China in the WTO, 20 Years Later

On December 11, 2001, China officially became the 143rd member of the World Trade Organization (WTO).

“This is an historic moment for the WTO, for China and for international economic cooperation,” Mike Moore, the WTO’s director-general, said at the time.

“China, one of the fastest growing economies in the world, has made tremendous progress in the last decade in reducing poverty thanks to an economic system increasingly open to trade and foreign investment. Now this economy will be subjected to the rules-based system of the WTO, something which is bound to enhance global economic cooperation,” Moore added.

That was the prevailing sentiment in the West at the time: The idea that bringing China into the WTO would encourage its slow evolution toward a market economy – and perhaps even a full-fledged democracy – by forcing adherence to WTO rules. China would be required to open its markets and roll back state control over its economy according to the terms of its WTO accession, which were negotiated under a drawn-out process stretching nearly 15 years.

In a March 2000 speech, then-U.S. President Bill Clinton, whose administration oversaw much of the negotiation process in the lead-up to China’s admission, called “China’s entry into the WTO… the most significant opportunity that we have had to create positive change in China since the 1970s, when President Nixon first went there.”

“The WTO agreement will move China in the right direction. It will advance the goals America has worked for in China for the past three decades,” Clinton said.

Today, those remarks look downright pollyannaish. On the contrary, China’s WTO accession is held up as Exhibit A in the supposed failure of the U.S. “engagement” policy toward China. Certainly the former Trump administration thought so, as evidenced by a 2017 report from the U.S. Trade Representative Office on China’s WTO compliance, which stated:

China largely remains a state-led economy today, and the United States and other trading partners continue to encounter serious problems with China’s trade regime. Meanwhile, China has used the imprimatur of WTO membership to become a dominant player in international trade.

Given these facts, it seems clear that the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China’s embrace of an open, market-oriented trade regime.

It should come as no surprise that China used its WTO membership to advance its own interests. Why else would China join? Even at the time, that intention was clear: Beijing was not looking to blindly follow the rules of the WTO but to reshape them from within. Shi Guangsheng, then China’s minister of foreign trade, said of China’s admission to the WTO, “We need to invite all members to formulate the international trade rules of the new century through equal participation and consultation.”

From China’s perspective, its WTO membership has worked like a charm. Its trade has ballooned in the 20 years since, both in terms of raw size and in terms of global share. According to the WTO, “In 2000 China was the 7th leading exporter and 8th largest importer of merchandise trade,” with exports worth $249.2 billion (3.9 percent of global exports) and imports worth $225.1 billion (3.4 percent of global imports).

In 2020, China was the world’s largest exporter, accounting for 14.7 percent of all exported goods at a value of $2.59 trillion. It was the world’s second-largest importer, accounting for 11.5 percent of imported goods ($2 trillion). China’s GDP has soared as well, going from $1.3 trillion in 2001 to $14.9 trillion in 2020.

China’s growing wealth, however, is precisely what irks critics in the West, who argue that China somehow took advantage of the rest of the world by joining the WTO. China used its membership to get rich without actually undertaking the promised reforms, or so the narrative goes.

But while China may not have reformed its economy as much as critics would like, it did make undeniable changes, particularly in the first few years following WTO admission. China used the WTO’s requirements to jump-start reforms that its leaders at home saw as necessary. As former President Hu Jintao put it in his reflection on the 10th anniversary of China’s WTO membership, “To join the WTO was a major strategic decision… in order to push forward China’s reform and opening-up and socialist modernization drive.”

As Yeling Tan, a professor at the University of Oregon, noted in an award-winning analysis for Foreign Affairs, “China accepted far more stringent terms than any other new [WTO] member before or since.” And Beijing largely delivered on those promises:

China did fulfill the majority of the terms of its WTO accession within a few years. Tariff rates on foreign imports were slashed, and a multitude of nontariff barriers were eliminated. The authority to engage in foreign trade, previously restricted to SOEs and foreign firms located in special economic zones, was broadened to all firms, including private Chinese enterprises. Beijing substantially improved legal protections for and reduced administrative burdens on businesses. Foreign investment surged once more into China, after having plateaued during the Asian financial crisis in the late 1990s.

It’s easy to say that China’s WTO-linked reforms did not go far enough, but we shouldn’t overlook what they did accomplish. As Tan noted, “By 2003, roughly 70 percent of U.S. firms surveyed in China reported that Chinese domestic reforms had improved their business climate ‘to a great extent’ or ‘to a very great extent.’ Those measures would not have occurred without the external impetus of entry into the WTO.”

Still, developed countries are far from satisfied with China’s progress, particularly as the state has retrenched its role in the economy under Xi Jinping. China has been the target of 47 complaints at the WTO, ranging from accusations of politically-motivated tariffs and other trade barriers, to state subsidies, to forced technology transfers and inadequate IP protections. But even these complaints have a silver lining: While membership in the WTO clearly didn’t halt such behaviors, it’s unlikely that being excluded from the WTO would have either. Meanwhile, with China in the WTO, complainants have an avenue to seek redress, however limited.

That dynamic describes China’s WTO membership in a nutshell. Whatever problems current analysts have with the outsized influence of the state over China’s economy, it’s hard to argue that WTO accession made the problem worse. Evidence strongly suggests, in fact, that it did have the intended effect of incentivizing reform, if only for a few years.

“Membership in the WTO, of course, will not create a free society in China overnight or guarantee that China will play by global rules,” Clinton said in 2000. “But over time, I believe it will move China faster and further in the right direction, and certainly will do that more than rejection would.”

It’s all too easy to ridicule part of his statement – signs today are not encouraging for anyone hoping China will move “faster and further” toward a Western-style market economy, much less a liberal democracy. But those who deride the engagement policy, and China’s WTO membership in particular, should have to answer Clinton’s final point: Would rejecting China’s bid, and keeping it locked outside the larger community of nations, really have been better for either China or the world?