## _wp0436

## Source details

**Canonical URL:** [_wp0436](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2004/_wp0436.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2004/_wp0436.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2004/_wp0436.pdf.json)

---

### I. Overview
- China’s integration with the global economy has contributed to sustained growth in international trade.
- Both exports and imports have grown faster than world trade for more than twenty years.
- China’s overall share of exports to industrial economies has increased and become more diversified.
- China has become increasingly important within the Asian regional economy; vertical specialization within Asia has led to an increasing share of China’s imports coming from within the region.
- Trade reforms and commitments made as part of China’s accession to the World Trade Organization (WTO) have been crucial in promoting integration:
  - Reforms took place over a 15-year period and included substantial tariff reductions and the dismantling of most nontariff barriers (NTBs).
  - Improved market access following WTO accession has been important.
  - Continued implementation of WTO commitments will further facilitate integration and generate benefits for most partner countries, but may also pose significant challenges for the authorities.
  - The extensive safeguard provisions under the WTO agreement represent a downside risk that could constrain China’s export growth in the future.

### II. China’s Trade: Growth and Diversification
- A. Increasing Role in World Trade
  - China’s international trade has expanded steadily since the opening of the economy in 1979.
  - Exports and imports have grown faster than world trade for more than 20 years and China’s share in global trade has increased steadily since 1979.
  - Acceleration of trade growth occurred in the 1990s with broader trade reforms, including significant tariff reductions.
  - Penetration into advanced country markets increased sharply since the early 1990s in Japan, the United States, and the European Union.
  - China is now among the most important export destinations for other Asian countries; example: China now accounts for over 11 percent of Japan’s exports, up from only 2 percent in 1990.
  - Share of exports from the United States and the European Union that go to China increased from 1 percent in 1990 to 3½ in 2002.
  - Historical comparison: China’s experience is similar in scope and speed to earlier integration episodes (Japan and the NIEs), suggesting potential for continued strong export growth provided vulnerabilities do not derail momentum.

- B. Changes in Composition of Trade
  - Export base diversified from heavy reliance on textiles and light manufacturing in the early 1990s.
  - In the early 1990s, light manufacturing accounted for more than 40 percent of China’s exports.
  - Machinery and transport (including electronics) increased from 17 percent in 1993 to 41 percent in 2003.
  - Miscellaneous manufacturing declined from 42 percent to 28 percent over the same period.
  - Statistical indicators of dispersion (Herfindahl index and coefficient of variation) indicate a significant increase in diversification between 1994 and 2000, with little change or marginal reversal during 2000–02.
  - Detailed U.S. import data show significant increase in diversification between 1990 and 2000 at both the 2-digit and 3-digit SITC levels.
  - High degree of vertical specialization within Asia evidenced by:
    - Imports for processing increased from about 35 percent of all imports in the early 1990s to about 50 percent by 1997 and has remained at about that level since then.
    - Imports for processing are estimated to be embodied in over 40 percent of China’s exports.
    - Rapid increase in imports of electronic integrated circuits and microassemblies—key components used in assembly of electronic products.
    - Strong FDI inflows primarily from industrial economies, especially the Asian NIEs: during 2000–2001, these NIEs plus Japan accounted for about 60 percent of the FDI in China, with the United States and Europe accounting for about 20 percent.

- C. Changes in Regional Pattern of Trade
  - Imports in U.S. dollar terms increased in 2003 by:
    - 43 percent from Asia,
    - 31 percent from Europe,
    - 24 percent from the U.S.
  - Exports in 2003 increased by:
    - 32 percent to the United States,
    - 49 percent to Europe,
    - 31 percent to Asia.
  - Imports increased by 81 percent from Latin America and 54 percent from Africa.
  - China is now the third largest importer of developing country exports after the United States and the European Union.
  - China’s overall trade surplus declined to $25 billion in 2003, compared with $30 billion in 2002.
  - Bilateral trends:
    - Trade surplus with the United States and the European Union increased significantly from 1997 to 2002, offset by an increasing trade deficit with the rest of Asia.
    - Deficits with Asian countries continued to increase in 2003.
  - Role of Hong Kong SAR:
    - Hong Kong SAR intermediated about 22 percent of the mainland’s trade in 2002.
    - China’s customs statistics show a trade surplus with the US in 2002 of $43 billion; taking into account Hong Kong SAR re-exports produces an adjusted estimate of $74 billion.
    - Bilateral discrepancies often explained by valuation differences (exports recorded f.o.b. vs. imports recorded c.i.f.).
  - U.S. trade perspective:
    - U.S. imports of manufactured goods from China increased substantially over the last two years, partly offset by declining imports from other Asian countries.
  - Regional impacts:
    - Reliance on G-7 markets remains but is diminishing amid increasing regional trade.
    - Countries likely to benefit most from China’s increased integration are Asian exporters of capital- and resource-intensive products.

