28 January 2021, NIICE Commentary 6749
Monika Krishna
China joined the World Trade Organisation (WTO) in 2001 as 143rd member after fifteen years of intense negotiations. It was a watershed moment for both China as well as WTO. While China hoped for increased trade and prosperity, the organization gained greater legitimacy and became truly global as China was the only major trading nation outside its ambit. The long years of negotiations with the external world were accompanied by domestic shifts of discourse and political stance on the reform process and globalisation. Jiang Zemin, former leader of China, premised the process of globalisation as being purely objective and only economic. This position has been maintained by the current leader of China, Xi Jinping, as is evident by his use of the term ‘economic globalisation’ instead of ‘globalisation’.
Though the Communist Party of China (CPC) was apprehensive about joining the multilateral trade organisation owing to large short-term costs that economy had to bear, yet China’s economy took off immediately after joining the WTO. Having completed 20 years of ebbs and flows in this engagement, it is imperative to look back at the politico-economic conditions in China and the world that led to the integration of socialist economy of China in an essentially neo-liberal world.
After applying for WTO membership in 1986, it was anything but a smooth ride for China before it finally received formal membership in 2001. At the time, General Agreement on Trade and Tariffs (GATT), the predecessor to WTO, was in force. While the GATT promoted free markets and open borders, China was a socialist country where economic activities were under state’s control. Before 1978, China’s economy was characterised by large-scale collectivisation and central planning system. Socialist ideology was deeply ingrained in people and the bureaucracy and they looked at anything even close to free-market principles with suspicion. As Deng Xiaoping came to power in 1978, the wind was gradually turned in favour of economic reforms and gradual loosening of state’s control. With setting up of four Special Economic Zones (SEZs) in 1980s, the integration with the world deepened and foreign direct investment (FDI) flowed-in.
As the economy started reaping benefits of the integration with the world economy, millions of Chinese citizens were lifted out of abject poverty, large number of youths got employed and China started reaping benefits of this integration. These benefits, however, did not come without costs. As China started reeling under the strong wave of globalisation, the one-party rule of China was increasingly threatened by inflow of democratic ideas. Demand for political reforms manifested into huge protest at the Tiananmen square in 1989, crackdown on which was highly criticized by the international community and this delayed the WTO membership negotiations and halted domestic economic reforms by at least three years. During this time, the conservative faction within the communist party, who opined moving away from the globalisation wave for the fear of losing political control, gained momentum. The anti- reform views were further exacerbated by United States’ moves of visiting Dalai Lama and stepping up arms sale to Taiwan during the same time. The fall of communist Soviet Union came as another disappointment for China, as liberalism was proclaimed as the triumphant politico-economic system.
At this juncture, China was confronted with a dilemma, either to completely merge with the neo-liberal wave of globalisation which entailed the fear of political demands of democracy in future or it could remain isolated from rest of the world which would be an economic disaster as China had already substantially integrated with the world economy by then and was reaping huge benefits out of this integration. It became the leading recipient of foreign direct investment among the developing countries and second largest recipient in the world in 1990s. It was already the third largest economy of the world by the end of twentieth century. Moreover, the Economic setback as a result of isolation, would also lead to political upheaval against the ruling party.
In the then ongoing negotiations on China’s accession to WTO, several discriminatory rules were applied to China which in fact flouted WTO’s core principle of non-discrimination. Other member countries could apply tariffs exclusively on Chinese products under more relaxed and milder conditions, than required to impose tariffs on other imports. Moreover, China was accorded the status of ‘non-market economy’ which meant countries could apply anti-dumping duties on Chinese imports. These discriminatory principles were further complicating the internal debates in China where opposition to China’s entry into WTO was strengthening. The leaders, however maintained their position in favour of joining WTO as it would lead to long-term benefits against short-term losses. Also, China had carefully developed itself as an export led economy and stable flow of exports was imperative for sustenance of its economy. Before joining WTO, countries applied high tariffs, quotas and anti-dumping duties on Chinese imports, making them vulnerable. WTO was expected to reduce this vulnerability and ensure stable exports. Moreover, sustenance of the Communist Party was of paramount importance and a crucial factor of any decision that China’s leadership took. It was well factored-in as China decided to overcome the hurdles and enter WTO in 2001. The party accepted globalisation as a purely economic force, subservient to the China’s political institutions.
Once we look at the historical perspective and objectives with which China has been functioning as a global player, we see that its behaviour is deeply rooted in prioritizing narrow national interests and supremacy of the Communist Party of China (CPC) in the country. President Clinton in 2001 said that “China’s accession to WTO and expansion of free trade would unleash the forces that may hasten the demise of the mainland’s one-party state”. It was widely assumed and expected that China’s entry into WTO would inevitably lead to its integration with the capitalistic market economy and democratic political system. However, China’s objectives were diametrically opposite. While it wanted to expand its exports and become part of the ongoing process of globalisation, its perception of globalisation and democracy have not been same as that of United States and the rest of the world. From the time of joining WTO, China has been very clear and vocal about taking globalisation as purely objective phenomenon with no spill-over on its political structure. It is expected to uphold this position in future and act accordingly.
