June 30, 2014    Volume 21, No. 10

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China Does Not Provide WTO With Trade Compliance Information


By Richard A. McCormack
richard@manufacturingnews.com

The World Trade Organization, the global arbitrator of unfair trading practices, admits that it doesn't know if China is gaming the global trade system.

In its latest "Trade Policy Review of China," the WTO says "the extent to which China supports exports and the different sectors of the economy is not clear."

In conducting its annual review of China's economy and its myriad government trade policies, "specific information regarding [state subsidies for exports] was not provided to the Secretariat in the context of this Review," according to the WTO. The last time China provided the WTO with any information on export subsidies was in 2011 for a period that covered 2005 to 2008.

"China maintains a large number of support programs at the sectorial, regional and enterprise level to attain different economic and social goals," states the WTO. "The different support programs range from those designed to attain major policy goals (i.e. economic growth) to those aimed at boosting specific industries, but they are intertwined. The application of these programs is not always transparent. A full identification of these programs was not possible for the Secretariat in the context of the current review, as specific support measures are often the result of internal administrative measures that are not always easy to identify and generally only available in Chinese."

Exports continue to play a big role in China's growing economy. Export growth "expanded rapidly" over the past year, to $2.21 trillion, accounting for 24 percent of the country's GDP (down from 26.7 percent in 2013). Chinese exports have increased by 40 percent since 2010. As the world's largest seller of goods, China's top export products were office machines, telecommunications equipment, textiles and clothing. While manufactured goods accounted for 94 percent of exports, manufactured goods accounted for 58 percent of China's imports in 2013.

With so much at stake globally, the WTO was not able to determine if there are state subsidies for exports because the Chinese government's budget "is not a public document, hence, it is not possible to identify outlays," says the WTO. "Support is also provided through different financial mechanisms."

The WTO has determined that the Chinese government provides "industry-specific subsidies for inputs, land and technology to firms that the central and provincial government perceive as strategically important or to revitalize them as the National Development Reform Commission calls for in its National Old Industrial Base Adjustment and Renovation Plan (2013-2022)." The WTO notes that under this plan, state-owned enterprises "and favored companies can purchase inputs below cost and directly from each other, affecting competitiveness."

China's government continues to "enhance the coordination between credit policy and industrial policies." It is speeding up and broadening financial assistance to small and medium-sized companies "by adopting measures to prevent and alleviate local debt-related risks." The People's Bank of China "has guided financial institutions to intensify financial support to areas such as scientific and technological innovation, emerging industries of strategic importance and service industries," notes the WTO. Financial institutions were told to "extend credit support for railways, shipping, thermal power and steel, and were encouraged to use credit products flexibly to support profitable export-oriented enterprises."

The country's export-import banks are aggressively lending money to foreign entities to buy Chinese products.

The Chinese government has established new rules to foster competition and combat monopoly practices and has set up a system of antitrust reviews of mergers and foreign acquisitions of domestic companies. But the government has excluded state-owned enterprises that are considered "vital to the Chinese economy" from the competition laws, says the WTO. The government also applies price controls to commodities that "have a direct impact on the national economy and people's livelihood."

China's tariffs on imported goods have not changed since 2009, with the average tariff on non-agricultural products standing at 8.6 percent, as compared to an overall tariff rate on imports of 1.18 percent for the United States.

The executive summary of the review is located at http://www.wto.org/english/tratop_e/tpr_e/s300_sum_e.pdf. The 200-page review is located at http://www.wto.org/english/tratop_e/tpr_e/s300_e.pdf.


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