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WTO Accession and Financial Reform in China
By Justin Yifu Lin
Introduction
After years of endless efforts, China has achieved agreements with almost all the World Trade Organization (WTO) members, which requested to have bilateral negotiations with China. The U.S. Congress also voted to grant China Permanent Normal Trade Relation (PNTR) status, removing another hurdle of China's accession to WTO. It is most likely that China will be admitted to the WTO this year.
Possible Impacts of WTO Accession
Top Chinese leaders regard the WTO accession as the second most important change in China's economic policy regime, following Deng Xiaoping's reform and opening-door policy in the late 1970s. This change will have undoubtedly profound impacts on the future course of China's economic development. There are many discussions among academic and policy circles in China regarding the possible impacts of WTO accession on the Chinese economy. Some scholars and policymakers are very positive about the accession. They believe that any drawback will be overwhelmed by the efficiency gains, injecting new growth impetus into China's reform and economic development. According to them, China will enter an entirely new development stage. However, other critics are worried that China's weak economic base, due to the unfinished transition from a planned to a market economy, will not be able to sustain the tremendous external shocks brought about by entry to the WTO. They argue that the WTO accession will do more harm than good to the Chinese economy.
My personal judgement is that, before the expiration of the grace periods in the bilateral agreements, most sectors in the Chinese economy will still be protected. However, in anticipation of the opening of China's domestic markets to foreign firms after the expiration of the grace period, foreign direct investments from multinational companies will increase substantially immediately after the accession. Therefore, the accession should bring an immediate boost to investments and a spurt to economic growth. In the long run, WTO membership will undoubtedly enable the Chinese economy to become more integrated with the world economy, facilitating a better access to foreign technology, capital, and the global market. Therefore, the accession will be beneficial to China's overall economic growth in the long run. The real challenge to the Chinese economy will be in the intermediate run after the expiration of the grace period but before the completion of adjustments to the long-run equilibrium. The intermediate- run challenges will certainly be different from one sector to another, depending on the gains and adjustments that each sector needs to make.
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