Australia-China Chamber of Commerce and Industry
of New South Wales







China’s Accession to the World Trade Organisation:

Impacts on China and East Asia

By Andrew Straus
Study Abroad Student at the University of New South Wales

Posted to Web Site:  28 October 2003

About the author:

Andrew is doing a double
degree in Systems Engineering (Bachelor of Applied Science) and Economics (Bachelor of Arts) at the University of Pennsylvania.  He is also pursuing a minor in American Public Policy.

When asked why he decided to come to Sydney, and what interested him most about China, he replied:

I wanted to study abroad to gain increased perspective on the political, economic, and technological issues, which I focus on at Penn, as well as really to get out and see the world.  I was interested in immersing myself in another culture, and excited about what I might learn from new people and the changes it might bring about in myself.

I chose Sydney mostly because of UNSW, due to its very comprehensive study abroad program, as well as Sydney's big city, cosmopolitan atmosphere, which has so much to offer an eager student able to get out and explore.

My interest in China stems from its growing world influence in both political and economic issues.  Its recent advances in industrialisation and emerging technologies make it an exciting world competitor.  The presence of this global powerhouse has large implications for policy issues crossing boundaries of all disciplines.


With an increasing focus on political and social stability, economic productivity, and public welfare, China began to open up its vast economy in the late 1970’s.  In 1979, the then leader of China, Deng Xiaoping, changed the course of modern history by initiating China on its path toward a market economy. 1/ 

Transitioning from a centrally planned economy based on self-sufficiency to a market-oriented one focused on growth, China made its first tangible step along its long path when it assumed the membership of Taiwan Province of China in the IMF and the World Bank, of which it had been one of the founding members, and then launching a campaign by 1986 to resume its contracting party status in the General Agreement on Tariffs and Trade (GATT), from which it withdrew in 1950.

Representing a fifth of the world’s population and over three percent of its trade, 2/ the opening of the Chinese economy to the world has vast implications for the economic and social welfare of China, East Asia, and the World.  Since the beginning of reform, China’s economy has been growing at a rate of nearly 10 percent annually and its external trade has been expanded by more than 15 percent a year. 

Since China is ranked as the 9th largest trading nation in the world, a World Trade Organisation without China as a member would fall short of the World Trade Organisation’s claim to represent the global economy. 3/  In its continued reform, China has abolished trade plans, decentralised trade, slashed tariffs, unified the dual exchange rates (1994), and removed exchange controls on current account transactions (1996). 4/ 

Following this past unilateral reform, the accession of China to the World Trade Organisation (WTO) on December 11, 2001, after 15 years of arduous negotiations, brings that nation’s continuing economic reform and its potential contribution to world growth to a decisive level. 

The various avenues of reform agreed upon by the members of the WTO in China’s entry will fundamentally restructure the Chinese economy in all sectors of production; opening the market, liberalising trade, improving efficiency, and shifting Chinese industry towards its sectors of comparative advantage. 

While the opening of an economy as large as China’s to the world can be disruptive both to China and its developing trading partners in the short run, in the long run, it should benefit all interested parties with China and the industrialised world to realise the greatest gain. 

Furthermore, China’s emergence into a world economy free of barriers to trade will shock the domestic and East Asian production and employment markets as reforms are progressively phased in.  However, the negative impacts can be mitigated and absorbed in the short term by various economic and social policy options, and proven worthwhile in the long term with continued growth.

Reforms Associated with Entry to the WTO:

The reforms associated with China’s entry to the WTO are vast, with potential impacts diffusing throughout the economy.  Although its per capita income is lower than that of many countries deemed “developing” by the WTO, due to its large size and growth performance through the 1980’s and 90’s, the standards applied to countries entering the WTO as developing were applied to China with provisions to soften the blow to the domestic economy and the developing world through progressive reform. 

In order to convert the Chinese economy from one that is closed with large barriers to foreign entry and high reliance on self-sufficiency, to one that is open, price driven, and market-oriented, reform is pursued on five fronts:

*   Non-discrimination

*   Market Opening,

*   Transparency and Predictability

*   Undistorted Trade, and

*   Preferential Treatment for Developing Countries,

This will bring China into compliance with the General Agreement on Tariffs and Trade (GATT) and create a framework for impact analysis.


