How could the Chinese leave China in 2001?

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Since joining the WTO, China has fulfilled many of its membership obligations, has been able to significantly expand its own economic power and has become the world champion in exporting goods. German companies and consumers in particular have benefited greatly from this.

Slow implementation of WTO rules

Due to the accession regulations, China has been treated as a market economy in the WTO since the end of 2016. However, the widespread expectation that the country will indeed develop into an open and mainly market-based economy has not been fulfilled. The Chinese government knows how to use the leeway of the WTO rules for itself and often only does the minimum to meet obligations (for example when reporting trade policy measures such as new subsidies) or to advance negotiations. The country has not yet submitted an acceptable offer to join the Government Procurement Agreement (GPA), although it had already promised to do so when it joined the WTO around 19 years ago. In addition, contrary to promises, the state is exerting excessive influence on economic activities - and this is now increasing again (e.g. price controls, subsidies, influencing the judiciary and managing the market activities of state-owned companies and market shares).

99 of the 100 largest listed companies in China are majority-owned by the state. Many WTO members regularly rely on trade protection instruments to protect their own market from dumping or unfairly subsidized goods from China with the help of tariffs and quantity restrictions. By September 2020, China had already been "sued" 44 times before the WTO settled disputes. The number of indictments is higher only in the EU and the US. It should be noted on the positive side that the Chinese government is considered to be lawful when it comes to implementing arbitral awards.

China: pillar of multilateralism?

In the public debate about the modernization of the WTO, China likes to present itself as a pillar of multilateralism and a country of opening policy. The government is shifting responsibility for the current WTO crisis unilaterally on the USA. Indeed, China's position was strengthened by a WTO decision in September. A panel of experts judged the US punitive tariffs as a violation of WTO rules. But even this cannot distract from fundamental problems: On the one hand, China is considered a developing country in the WTO, which means that there are many exceptions to the WTO rules. Beijing vehemently rejects the demand to give up this status.

However, this undifferentiated status appears less and less justified for a country that has an officially military budget of around 180 billion US dollars, wants to invest 1 trillion US dollars globally in infrastructure projects as part of the Belt and Road initiative and in the course of industrial policy Plans “Made in China 2025” invests in technology companies worldwide or subsidizes key industries in the three-digit billion range in their own country. On the other hand, the country also rejects proposals for more transparency (such as sanctions in the event of a breach of notification obligations) or clear rules for dealing with state-owned companies in the WTO.

In fact, in its WTO reform initiative of May 2019, China proposed expanding the range of recognized subsidies for state-owned companies and recognizing state-owned companies as equal market participants. With regard to the issue of subsidies, Beijing is also drawing attention to the agricultural sector, where it is calling for the markets of the industrialized countries to be more open. But the main problem in China is subsidies in the industrial sector. Even in areas such as chemicals, where Chinese companies are already among the world's market leaders, China refuses to participate in tariff reduction initiatives.

BDI demands

In its China Policy Paper of January 2019, the BDI made it clear to what extent the competitive conditions and market access in China are restricted by the strong role of the state in the Chinese economy. The government should significantly reduce the proportion of state-owned companies in China, cut subsidies in the industrial sector and end preferential treatment for state-owned companies, for example in tenders. China is one of the most isolated markets for providers of Internet-based platforms; digital protectionism through localization constraints should be broken. German industry advocates a binding market opening, for example by abolishing the compulsory joint venture, significantly reducing the negative list for foreign investments and joining the GPA. We expect clear and convincing negotiation offers from China in the negotiations for an EU-China investment agreement, both in terms of investment protection and market access for investors.

With a view to the WTO, the BDI stands behind the broad and inclusive modernization approach that the EU represents. All areas of the WTO must be reformed so that the organization can continue to be the central place for creating and enforcing trade rules. The BDI supports, for example, the proposal of the trilateral initiative (EU, Japan, USA) to regulate the state subsidization of industrial goods and their exports more precisely and precisely. The BDI requires China to play a constructive and responsible role in the process, which is manifested in concrete steps. China has grown to become a dominant trading power and the second largest economic power in the world after the USA. The country must no longer hide behind the undefined developing country status and demand a special status similar to that of countries with a significantly lower level of development and per capita income. Otherwise important members could further reduce their involvement in the WTO and multilateralism could be permanently weakened. Ultimately, this would not be in the interests of either Europe or China.