China Remembered: China Joins the WTO

August 28, 2009 Posted by China Briefing Reading Time: 4 minutes

Then-Premier Zhu Rongji shakes hands with WTO Director-General Supachai Panitchpakdi

Aug. 28 – It seems such a long time ago now, but China’s joining of the WTO only occurred eight years ago, in November 2001. Today it is taken for granted. However, without doubt there was a pre-WTO China, and a post-WTO China, and the two beasts have proven to be very different. The pre-WTO China had to negotiate for an astonishing 15 years to obtain membership of the WTO. The country was considered backward, communist, largely untrustworthy, and internally incapable of dealing with disputes under international law if they went against them.

China was largely vilified in Washington, as the WTO leadership of the day assumed a position as being leaders of an exclusive club. The negotiations of the time were intense, and traumatic. Having to have its membership ratified by reaching agreements with every single 142 member of the WTO individually was a Herculean task. The technicalities of the bilateral and multilateral negotiations were by no means simple. China was too advanced in some sectors for WTO member countries to be comfortable giving it developing country status, which brings with it loose timetables and “differential and more favorable treatment” for meeting WTO obligations. But China was also not a developed economy by most measures, as its delegation insisted.

Some of the politics was laughable. At a meeting with WTO members in Shanghai, the Chinese delegation proudly showed off the gleaming spires of Pudong, proud in the achievements of modern China. The response however was predictable, yet comic. “How can China claim to be a developing country with a 21st century skyline in Shanghai?” was an oft repeated question at the time.

The man who really bought it altogether was the much loved, now retired Premier Zhu Rongji. Together with the portly, but salesman-like aura of then-President Jiang Zemin, Zhu battled incredible resistance to drag China into what was seen as an irreversible position of reform. Elements not just overseas, but also within China struggled to accept that China really could change. Debates, uncertainty, and foot-dragging within China about the benefits of changing to fit the norms of international capitalism were additional reasons why the process of joining took so long. Once a consensus was reached at the highest levels of leadership in early 1999, however, formal debate over the wisdom of joining was forbidden. Prohibiting debate angered academics, journalists, and others who understand the importance of airing different views; and the prohibition of debate did not end the opposition.

The roots of opposition were tied to the very beginnings of reform. In 1978, China had no foreign investment and very little trade. Contrast that with the present, where China has been the largest recipient of direct foreign investment in the developing world since 1992 and is among the top three trading countries in the world. Although the reforms that opened China to international markets were gradual, by the mid-1990s foreign invested enterprises began to gain serious market share. Coca Cola and Pepsi had basically taken over the entire soft drink market in China, and the presence of others like Procter & Gamble and Volkswagen was ubiquitous with products and advertising. In addition, multinationals looked invincible and overpowering. Some popular examples were that Microsoft’s capitalization was one and a half times the size of both the Shanghai and Shenzhen stock exchange put together, and Wal-Mart’s annual sales represented forty percent of China’s total sales revenue. These were heady days.

However, following criticism of his handling of the Asian Financial Crisis, and a reputation for toughness and a testy relationship with Jiang, Zhu “disappeared” from view from the party leadership at the end of the 1990’s for close to 12 months. That coincided with a downturn in China’s progress to join the WTO, and for awhile it looked as if China might fail in its attempts. Jiang brought Zhu back to popular global acclaim to pick up the pieces of WTO negotiations, and matters quickly got back on track.

Bizarrely, it all eventually came down to Mexico. Backed by the United State, the Mexican agreement was the final one China needed to seal to secure WTO membership. Disputes over anti-dumping, the precise aspects of which elements of China’s economy were developed and which were not dragged on and on for weeks. The tensions on the streets of Beijing seemed unbearable. Yet suddenly, a beaming Zhu announced an agreement had been made. Every aspect of China’s entry had been painstakingly negotiated over the fifteen years it took. In the end, the full protocol incorporated thousands of lines of tariffs and specific agreements, and covered approximately 1,500 pages.

While it didn’t have the pizazz of an Olympics bid, by the time the WTO agreement was reached a collective, pent up decade and a half sigh of relief went around the world. Jiang Zemin and Zhu Rongji had finally accomplished what no previous Chinese leaders had ever achieved – China was now fully part of the global business community and had agreed to abide by its democratic and internationally binding laws. It would propel China to global super-trader status.

Fast Facts:
Pre-WTO: China’s GDP in 2001 at time of WTO entry: US$509.8 billion, growth of 7.5 percent.
Post WTO: China’s GDP in 2008: US$4.42 trillion, growth of 9 percent.

China now conducts as much trade in two months as it did in all of 2001, the year it joined the WTO.

Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and lived in China for 21 years. He is now based in Mumbai. This is the final part of a series of “China Remembered” articles we have run in China Briefing during August. They can each be accessed here.

Chris’s popular book, “The Story Of A China Practice,” detailing the establishment of both Dezan Shira & Associates and China Briefing from 17 years ago to the present is also available as a free download to all China Briefing subscribers. It can be accessed by clicking on the picture to the right.