China Warns WTO on Global Trade Tensions

China's deputy minister of commerce, Qiu Hong, told a World Trade Organization session that trade protectionism is on the rise, and if tensions continue to...

GENEVA — China’s deputy minister of commerce, Qiu Hong, told a World Trade Organization session that trade protectionism is on the rise, and if tensions continue to mount, they will damage the global economy.

This story first appeared in the May 27, 2008 issue of WWD.  Subscribe Today.

Last year, China’s gross domestic product reached 24.6 trillion yuan, or about $3.54 trillion at current exchange, an 11.4 percent increase from 2006, Qiu said, but China also has experienced “overheated growth in fixed asset investment, excessive supplies of money and credit and imbalances in international payments in recent years.”

Echoing criticism often made in Western capitals such as Washington and Brussels, Qiu said: “There is a lack of balance between investment and consumption, with investment still running too high.”

China’s capacity for independent innovation, she told a WTO review forum examining the Asian nation’s policies, “is still weak, and the price paid for economic growth in terms of consumption and environmental pressure is too great.”

In this regard, a report on China’s trade regime compiled by WTO analysts highlights that, in the area of textiles and apparel, where the country is a top global exporter, “there is little technological innovation in the industry: The ratio of R&D expenditure to total sales is less than 1 percent.”

The report goes on to critically note that “China has yet to establish its own well-known brands in the international market.” Other factors that act as constraints in the sector, it outlines, are shortages of key inputs such as electricity and cotton.

A government plan issued in April 2006 aimed at restructuring the textile sector is seeking to raise labor productivity by 60 percent by 2010 and to reduce energy and water intensity by 20 percent, the report said. Last year, China’s average import tariff rate was 10.9 percent for textiles and 16 percent for apparel.

The WTO study argues that the reduction in the value-added tax rebate rates for exports of textiles and apparel, coupled with the appreciation of the yuan, has reduced profits in the industry.

In response to questions on its plans for moving toward a more flexible exchange rate regime for the yuan, China responded in writing that it “will continue to follow the principle to pursue a proactive, manageable and progressive approach to steadily push forward the reform of the exchange rate formation mechanism.”


The Chinese government, Qiu told delegates earlier, “continued to carry out with great care” reform of the exchange rate regime since it was inaugurated in July 2005, and “will continue its efforts in pushing forward” the reform of the exchange rate regime in the future.

She said Beijing believes every WTO member has a responsibility to “maintain open trade and to combat protectionism,” and added that China will work to strengthen the system and promote globalization.

The U.S. and European Union delegations took issue, however, with many of Beijing’s policies since it joined the WTO at the end of 2001. The U.S. ambassador to the WTO, Peter Allgeier, said, “The Chinese government’s continued efforts to intervene in the economy are a cause of great concern.”

Allgeier said China also had in place “still significant restrictions on foreign and private sector activities.” He also alluded that China was not doing its fair share to shore up the global trade order and especially the troubled Doha global trade talks.

“It is now incumbent upon China to become fully engaged,” he said.

But Qiu insisted that China “has been playing actively a constructive role in the Doha Round negotiations.”

Eckart Guth, the EU’s WTO ambassador, said China’s entry to the global body has been largely beneficial and “we see great untapped potential for further growth,” but also took issue with many of Beijing’s policies.

“China continues to select strategic industries to protect them from competition and foreign investment, and fostering, thus, national champions and discriminating against foreign invested enterprises,” he said. “These policies signal a high degree of government interference in decision-making that should be market-driven.”

But during the proceedings China said foreign direct investment in the textile and apparel sector “exceeded $24.4 billion and the market share of foreign enterprises was more than 30 percent.”