### III. WTO Accession: Commitments, Opportunities, Risks, and Implementation
- A. Commitments
  - Tariff reductions planned under WTO accession continue a longstanding trend of decreasing tariffs and NTBs.
  - Past reforms introduced widespread import tariff exemptions, especially for processing trade and foreign investment; therefore a majority of China’s imports were effectively not subject to tariffs in 2000.
  - Domestic prices of most traded goods had largely converged with international prices by the mid-1990s due to reforms and price liberalization.
  - Under WTO commitments, China will further reduce its average tariff rate to 10 percent by 2005.
  - On January 1, 2004, China lowered its average tariff rate by 0.6 percentage points to 10.4 percent.
  - The trade regime will become increasingly tariff-based as China agreed to eliminate import quotas, licenses, designated trading practices and other NTBs.
  - Substitution of import quotas with tariff-rate quotas (TRQs) for some agricultural commodities should strengthen transparency of the trade regime.
  - Agricultural specifics:
    - China has agreed to limit domestic agricultural subsidies to 8.5 percent of the value of production (i.e. less than the 10 percent limit allowed for developing countries under the WTO Agreement on Agriculture).
    - China agreed to eliminate all agricultural export subsidies upon WTO entry.
    - 2005: Tariffs on agricultural goods will be lowered to an average of 15 percent. (statement appears twice in source text)

- B. Services, Trading and Investment Regimes, and Safeguards
  - Trade in services — Commitments and timelines:
    - Foreign access to services to be ensured through transparent and automatic licensing procedures in sectors including: banking and insurance, legal and other professional services, telecommunications, and tourism.
    - Right to Trade and Distribution:
      - within two years (by end-2003) foreign service suppliers will be permitted to engage in the retailing of all products;
      - within three years (by end-2004) all firms will have the right to import and export all goods except those subject to state trading monopolies (e.g., oil or fertilizers);
      - within five years (by end-2006), foreign firms will be allowed to distribute virtually all goods domestically.
    - Banking:
      - foreign financial institutions will be permitted to provide services without client restrictions for foreign currency business upon accession;
      - local currency services to Chinese companies within two years (by December 2003);
      - services to all Chinese clients within five years (by December 2006).
  - Trading and investment regimes — Commitments:
    - National treatment/non-discrimination: measures and practices that discriminate against imported products or foreign companies will be removed.
    - Export subsidies: upon accession, all forms of export subsidies inconsistent with WTO rules, including grants and tax breaks linked to export performance, were eliminated.
    - Trade-Related Investment Measures (TRIMs): foreign investment approvals will no longer be subject to mandatory requirements (e.g., technology transfer or local content requirements).
    - Trade-Related Aspects of Intellectual Property Rights (TRIPs): China will enforce the rights protecting intellectual property within China.
  - Trading partner safeguards and dispute provisions:
    - Transitional product-specific safeguard mechanism: as provided under the WTO Agreement on Safeguards, a country may impose restrictions on imports if it can demonstrate that they cause or threaten to cause serious injury to domestic firms producing similar products.
    - Special safeguard mechanism for China’s textile and clothing exports.
    - Anti-dumping: other members can invoke “non-market economy” provisions to determine dumping cases for 15 years following accession; non-market economy provisions imply that domestic prices cannot be used as a reference point and make it much easier to reach a positive finding in an antidumping investigation.

- C. Implementation, Monitoring, and Early Experience
  - Transitional Review Mechanism (TRM): TRM established to review China’s compliance on an annual basis in the first eight years of WTO membership; reviews are conducted separately by sixteen WTO sectoral councils.
  - Early implementation assessment:
    - No formal complaint within the WTO had been filed against China as of end 2003.
    - Reported problems primarily reflect technical difficulties, not a broad pattern of non-compliance.
  - Progress and challenges:
    - Tariff reductions have taken effect as scheduled and elimination of non-tariff barriers (especially in the agricultural sector) is proceeding.
    - Fundamental changes to central legal and regulatory frameworks implemented, including extensive upgrading of the foreign direct investment regime and elimination of requirements related to foreign currency financing, local content or export performance.
    - Enforcement at provincial and municipal levels remains a concern due to administrative and judicial capacity constraints and potential vested interests, which may hamper removal of restrictive practices (e.g., pervasive inter-provincial taxes, fees and other non-tariff obstacles).

- D. Market Access Prospects and Immediate Benefits
  - MFN treatment: China is permanently granted most-favored-nation (MFN) treatment by other WTO members.
  - Expected export effects:
    - Easier access to foreign markets likely to boost China’s labor-intensive exports in sectors including electronics.
    - Removal of quotas against textiles and clothing exports expected to generate a significant boost to China’s exports, subject to timing uncertainty because of safeguard provisions in China’s accession protocol.
  - Dispute settlement: China will benefit from multilateral dispute settlement procedures under the WTO, helping promote its trade interests and limit the scope for other members to unilaterally impose antidumping protections.

### IV. Textiles and Clothing (Box 3) — Prospects, Indicators, Constraints
- Phasing out of quotas on textile and clothing exports under the ATC may change competitive positions of exporters; many quotas likely removed only at the end of the ten-year transition period in 2005.
- China formally included in the ATC and will eventually obtain unrestricted access to textile and clothing export markets.
- Special safeguard mechanism within China’s accession protocol likely to extend quota-like effects over a number of years.
- Indicative evidence of potential export surge:
  - China’s world export market shares in textile and clothing products remained at about 15 percent from 1990 to 2002.
  - China’s market share in footwear increased from 7.3 percent in 1990 to 28.4 percent in 2000.
  - Number of textile and clothing products with quotas eliminated at the beginning of 2002 (the “third-phase quota integration”) covered approximately 15 percent of restrictive quotas; China dramatically increased exports of those products to the United States while many other developing countries saw exports decline.
- Constraints from accession protocol:
  - Protocol includes product-specific safeguard mechanism with a concept of “market disruption” providing relatively low requirements for safeguard actions against Chinese exports;
  - China-specific features in safeguards;
  - “Non-market economy” treatment for determining anti-dumping and countervailing cases for 15 years.
- Non-market economy provision effect:
  - In practice, this criterion may dispense countries from having to show that China is exporting goods at less than their “normal value”.

