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China's WTO Accession and Its Effect on State-Owned Enterprises

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  • Claustre Bajona

    ()

  • Tianshu Chu

    () (Economics Study Area, East-West Center)

Abstract

China's WTO accession has major implications on China's massive state-owned enterprise (SOE) sectors. In China, SOEs as a whole generate substantial losses and absorb majority of financial resources, creating increasing risks for financial crisis. This paper argues that China's WTO agreement has positive effect of reducing the subsidies to SOEs and contributing to the continuing reduction of the SOE sector and the corresponding increase in welfare. We document the history of SOE reform in China as well as its unsatisfactory performance. We hypothesize that an important rationale, among many others, of China's pursuit of WTO membership is to use WTO accession to lock-in the agenda for fundamental domestic reforms, which has been difficult to implement by domestically measures alone. We conduct quantitative analysis of the effects of SOE subsidies on GDP and welfare. The welfare effects of SOE reform induced by the WTO agreement are likely to be much bigger and more significant than the direct gains obtained from tariff reduction. This result highlights the fact that domestic reforms and trade reforms are interlinked. Trade liberalization promotes domestic reforms, often institutional in nature, which may produce substantial welfare gains. These benefits should be added to the direct benefits from tariff reduction.

Suggested Citation

  • Claustre Bajona & Tianshu Chu, 2004. "China's WTO Accession and Its Effect on State-Owned Enterprises," Economics Study Area Working Papers 70, East-West Center, Economics Study Area.
  • Handle: RePEc:ewc:wpaper:wp70
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    References listed on IDEAS

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    1. Shirley, Mary & Lixin Colin Xu, 1998. "The empirical effects of performance contracts: evidence from China," Policy Research Working Paper Series 1919, The World Bank.
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    Cited by:

    1. Conconi, Paola & Perroni, Carlo, 2009. "Do credible domestic institutions promote credible international agreements?," Journal of International Economics, Elsevier, vol. 79(1), pages 160-170, September.
    2. Christopher Edmonds & Sumner J. La Croix & Yao Li, 2006. "The China's Rise as an International Trading Power," Economics Study Area Working Papers 88, East-West Center, Economics Study Area.
    3. Girma, Sourafel & Gong, Yundan, 2008. "Putting people first? Chinese state-owned enterprises' adjustment to globalisation," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 573-585, March.
    4. Rudolfs Bems & Kristian Jönsson Hartelius, 2006. "Trade Deficits in the Baltic States: How Long Will the Party Last?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 179-209, January.
    5. Richard CK Burdekin & Ilan Noy, 2005. "What Has Driven Chinese Monetary Policy Since 1990? Investigating the People's Bank's Policy Rule," Economics Study Area Working Papers 85, East-West Center, Economics Study Area.
    6. Burdekin, Richard C.K. & Siklos, Pierre L., 2008. "What has driven Chinese monetary policy since 1990? Investigating the People's bank's policy rule," Journal of International Money and Finance, Elsevier, vol. 27(5), pages 847-859, September.
    7. Zhiyuan Li & Miaojie Yu, 2009. "Exports, Productivity, and Credit Constraints : A Firm†Level Empirical Investigation of China," Trade Working Papers 22888, East Asian Bureau of Economic Research.

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