China’s,Marketization,since,WTO,Accession:it's since

　　Abstract: After joining the World Trade Organization (WTO), China has intensified market-oriented reforms in the renminbi exchange rate, foreign trade, utilization of foreign funds, and foreign-related economic laws etc. In terms of ownership structure, a move from state-owned asset management system policies toward non-publicly-owned enterprises has been undertaken. In addition, China has proactively reformed the government administration system.
　　Key words: WTO, China, reform and opening-up
　　JEL Classifications: O24, P27, P47
　　The Protocol on the Accession of the People’s Republic of China took effect on December 11th, 2001, and China officially became the 143rd member state of the WTO. This began a new era for China’s reforms that brought far-reaching influences on all aspects of the economy and society. Through honoring its WTO committeements, China has intensified its market-oriented reforms, and has steadily improved marketization in all aspects of its socialist market economic system.
　　1. A New Era of Market Reforms
　　Since its entry into the WTO, China has integrated well into the world multilateral economic and trade systems. The country has begun the groundwork for a socialist market economic system, successfully survived the global financial crisis, and maintained rapid economic growth. Meanwhile, it has transitioned from promoting internal economic balance to balance far beyond, from being an enforcer to creator of international rules, and shifting from shouldering responsibility merely as a developing country to being committed as an established economic power.
　　By 2010, China’s economic aggregate surpassed Japan to rank second in the world and foreign trade volume exceeded USD2.9 trillion placing it third in that category. Facts show that after joining the WTO, China created a successful paradigm for emerging economies to assimilate into open global economic systems.
　　In the wake of the third technological revolution of the 21st century, the world economy witnessed accelerated growth in the service sector. In China, the service trade is constantly increasing its share of economic growth. As of 2009, out of over 160 service trade sectors as classified by the WTO, China had opened 104 sectors, or 62.5 percent, close to the average for member states of 108. Among them, 54 sectors allow single proprietorship and 23 allow foreign funds-holding joint ventures.
　　The WTO accession has also improved China’s trade environment, and governmental behaviors have been better disciplined with international rules widely applied. Despite China’s entry into the WTO, some European countries and the U.S. still consider China a “non-market economy” and adopt discriminative anti-dumping policies and non-tariff barriers. Since 2001, the School of Economics and Resource Management of Beijing Normal University has carried out a project to measure the marketization level of China. After eight consecutive years of measurement, a series of Report[s] on China’s Market Economic Development were drafted. According to these reports, the level of marketization for the eight years from 2001 to 2008, as measured by five areas of criterion and 33 indicators, is 64.26 percent, 64.76 percent, 67.07 percent, 70.53 percent, 76.03 percent, 75.19 percent, 76.19 percent and 76.40 percent, respectively. From these figures, China’s market economic development stages and characteristics are generalized. 　　By the end of 2010, China has approved the establishment of 710,000 foreign-owned enterprises and utilized USD1,051.2 billion foreign funds, ranking first among developing countries. Foreign-owned enterprises have become an important part of China’s economy. Disputes as witnessed in the last century on whether China should utilize foreign funds or the amount of utilization are now less prominent due to a shift in academicians’ focus to issues of how to deal with foreign funds and improve the quality of China’s utilization of foreign funds in the context of globalization.
　　A milestone in China’s opening-up after WTO attainment lies in the transition from stressing “introduction of foreign funds” to attaching equal importance to “going-global.” As a basic state policy in the new era of market reforms, the “going-global” strategy encourages enterprises to go-global through direct investment, undertaking foreign contracted projects, or cooperating with foreign countries in labor services. Broadly speaking, channels of investing abroad also include economic and technological assistance to foreign countries, export, and utilization of foreign funds abroad, etc. In the Blueprint for the 10th Five-Year Plan (2001-2005) released in 2001, the “going-global” strategy is listed together with foreign trade and utilization of foreign funds as one of the three major pillars for development of an open economy.
　　In foreign exchange administration China has transitioned to a balanced management in order to bring the role of interest and exchange rates into play in a market-oriented economy. Furthermore, the country has advanced renminbi convertibility under the capital account, and focused on preventing and mitigating global financial crisis and promoting the balance of international payments. In addition, since integration into the global economy in 2001, China’s renminbi exchange rate formation mechanisms have been brought under reform. There are two key points in reforming the renminbi foreign exchange regime. First, a market-oriented exchange rate formation mechanism that meets the requirements of China’s economic development should be established. Second, the reform should minimize the risks of macro-economic fluctuations brought about by exchange rate adjustments, especially in speculation of the renminbi or output fluctuations in the short run.