### V. Analytical Findings, Regional Effects, and Risks
- Overall welfare effects:
  - Analytical work shows overall international welfare effects of China’s WTO accession will be positive.
  - Most models show overall welfare effects of WTO-induced tariff changes in China are not sizable because China’s tariffs had already been lowered substantially.
- Consensus results from studies:
  - Over the long term, China will benefit from WTO accession through efficiency gains and direct benefits for Chinese consumers.
  - China’s sustained growth, to which WTO accession will contribute, should provide benefits to most trading partners by opening agricultural and services sectors, improving predictability and transparency, and increasing tourism.
  - In the short-to-medium term, both advanced economies and the most advanced developing countries would benefit through increased exports to China of capital and technology-intensive manufactures, increased trade and investment opportunities in China’s services sectors, and improved access to China's agricultural markets.
  - Some less advanced developing countries may sustain adjustment costs, particularly direct competitors to China in labor-intensive sectors such as clothing.
- Regional effects and complementarities:
  - NIEs of Asia would gain from China’s expanding trade due to complementary trade patterns and processing trade; however, China’s move up the value-added chain may pose competitive threats.
  - ASEAN countries and South Asia benefit as exports to China expand rapidly; however, competition in labor-intensive exports may require significant adjustments for some economies.
- Limits to existing research:
  - Models have technical limitations and often do not account fully for the opening of trade in services or reforms removing obstacles to foreign investment, which may understate the actual impact of China’s WTO accession.
  - Empirical indicator: outbound tourism grew by 37 percent in 2002, to 16.6 million.

### VI. Box 4 — Broader Impacts, Risks, and Noteworthy Features
- Overall assessment:
  - WTO accession, on balance, should facilitate China’s emergence in world trade and help ensure that the benefits are distributed broadly.
  - Quantifications of the global impact of China’s WTO accession are likely to underestimate its benefits to the rest of the world and to the Asian region.
  - Much of China’s trade liberalization has already taken place, and chiefly on a multilateral basis, which should reinforce its beneficial impact.
- Risks and potential adverse effects:
  - External risks:
    - Actions by trading partners to restrict China’s exports through extensive safeguards procedures could lead to retaliation by China in the form of anti-dumping claims and lower trade volumes altogether.
  - Domestic risks:
    - Growth sustainability could be threatened by the impact of WTO accession on the agricultural sector and rural income.
    - Risks from state-owned enterprise (SOE) and financial sector losses.
    - Risks to fiscal sustainability.
- Noteworthy features:
  - China’s export-oriented phase has not been associated with pervasive import barriers; recent WTO commitments to open its agricultural sector are substantially broader than concessions by other developing countries joining the WTO in the past.
  - China’s trade liberalization takes place within a framework of global rules defined in a multilateral context, rather than relying primarily on regional or bilateral arrangements.

### VII. Selected Trade Statistics and Indicators (as presented)
- Table 3. Sources of Imports (As a percent of China's total imports) — selected entries
  - Asia: 1980 15.0; 1990 41.0; 1995 47.1; 2000 50.6; 2002 53.1; 2003 54.9 (Jan.–Jun.)
  - ASEAN: 1980 3.4; 1990 5.6; 1995 7.4; 2000 9.8; 2002 10.4; 2003 10.5 (Jan.–Jun.)
  - Japan: 1980 26.5; 1990 14.2; 1995 21.9; 2000 18.4; 2002 18.1; 2003 17.7 (Jan.–Jun.)
  - Korea: 1990 0.4; 1995 7.8; 2000 10.3; 2002 9.7; 2003 9.5 (Jan.–Jun.)
  - Taiwan Province of China: 1995 11.2; 2000 11.3; 2002 12.9; 2003 11.6 (Jan.–Jun.)
  - European Union: 1980 15.8; 1990 17.0; 1995 16.1; 2000 13.7; 2002 13.1; 2003 12.0 (Jan.–Jun.)
  - United States: 1980 19.6; 1990 12.2; 1995 12.2; 2000 9.9; 2002 9.2; 2003 8.5 (Jan.–Jun.)

- Table 4. Exports of Selected Countries to China (In percent of their total exports) — selected entries
  - Japan: 1980 3.9; 1985 7.1; 1990 2.1; 1995 5.0; 2000 6.3; 2002 9.6; 2003 11.1 (Jan.–Jun.)
  - Korea: 1980 0.0; 1985 0.0; 1990 0.0; 1995 7.0; 2000 10.7; 2002 14.7; 2003 16.2 (Jan.–Jun.)
  - Hong Kong SAR: 1980 6.3; 1985 26.0; 1990 24.8; 1995 33.3; 2000 34.5; 2002 39.3; 2003 46.4 (Jan.–Jun.)
  - United States: 1980 1.7; 1985 1.8; 1990 1.2; 1995 2.0; 2000 2.1; 2002 3.2; 2003 3.6 (Jan.–Jun.)
  - India: 1980 0.3; 1985 0.3; 1990 0.1; 1995 0.9; 2000 1.8; 2002 4.2; 2003 4.5 (Jan.–Jun.)

- Table 5. Indicators of Export Dispersion 1/
  - 1994: Coefficient of variation 1.91; Herfindahl index 0.073
  - 2000: Coefficient of variation 1.72; Herfindahl index 0.062
  - 2002: Coefficient of variation 1.79; Herfindahl index 0.066
  - Note: 1/ A lower number indicates more diversification (i.e. less dispersion in shares).

