RIETI Report June 2015

Asymmetric impacts of the WTO Accession on Chinese exporters

The Chinese government significantly restructured and modernized its economy to meet the World Trade Organization (WTO) standards in December 2001. Under the WTO accession, China changed its economy into the most open of any large developing country, and also received most-favorable-nation treatment, which improved the access of Chinese exporters to foreign markets. The Chinese government was also requested to reduce restrictive measures in the market, including reforming state-owned enterprises (SOEs). China's entry into the WTO was deemed to have a significant impact on Chinese exporters in the 2000s. In the June issue of the RIETI Report, we present the column "Asymmetric impacts of the WTO Accession on Chinese exporters" by Faculty Fellow Ryuhei Wakasugi, and originally posted on the VoxEU.org website.

There have been many studies on the effects of China's entry into the WTO on its productivity growth, but few that examine the different effects of WTO membership on exporters among foreign-invested enterprises, private domestic firms, and SOEs. Contrary to the standard theory whereby the fraction of exporters for SOEs rises as the number of SOEs decreases as firms enter the domestic market, begin exporting, and see increased productivity, Wakasugi finds that the fraction of exporters for SOEs remained at 20%, while that of exporters among private domestic firms and foreign ones increased. What is the reason for the asymmetric effects of the WTO entry on firms' decision to export among different ownerships? He finds that Chinese firms with higher productivity are more likely to export regardless of ownership, and that this relationship increased after the WTO accession. Moreover, the effect of WTO accession on exports is asymmetric among different types of ownership--negative for SOEs while positive for private domestic firms. Finally, Wakasugi states that the growing productivity of Chinese electric machinery and electronics manufacturers after China's WTO accession largely increased their exports, which is in accordance with the stylized fact that firms with higher productivity tend to export. However, he also shows that the effects of China's WTO accession on firms' exports are not uniform among different ownerships, which can be interpreted as the result of policy changes done to remove favorable treatments only given to SOEs for their export promotion and unfavorable conditions given to private firms for their exports before the WTO accession.

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Asymmetric impacts of the WTO Accession on Chinese exporters

WAKASUGI RyuheiFaculty Fellow, RIETI

The Chinese government significantly restructured and modernised the economy to meet the WTO standards in December 2001. The openings mandated under China's WTO accession agreement made its economy the most open of any large developing country, and China has achieved reasonable progress toward meeting its obligations (Branstetter and Lardy 2008). China's accession to the WTO enabled it to receive the most-favourable-nation treatment, which improved the access of Chinese exporters to foreign markets. In the WTO accession process, the Chinese government was also requested to reduce restrictive measures in the market, including reforming state-owned enterprises (SOEs). China's entry into the WTO was deemed to have a significant impact on Chinese exporters in the 2000s.

There have been many studies on the effects of China's entry into the WTO on its productivity growth. Brandt et al. (2012) showed that the Chinese economy recorded higher productivity growth after WTO accession and that this growth was driven mostly by firms' entry and exit that are increasingly allowed by China's decentralised reforms. Yu and Jin (2014) observed the positive impact of imported intermediate inputs on firm productivity. Nevertheless, we find few studies that examine the different effects that WTO membership on exporters among foreign-invested enterprises, private domestic firms, and SOEs.

To read the full text
http://www.rieti.go.jp/en/columns/v01_0036.html

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