　　On July 21st, 2005, the People’s Bank of China announced that China would adopt a managed floating exchange rate regime based on supply and demand in the market and adjusted in relation to a bundle of currencies. Moreover, China explicitly proposed that renminbi exchange rate reform should proceed in a self-initiated, controllable and gradual manner. Accordingly, the market plays a more prominent role in forming more elastic and effective exchange rates and promotes a balance in international payments. 　　The managed floating exchange rate regime aims to stabilize the renminbi exchange rate at a reasonable and balanced level. Actually, since exchange rate reform was initiated in 2005, the renminbi has appreciated by over 20 percent. The renminbi central parity rate dropped below 8.0 in July 2006, below 7.0 in April 2008 and stood at 6.6 in January 2011. Entering the year 2000, the global economy was at a low water mark, with growth in some Western developed economies having stalled or receded. China not only maintained rapid economic growth but also withstood the global financial crisis successfully. To protect their interests and reverse their trade deficits, developed countries like Japan and the U.S. persistently placed pressure on the renminbi. In June 2011, China’s central bank again released the approach of reforming the exchange rate, reiterating that China should follow a market-based regime to be adjusted in relation to a bundle of currencies which can reflect the exchange rate more accurately. Accordingly, the government regulates and maintains the renminbi exchange rate at a reasonable equilibrium level. Managed fluctuation of the renminbi exchange rate serves a fundamental need of the economy: macro-economic control and balance of international payments. Nonetheless, exchange rate reform should be carried out in a gradual manner to allow time for the restructuring of enterprises and to mitigate the impact of a floating renminbi. Of special note is that close attention should also be paid to supervision and management of short-term speculative capital lest large-scale flows of hot money disrupt the domestic financial system.
　　China’s entry into the WTO provided a broader space to participate in international economic affairs. In the 21st century, regional economic cooperation, mainly in the form of free trade agreements, flourished as an important way for countries to facilitate trade investment. The China–ASEAN Free Trade Area (CAFTA), established in 2002, represents China’s accelerated pace of regional economic cooperation. In the report of the 17th National Congress of Communist Party of China, it was officially proposed to proactively implement the free-trade-area strategy. So far, only a rudimentary framework has been created, but the aim is to establish new regional economic cooperation organizations.
　　Progress has been made in building foreign-related economic laws, rules and regulations. In accordance with WTO rules, between 1999 and 2002 China streamlined over 2,300 articles of laws and regulations. Many laws and regulations governing the import and export of goods were abolished or revised. Additionally, the country unveiled the Regulations Governing Import and Export of Goods as well as supporting regulations for ten departments, covering all aspects of the import-and-export administration system. According to the notice released by the central government in September 2001, local governments at all levels also sorted out over 190,000 articles of laws, rules and policies based on the principles of alignment, non-discrimination and transparency. In July 2004, China released the revised Foreign Trade Law, which changed the foreign trade examination and approval system into the registration system and initially established a three-level legal framework for foreign trade administration. Further, steps have been taken to improve laws and regulations protecting intellectual property rights. Aligned, non-discriminatory and transparent foreign-related economic laws, rules and regulations can better serve the socialist market economy and balance the relationship between domestic and foreign economic subjects. China has taken the initiative in formulating new international trade conventions to fulfill its commitment as a large WTO member state. During 2003-2004, China ratified approximately 74 treaties and agreements with foreign countries as well as seven additional treaties ratified in 2009. 　　2. Improvement in Ownership Structure1
　　Over the last decade, China has reformed the state-owned asset administration system and unveiled policies supporting non-publicly-owned enterprises. In the report of the 16th National Congress of Communist Party of China, it was pointed out that except for in a few areas, China should proactively develop the shareholding system and a mixed-ownership economy. This shift represented a new philosophy for China’s economic reforms.