- Table 6. Indicators of Export Dispersion to the United States 1/ (Based on Share of U.S. Imports, by SITC classification) — selected entries
  - SITC-1 digit: CV 1990 1.39; 1995 1.57; 2000 1.38; 2002 1.32. H 1990 0.42; 1995 0.42; 2000 0.38; 2002 0.37.
  - SITC-2 digit: CV 1990 1.88; 1995 1.86; 2000 1.70; 2002 1.61. H 1990 0.12; 1995 0.11; 2000 0.09; 2002 0.09.
  - Category 6 (basic manufacturing) SITC-3 digit: CV 1990 1.48; 1995 1.32; 2000 1.15; 2002 1.15. H 1990 0.08; 1995 0.07; 2000 0.06; 2002 0.07.
  - Category 7 (machinery and transportation) SITC-3 digit: CV 1990 2.00; 1995 1.50; 2000 1.41; 2002 1.23. H 1990 0.12; 1995 0.08; 2000 0.09; 2002 0.10.
  - Category 8 (miscellaneous manufacturing) SITC-3 digit: CV 1990 1.10; 1995 1.06; 2000 1.05; 2002 0.95. H 1990 0.13; 1995 0.13; 2000 0.13; 2002 0.12.
  - Total 6, 7, and 8: CV 1990 1.61; 1995 1.48; 2000 1.30; 2002 1.20. H 1990 0.07; 1995 0.06; 2000 0.05; 2002 0.05.
  - Note: 1/ A lower number indicates more diversification (i.e. less dispersion in shares).

- Table 7. China’s Bilateral Trade Balances with Selected Countries (In billions of U.S. dollars) — selected entries
  - United States: 1997 41; 2002 74; 2003 88 for "China Plus HK"; 1997 16; 2002 43; 2003 55 for "China".
  - European Union: 1997 9; 2002 18; 2003 29 for "China Plus HK"; 1997 5; 2002 10; 2003 18 for "China".
  - Japan: 1997 14; 2002 -18; 2003 -30 for "China Plus HK"; 1997 3; 2002 -5; 2003 -14 for "China".
  - Korea: 1997 -12; 2002 -19; 2003 -30 for "China Plus HK"; 1997 -6; 2002 -13; 2003 -21 for "China".
  - Taiwan Province of China: 1997 -24; 2002 -42; 2003 -51 for "China Plus HK"; 1997 -13; 2002 -31; 2003 -37 for "China".
  - Hong Kong SAR (China): 1997 37; 2002 48; 2003 61 for "China".
  - ASEAN: 1997 -10; 2002 -18; 2003 -30 for "China Plus HK"; 1997 0; 2002 -8; 2003 -15 for "China".
  - Others: 1997 6; 2002 -7; 2003 -11 for "China Plus HK"; 1997 -1; 2002 -13; 2003 -22 for "China".
  - Total: 1997 -4; 2002 -12; 2003 -35 for "China Plus HK"; 1997 40; 2002 30; 2003 25 for "China".

- Table 8. China: Tariffs, 1982–2002 (selected entries)
  - Unweighted Average: 1982 55.6; 1985 43.3; 1988 43.7; 1991 44.1; 1992 42.9; 1993 39.9; 1994 36.3; 1995 35.2; 1996 23.6; 1997 17.6; 1998 17.5; 2000 16.4; 2001 15.3; 2002 12.3.
  - Weighted Average: 1992 40.6; 1993 38.4; 1995 26.8; 1996 22.6; 1997 16.0; 1998 15.7; 2001 9.1; 2002 6.4.
  - Dispersion (SD): 1993 29.9; 1994 27.9; 1996 17.4; 1997 13.0; 1998 13.0; 2001 12.1; 2002 9.1.
  - Max: 1992 220.0; 1993 220.0; 1995 220.0; 1996 121.6; 1997 121.6; 1998 121.6; 2001 121.6; 2002 71.0.

### VIII. Trade Trends and Figures (series cited)
- Figure 1. Growth in Trade, 1970–2002 (Index, 1970=1): series for World Exports, China Exports, China Imports (1970–2002).
- Figure 2. Trade in East Asian Region:
  - Share of region in China's total trade, 1993–2002: plotted values between 44 and 60 for Exports and Imports.
  - Growth of China's trade with region, 2000–2003: quarter series 2000q1 through 2003q3 with values between -15 and 65 for Exports and Imports.
  - Note: Region comprised of Hong Kong SAR, Singapore, Thailand, Korea, Taiwan POC, Malaysia, Indonesia, the Philippines, and Japan.
- Figure 3. Trade in Electronic Products:
  - China: Monthly Imports of Electronic Components (In millions of US$; 3-month moving average) Jan-93 through Jul-03; includes "Electronic integrated circuits and microassemblies".
  - Trade in IT Products (Values in U.S. dollars): monthly Jan-00 through Jul-03 showing Imports and Exports of IT products (computer and telecommunication products plus electronics).
- Figure 4. United States: Imports of Manufactured Goods from Selected Asian Countries:
  - Quarterly series 1996q1 to 2002q4 for China, Japan, Korea, Taiwan Province of China (In millions of US$).
  - Note: Based on U.S. statistical data, which attributes re-exports via Hong Kong SAR to mainland China.

*Source: Excerpt from IMF working paper content on China’s WTO accession and trade commitments.*

### References..............................................................................................................

### _wp0436 - References..............................................................................................................

### I. Overview
- China’s integration with the global economy has contributed to sustained growth in international trade.
- Both exports and imports have grown faster than world trade for more than twenty years.
- China’s overall share of exports to industrial economies has increased and become more diversified.
- China has become increasingly important within the Asian regional economy.
- Vertical specialization of production within Asia has led to an increasing share of China’s imports coming from within the region.
- Trade reforms and commitments made as part of China’s accession to the World Trade Organization (WTO) have been crucial in promoting integration:
  - Reforms took place over a 15-year period and included substantial tariff reductions and the dismantling of most nontariff barriers (NTBs).
  - Improved market access following WTO accession has been important.
  - Continued implementation of WTO commitments will further facilitate integration and generate benefits for most partner countries, but may also pose significant challenges for the authorities.
  - The extensive safeguard provisions under the WTO agreement represent a downside risk that could constrain China’s export growth in the future.