The principle of non-discrimination is included as part of China’s WTO agreement.  In complying with non-discrimination standards, China is required to grant optimal business conditions to all members of the WTO regardless of origin.  In doing so, China is required to treat equally competing suppliers, not discriminate between domestically produced and imported goods and services in the domestic market, eliminate the dual pricing system which China has historically used to differentiate between domestic and foreign prices, phase out restrictions on trading, and employ uniform administration standards and judicial review to all suppliers. 5/ 

These principles are those conveyed in the “Most Favoured Nation” principle. 6/  These changes reflect China’s shift from self-reliance to accepting the influx of foreign goods and services based upon best value rather than a policy of supporting only Chinese goods regardless of efficiency or value for money.

In making these changes, China will need to focus not only on the central government, but also on regional authorities due to their involvement in internal trade and regulation.  In the past, Chinese authorities have put large emphasis on supporting local industry, for example the Chinese auto industry, and granting preferential treatment to businesses or individuals which follow their buy domestic policy. 

This activity, in conjunction with larger scale discrimination against imports from foreign suppliers, will cease as a result of the implementation of non-discrimination principles.  Furthermore, the disparity between domestic and border prices will lessen, and importers will gain access to a fair goods market.

Market Opening

Potentially the most impacting avenue of reform will be the opening of the Chinese market to world trade.  This principle is reflected and pursued through commitments both by China and its trading partners.

Having begun the process of market opening in the late 1970’s, the process is continued with China’s agreements in meeting the WTO requirements.  Most significantly, China has agreed to abolish all non-tariff barriers, reduce tariffs in general, and open its services sector, which has previously been limited to government and Chinese owned firms to foreign competitors. 

Arguably the most significant component to market opening, China has implemented and offered substantial cuts in overall tariffs which will result in a 6.8 percent weighted average tariff by the end of the implementation period (2010), down from 40.3 percent in 1992. 7/

These concessions by China are met by commitments by countries importing from China to abolish the quotas on textiles and clothing that were originally imposed under the Multifibre Arrangement (MFA), and in commitments by the United States and other countries to grant China permanent MFN status (which includes MFN level tariffs). 8/

Both the reduction of Chinese tariffs and the abolition of foreign quotas represent large concessions for all parties.  The stark reduction in tariffs will allow an influx of foreign goods to China, mostly industrial and capital intensive, as will the removal of quotas allow cheap textiles and clothing (fuelled by China’s comparative advantage in labour intensive goods) to flood foreign markets. 

Although the influx of goods will be mitigated in the short term by special provisions to allow parties to progressively reduce tariffs and quotas during the implementation period through 2007, the longer term will bring a shift in imports and exports to reflect the respective comparative advantages of trading partners, as well as increase the welfare of consumers through the availability of cheaper foreign products.

Transparency and Predictability

Aside from quantitative changes in China’s trade policy, the general manner in which China conducts trade will also experience various reforms which aim to stimulate trade and facilitate foreign participation in the Chinese marketplace.

In the past, the administration of trade in china – relevant laws, practices, and regulations – have been primarily only the business of the government.  Taking steps to increase the transparency and predictability of the trading regime will allow trading partners to be aware of tariff schedules, relevant regulatory procedures, and means for resolving disputes, prior to engaging in business, thus eliminating the risk associated with selective application or modification of practices, as has been the case in past trade with China.

Specific reforms include the publishing of trade rules and regulations, a wholly uniform application of the trade regime to all trading partners, an independent judicial review for the resolution of disputes, an established mechanism for disputing parties to report to and resolve problems with the central government, a binding of the tariff schedule for all goods with no tariff increases in the future, a phasing out of restrictions on trading rights for all products (accepts few commodities that will remain under state controlled trading), and the allowing of entry of foreign suppliers into distribution and wholesale services. 9/

In general, through these measures, China will move from a sort of black box trading entity to one with fully participates openly and consistently with trading partners.  Both China and its trading partners serve to benefit from such reforms through increased trade resulting from increased ease of business making due to an established and regulated trade regime.

