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Unit 2: World Trade Organization

Notes
involve technology transfers to MOFTEC. Moreover, China has agreed that its many
state-owned enterprises will not discriminate against foreigners and that commercial
considerations must apply when purchasing goods or services. Because trade and investment
among WTO members must abide by a specified set of enforceable rules, the Chinese
business environment should become more stable.

It remains to be seen how China interprets and enforces its WTO commitments. China
joined the WTO as a developing country, thereby gaining the right to comply with WTO
regulations over several years. For example, Chinese import tariffs on automobiles, which
in 2002 were slashed to between 44 and 51 percent (depending on the engine size), fell to
25 percent by mid-2006. Moreover, the Chinese government’s system of import quotas
and licenses for automobiles did not phase out until 2006. Still, MNEs are optimistic about
the wisdom of investing in China. Some noted that China’s agreement when it joined the
WTO reduced its political, legal, and economic risks to MNEs.
WTO membership seemed to be the latest step in China’s long march towards an open
market economy. This march began in the spring of 1992, when veteran leader Deng
Xiaoping, during his “southern tour,” reiterated China’s commitment to both an open-
th
door policy and movement to a market economy. The 15 Communist Party Congress in
1997 marked the start of a new phase of market reform with its promise to transform the
country’s economic and business structure. In 1998, the Communist Party removed
ideological barriers to private ownership by amending the state constitution to
acknowledge the private sector. In 2001, President Jiang Zemin called the Communist
Party to allow entrepreneurs and business executives to join it, thereby legitimizing the
idea of private enterprise. Noted one observer, this proposal “basically turns the Party on
its head. It means the Party will once and for all put aside all ideological reservations
towards growing a private sector in China.”
The contest between market economics and ideological legacies in China will play out
over many years. During this time, foreign investors will play an increasingly prominent
role in a country that historically has been wary of foreigners. Indeed, large segments of
Chinese society are less than enchanted by an open market economy, growing exposure
to foreign cultures and increasing interdependence with other countries. This situation
creates many challenges for managers. If history is any guide, the Chinese government’s
outlook on investments by foreign companies will largely influence success.

Questions
1. Profile the evolution of the Chinese business environment. Does this evolution
strike you as predictable or unpredictable? Why would its degree of predictability
matter to foreign investors?
2. Do you think the benefits of operating in China outweigh the risks?

3. What would you advise a company to do to maximize its rewards and to limits its
risks?

4. Is it reasonable to expect China to adopt and fully enforce WTO regulations,
particularly regarding intellectual property rights, in the next few years? If it chooses
not to do so, what options would companies have to protect their interests?
5. How do you think the contest between market economics and ideological legacies
will play out in China over the next ten years?
Source: Raj Kumar, International Business Environment, Excel Books.

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