On May 12, an overwhelming majority of lawmakers in the European Parliament passed a non-binding resolution urging the European Commission to reject granting “Market Economy Status” (MES) to China. According to a report by US media outlet ABC News, 546 of 751 parliamentarians supported the resolution and 28 voted against it.
The EU parliament opposed granting China MES status mainly because of the following: the state has too much influence on the economy; state-owned enterprises are given preferential treatment; China does not have a market-oriented financial industry; it places foreign companies at a structural disadvantage; its judiciary is not independent; and its resource distribution is not determined by market forces.
In recent years, China has experienced a real-estate bubble, and its cement, steel and other building materials industries are operating at overcapacity. With the help of government subsidies, these products are being sold at low prices in the EU and the US, sparking criticism and punitive tariffs in return. China is fundamentally a planned economy where the state plans production, resource distribution and consumer spending. Such an economic system is open to abuse, resource distribution is ineffective, individual freedom is restricted, corruption is rampant, and fairness and justice is absent.
China is now in its 13th five year-plan. The 12th plan focused on developing the nation’s semiconductor and wafer industries, which is why state-run Chinese companies such as Tsinghua Unisplendour Corp bought shares in Taiwanese IC design companies to gain access to key technologies.
The 13th five year-plan focuses on “Made in China 2025” — an initiative aimed at upgrading Chinese industry and recognizing a lack of substance in its core technologies — which includes finding ways of obtaining important technologies, such as IC design.
When China joined the WTO 15 years ago, the state’s influence should have diminished, but the result was the opposite. The state-run Global Times newspaper has also admitted that although China has been introducing legislation promoting free competition since 1986, that legislation has only been enforced on rare occasions. The state still owns thousands of zombie companies in violation of the spirit of free competition.
Chinese state-owned companies enjoy many unfair privileges, such as preferential loans, low interest rates and relatively long repayment periods. Compared with private companies, the special treatment afforded state-owned firms gives them a clear competitive advantage.
In addition, China’s financial sector is strictly controlled and is not market-oriented. The fate of many companies is in the hands of these banks, which enjoy preferential treatment, and they are therefore in need of political connections, which is not a very sound system.
Corruption is rampant in the Chinese banking industry, and banking affairs are deeply influenced by political factors. The standards for approving loans vary greatly among bank officials, and as long as one can claim to promote reform and make contributions to China, even state-run companies with mountains of debt can obtain loans worth millions of dollars without any oversight or control mechanisms.
What is more, the Chinese judiciary is not independent, and it is common to read about inexplicable searches of a company’s premises, products being seized, forced confessions and even disappearances. By contrast, China’s princelings act with impunity. The judiciary — highly corrupt and ruled by individual discretion — is not independent, unable to fight corruption and implement reform to root out corruption. All these are obviously not beneficial to free market competition.
Taiwanese should be able to give a straight answer when asked whether they think China is a market economy: Just look at the contract farming of milkfish and fruit exports to China, and examples of small and large Taiwanese businesses being set up and trapped there.
With a highly centralized authoritarian government, the tyranny of privileged groups, the rapid changes and instability, the missiles it has aimed at Taiwan and its unwavering ambition to annex Taiwan, it is very clear that China is not a free market economy.
Li Jung-shian is a professor in the Institute of Computer and Communication Engineering at National Cheng Kung University.
Translated by Perry Svensson
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