Undistorted Trade

Included in WTO provisions of accession are regulations focused on the protection of inefficient domestic industries and the resulting influx of cheap goods on foreign markets.  The provisions regarding undistorted trade address such general disciplines as subsidies and countervailing measures, antidumping, and safeguards. 10/

The provisions applied to China are primarily focused on the potential influx of cheap Chinese textiles and clothing as a result of the elimination of foreign quotas on their imports.  These regulations aim to protect the domestic industry of China’s trading partners.

Troubling for China, the WTO agreement includes the Product-Specific Transitional Safeguard Provisions, which allow WTO members to reinstitute quotas or delay the reduction of tariffs for up to 12 years in order to protect their own industry.  While these provisions seek to protect trading partners, if exploited, could result in a stiffer trading environment than that which would exist without China’s WTO accession. 

Therefore, in order to protect domestic industry as well as realise the benefits associated with China’s accession, both China and other WTO member nations have it in their best interests to work cooperatively to avoid retaliatory measures and progressively allow changes in trade patterns to take place.

Preferential Treatment for Developing Countries

Preferential treatment is accorded to developing nations in their accession to the WTO under the assumption that it is more difficult (would result is greater disruption of the domestic economy) for them to abide by WTO regulation than it is for the industrialised and developed world. 

As stated, due to China’s large size and strong growth through the 1980’s and 90’s, China was accorded developing status with provisions to account for its unique circumstances.  While in many cases China will have access to developing status provisions, in other cases, it will experience tighter provisions than other developing nations. 11/

Specifically, China has obtained transitional arrangements which allow the progressive phasing out of quotas and licenses for exporting, and the phased entry of foreign enterprise participation in the domestic market.  Subsequently, although China had to accept a limit of 8.5 percent on de minimis domestic support, as apposed to the usual 10 percent for developing countries, limiting its ability to protect its domestic industry, the progressive nature of tariff and foreign entry provisions accord it greater ability to mitigate impact on its domestic industry from another front. 

While China’s domestic industry will ultimately be impacted by the changes associated with accession, limited preferential treatment as a quasi-developing nation will allow it greater flexibility in easing economic disturbances in its transition.  Most relevant to China are the reforms associated with market opening and undistorted trade. 12/ 

Although all avenues will realise significant impact in the Chinese economy, the broadest shifts in production and trade will be as a result of the stark reduction in tariffs, the ending of subsidies for inefficient Chinese industries (most specifically the State Owned Enterprises), as well as the extent to which trading partners institute antidumping proceedings. 

As quotas and tariffs are reduced, and Chinese production shifts in favour of its industries of comparative advantage, the nature of long run trade patterns will be reliant upon the extent of cooperation of trading partners in allowing these drastic shifts to take place without exploiting antidumping provisions in protection of their own industries.

Impact on China:

The avenues of reform discussed have ramifications for the entire Chinese economy.  Overall, empirical studies predict between US$4 billion to US$30 billion a year in welfare gains from the liberalisation of merchandise trade alone, 13/ indicating an obvious net benefit to the Chinese economy as a result of accession.

The specific changes taking place will realise shifts based upon their respective sectors of impact, with the three main sectors of economic analysis, the agriculture, manufacturing, and services sectors, serving to illustrate the major impact of economic transition.

Sectoral Impacts of Accession


With half the national workforce and nearly one fifth of total output reliant on agriculture, the impact on China’s agricultural sector as a result of accession is of great concern. 14/  The major impact on agriculture will stem from a lowering of the overall average agricultural tariffs by more than a half, and the elimination of several non-tariff barriers. 

However, while tariffs are lowered and barriers eliminated, China will continue the use of tariff-rate quotas (TRQs) for several key agricultural products as well as maintain a state trading system in grains (wheat, maize and rice), soybean oil, and cotton, therefore the real level of protection which persists is difficult to estimate. 15/

In the short term, net impacts will be small. The TRQ system will be able to mitigate liberalisation pressures, and international barriers will prevent full exploitation of potential benefits.  Specifically, impacts on meat and livestock will be positive, with a negative impact on all other agriculture. 

