Liu Shijin, Long Guoqiang, Wang Xu, Shi Yaodong,

Hou Yongzhi and Cheng Guoqiang

I. The Necessity of Selecting and Implementing an Active Responsive Strategy

WTO accession brings both advantages and disadvantages to China. But generally speaking, advantages outweigh disadvantages. Under this basic assessment, there are two points that deserve attention. One is that the advantages and disadvantages are not evenly distributed among different sectors. Because of their different comparative advantages, trade and investment environment, market structure, degree of globalization, industrial maturity, and the potential for demand growth, some sectors may enjoy more advantages while others may suffer more shocks. The other is that the changes in advantages and disadvantages in a specific sector remain highly uncertain. A sector that would theoretically enjoy more benefits may turn out to be in a different situation and may even be driven into a passive position. Likewise, a sector that would theoretically suffer more shocks may end up having a considerable potential to turn challenges into opportunities. This uncertainty in changes of advantages and disadvantages are mainly related to the response strategy after WTO accession, especially to the orientation of the required adjustments and reforms. A sound responsive strategy should be able to grasp the opportunities arising from WTO accession as much as possible to reduce relevant risks and costs, maximize advantages, minimize disadvantages, and emphasize adjustment, reform and system innovation. In short, it should be an active responsive strategy.

Selecting a strategy of this nature is of vital practical significance at the moment. On the issue of WTO accession, people in some regions, sectors or enterprises have overemphasized the "shocks" and "challenges". Some of them even deemed the accession as an imminent disaster and regarded the required adjustment and reform measures as "something against their will". Then we have to come back to the rudimental question: why should we join the WTO? If can bring us only or mainly shocks and difficulties, joining the WTO would be a move to ask for trouble. If so, it is not advisable to join. In fact, joining the WTO is a voluntary strategic choice of Chinese government and people. Nobody has imposed it on us. We made this selection out of profound understanding of the trend and features of the world economic and political development and out of the strategic consideration of China’s national interests. Therefore, despite all the risks and uncertainties, the central authorities still made a far-sighted and courageous strategic decision to join the WTO. After the accession, the responsive strategy should be consistent with this basic attitude. It should be active, instead of being passive.

Emphasizing an active responsive strategy does not mean to deny the difficulties China has encountered or will encounter after its WTO accession. After WTO accession and especially in the early years of WTO membership, the pressure of adjustment will be concentrated on the areas of employment, income distribution, personnel and industrial reorganization. In some areas, the contradictions could become more acute. An active responsive strategy is precisely designed to solve these problems through adjustment, reform and development so as to minimize adjustment cost. A passive or defensive responsive strategy can hardly maintain the status quo. Worse still, such a strategy will lead to a dilemma in which the disadvantages of the traditional system cannot be removed and the advantages of an open market cannot be reaped either.

II. Emphasize Rules Adjustment and Turn Comparative Advantages into Competitive Advantages

The active responsive strategy can be summarized as "giving full play to a major power competitive advantages under the conditions of further opening". The purpose is to expedite domestic adjustment and reform and create an effective market environment with the new opening conditions after WTO accession so that China’s existing and potential comparative advantages can be turned into competitive advantages and China can maximize its own interests in the process of economic globalization.

Maximizing advantages and minimizing disadvantages after WTO accession will first of all depend on how to understand , nurture and develop China’s comparative advantages. China’s economic advantages, many of them in the sense of economics, are mainly manifested in the following aspects:

China has a population of more than 1.2 billion and is in a stage of rapid economic growth. It has the world’s largest potential for demand growth in many products and services;

China continues to enjoy the low-cost advantage in labor and land. In recent years, capital cost also declined to a certain extent;

China has advantages in the manufacturing industry which focuses on assembly and processing sector and has certain technological contents;

China has the "delayed stamina" in the areas of technology, management and system that are acquired through learning from advanced experience;

The Chinese people have the traditional traits of being good at doing business, frugal and hard working.

These advantages are same or similar to those of other countries. But what we need to emphasize is China’s uniqueness. For example, some industrialized countries, such as Britain, France, Germany and Italy, still have a population of less than 100 million people, which is close to the population scale of some large Chinese provinces. Although the United States and Japan have a population of more than 200 million and 100 million respectively, they cannot compare with China’s population of 1.2 billion. What we want to emphasize here is not merely the number, instead, it is the fact that such a large population has begun entering the mid-stage of industrialization and a fast-growing period of major industrial and service products. The economic phenomenon thus formed is unprecedented in human history, and quite probably some unique features unseen in other industrialized countries could appear. Even though the income gap between China’s urban and rural population is relatively wide, the country already has an urban population of more than 400 million. Even if only the urban population is taken into account and even if the prevalence rate of a particular product is not very high, the total amount will be among the largest in the world. One latest evidence is that the total number of China’s mobile phones has surpassed that of the United States and become the largest in the world. The population base of the Chinese market can be turned into a huge capacity of market demand and can lead to some other unique features in production. For example, relying merely on the domestic market can fully realize the economy of scale and scope and can accommodate several large enterprises that can form a rational competitive structure within a specific industry. In addition, large population base and uneven development can ensure some industries to maintain a longer fast-growing period than in other countries.

Another example is that the comparative advantages of the Chinese economy are in a stage of dynamic change. While the low-cost advantage of human resources and other production factors is maintained, a manufacturing advantage with relatively high technological contents and added value is gradually taking shape. After passing through the development stage that emphasized light industry, textile industry, heavy industry and chemical industry, China is now entering a development stage that highlights processing, assembly and manufacturing industries that are noted for relatively high technological contents and added value. Part of the manufacturing base came from the construction projects invested by the state for a long period, some were constructed under the planned economy. But a larger part of the base has originated from the processing and manufacturing industries built with various kinds of investments since the beginning of reform and opening up. In particular, the improvement in technology and management during this period has markedly narrowed the gap between China and the developed countries in the product manufacturing. While the level of manufacturing industry is heightened, China has not seen a drastic rise in the cost of labor, land, capital and other production factors that some other countries have experienced. China’s vast territory has restrained excessive hikes in land prices in developed regions. The country’s seemingly endless supply of cheap labor, especially the skilled workers, technicians and managerial personnel that are noted for relatively high qualifications and relatively low incomes compared with the international standards, has enabled China to maintain the overall low-cost advantage in human resources. With the total volume of economy gradually expanding, the traditional high saving rate has helped the country ease the problem of fund shortages. In recent years, the interest rates have been cut continuously, making China’s capital cost close to the international level. The heightening of the manufacturing advantage and the maintenance of the low-cost advantage in production factors are attracting more and more foreign manufacturing capacities to China.

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