In 2001 China became a member of the World Trade Organization. China’s accession into this organization had many advantages and disadvantages for the country. Some of the advantages of being a member of the WTO for China was the strong increase in GDP growth rate which the country experienced as a result of the facilitation of trade and the increase in imports/exports. Some of the disadvantages of the membership to the WTO were the negative effects in health care, inequalities in income distribution, and inefficient pension funds.
Prior to 2001 China had a robust economy which was growing at an astonishing rate. When China ascended into the WTO the country reformed the foreign trade policies which were the foundations of the economic success which the country had experienced. As a result of the reforms foreign enterprise was facilitated, there was more transparency of China’s laws, and free trade was promoted. Despite the growth that China experienced prior to 2001, during annual reviews of the country several human rights issues were exposed which could potentially erode the economy. China’s conformation to the standards which the WTO established would facilitate foreign relations and remedy these human rights issues.
China’s membership in the WTO eased some of the restrictions on increased foreign trade regulations which made China more attractive to foreign investors. For foreign-invested firm’s distribution, retiling, and franchising had been significantly restricted prior to 2001. Under the WTO China promised full trading and distribution rights for foreign-invested firms. Tariffs were significantly lowered from 31% to less than 14% and China became committed to treating imported goods comparably to domestic goods in trading agreements. Transparency is a basic principal of the WTO and China’s legal system had to inculcate this principal into their system. Foreign firms had been easily manipulated by the Chinese government and there were several occurrences of theft of foreign intellectual property.
The WTO required that China tighten up their legal frameworks and design their legal system to be more transparent for foreign firms which would improve foreign relations. The consequences of the reformed trade agreements were that exports grew by 27% annually and China’s economy grew substantially in subsequent years. The real GDP growth rate increased from 10%- 11% annually. China’s economy had steadily been growing since the late 1970’s as a result of the government’s economic strategies. The strategy which the government subscribed to was an export-led growth strategy. China strengthened its domestic markets and improved its relationships with countries to foster this export-led growth which attributed to the strong GDP growth rate in consecutive years since 1970.
Productivity drastically increased in China as a result of the reallocation of capital and labor to more productive uses. There was also a migration of people from rural to coastal regions where there were more resources and opportunities for growth. The labor productivity in China outpaced every other country in the world and the country averaged a 9.5% annual productivity rate between 1997 and 2010.
The export-led growth strategy and the increased labor productivity rate were some of the key elements which impacted the strong GDP growth rate. There were some domestic problems which China experienced as a result of the rapid growth in China. Some of these problems were the dismantling of the provisions of the “iron-rice bowl”. With the influx of private-owned enterprises as a result of the amended foreign relation policies many entities in the public sector ceased to exist or became defunct.
There were many provisions which the public sector formerly offered such as adequate health care and robust pensions. Many of the hospitals which were still apart of the public sector operated as if they were privately owned and they catered to the demands of becoming profitable. The ramification of this to the Chinese population was that health care was no longer affordable and accessible to the masses.
Many Chinese people were without adequate health care and the pensions which they once had were taken from them because most of the pensions were apart of programs implemented by the public sector which were no longer in existence. Despite the stellar GDP growth rate which China experienced the unemployment rate remained high in China throughout this prosperous economic period.
The reason for this is that the majority of the jobs which were created were in the coastal regions. The implications of this are that those people who lived in-land did not have access to as many jobs. Many of the salaries of people who lived on the coast were significantly higher than those people who lived in-land. So there became an inequality of income distribution throughout China as a result of the increase in GDP growth as a result of foreign trade and investments in coastal regions.