. The increase in imported emissions was not offset by a reduction in domestic production of emissions either in final consumption goods or exports. (JEL: Q53, Q54, Q55).     

Trade,Investment and Economic Interdependence between South Korea and China*

The Korean economy has been significantly affected by the emergence of China. It is now the largest market for Korean exports and a major supplier of its low‐cost imports but has at the same time become a serious challenger to Korea in the world markets for manufacturing exports. This paper investigates changes in China's export structure and its effect on Korea, and bilateral trade between the two. It also examines the motives for Korean investment in China and its effect on bilateral trade and cross‐border production networks.     

The development strategy for china's travel service industry after china's WTO entry: Present status and future prospects

China's tourism market is growing in importance since China's accession to the World Trade Organization (WTO). It is likely that China's opening to the world market will lead to the further development of its travel service industry. Even though China will be confronted by some difficulties, its WTO commitment may have positive impacts on the travel service industry such as the development of technologies, introduction of advanced management strategies, improved industrial structure, and increased competition in the sector. This paper aims to explain the WTO‐related factors in China's travel service industry, analyzing and evaluating the sector's development strategy.     

Climate change impacts on China's agriculture: The responses from market and trade

China's food security has been facing several challenges, which are likely to be worsened due to climate change. The purpose of this paper is to provide an evidence on the impacts of climate change on China's agriculture, with particular attention to the market and trade responses. Using projected crop yield changes for China and its' main trading partners under changing climate, we employ an agricultural partial equilibrium model (CAPSiM) and a linked national and global equilibrium model (CAPSiM-GTAP) to assess the impacts on food production, price, trade and self-sufficiency of China. Our results show that climate change will have significant effects on crop production though with large differences among crops. Under the worst climate change scenario RCP 8.5, wheat yield in China is projected to decline by 9.4% by 2050, which is the biggest yield reduction among the crops. However, the market can also respond to the climate change, as farmers can change inputs in response to reduced yields and rising prices. As a result, production losses for most crops are dampened. For example, wheat production loss under RCP8.5 reduces to only 4.3% due to market response. The adverse impacts on crop production will be further reduced after accounting for the trade response as farmers adjust production to much higher prices in the more severely affected countries. The paper concludes that we need to learn more from farmers who optimize their production decisions in response to the market and trade signals during climate change. A major policy implication is that policymakers need to mainstream the market and trade responses into national plans for climate adaptation.     

Economic diplomacy: The “one–China policy” effect on trade

Chinese foreign policy is mainly characterized by the Beijing consensus and the one-China principle in international relations. More precisely, the situation faced by Taiwan is a “core interest” in China's economic diplomacy strategy. We investigate whether the “one-China policy” (OCP) has had visible effects on bilateral trade flows. In other words, does the compliance of diplomatic commitments with China undermine Taiwanese trade and enhance China's trade position? Using a structural gravity model based on worldwide panel data for the period 1948–2012, we approximate the OCP through two dummy variables: the vote by countries of the UN resolution about China's recognition in 1971 and the existence of diplomatic ties with China. The first component of the OCP drastically increased on average in trade flows with China regardless of the vote of trading partners concerning this UN resolution as well as that for Taiwan. On average, results suggest that diplomatic relations with China improve bilateral trade flows for China, but a trade-deteriorating effect appears for Taiwan with certain ex-colonies. We also find that the effects of these economic diplomacy components confirm previous results reported for the period studied.     

The competitiveness of China's telecommunications industry before and after China's accession to the WTO

According to China's World Trade Organization (WTO) commitment, its entire domestic market will be more open to the world. China's telecommunications industry is worth special attention because it plays a critical role in enhancing China's overall competitiveness. This study critically reviews and corrects the problems of existing studies on the telecommunications industry, and explains the nature of changes in the competitiveness of China's telecommunications industry before and after China's accession to the WTO by using the diamond model. Based on this analysis, strategic suggestions are provided for both the Chinese government and firms to enhance their competitiveness in the global economy.     

Effects of China's Structural Change on the Exports of East Asian Economies

The Chinese economy is slowing down and is in the midst of a structural transformation from export‐led and investment‐led growth to domestic demand‐led and consumption‐led growth. While there are widespread concerns among China's trading partners about the effect of the slowdown in China's growth on their exports, China's structural changes are also likely to have a significant impact: for example, China will import fewer machines and more cosmetics. The central objective of the present paper is to empirically examine the effect of China's structural transformation on the exports of East Asian economies, which have close trade linkages with China. We find that economies that have failed to increase the share of consumption goods in their exports to China have suffered larger declines in their quantities of exports to China. In addition, economies that have suffered losses in their shares of China's parts and components imports have faced reductions in their shares in China's total imports.