China has a low ratio of capital stock and of arable land relative to labour, generating a comparative advantage in labour-intensive industry.  Therefore in the longer term, market liberalisation and foreign quota size increases will lead to a decline in land-intensive sectors (such as grain and cotton), and an increase in labour-intensive sectors (livestock, fruit, flowers, vegetables), due to structural shifts towards China’s comparative advantage. 

In general, the long-term net impact will be slightly positive while varying across provinces depending on local agriculture. 16/

These shifts in production trends will result in short term increases in unemployment for farmers mostly outside cities.  However, due to the removal of foreign quotas on Chinese textiles and clothing, farm workers will be able leave the inefficient farm sectors and find reemployment in the expanding textile and apparel industry. 

Furthermore, farming is increasingly becoming a part time occupation in china, with potential for farm incomes to be supplemented by off farm employment, providing relief for structural unemployment changes in the Chinese economy.


The Chinese manufacturing sector serves to benefit more than agriculture due to accession.  Historically, the manufacturing sector has been marked by a dualistic nature:  a liberal export regime met by a protected trade policy.  With accession, the liberal export regime will be expanded and the protected trade policy will be progressively eliminated. 

The most dramatic changes will take place as a result of a drop in tariffs on manufactured goods from 24 percent in 1997 to 7 percent within 5 years of accession, coupled with the elimination of the MFA for all WTO members.  Furthermore, tariffs on information and communications technologies will be fully eliminated (from 13 percent today), and auto tariffs, which stand at 80-100 percent today, will be cut to 25 percent by 2006. 17/ 

The general result will be a surge of competition from foreign firms in China’s domestic market in the capital-intensive industrial sector (automobiles, petrochemicals, metal), as well as energy, processed foods, and pharmaceuticals due to an attack on inefficient, government-subsidised Chinese industry.

Due to the structure of China’s labour market which carries large excess capacity, and many firms with excess labour and low profitability, the shift in production will force large increases in unemployment.  In conjunction, there is an expectation of accelerated consolidation of the manufacturing industry with foreign market share increasing for all manufactured goods except for electronics where China will gain. 18/

More specifically, medium sized Chinese firms, which have been operating in a competitive domestic market, are fast growing and have flexible cost structures, will be able to aggressively enter foreign markets and compete in the tighter market environment.  Conversely, larger firms that have relied heavily on government support and monopolised industry, lag significantly behind global competitors and will experience large and threatening competition in the new global marketplace.

These significant threats to the Chinese manufacturing industry are met by huge potential for gains as a result of the phasing out of WTO agreements on textiles and clothing, which leave room for extensive growth of the Chinese apparel industry due to its significant comparative advantage. 

While the automobile sector will see the most significant cut in tariffs (from 80-100 percent to 25 percent), as the world’s largest textile producer and exporter, the doubling of wearing apparel production and significant increase in other textile related industries will prove to be the greatest gain in manufacturing as a result of accession. 19/

As is the case with the agricultural sector, the reduction of tariffs and trade barriers in the manufacturing sector, coupled with foreign reduction of import quotas, will result in an overall shift towards China’s comparative advantage.  As a result, remaining industries will experience increased competition, increased efficiency, and the nation an overall increase in GDP due to the expansion of primary industry.


The projected boom in the Chinese services sector will bring the most dramatic changes in China’s employment, consumption, and production structure.  Prior to entry to the WTO “a highly restrictive policy regime for services delivery that does not allow it to respond effectively to the growing demand for services” existed in China. 20/

Most services were entirely managed and controlled by the government with dominant providers in major services such as banking, insurance, telecommunications, passenger air transport, and railways having great monopoly power. 

A high social welfare dimension created high policy-induced barriers to entry, including price regulation, low resource efficiency, and low product innovation and quality improvements.  As a result, Chinese consumers were left with inadequate or poor quality services met by ever-rising prices.