### II. China’s Trade: Growth and Diversification
- A. Increasing Role in World Trade
  - China’s international trade has expanded steadily since the opening of the economy in 1979.
  - Exports and imports have grown faster than world trade for more than 20 years and China’s share in global trade has increased steadily since 1979 (referenced Tables and Figure 1).
  - The acceleration of trade growth occurred in the 1990s with broader trade reforms, including significant tariff reductions.
  - Penetration into advanced country markets increased sharply since the early 1990s in Japan, the United States, and the European Union (Table 2).
  - China’s role in Asian regional trade has become increasingly important; a rising share of its imports come from within the region, and China is now among the most important export destinations for other Asian countries (Table 3 and Figure 2).
  - Example statistic: China now accounts for over 11 percent of Japan’s exports, up from only 2 percent in 1990.
  - Share of exports from the United States and the European Union that go to China increased from 1 percent in 1990 to 3½ in 2002 (Table 4).
  - Historical comparison: China’s experience is similar in scope and speed to earlier integration episodes (Japan and the NIEs), suggesting potential for continued strong export growth provided vulnerabilities do not derail momentum.

- B. Changes in Composition of Trade
  - Export base diversified from heavy reliance on textiles and light manufacturing in the early 1990s.
  - In the early 1990s, light manufacturing accounted for more than 40 percent of China’s exports.
  - Machinery and transport (including electronics) increased from 17 percent in 1993 to 41 percent in 2003.
  - Miscellaneous manufacturing declined from 42 percent to 28 percent over the same period.
  - Statistical indicators of dispersion (Herfindahl index and coefficient of variation) indicate a significant increase in diversification between 1994 and 2000, with little change or marginal reversal during 2000–02 (Table 5).
  - Detailed U.S. import data show significant increase in diversification between 1990 and 2000 at both the 2-digit and 3-digit SITC levels (Table 6).
  - High degree of vertical specialization within Asia evidenced by:
    - Imports for processing increased from about 35 percent of all imports in the early 1990s to about 50 percent by 1997 and has remained at about that level since then.
    - Imports for processing are estimated to be embodied in over 40 percent of China’s exports.
    - Rapid increase in imports of electronic integrated circuits and microassemblies—key components used in assembly of electronic products (Figure 3).
    - Strong FDI inflows primarily from industrial economies, especially the Asian NIEs: during 2000–2001, these NIEs plus Japan accounted for about 60 percent of the FDI in China, with the United States and Europe accounting for about 20 percent.

- C. Changes in Regional Pattern of Trade
  - China’s trade has been growing rapidly with imports from nearly all trading partners growing at double digit rates.
  - Imports in U.S. dollar terms increased in 2003 by:
    - 43 percent from Asia,
    - 31 percent from Europe,
    - 24 percent from the U.S.
  - Exports in 2003 increased by:
    - 32 percent to the United States,
    - 49 percent to Europe,
    - 31 percent to Asia.
  - Imports increased by 81 percent from Latin America and 54 percent from Africa; China is now the third largest importer of developing country exports after the United States and the European Union.
  - China’s overall trade surplus declined to $25 billion in 2003, compared with $30 billion in 2002 (Table 7).
  - Bilateral trends:
    - Trade surplus with the United States and the European Union increased significantly from 1997 to 2002, offset by an increasing trade deficit with the rest of Asia.
    - Deficits with Asian countries continued to increase in 2003.
  - Role of Hong Kong SAR:
    - Hong Kong SAR intermediated about 22 percent of the mainland’s trade in 2002.
    - China’s customs statistics show a trade surplus with the US in 2002 of $43 billion.
    - Taking into account Hong Kong SAR re-exports produces an adjusted estimate of $74 billion.
    - Bilateral discrepancies often explained by valuation differences (exports recorded f.o.b. vs. imports recorded c.i.f.).
  - U.S. trade perspective:
    - U.S. imports of manufactured goods from China increased substantially over the last two years, partly offset by declining imports from other Asian countries (Figure 4).
  - Regional impacts:
    - While reliance on G-7 markets remains, it is diminishing amid increasing regional trade.
    - Countries likely to benefit most from China’s increased integration are Asian exporters of capital- and resource-intensive products.

### III. WTO Accession: Commitments, Opportunities, and Risks
- A. China’s Commitments
  - The tariff reductions planned under WTO accession continue a longstanding trend of decreasing tariffs and NTBs (Table 7).
  - Past reforms introduced widespread import tariff exemptions, especially for processing trade and foreign investment; therefore a majority of China’s imports were effectively not subject to tariffs in 2000.
  - Domestic prices of most traded goods had largely converged with international prices by the mid-1990s due to reforms and price liberalization.
  - Under WTO commitments, China will further reduce its average tariff rate to 10 percent by 2005.
  - On January 1, 2004, China lowered its average tariff rate by 0.6 percentage points to 10.4 percent.
  - The trade regime will become increasingly tariff-based as China agreed to eliminate import quotas, licenses, designated trading practices and other NTBs.
  - Substitution of import quotas with tariff-rate quotas (TRQs) for some agricultural commodities should strengthen transparency of the trade regime.

- B. Opportunities and Risks (implicit across text)
  - Opportunities:
    - Continued implementation of WTO commitments expected to facilitate further integration and generate benefits for most partner countries.
    - Increased market access and tariff reductions support export growth and diversification.
  - Risks:
    - Extensive safeguard provisions under the WTO agreement pose downside risk that could constrain China’s export growth.
    - Authorities may face significant challenges in implementing commitments and managing associated economic and political vulnerabilities.