　　Established in 2003, the State-owned Assets Supervision Commission began the task of transforming the state-owned asset management system. Marketization of state-owned enterprises (SOEs) is manifested in four aspects: market-oriented reform, diversification of property rights, marketization and disciplining of operational behavior, and establishment of the withdrawal mechanism. The purpose of marketization is to make an SOE an autonomous legal entity operating and competing in the market independently, assuming sole responsibility for its profits and losses, and seeking self-development and self-reliance. Under the precondition of state ownership, the central and local governments perform duties as an investor on behalf of the state, enjoy both the owner’s equity and obligations, and manage state assets in conjunction with management of personnel and affairs. Under this system, the property right of large SOEs becomes diversified, which improves the withdrawal mechanism and increases SOE profits. The Property Law of the People’s Republic of China, passed in March 2007, specifies the investor and the owner of equity. According to the Property Law, for enterprises invested in by the state, the State Council and local governments perform duties as the investor on behalf of the state and enjoy the investor’s equities pursuant to laws and administrative regulations. Here, the concept of “enterprises invested by the state” is replaced by “SOEs,” defining clearer the relationship between the state and SOEs and marking a milestone of reform of SOEs.
　　Diversification in the property rights of SOEs is an important part of China’s economic marketization. For example, the main orientation in the restructuring of SOEs is to build a limited liability company or a company limited by shares (including Sino-foreign joint ventures and joint ventures with Hong Kong, Macao & Taiwan). Restructuring enables SOEs to be free from administrative intervention and to be run in accordance with market rules. 　　The standardized governance organization of the parent company of large state-owned corporations also exemplifies marketization of enterprises. The table below shows the percentage of large state-owned corporations whose parent company has established a board of shareholders, board of directors and board of supervisors.
　　With regard to policies supporting non-publicly-owned enterprises, the most influential strategy arrangement is Several Opinions of the State Council on Encouraging, Supporting and Guiding Development of Non-publicly Owned Economy like Individual and Private Economy formulated by the State Council in 2005. It explicitly set out 36 key policies to develop a non-publicly-owned corporate economy. Driven by these policies, the non-publicly-owned economy developed rapidly into a new growth engine. Specifically, in the non-public sector, the numbers of companies became bigger, registration funds increased, employment grew, the economic aggregate enlarged, technical advance accelerated, corporate governance improved, the threshold for market access was lowered, foreign trade expanded, and economic returns and tax proportion increased.
　　The Chinese Government’s efforts to advance marketization of enterprises in order to adapt to WTO rules can also be reflected in policies released in 2007. In that year, the China Securities Regulatory Commission released Administrative Measures on Information Disclosure by Listed Companies, the State Assets Administration Committee released the Notice on Further Building Central Government-led Companies’ Corporate Legal Consultant System Centering around the General Legal Consultant, and the Ministry of Finance and Ministry of Science and Technology released Interim Measures for the Administration of Guidance Funds for Promoting Venture Capital Investments in Small and Medium-Sized Technology Enterprises. The 5th meeting of the 10th National People’s Congress (NPC) passed the Property Law of the People’s Republic of China and the 29th meeting of the Standing Committee of the NPC passed the Anti-monopoly Law of the People’s Republic of China. These policies were very significant in establishing a mature market and improving the investment environment. Of special note is the proposition, as stated at the 17th National Congress of the Communist Party of China in October 2007, about “developing a mixed-ownership economy based on the modern property right system” and “an environment for the economy of all ownerships to compete on an equal basis and to promote each other.” 　　By the end of 2008, the number of enterprises in the country totaled 9.7 million, 99 percent of which were small and medium-sized enterprises (SMEs). SMEs contributed over 60 percent of GDP, over 50 percent of tax revenue, 70 percent of import and export trade and 80 percent of urban employment opportunities. They also absorbed 50 percent of lay-offs from SOEs, 70 percent of incremental employed people and more than 70 percent of migrant worker employment. In terms of independent innovation, SMEs owned 60 percent of patents, 74 percent of technological innovations and 82 percent of newly-developed products. Subsequently SMEs occupied a great share of the whole national economy. 2
　　In 2008, the ratios of the number of private enterprises and their registered funds among the primary, secondary and tertiary industries were 2.05: 30.82: 67.13 and 1.96: 36.71: 61.33, respectively. Apparently, the tertiary industry was the focus of development for private enterprises. In 2008, the number of private enterprises and their registered funds increased by 19.25 percent and 25.03 percent versus 2007, respectively.
　　The development of high-tech industries reflects the scientific advance and international competitiveness of a country. Furthermore, expansion of non-SOEs in this industry is a key element measuring development of the non-state-owned sector of the country.