A full liberalisation of the services sector will take place as a result of accession.  Specifically, liberalisation of the financial sector consists of foreign banks being allowed to conduct renminbi (RMB) businesses with Chinese firms and retail customers, restrictions on the securities business, financing by non-bank firms, and insurance business will be reduced, restrictions on distribution services and logistics management will be removed within three years of accession, and the progressive liberalisation of the telecommunications sector will take place.  With currently only 1.6 percent of bank assets being foreign, there is enormous potential for change. 21/

As experienced foreign firms begin to enter the Chinese market, competition will force inefficient Chinese firms to either exit the industry, or consolidate and reorganise in order to better compete.  Furthermore, the nature of the services sector - customer interface, labour intensity, high domestic content – implies large growth in employment with expansion of the services industry.

As a result, wages of unskilled workers in China are expected to grow between 60 and 90 percent faster than skilled workers despite the expected retrenchment in manufacturing and the secular decline in agriculture. 22/

In general, the expansion of the services sector represents the opportunity for greatest growth within the domestic Chinese economy both with the influx of foreign participation in the sector and its impact on increased employment for Chinese workers.

Impact on East Asia:

In joining the WTO, China will continue in its transition towards an open market to foreign imports and an improved business environment.  This process will lower input and transaction costs benefiting both China and its trading partners. 

While increased exports from China will lower the import prices of its trading partners and improve their competitiveness, countries that specialise in similar products for which China has a comparative advantage will experience increased competition in foreign markets, potentially leading to the diversion of foreign direct investment (FDI) from competing countries to China.

China’s WTO accession will impact East Asian nations through 4 major channels:

*  increased access to China’s domestic market;

*  increased imports from china;

*  increased competition in third markets; and

*  shifts in investment patterns. 

These channels of impact will result in a small overall impact, however trade induced productivity gains could amplify effects substantially. 23/

Channels of Impact

Increased access to China’s domestic market

With more than 60 percent of China’s imports coming from other East Asian Nations, increased access to China’s large domestic market creates large potential for exports to China from the region to gain as a result of China’s accession. 24/ 

The commitment of the Chinese government to extend national treatment to foreign funded firms creates greater opportunities for exporters of services ranging from telecommunications to banking.  In manufacturing, agreements to abolish non-tariff barriers and reduce tariffs from 13.3 percent in 2001 to 6.8 percent by the end of implementation 25/, leaves room for increased imports of more efficient suppliers of capital-intensive goods to flow into the Chinese domestic market.  In agriculture, the projected increase in imports to china of non-labour intensive goods will also serve as an exogenous shock to the economies of the region. 

These shifts, which open up a large economy in the East Asian region, and have low transportation costs for regional exporters, create increased demand in China’s major trading partners.  Importers will be able to offer a higher quantity of goods at lower prices to Chinese consumers representative of their domestic comparative advantages.  The result will be an inflow of capital-intensive goods from East Asian producers, and an increase in welfare for Chinese consumers who will enjoy lower priced foreign substitutes. 26/

Increased imports from China

Reductions in protection for Chinese industry will be the main fuel for increased exports from China.  The decrease in protection will only allow efficient firms to compete and drive down export prices from china, thus increasing the appeal of China as an efficient supplier.  The East Asian region will benefit from increased welfare from cheaper imported goods as well as increased output using cheaper intermediate inputs from china to be used in their own manufacturing. 

While both China and its trading partners serve to benefit from the increase in Chinese exports, in order to exploit all benefits, partners will have to resist protectionist pressures for their own industry as cheaper Chinese goods may displace their own domestic goods.

Increased competition in third markets

As the Chinese market is progressively opened, competition with Chinese goods will increase in third markets as a result of the drop in prices of Chinese goods.  Countries which have a similar comparative advantage in labour-intensive goods as China does will be challenged to compete with an exporting giant. 

As a result of the removal of quotas and tariff reductions, China will increase market share in non-quota constrained Asian countries from both exploiting developing economies of scale as well as using cheap foreign imports as inputs to Chinese manufactured goods.  East Asian countries will generally lose market share for their exports of labour intensive goods and be forced to shift production towards sectors which either complement Chinese exports or are driven by efficient use of other unrelated resources.

Shifts in investment patterns

The main impacts of accession on investment patterns are those associated with the reduction of restrictions on foreign participation in the Chinese marketplace, which will bring down transaction costs and fuel increased foreign investment in Chinese industry, especially the expanding services sector.