* _wp0436 - References.............................................................................................................._*

### 2005. Tariffs on agricultural goods will be lowered to an average of 15 percent.

### 2005. Tariffs on agricultural goods will be lowered to an average of 15 percent.

### Trade in services — Commitments and timelines
- Foreign access to services to be ensured through transparent and automatic licensing procedures in sectors including: banking and insurance, legal and other professional services, telecommunications, and tourism.
- Right to Trade and Distribution:
  - within two years (by end-2003) foreign service suppliers will be permitted to engage in the retailing of all products;
  - within three years (by end-2004) all firms will have the right to import and export all goods except those subject to state trading monopolies (e.g., oil or fertilizers);
  - within five years (by end-2006), foreign firms will be allowed to distribute virtually all goods domestically.
- Banking:
  - foreign financial institutions will be permitted to provide services without client restrictions for foreign currency business upon accession;
  - local currency services to Chinese companies within two years (by December 2003);
  - services to all Chinese clients within five years (by December 2006).

### Trading and investment regimes — Commitments
- National treatment/non-discrimination:
  - Measures and practices that discriminate against imported products or foreign companies will be removed.
- Export subsidies:
  - Upon accession, all forms of export subsidies inconsistent with WTO rules, including grants and tax breaks linked to export performance, were eliminated.
- Trade-Related Investment Measures (TRIMs):
  - Foreign investment approvals will no longer be subject to mandatory requirements (e.g., technology transfer or local content requirements).
- Trade-Related Aspects of Intellectual Property Rights (TRIPs):
  - China will enforce the rights protecting intellectual property within China.
- Agricultural subsidies:
  - China has agreed to limit domestic agricultural subsidies to 8.5 percent of the value of production (i.e. less than the 10 percent limit allowed for developing countries under the WTO Agreement on Agriculture), and to eliminate all agricultural export subsidies upon WTO entry.

### Trading partner safeguards and dispute provisions
- Transitional product-specific safeguard mechanism:
  - As provided under the WTO Agreement on Safeguards, a country may impose restrictions on imports if it can demonstrate that they cause or threaten to cause serious injury to domestic firms producing similar products.
- Special safeguard mechanism for China’s textile and clothing exports (see Box 3).
- Anti-dumping:
  - Under WTO agreement, other members can invoke “non-market economy” provisions to determine dumping cases for 15 years following accession.
  - Non-market economy provisions imply that domestic prices cannot be used as a reference point and make it much easier to reach a positive finding in an antidumping investigation.

### Implementation — Monitoring and early experience
- Transitional Review Mechanism (TRM):
  - TRM established to review China’s compliance on an annual basis in the first eight years of WTO membership.
  - Reviews are conducted separately by sixteen WTO sectoral councils.
- Early implementation assessment:
  - No formal complaint within the WTO had been filed against China as of end 2003.
  - Widely-shared assessment: reported problems primarily reflect technical difficulties, not a broad pattern of non-compliance.
- Progress and challenges:
  - Tariff reductions have taken effect as scheduled and elimination of non-tariff barriers (especially in the agricultural sector) is proceeding.
  - Fundamental changes to central legal and regulatory frameworks implemented, including extensive upgrading of the foreign direct investment regime and elimination of requirements related to foreign currency financing, local content or export performance.
  - Enforcement at provincial and municipal levels remains a concern due to administrative and judicial capacity constraints and potential vested interests, which may hamper removal of restrictive practices (e.g., pervasive inter-provincial taxes, fees and other non-tariff obstacles).

### Market access prospects and immediate benefits
- MFN treatment:
  - China is permanently granted most-favored-nation (MFN) treatment by other WTO members.
- Expected export effects:
  - Easier access to foreign markets likely to boost China’s labor-intensive exports in sectors including electronics.
  - Removal of quotas against textiles and clothing exports expected to generate a significant boost to China’s exports, subject to timing uncertainty because of safeguard provisions in China’s accession protocol.
- Dispute settlement:
  - China will benefit from multilateral dispute settlement procedures under the WTO, helping promote its trade interests and limit the scope for other members to unilaterally impose antidumping protections.

### Box 3 — Textiles and clothing: prospects, indicators, and constraints
- Context:
  - Phasing out of quotas on textile and clothing exports under the ATC may change competitive positions of exporters; many quotas likely removed only at the end of the ten-year transition period in 2005.
- China and the ATC:
  - China formally included in the ATC and will eventually obtain unrestricted access to textile and clothing export markets.
  - Special safeguard mechanism within China’s accession protocol likely to extend quota-like effects over a number of years.
- Indicative evidence of potential export surge:
  - China’s world export market shares in textile and clothing products remained at about 15 percent from 1990 to 2002.
  - China’s market share in footwear increased from 7.3 percent in 1990 to 28.4 percent in 2000.
  - Number of textile and clothing products with quotas eliminated at the beginning of 2002 (the “third-phase quota integration”) covered approximately 15 percent of restrictive quotas; China dramatically increased exports of those products to the United States while many other developing countries saw exports decline.
- Constraints from accession protocol:
  - Protocol includes product-specific safeguard mechanism with a concept of “market disruption” providing relatively low requirements for safeguard actions against Chinese exports;
  - China-specific features in safeguards;
  - “Non-market economy” treatment for determining anti-dumping and countervailing cases for 15 years.
- Non-market economy provision effect:
  - In practice, this criterion may dispense countries from having to show that China is exporting goods at less than their “normal value”.

