Following the review meeting held by the WTO Trade Policy Review Body on 17th and 19th July 2024, the WTO issued its ninth trade policy review report with respect to the trade policy and practices of China. The last review report for China was issued in October 2021. The Body, inter alia, noted that while a number of steps were taken by China to achieve economic liberalisation, state ownership remained to be a pivotal characteristic in China's economy. Further, central and state government continued to provide financial support to industries and sectors. The report also highlighted China's involvement in trade negotiations that took place at the World Trade Organisation.
Chinese economy and policy reforms
Since the last review, China has become the second largest economy in the world and has the largest purchasing power parity. Exports from China increased significantly in 2022 and declined marginally in 2023. USA and European Union were China's biggest markets during this period. On the other hand, Taiwan, Japan and USA were the biggest import sources for China during this period. Machinery and electrical equipment were the highest traded commodity, while agricultural products comprise a minor share in trade.
The report highlights the market-oriented reforms, steps taken towards economic liberalisation and integration into the global economy by China since the last review. During the review period, the National People's Congress adopted the 14th Five-Year Plan for economic and social development policy. One major aim under the plan was to take gradual steps towards reducing restrictions on foreign investment in all economic sectors, and specially in service providing sectors. In this regard, the negative list for foreign investment was revised and only 31 countries are now placed in the negative list. Increased tax support was also granted to foreign funded enterprises allowing them to establish themselves in the country.
However, it was noted that despite reforms, state ownership remained to be a key characteristic in China's economy. Many state trading enterprises continue to have exclusive rights to import or export key products, including crude and processed oil, refined coal and chemical fertilizers. State-owned enterprises continued to have substantial market shares in many sectors and accounted for a large portion of total assets and profits in such sectors. Further, no major privatization took place during the review period.
China's participation global multilateral trading system
As one of the world's largest trading economies, China played a significant role in trade negotiations at the WTO. During the review period, it participated in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), discussions on investment facilitation for development, e-commerce and services domestic regulations and Informal dialogues related to trade and environmental sustainability. Five dispute settlement cases were filed by China, while six cases were filed against it during the review period.
China has also become an active participant in regional bipartite and multi-party trade agreement. At the end of 2023, China had signed 22 regional trade agreements involving 29 partners including Serbia, Ecuador, Cambodia, Mauritius and New Zealand. It also signed a MoU on the establishment of a Mixed Commission on Economic, Trade and Investment Cooperation with Nicaragua, officially establishing a bilateral intergovernmental mechanism on economic cooperation and trade. Further, China has also been in discussions regarding upgradation of foreign trade agreements with Honduras, the Gulf Cooperation Council, Iceland, Israel, South Korea, Moldova, Norway and Panama. China was also actively negotiating accession to Comprehensive and Progressive Agreement for Trans-Pacific Partnership ("CPTPP") and Digital Economy Partnership Agreement ("DEPA"). It had signed 63 agreements with 35 economies, including the United States, the European Union, and the Russian Federation.
With regards to the trade remedial measures, China did not initiate a large number of investigations since the last review. Between January 2021 and December 2023, China initiated only three anti-dumping investigations, which included an investigation into imports of Phthalocyanine Pigments from India in March 2022. While many anti-dumping measures were terminated during this period, a total of 120 anti-dumping measures were still in force as at end of December 2023, with United States being subjected to largest number of measures. However, no countervailing duty investigations or safeguard investigations were conducted during this period. At the end of 2023, only 4 countervailing measures were in place.
Financial support and incentives offered
The report highlights that China continued to maintain development zones around the country, which played an important role for nationwide investment and trade liberalization. Various preferential tariff and tax policies were maintained with respect to entities investing and operating in these zones. Measures, rules and general plans were made for advancement of pilot free trade zones and free trade ports in accordance with international standards. On 31st October 2023, Lin-gang Special Area of China (Shanghai) was approved as a pilot free trade zone. Further, a zero-tariff policy was implemented in March 2021 on production equipment imported for own use by eligible enterprises in the Hainan free trade service port. A total of 19 reforms and innovation measures were introduced with respect to pilot free trade zones.
China also continued to provide financial support in the form of incentives and subsidies at both central and local government levels, to various sectors and industries, with a major focus on industry, science and technology. Since the last review, China submitted two notifications on subsidies to WTO, one in 2021 and one in 2023. In its 2021 notification, China disclosed that it provides 71 central level programmes that consist of 53 preferential tax policies and 18 financial appropriations as well as 374 financial appropriations provided by 36 sub-central governments. In its 2023 notification, China disclosed that, on the one hand, the central-level programmes reduced to 69, comprising of 54 preferential tax policies and 15 financial appropriations, financial appropriations by sub-central governments increased to 385 on the other hand.
The report shows that the major objectives of the incentive and subsidy programmes was promoting cutting-edge and traditional industries, supporting SMEs, helping development in rural areas, attracting foreign direct investment and protecting the environment, and helping people with disabilities. It was reported that the largest single notified subsidy was provision of funds for development of agricultural production. Eight programmes at the central government level in 2021 and three programmes in 2023 were targeted towards the fisheries sector.
However, the Trade Policy Review Board observed that despite the submission of two notification and clarificatory replies submitted by China, the WTO Secretaries was unable to clearly discern the nature and level of financial support granted through various subsidy and incentive programs. It was noted that the notifications did not provide information on the expenditure levels in the specific sectors where government support is likely to have global repercussions, such as aluminium, electric vehicles, solar modules, glass, shipbuilding, semi-conductors and steel.
Conclusion
Since its last trade policy review, China has emerged as one of the world's largest economies and plays a pivotal role in driving global economics. However, despite being a member of the WTO for almost 25 years, China continues to maintain state ownership over crucial sectors. While China has enacted policies to attract foreign investment, it has not undertaken any privatisation of many state-owned enterprises. Further, China continues to offer significant support, financial and otherwise, to its industry. Further, many countries across the world have entered into trade partnerships with China and continue to sign more regional agreements. Such trade agreements, coupled with the significant support provided by the Chinese government would allow China to continue to play an increasingly larger role in international trade.
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