Implications of China’s Accession to the World Trade Organization

The ability of China to raise per capita income by over 8 per cent a year over the last two decades places it in a very small group of countries experiencing rapid economic growth. Rising standards of living, including lifting nearly 250 million people out of poverty, have been made possible through a factor-accumulation-based strategy that drew on China’s immense labour resources, assisted by massive investments in physical capital and industrial infrastructure. Changes in incentives and organizations buttressed this strategy and resulted in rising total factor productivity (TFP) averaging nearly 3 per cent per year. In the 1990s, growth slowed, reflecting a combination of macroeconomic and external sector policies and intensified structural bottlenecks. The regional economic slowdown since the beginning of the Asian financial crisis has also had an adverse effect. Visible urban unemployment (estimated to be about 9 per cent of the workforce), factory closures, and massive excess capacities in industry, price deflation and a real growth rate that dipped to 7.1 per cent in 1999 are some of these signs.