### Potential implications of China’s increased role in world trade (findings from analytical work)
- Overall welfare effects:
  - Analytical work shows overall international welfare effects of China’s WTO accession will be positive.
  - Most models show overall welfare effects of WTO-induced tariff changes in China are not sizable because China’s tariffs had already been lowered substantially.
- Consensus results from studies:
  - Over the long term, China will benefit from WTO accession through efficiency gains and direct benefits for Chinese consumers.
  - China’s sustained growth, to which WTO accession will contribute, should provide benefits to most trading partners by opening agricultural and services sectors, improving predictability and transparency, and increasing tourism.
  - In the short-to-medium term, both advanced economies and the most advanced developing countries would benefit through increased exports to China of capital and technology-intensive manufactures, increased trade and investment opportunities in China’s services sectors, and improved access to China's agricultural markets.
  - Some less advanced developing countries may sustain adjustment costs, particularly direct competitors to China in labor-intensive sectors such as clothing.
- Regional effects and complementarities:
  - NIEs of Asia would gain from China’s expanding trade due to complementary trade patterns and processing trade; however, China’s move up the value-added chain may pose competitive threats.
  - ASEAN countries and South Asia benefit as exports to China expand rapidly; however, competition in labor-intensive exports may require significant adjustments for some economies.
- Limits to existing research:
  - Models have technical limitations and often do not account fully for the opening of trade in services or reforms removing obstacles to foreign investment, which may understate the actual impact of China’s WTO accession.
  - Empirical indicators: outbound tourism grew by 37 percent in 2002, to 16.6 million.

*Source: Excerpt from IMF working paper content on China’s WTO accession and trade commitments.*

### Box 4, several key aspects of China’s WTO membership could potentially have an even

### Box 4, several key aspects of China’s WTO membership could potentially have an even greater impact on some of the trends described above with regard to the role of China in the global economy, in particular its attractiveness to international investors and its growing role as a global export base

### Overall assessment of WTO accession
- WTO accession, on balance, should facilitate China’s emergence in world trade and help ensure that the benefits are distributed broadly.
- Quantifications of the global impact of China’s WTO accession are likely to underestimate its benefits to the rest of the world and to the Asian region.
- Much of China’s trade liberalization has already taken place, and chiefly on a multilateral basis, which should reinforce its beneficial impact.

### Risks and potential adverse effects
- External risks:
  - Actions by trading partners to restrict China’s exports through extensive safeguards procedures could lead to retaliation by China in the form of anti-dumping claims.
  - Such actions would be likely to lower trade volumes altogether.
- Domestic risks:
  - Growth sustainability could be threatened by the impact of WTO accession on the agricultural sector and rural income.
  - Risks from state-owned enterprise (SOE) and financial sector losses.
  - Risks to fiscal sustainability.

### Noteworthy features of China’s trade emergence
- The export-oriented phase of China’s development has not been associated with the maintenance of pervasive import barriers.
  - Example: recent WTO commitments, such as the decisive concessions made to open its agricultural sector, are substantially broader than those made by other developing countries that have joined the WTO in the past.
- China’s trade liberalization takes place within a framework of global rules defined in a multilateral context, a departure from reliance on regional or bilateral trade arrangements that often characterized other former episodes of trade emergence.

### Selected trade statistics and indicators (as presented)
- Table 3. Sources of Imports (As a percent of China's total imports)
  - Asia: 1980 15.0; 1990 41.0; 1995 47.1; 2000 50.6; 2002 53.1; 2003 54.9 (Jan.–Jun.)
  - ASEAN: 1980 3.4; 1990 5.6; 1995 7.4; 2000 9.8; 2002 10.4; 2003 10.5 (Jan.–Jun.)
  - Japan: 1980 26.5; 1990 14.2; 1995 21.9; 2000 18.4; 2002 18.1; 2003 17.7 (Jan.–Jun.)
  - Korea: 1990 0.4; 1995 7.8; 2000 10.3; 2002 9.7; 2003 9.5 (Jan.–Jun.)
  - Taiwan Province of China: 1995 11.2; 2000 11.3; 2002 12.9; 2003 11.6 (Jan.–Jun.)
  - European Union: 1980 15.8; 1990 17.0; 1995 16.1; 2000 13.7; 2002 13.1; 2003 12.0 (Jan.–Jun.)
  - United States: 1980 19.6; 1990 12.2; 1995 12.2; 2000 9.9; 2002 9.2; 2003 8.5 (Jan.–Jun.)

- Table 4. Exports of Selected Countries to China (In percent of their total exports) — selected entries
  - Japan: 1980 3.9; 1985 7.1; 1990 2.1; 1995 5.0; 2000 6.3; 2002 9.6; 2003 11.1 (Jan.–Jun.)
  - Korea: 1980 0.0; 1985 0.0; 1990 0.0; 1995 7.0; 2000 10.7; 2002 14.7; 2003 16.2 (Jan.–Jun.)
  - Hong Kong SAR: 1980 6.3; 1985 26.0; 1990 24.8; 1995 33.3; 2000 34.5; 2002 39.3; 2003 46.4 (Jan.–Jun.)
  - United States: 1980 1.7; 1985 1.8; 1990 1.2; 1995 2.0; 2000 2.1; 2002 3.2; 2003 3.6 (Jan.–Jun.)
  - India: 1980 0.3; 1985 0.3; 1990 0.1; 1995 0.9; 2000 1.8; 2002 4.2; 2003 4.5 (Jan.–Jun.)

- Table 5. Indicators of Export Dispersion 1/
  - 1994: Coefficient of variation 1.91; Herfindahl index 0.073
  - 2000: Coefficient of variation 1.72; Herfindahl index 0.062
  - 2002: Coefficient of variation 1.79; Herfindahl index 0.066
  - Note: 1/ A lower number indicates more diversification (i.e. less dispersion in shares).

