Rising trade protectionism and frustration over its domestic subsidies spell trouble for China and could lead to more friction within the WTO than Beijing has grown accustomed to over the past decade.
On the eve of China’s accession to the WTO 10 years ago this December, naysayers warned that the country could falter under the demands of opening up its economy. Now there is little debate that it has been a boon in making China the world’s largest exporter and the second-largest trading nation.
However, China’s next decade in the trade group could be tougher. That is partly because while the country has opened many of its markets as required under the WTO rules, it still heavily subsidizes key industries.
State spending on clean technologies, which has already drawn ire from China’s trading partners, could continue rising after last week’s confirmation by Beijing of a massive investment plan for “strategic industries.”
That can only lead to increased friction as the global economy slows and countries scramble to boost exports.
“Some aspects of China’s economic system are fundamentally inconsistent with the market economy-based principles of the WTO,” said Wang Jiangyu (王江雨), a law professor and WTO expert at the National University of Singapore. “In the first few years, they [WTO members] could tolerate this, but as China’s trade grows you will see more and more cases against China.”
Experts say a recent WTO ruling that cheap state-supported financing and land give an unfair advantage might lead countries to resort to anti-subsidy cases against China — a trade weapon that aims at the heart of China’s state-backed economic model.
To date, WTO members have used anti-dumping cases to target China’s trade policies, which is relatively easy to do since China is still considered a “non-market” economy under the terms it negotiated in 2001. To build a case, another country can substitute China’s prices with those of another, pricier market economy.
The clause — which Beijing sees as unfair — expires in 2016.
However, a recent WTO decision said state involvement must be accounted for in bank financing, land prices and production input prices. That means the possible use of a similar tactic in anti-subsidy cases: Using higher third-country market rates and prices to show subsidized pricing.
In essence, China must still answer for its non-market economy subsidies past 2016.
Chin Leng Lim (陳倫林), a law professor at the University of Hong Kong, said challenging China on cheap land and financing — when the government owns all the land and banks — is more intrusive than going after unfairly underpriced goods. It is firing at the “Chinese mothership.”
“It’s about saying to China: ‘We don’t like the way you regulate and control your banks. We don’t like the way you regulate land. We don’t like the support you give to your state-owned enterprises. So change all of that,’” Chin said.
Anti-subsidy retaliation is already happening and “green” technology is a likely battlefield.
Early last month, the US government launched an investigation into imports of Chinese made solar panels after US solar companies called for anti-dumping and anti-subsidy duties. In return, China’s commerce ministry said on Friday it was looking into US renewable energy subsidies.
“That’s what a trade war looks like, when it is tit-for-tat,” Chin said. “And it is all happening in and around anti-subsidy law.”