5. Discuss societal concerns of the development of Chinese (or any other country of your choice) economy. How does chosen countries’ trade policy respond to these concerns?

China’s economic transformation is one of the most dramatic economic developments of recent decades. Indeed, during the period 1979-2005, China’s growth rate has averaged 9.6% per annum, and its integration into the world trading system has been as remarkable: its share in world goods trade has increased from less than 1% in 1979 to 6.4% in 2005. China became the third largest trading nation after the United States and Germany in 2005.

China’s economy has a good potential to become the world’s top exporter by the beginning of the next decade (OECD 2005a) owing to attractiveness to FDI, a high domestic saving rate, improvements in productivity spurred by reduced internal and external barriers to trade, and a significant surplus of labour.

Speaking about societal concerns, we can distinguish them in two groups: domestic and international.

International:

• Further trade liberalisation will allow China to exchange goods and services at world market prices and thus to realign its economic structure so as to benefit from its genuine comparative advantages and maximise the well being of it citizens. To make the most of these prospects, inward-oriented policies such as price controls, state involvement, explicit and implicit subsidisation and restrictions on movements of factors of production that still significantly influence economic activity in China will need to be addressed.

• As China has emerged as a major player in international markets, developed countries are increasingly interested in China’s potential impact on world markets and on their bilateral trade balances. Because of the large role processing trade plays in China, its bilateral trade balances could be misleading. Arndt (2004) argues that standard procedures of balance-of-payments accounting may be deceptive in cross border production sharing.

• While analysts disagree on the extent to which China can sustain such impressive growth rates into the future, there is widespread agreement that it will continue to grow rapidly, and at a faster rate than the world economy as a whole. And since China accounts for close to one-fifth of global population, this suggests that global demand will likely remain robust in the near to medium term.

Also China has some areas, about which society is concerned.

• The first is providing a stable environment for private sector activity. The state-owned enterprise sector needs to be further restructured and reduced. The performance of the business sector could be strengthened through further modernisation of the business framework and better enforcement of laws, especially those for intellectual property rights.

• The second area is a more flexible exchange rate that would support a stable macroeconomic environment. The change in exchange rate arrangements announced in July 2005 is a step in the right direction.

• The third area is to reform the financial system. Although about 70% of the banking system has been recapitalised, the domestic banking system remains burdened by a considerable quantity of bad loans held in government-controlled banks.

• Growth, foreign trade opportunities and investment are taking place in the already prosperous coastal regions and far too little is directed to the interior and the western parts of the country. The fourth area for reform is to reduce regional inequalities by reforming fiscal transfers. Solid public finances could permit tax and expenditure reforms. Expenditure on health and education could be strengthened. Rapid and increased urbanisation is recommended.

• If China’s development is to be sustainable, the government will need to undertake a comprehensive programme of far-reaching institutional reforms. Some international observers, however, also voiced concern over China’s fast-growing economy, heavy energy consumption and wide gap between rich and poor.

Trade policy: It appears that China recognises the challenges it must address. The 11th Five-Year Plan (2006-2010) constitutes an important policy shift for the Chinese Government. The Plan aims to improve its economic structure, innovation capacity and growth pattern, curb pollution, create more jobs, balance investment and consumption, reduce income gap and bolster public welfare. The Plan stresses that “economic development is the top priority”, but development should be “comprehensive, harmonious, and sustainable”. This implies “stable and relatively fast economic growth”, and the need to “step up the transformation of the economic growth pattern” towards growth that is less energy, resource and capital intensive, more knowledge and innovation-driven, and more equally shared. Importantly, China's economic and social development plan identifies as crucial building a moderately prosperous society across the country through policy that is environmentally sound and growth and development sustainable.

The Chinese Government has indicated that it regards IPR protection as part of its strategy to foster a sound environment for trade, investment and research and development in China. As part of the proposals for the 11^th Five-Year Plan, the State Council published on 9 February 2006 a “National guideline on medium- and long-term program for science and technology development (2006-2020)”, which states that China plans to become a innovative nation in the next 15 years and a world power in science and technology by the middle of the 21st century. Priorities for strengthening the IPR system with respect to four major areas: trademarks, copyrights, patents and international trade (including customs issues).

Also China joint WTO in 2001 after 15 years period of negotiations. One of the major reasons for China joining the WTO was to ensure a secure and predictable trading environment and thus a more viable business environment. China’s commitment to bind its tariffs has given businesses a clearer view of their future opportunities.

China’s growth and trade policy directly affects its terms of trade but also those of other countries. From 2002, those economies with a high share of oil, minerals and mining exports have gained the most from recent developments in international product markets due to the increase in international prices. At the same time, fuel-importing developing countries have suffered worsening terms of trade.