60 People, 60 Stories

Success comes with a caveat

By Chris Devonshire-Ellis (China Daily)
Updated: 2009-09-30 08:26

Since joining the World Trade Organization in 2001,China's international tradehas risen trillions of dollars in just eight years.

These figures ably demonstrate the astounding growth that China has gone through during this period - justthe nation's ability to keep up with that pace has been a massive challenge of infrastructure, forward planning and sound governance.

While it is hardly surprising then that occasional disputes have arisen, most political pundits agree that China has in principle stuckto its negotiated position and has notused the WTO as a sounding board for bullying other nations to take its products.

That is now in stark contrast to the United States, whose recent placing of tariffs on tires is as provocative as it is unnecessary. China will now need to potentially deal with the specter of protectionism as part of the fallout from the global economic crisis. How it handles this - by perhaps taking the moral high ground rather than the standard tit-for-tat measures - will demonstrate just how far the nations diplomatic efforts coincide with a maturing approach to trade.

A China globally perceived as being fairer than the US will gain far more friends in the new modern post 9-11 era thanit may dared to have previously thought possible.

However, China's future problems with trade do not purely revolve around other nations leaning toward protectionist measures. In overstating the economicreliance upon exports over the past 10 years, the country's economic balance and fiscal modeling have gotten out of synch.

With an economy dependent to the tune of 40 percent of annual GDP based upon exports, China has been particularly badly hit during the downturn, a situation that the nation's planners and seniorbanking executives did not anticipate.In order to lessen the pain, China must shift its fiscal economic model partially away from such export dependency and strive to develop its internal markets for consumption.

While today's India, with export dependency of some 20 percent of GDP, appears buoyant, China is in danger of shrinking. A figure of 25-30 percent export dependency,balanced by opening up internal markets, would be the solution.

However, such shifts do not happen overnight, and China will need to restrain itself - even if provoked - from trade wars with other nations before it can reach this desired goal.

Chris Devonshire-Ellis is the founding partner of business consultants Dezan Shira & Associates and lived in China for 21 years. He is now based in Mumbai.