Post on 13-Jan-2016
description
China’s Entry into the WTO
effect on State Owned Enterpriseseffect on State Owned Enterprises
WTO – A Big Event
Joining WTO is one of the important event in the History of Modern China
1949 1978 2001 Various dimensions, social, political,
institutional, cultural
Economics
But We start from economics
Efficient – allocation – scarce resources
Economic theories and Specialization
Economies of Scale, Welfare
History of SOE’s
Like other centrally planned Economies Before 改革开放 SOE’s were in Control
Where the governments -not the markets-determined prices & quantities
China SOE’s SOE produced 78% of total industrial output
at their peak in 1978 and 28% in 1999 Inefficiency of central planning communism ideal, remove the
unemployment that plagues capitalist economies
SOE annual losses of 6% of GDP No incentive to be efficient entrenched interest with in the structure
SOE’s
Inefficiency and problem State face hurdles (Status quo) bilateral agreements are lengthy
process China want to integrate WTO an opportunity
SOE’s The SOE enjoy administrative monopoly That prohibited the development of
private sector First, the government tried to
restructure the SOE’s on the line of conglomerates in Asian economies such
as Chaebol or keiretsu
China SOE’s
1981, self-employment and collectively-owned enterprises. (RS system)
In 1983, instead of profit – taxes 1993, small and mid size SoE’s
reformed capital markets, labor markets, and
stock markets
What is WTO? International, multilateral
organization which sets rules for global trading system 设置规则
All member states must be signatories to its about 60 agreements. 必须签署 60 个协议
Main goal is to encourage smooth and free trade 顺利和自由贸易
What is the WTO?
Resolves disputes between member states 争端
Non-discrimination Reciprocity Binding Commitment Transparency Safety
Six main parts of agreements
The Agreement Establishing the WTO
Goods and Investment (TRIMS) GAT&S IPR (TRIPS) DSU TPRM (review of govt trade policies)
Conditions for China to enter WTO
(1) the lowering of tariffs for imports,
(2) the permission of foreign firms to sell directly in the Chinese domestic markets and
(3) opening of the telecommunication and financial sectors to more foreign competition.
China entry to the WTO
China was voted in as a member on November 11, 2001 and became official member 成为正式成员 on December 11, 2001
In order for China to gain member status, China had to agree to separate negotiations 谈判 with all of the current WTO members
After 15 years of negotiations China got member status in 2001
Timeline for Qualification
1986 -- China applies to join GATT1989 – negotiations derailed due to certain political events. November 1995 -- China unveils economic and trade
reforms. slashed import tariffs by 30 percent April 8, 1999 - President Bill Clinton and Premier Zhu RongjiMay 7, 1999 -- NATO forces bombing of the Chinese
embassy in Belgrade. September 11, 1999 -- Clinton and Jiang Zemin agreementNovember 15, 1999 -- U.S. and China announce a WTO
pact. Clinton must persuade the U.S. Congress to grant China permanent normal trade relations (PNTR).
Timeline for QualificationMay 19, 2000 -- The European Union signs a WTO accession pact with
China October 10 -- Clinton signs a law giving China normal trade status with
U.S. January, 2001 -- China and some WTO members disagree on farm
subsidies. June 9 -- China and the U.S. announce consensus on issues holding up
China's entry, including farm subsidies, after meetings on the sidelines of an APEC trade ministers' meeting.
June 20 -- The European Union says it has resolved outstanding bilateral issues with China over its accession.
September 14 -- WTO members agree on terms for China's entry at an informal meeting, clearing the way for the nation to join by the end of the year.
November 10 -- Trade ministers from across the world officially approve China's entry. The move was approved unanimously at the WTO meeting in the Gulf state of Qatar
December 11 -- China ends its 15-year quest to join, officially becoming a fully-fledged member of the international trading system.
SOE’s and WTO In 2000, the SOE sector produced 24% of
industrial output, and accounted for 42% of urban employment
two types of subsidies: direct and capital Agreement on Subsidies and
Countervailing Measures (SCM) economic gains of restructuring the SOE
sector derived from WTO accession Taking in account the benefits of SOE’s,
the benefits of trade liberalization is substantial
Effect
distribution system or mode of doing businesses, ownership structure, and human capital
scale and scope economies FDI: Learning by doing and by
Watching Government overcame on
bureaucracy
Winners vs Losers Winners The private
sector Consumers Exporters Transport: containers Services: household and professional Textiles and apparel Light manufactures, e.g. electronics, toys Non-farm activities in rural areas
Losers Many state-owned companies Banking Insurance Telecommunications Automobiles Heavy industry, e.g. steel, aluminum Farmers; e.g., grain, soybeans & cotton State trading companies
China had to relax over 7,000 tariffs, quotas and other trade barriers. Some feared that foreign competition would uproot farmers and upend rusty state-owned enterprises (SOEs), as to some extent it did.
WTO as a Panacea 万应灵丹 the enforcement of reforms is much easier
through the WTO than through the domestic bureaucracy.
Entire SOE’s in debt and WTO was an agenda
The former Premier Zhu Rongji stated explicitly that WTO accession was a decision made by the government to promote further reforms and open up the economy
What has been changed/reformed?
More openness and access Transparency Got rid of inefficient organizations
and management China participation in the WTO's
dispute settlement system Eliminate trade subsidy 补助金 Efficiency and proper allocation of
resources
Effect on SOE’s
The term ‘efficiency’ can be termed in different ways,
as Pareto efficiency, technical efficiency, allocative efficiency, exchange efficiency, X-efficiency and market efficiency
Alternate
Simply by formally changing the state enterprises to share-holding companies does not lead to the replacement of former managers and the adoption of new ways of managing the enterprises. As pointed out in Chow (2002, p. 391) private ownership is neither sufficient nor necessary for enterprise efficiency
success
Chinese State-owned Enterprises (SOEs) are making news with a number of them appearing on the global lists
Geely’s volvo marque from Ford
Incentives
In summary, through different stages the SOE reform went from microeconomic adjustment, to limited autonomy, to privatization; and from giving no economic incentive to workers and managers, to giving partial incentives, to full incentive in the case of privatized SOE.
Effect of WTO Entry GDP grew by 8% in the year following entry
to the WTO Increase of 18.4% in trade volume with USA
China’s exports increased by 19.7% in a year
WTO , increase in confidence and Influx of foreign investment
Private Sector WTO policies forced China to treat all
enterprises equally Private Sector has seen rapid growth Ban on Private sector to engage in
foreign direct trade removed Private sector got access to finances In Zhejiang Province, for example, 80 %
of the 1,700 enterprises that were granted the right to conduct foreign trade in 2005 were private firms.
Tariff Reductions
WTO and Economic Growth
first is the gain from specialization through international trade.
The second is the gain from increase in efficiency within each industrial sector and economies of scale
Western firms got from China’s joining the WTO
Cost and Benefits
WTO and competition Encouragement of market power private ownership is neither
sufficient nor necessary for enterprise efficiency
Consumer cost and benefits Decline in state control
What does the future hold for China in the WTO? Economic growth will continue and
more reforms will be made China will have access to advanced
technology China’s tariffs will eventually reduce Banks/stock will begin to launch
massive market oriented reform programs to prepare for competition from outside markets
Business standards will continue to rise
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