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Estimating the effects of China's Accession to the World Trade Organisation

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  • Yin Hua Mai
  • Mark Horridge
  • Frances Perkins

Abstract

Accession to the World Trade Organization (WTO) marks a new era in China's economic reform. In this new era, state capital will lose its dominance of pillar industries such as iron and steel, automobile, petrochemicals, non-ferrous metal, insurance, telecommunication, banking, wholesale, and utilities. This study uses a computable general equilibrium model of China to estimate the economic benefits from China opening its pillar industries to private foreign and domestic capital. The study anticipates that lowering direct entry barriers to private capital will boost productivity by encouraging new competition and foreign direct investment (FDI) inflows into these industries. In this study, the productivity gains from lowering direct entry barriers to FDI and domestic private capital are empirically estimated through a historical simulation of opening the light manufacturing industries. The opening of the light manufacturing industries to private capital happened in the early 1990s following a major policy shift marked by Deng Xiaoping's southern tour. From 1992, this policy shift led to a surge in China's inward FDI flows. The productivity gains estimated from the historical simulation are then used to simulate the opening of the pillar industries following China's WTO entry in 2001. As a result of the expected productivity gains in these pillar industries, this study concludes that WTO accession will not adversely affect production and employment in the pillar manufacturing industries, such as the automobile and parts industry. This result contrasts with the findings of most general equilibrium analyses of China's WTO entry that focus on the removal of tariffs and non-tariff barriers to merchandise trade. In the long term, productivity gains related to WTO accession should place China in a position to become an important production base for capital-intensive manufactured products as well as light manufacturing.

Suggested Citation

  • Yin Hua Mai & Mark Horridge & Frances Perkins, 2003. "Estimating the effects of China's Accession to the World Trade Organisation," Centre of Policy Studies/IMPACT Centre Working Papers g-137, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-137
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    References listed on IDEAS

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    Cited by:

    1. Eromenko, Igor, 2010. "Accession to the WTO. Computable General Equilibrium Analysis: the Case of Ukraine. Part I," MPRA Paper 67476, University Library of Munich, Germany.
    2. Yinhua Mai & Peter B. Dixon & Maureen Rimmer, 2010. "CHINAGEM: A Monash-Styled Dynamic CGE Model of China," Centre of Policy Studies/IMPACT Centre Working Papers g-201, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Yinhua Mai & Philip Adams & Mingtai Fan & Ronglin Li & Zhaoyang Zheng, 2005. "Modelling the Potential Benefits of an Australia-China free Trade Agreement," Centre of Policy Studies/IMPACT Centre Working Papers g-153, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Rae, Allan N., 2008. "China’s agriculture, smallholders and trade: driven by the livestock revolution?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 1-20.
    5. Yinhua Mai, 2005. "The MONASH-Multi-Country (MMC) Model and the Investment Liberalisation in China's Oil Industry," Centre of Policy Studies/IMPACT Centre Working Papers g-150, Victoria University, Centre of Policy Studies/IMPACT Centre.
    6. Mai, Yin Hua & Adams, Philip & Dixon, Peter & Menon, Jayant, 2010. "The Awakening Chinese Economy: Macro and Terms of Trade Impacts on 10 Major Asia-Pacific Countries," Working Papers on Regional Economic Integration 66, Asian Development Bank.
    7. Jiao Wang & David G. Mayes & Guanghua Wan, 2005. "Income Distribution and Labour Movement in China After WTO Membership: a CGE Analysis," WIDER Working Paper Series RP2005-38, World Institute for Development Economic Research (UNU-WIDER).
    8. Hübler, Michael, 2009. "Energy saving technology diffusion via FDI and trade: a CGE model of China," Kiel Working Papers 1479, Kiel Institute for the World Economy (IfW Kiel).
    9. Yin Hua Mai, 2003. "Effects of Reducing Tariffs and Endogenous Productivity Growth," Centre of Policy Studies/IMPACT Centre Working Papers g-139, Victoria University, Centre of Policy Studies/IMPACT Centre.
    10. repec:zbw:bofitp:2005_018 is not listed on IDEAS
    11. Wim Naudé & Riaan Rossouw, 2011. "Export diversification and economic performance: evidence from Brazil, China, India and South Africa," Economic Change and Restructuring, Springer, vol. 44(1), pages 99-134, April.
    12. Eromenko, Igor, 2011. "Accession to the WTO. Computable General Equilibrium Analysis: the Case of Ukraine," MPRA Paper 67535, University Library of Munich, Germany.
    13. Terrie L. Walmsley & Thomas W. Hertel & Elena Ianchovichina, 2006. "Assessing The Impact Of China'S Wto Accession On Investment," Pacific Economic Review, Wiley Blackwell, vol. 11(3), pages 315-339, October.
    14. Wang, Jiao & Mayes, David & Wan, Guanghua, 2005. "Effects of WTO membership on income distribution and labour movement in China : A CGE analysis," BOFIT Discussion Papers 18/2005, Bank of Finland, Institute for Economies in Transition.
    15. Allan Rae, 2008. "China's agriculture, smallholders and trade: driven by the livestock revolution? ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 283-302, September.

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    More about this item

    Keywords

    China WTO; SOEs; investment liberalization; pillar industries;
    All these keywords.

    JEL classification:

    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • F15 - International Economics - - Trade - - - Economic Integration
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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