　　In 2010, the State Council unveiled Opinions of the State Council on Encouraging and Guiding Healthy Development of Private Investment. Incorporating 36 measures to advance China’s marketization, it proposed that China broaden the scope of private investment and encourage and guide private funds to invest in basic industries and infrastructures, utilities, policy-related house construction, social undertakings, financial services, trade circulation and national defense industries. It also proposed to guide restructuring or alliance of private capital and encourage them to participate in reforming SOEs and to push independent innovation and transition of private enterprise, encourage and guide private enterprises to participate in international competition, create a favorable environment for private investment and strengthen service to and disciplining of private investment. In October 2011, the State Council again unveiled nine measures to support small and micro-sized enterprises, adding to care for non-SOEs.
　　3. Reform of the Government Administrative System
　　China’s entry into the WTO also exerted significant influence on the government administration system. First, it pointed out a clearer direction for transformation of government functions, namely that government administration should cater to the market economy. The WTO has 142 member states, over 120 of which are market economies and ten are transitioning towards a market economy. WTO principles, agreements and treaties are all based on the market economic system. This directly increased government’s determination to reduce administrative examination and approval. Consequently, all items for examination and approval without legal basis or which ought not to be directly presided over by the government should be cancelled. 　　Over the same period, local governments cleaned up and cut items for approval through four rounds of reform. Up to 1,992 items for administrative approval have been cancelled or adjusted by all competent authorities, accounting for over 50 percent of the original 4,100 items. For example, through nine clean-ups, Chengdu City of Sichuan Province cut over 90 percent of such items from 1,166 to 107, and nearly four-fifths of items for non-administrative license examination and approval from 1,006 to 210. More local governments have begun establishing government affairs centers and administrative service centers offering “one-stop” administrative examination and approval services and are promoting online examination and approval.
　　Entry into the WTO made social management more transparent. The Chinese Government has taken several measures to improve policy transparency, such as distributing government bulletins free of charge in many areas. Meanwhile, the Government has established relevant institutions to enhance communication with the WTO in order to improve transparency in foreign affairs. For example, China’s WTO Notification and Enquiry Center under the Ministry of Foreign Trade and Economic Cooperation was responsible for explaining and disseminating China’s foreign trade policies and measures to the outside world.
　　Enterprises that previously were governed unjustly are now treated equally. Further, previous direct government intervention has been replaced by indirect administration. Over the last decade, the Chinese government has strived to promote the WTO’s non-discriminatory principles. Not only WTO member states but also their enterprises should be treated equally in terms of market access, trade conditions and trade dispute resolution. The government has endeavored to break industrial monopolies and encourage competition while cultivating and regulating social intermediaries which organize social governance and maintain a sound environment for market competition. From 2008, China’s authorities in industry and commerce have strived to improve government administration from three aspects, including carrying out administration based on laws and policies, standardizing administration and streamlining procedures. Also, permanent mechanisms for market regulation have been established, including “enterprises credit category supervision,” “Hotline 12315 for consumer complaints and reports,” “access and withdrawal of goods” and “registration of individually-owned business by hierarchs and category.” 　　A clearer boundary between the function of government and laws has been established after entry into the WTO. Over the last decade, the Chinese Government has endeavored to reduce administrative intervention and standardize government behaviors in strict accordance with law. In 2007, the State Council released the Regulations on Disclosure of Government Information, an important step in building a law-based government. This has led to improving government transparency, safeguarding the public’s right to information, building a positive government administration style, and preventing corruption. The government’s administrative power was briefly reinforced during the recent period of global financial crisis, but less government intervention is now an overall orientation. An important driving force here is marketization. Meanwhile, China has strived to ensure transparency, consistency and continuity between legislation and the enforcement of laws.
　　After entry into the WTO, more consideration has been given to international practices and interaction between domestic and overseas economies when macro-economic policies are formulated. Over the last decade, the Chinese Government has aligned itself with international practices in terms of statistics approach and data use, a matter concerning the government’s public trust. Meanwhile, it also proactively established various bilateral or multilateral mechanisms for communication with the outside world.
　　Generally speaking, the function of the Chinese government has not been diluted after entry into the WTO. The country has been transformed from a planned economy to a market economy. However, although administrative powers in the area of administering the operation of enterprises have weakened, the administration of public policies has strengthened. Demands on government administration have increased rather than diminished, but the requirement on the administration approach has changed. Even though there is improvement still to be made, entry into the WTO has improved the government administration system, which in turn has smoothed the progress of China’s integration into the WTO.
　　It took 15 years of negotiations, but it has been proven that China made a wise choice in joining the WTO. China is building a society ruled by law and is increasing its economic and political stability. It is an event of great and far reaching implications.
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