- Table 6. Indicators of Export Dispersion to the United States 1/ (Based on Share of U.S. Imports, by SITC classification) — selected entries
  - SITC-1 digit: CV 1990 1.39; 1995 1.57; 2000 1.38; 2002 1.32. H 1990 0.42; 1995 0.42; 2000 0.38; 2002 0.37.
  - SITC-2 digit: CV 1990 1.88; 1995 1.86; 2000 1.70; 2002 1.61. H 1990 0.12; 1995 0.11; 2000 0.09; 2002 0.09.
  - Category 6 (basic manufacturing) SITC-3 digit: CV 1990 1.48; 1995 1.32; 2000 1.15; 2002 1.15. H 1990 0.08; 1995 0.07; 2000 0.06; 2002 0.07.
  - Category 7 (machinery and transportation) SITC-3 digit: CV 1990 2.00; 1995 1.50; 2000 1.41; 2002 1.23. H 1990 0.12; 1995 0.08; 2000 0.09; 2002 0.10.
  - Category 8 (miscellaneous manufacturing) SITC-3 digit: CV 1990 1.10; 1995 1.06; 2000 1.05; 2002 0.95. H 1990 0.13; 1995 0.13; 2000 0.13; 2002 0.12.
  - Total 6, 7, and 8: CV 1990 1.61; 1995 1.48; 2000 1.30; 2002 1.20. H 1990 0.07; 1995 0.06; 2000 0.05; 2002 0.05.
  - Note: 1/ A lower number indicates more diversification (i.e. less dispersion in shares).

- Table 7. China’s Bilateral Trade Balances with Selected Countries (In billions of U.S. dollars)
  - United States: 1997 41; 2002 74; 2003 88 for "China Plus HK"; 1997 16; 2002 43; 2003 55 for "China".
  - European Union: 1997 9; 2002 18; 2003 29 for "China Plus HK"; 1997 5; 2002 10; 2003 18 for "China".
  - Japan: 1997 14; 2002 -18; 2003 -30 for "China Plus HK"; 1997 3; 2002 -5; 2003 -14 for "China".
  - Korea: 1997 -12; 2002 -19; 2003 -30 for "China Plus HK"; 1997 -6; 2002 -13; 2003 -21 for "China".
  - Taiwan Province of China: 1997 -24; 2002 -42; 2003 -51 for "China Plus HK"; 1997 -13; 2002 -31; 2003 -37 for "China".
  - Hong Kong SAR (China): 1997 ...; 2002 ...; 2003 ... for "China Plus HK"; 1997 37; 2002 48; 2003 61 for "China".
  - ASEAN: 1997 -10; 2002 -18; 2003 -30 for "China Plus HK"; 1997 0; 2002 -8; 2003 -15 for "China".
  - Others: 1997 6; 2002 -7; 2003 -11 for "China Plus HK"; 1997 -1; 2002 -13; 2003 -22 for "China".
  - Total: 1997 -4; 2002 -12; 2003 -35 for "China Plus HK"; 1997 40; 2002 30; 2003 25 for "China".
  - Note: HK denotes Hong Kong SAR; ASEAN denotes the Association of Southeast Asian Nations.

- Table 8. China: Tariffs, 1982–2002 (selected entries)
  - Unweighted Average: 1982 55.6; 1985 43.3; 1988 43.7; 1991 44.1; 1992 42.9; 1993 39.9; 1994 36.3; 1995 35.2; 1996 23.6; 1997 17.6; 1998 17.5; 2000 16.4; 2001 15.3; 2002 12.3.
  - Weighted Average: 1992 40.6; 1993 38.4; 1995 26.8; 1996 22.6; 1997 16.0; 1998 15.7; 2001 9.1; 2002 6.4.
  - Dispersion (SD): 1993 29.9; 1994 27.9; 1996 17.4; 1997 13.0; 1998 13.0; 2001 12.1; 2002 9.1.
  - Max: 1992 220.0; 1993 220.0; 1995 220.0; 1996 121.6; 1997 121.6; 1998 121.6; 2001 121.6; 2002 71.0.

### Trade trends and figures (figures and series cited)
- Figure 1. Growth in Trade, 1970–2002 (Index, 1970=1): series shown for World Exports, China Exports, China Imports (visual index series spanning 1970–2002).
- Figure 2. Trade in East Asian Region 1/:
  - Share of region in China's total trade, 1993–2002: plotted values between 44 and 60 (series for Exports and Imports).
  - Growth of China's trade with region, 2000–2003: quarter series from 2000q1 through 2003q3 with values plotted between -15 and 65 for Exports and Imports.
  - Note: 1/ Region is comprised of Hong Kong SAR, Singapore, Thailand, Korea, Taiwan POC, Malaysia, Indonesia, the Philippines, and Japan.
- Figure 3. Trade in Electronic Products:
  - China: Monthly Imports of Electronic Components (In millions of US$; 3-month moving average) series from Jan-93 through Jul-03; series includes "Electronic integrated circuits and microassemblies".
  - Trade in IT Products 1/ (Values in U.S. dollars): monthly series Jan-00 through Jul-03 showing Imports of IT products and Exports of IT products.
  - Note: 1/ Computer and telecommunication products plus electronics.
- Figure 4. United States: Imports of Manufactured Goods from Selected Asian Countries:
  - Quarterly series from 1996q1 to 2002q4 for China, Japan, Korea, Taiwan Province of China (In millions of US$).
  - Note: 1/ Based on U.S. statistical data, which attributes re-exports via Hong Kong SAR to mainland China.

*Source: IMF staff text and tables as presented in the supplied content.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2004/_wp0436.pdf_