As trade liberalises, production costs and the price of capital goods will decrease, and rental rates will increase, resulting in a rising return on capital in China.  This shift could draw investment away from East Asian countries previously seen as most profitable, and towards the new and larger Chinese market. 

However, increases of FDI in China will lead to increases in productivity associated with advanced technology, thus increasing demand for high technology imports and perhaps FDI in those countries supplying the imports. 

Additionally, relief of local content requirements under Trade-Related Investment Measures (TRIMSs) could encourage the diversification of the locations of different stages of the production process for manufactured goods, potentially increasing the linkages between industries in the region, thus spilling over increased FDI to production networked countries in East Asia.

Therefore, the net shift in investment patterns will be the aggregate of investment flows out of other East Asian nations due to the liberalised Chinese market, and investment inflows due to increased demand for high technology as well as an increase in the inter-reliance of production in the region. 

Lastly, the factors contributing to FDI patterns change with time.  As a result of trade induced productivity gains, China can be expected to expand and shift its comparative advantage towards higher end products.  Thus China’s accession may also lead to increased competition in global markets for FDI for the newly industrialising countries of East Asia. 27/

Impact on Newly Industrialising Economies of East Asia (NIEs)

Fittingly, China will be the largest beneficiary of its accession to the WTO gaining around 1 percent of its GDP annually. 28/  Although Japan and the NIEs of East Asia including Taiwan, Korea, and Hong Kong will also benefit, their gain will be small relative to the size of their economies and their previously projected growth.  As suppliers of raw materials to China, they will realise improvement in terms of trade and returns to capital, which will largely benefit the domestic economies on multiple fronts.

While domestic garment industries will experience increased competition as quotas on Chinese exports are removed, their relatively large textile industries will see a raise in output of textiles with increased demand to fuel China’s expanding apparel industry.  Furthermore, there will be an increased demand for imports of petrochemicals, electronics, light manufactures, and metals from countries with the lowest respective tariffs.

Aside from the large focus on textiles and apparel, possibly the largest sector to gain will be from the increased demand for all services including transport, communications, and financial services (primarily from HK) which the NIEs have gained experience in with industrialisation.  With this increased demand, FDI should rise due to increasing returns to capital as the East Asian NIEs are generally suppliers of raw materials to China rather than competitors in industries which China has a comparative advantage.

Additionally, they will become suppliers of services whose sectors are underdeveloped and uncompetitive in the domestic Chinese market.  Overall, although domestic textile industries of East Asian NIEs may suffer, increases in demand for raw materials as inputs to Chinese manufactured goods as well as high technology goods and services will result in a net benefit to the newly industrialising countries of East Asia.

Impact on Developing Economies of East Asia

The developing economies of East Asia will experience small declines in real GDP and welfare due to China’s accession.  Mixed impacts including increased opportunity for exporters with increased competition for some sectors, most notably apparel and textiles, will force significant adjustments in domestic economies. 

Growing import demand gives opportunity for expanding agroprocessing, electronics, machinery, and equipment with expanded exports of oilseeds, sugar, raw materials (timber, energy products), also compensating for increased competition in sectors sharing China’s comparative advantage. 29/

An important negative impact concerns the downward pressure to be experienced by unskilled labour wages due to contraction in unskilled labour-intensive industries.  As a result, “the developing East Asian economies will need to invest in training of unskilled workers and other labour policies in order to facilitate the transition from textiles and clothing production to high end manufacturing”. 30/ 

In consolation, reduction of protection for Chinese markets offers opportunities for exporters to China; increasing competition with China in third markets, and shifting FDI flows mostly into the developing economies farm, timber, energy, and other manufacturing sectors with increased demand from China.

With developing nations in great need for foreign investment in order to progressively industrialise, the overall impact of foreign investment flows will depend upon the policy decision of individual countries.  With opportunities for growth stemming from complementing production industries as discussed above due to the removal of domestic content requirements in China, net impact on FDI will be the sum of shifts to industries of comparative advantage as well as these new opportunities for investment. 

While the global economy stands to benefit from the opening of China to world trade, the developing economies of East Asia will be the ones to experience the greatest negative impacts on general welfare and the largest externally induced structural adjustments.

Policy Options for Increased Gains and Decreased Losses:

The greatest potential for gains due to China’s accession to the WTO are as a result of the opening of a large economy to world trade, resulting in new and larger markets for Chinese exports and East Asian Imports.  In China, as described, these shifts in trade will force short-term unemployment in the capital-intensive manufacturing sector, and to a lesser extent in some agricultural sub-sectors. 

Exploitation of new foreign markets as a result of the removal of quotas on Chinese goods represents the major avenue for increased gain.  China’s comparative advantage in labour intensive manufacturing should be promoted, and inefficient government supported capital intensive industries should give way to large-scale consolidation and productivity improvements through advanced technology. 

To mitigate labour pressures, barriers to rural-urban labour mobility should be reduced, possibly with the elimination of the hukou system, as well as the removal of residence permits, social insurance, and land reforms. 31/ 

The elimination of such barriers would allow dislocated agricultural workers to migrate to cities and find reemployment in the growing textile and apparel-manufacturing sector.  Secondly, China should put great focus on increasing the availability and quality of education at all levels both to foster a highly educated professional class as well as to educated unskilled workers. 

As short-term labour dislocations negatively impact rural Chinese, the policy options would increase their ability to migrate towards sectors with increasing demand for labour, as well as increase their skill level and the overall productivity of Chinese industry.

Similarly, China’s East Asian trading partners should pursue analogous policy options.  Specifically, the newly industrialised economies would benefit from the exploitation of the new market for their exports of capital intensive goods, possibly utilising consolidation of industry in order to take advantage of economies of scale in attempting to satisfy the demand of a large market, as well as shifting their production focus from those sectors which compete with China’s comparative advantage to those which complement it. 

In order to survive the potentially harsh transition, the developing economies must invest in education, develop durable social safety nets for dislocated workers in labour intensive industries, and train unskilled workers to be employed in new, higher end manufacturing. 

The mitigation of the adverse effects of China’s accession on the developing nations will be wholly a function of the respective governments and industries ability to accept the shift in production away from China’s comparative advantage, and channel investment towards industrialising industries with potential for future growth. 

Here, labour mobility and education will be key, with attempts to protect inefficient domestic industry and impose retaliatory trade barriers only leading to future strain on domestic markets.


China’s continued transition towards a market economy will bring a new era of trade and social welfare to consumers throughout China and East Asia.  Shifts in production and trade patterns to reflect comparative advantage as well as the influx of foreign participation in the Chinese market will bring changes that although significant in the short run, are modest in comparison to the long term resource reallocations that are taking place due to the on-going socio-economic transformation in China. 32/

For China, short term labour dislocations and consolidation and reform of State Owned Enterprises (SOEs) will be met by a boom in long run export capacity due to the elimination of foreign quotas as well as the availability of cheaper intermediate inputs to manufactured goods available with the reduction of tariffs.

Similarly, China’s East Asian trading partners will experience increased competition both in domestic and third markets for goods whose production share a comparative advantage with China, while they will be able to exploit a large new market for both capital intensive, raw material, and high technology goods, as well as a lucrative opportunity for expansion of foreign provided services. 

With China’s move to join the global economy, it as well as the industrialised world will clearly experience a net gain, with China’s share of World trade expected to double. 33/  Although short term transitional impacts may be adverse for many involved nations, with informed policy decisions as well as patience, China’s entry into the World Trade Organisation will result in long run gain for both China and its East Asian trading partners.


Adhikari, Ramesh and Yang, Yongzheng, “What Will WTO Membership Mean for China and Its Trading Partners?”, Finance & Development, Asian Development Bank. September 2002, Vol. 39, No. 3.

Bhattasali, Deepak and Kawai, Masahiro, Implications of China’s Accession to the World Trade Organsation,  The World Bank, Washington, DC, April 12, 2001.

Ianchovichina, Elena and Martin, William, Economic Impacts of China’s Accession to the World Trade Organisation,  World Bank Policy Research Working Paper 3053,  Washington, DC, May 2003.

Ianchovichina, Elena and Walmsley, Terrie, Impact of China’s WTO Accession on East Asia. World Bank Policy Research Working Paper 3109, Washington, DC, August 2003.

Krumm, Kathie and Kharas, Homi,  East Asia Integrates: A Trade Policy Agenda for Shared Growth. The World Bank, Washington, DC, 2003.

Powell, Bill, “China’s Great Step Forward”, Fortune, New York, 17 September 2001. Vol. 144, No. 5.

Stiles, Julie, China and the WTO: What it Means for Us? ECHO, No. 1 (September 2003) pp 8-9 (Sydney, Australia).

Zerby, John. China’s Entry into the WTO, Lecture, Dwyer Theatre, University of New South Wales, 18 August 2003. 

Zhai, Fan and Li, Shantong, The Implications of Accession to WTO on China’s Economy. Development Research Centre, The State Council of the People’s Republic of China (May, 2000).

Works Referenced:

Bureau of Public Affairs, U.S. Department of State. Background Note: China.

Hong Kong Trade Development Council.  Market Profile on Chinese Mainland.


1. Powell, Bill, “China’s Great Step Forward”, Fortune, New York: Sep 17, 2001. Vol. 144, No. 5; (17 September 2001) pp. 128-138.  Return to text.

2. Stiles, Julie, China and the WTO: What it Means for Us? ECHO, No. 1 (September 2003) pp 8-9 (Sydney, Australia).  Return to text.

3. Zhai, Fan and Li, Shantong, The Implications of Accession to WTO on China’s Economy. Development Research Centre, The State Council of the People’s Republic of China (May, 2000), p.2.  Return to text.

4. Adhikari, Ramesh and Yang, Yongzheng, “What Will WTO Membership Mean for China and Its Trading Partners?” Asian Development Bank, Finance and Development, Vol. 39, No. 3 (September 2002).  Available at:  Return to text.

5. Krumm, Kathie and Kharas, Homi, East Asia Integrates: A Trade Policy Agenda for Shared Growth, The World Bank, 2003, p. 36.  Return to text.

6. Zerby, John, China’s Entry into the WTO, Lecture, Dwyer Theatre, University of New South Wales, 18 August 2003.  Return to text.

7. Krumm and Kharas, op. cit., pp. 36-37.  Return to text.

8. Ibid. p.36.  Return to text.

9. Ibid, p.37.  Return to text.

10. Ibid, p.38.  Return to text.

11. Ibid, p.39.  Return to text.

12. Zerby, op. cit.  Return to text.

13. Adhikari and Yang, op. cit.  Return to text.

14. Bhattasali, Deepak. and Kawai, Masahiro, Kawai,  Implications of China’s Accession to the World Trade Organisation,  The World Bank, Washington DC, April 12, 2001,  p.7.  Return to text.

15. Bhattasali and Kawai, op.cit. p.8-9.  Return to text.

16 Ibid, p.10.  Return to text.

17 Ibid, p.11.  Return to text.

18. Ibid, p.11.  Return to text.

19. Ibid,  p.12.  Return to text.

20. Ibid, p.13.  Return to text.

21. Ibid, p.13.  Return to text.

22. Ibid, p.14.  Return to text.

23. Ianchovichina, Elena and Walmsley, Terrie, Impact of China’s WTO Accession on East Asia, World Bank Policy Research Working Paper 3109,  Washington, DC, August 2003. p. 2-3.  Return to text.

24. Ibid, p.4.  Return to text.

25. Ibid, p.5.  Return to text.

26. Ibid.  Return to text.

27. Ibid, p.7.  Return to text.

28. Ibid, p.11.  Return to text.

29. Ibid, p.14.  Return to text.

30. Ibid.  Return to text.

31. Ianchovichina, Elena and Martin, William,  Economic Impacts of China’s Accession to the World Trade Organisation, World Bank Policy Research Working Paper 3053, Washington, DC, May 2003.  Return to text.

32. Bhattasali and Masahiro, op. cit. p.22.  Return to text.

33. Ibid, p.23.  Return to text.


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