Chapter 1 Shanghai’s Economic & Social Achievements after 3 years’ WTO Membership

Since the first day China joined the WTO, Shanghai has always treated the implementation of WTO commitments as a strategic measure to raise its ability to trade by rules, improve its investment environment and enhance its international competitiveness. Thanks to the great efforts Shanghai has made in enhancing transparency of government administration, raising market access for trade in services and goods in line with China’s committed schedule, making reasonable use of trade remedies, standardizing technical measures of trade and promoting trade facilitation, remarkable achievements have been made in Shanghai in the fields of macroeconomic performance, WTO commitments implementation, and construction of trading systems.

I. Macro Economic Performance

1. GDP and Growth Rate

Over the past three years after China’s accession to the WTO, the Shanghai economy has enjoyed a sustained healthy and rapid growth under the strong demand from home and abroad. The growth has been progressive. In 2002, the GDP of Shanghai hit 540.876 billion RMB, up 10.9% over the same period of the previous year in terms of comparable prices. In 2003, the figure reached 625.081 billion RMB, representing an increase of 11.8% in terms of comparable prices. From January to October 2004, the GDP of Shanghai totaled 530.4 billion RMB, up 14.2% over the same period of the previous year in terms of comparable prices. (Figure 1.1). The GDP growth rate of Shanghai averaged 12.3% over the past three years after China’s accession to the WTO.

2. Total Output of the Three Industries in 2004 and Respective Contribution to GDP

From January to October 2004, the primary industry increased by 4.351 billion RMB, up –6.7%. The secondary industry increased by 275.366 billion RMB, up 16.1%. The tertiary industry increased by 250.749 billion RMB, up 12.7%. The analysis of the factors behind the economic growth reveals that secondary and tertiary industries remain the driving forces of economic growth in Shanghai. From January to October, primary industry, secondary industry and tertiary industry contributed 0.8%, 51.9% and 47.3% to the economic growth of Shanghai respectively. (Figure 1.2)

3. Total Investment and Consumption in 2004

With the deepening reform of the investment and financing system, investment in fixed assets increased considerably, leading to a wave of investment boom. The total investment in fixed assets reached 258.782 billion RMB in Shanghai from January to October, up 24.6% over the same period of 2003. Compared with the period before China’s accession to the WTO (in 2001), the figure increased by 29.3%.

Consumption also increased steadily. Efforts in market building and structural adjustment are paying off. From January to October, total retailing volume of consumer products amounted to 203.432 billion RMB in Shanghai, representing an increase of 10.9%. The figure was up 9.3% over the period before China’s accession to the WTO (in 2001).

4. Employment

Over the past three years after accession to the WTO, the registered unemployment rate for urban residents in Shanghai remain little changed, with 4.8% in 2002, and 4.9% in 2003. With the further improvement of the social security system and aggressive policies to promote employment, especially the launch of the so-called “Creation of Tens of Thousands of Jobs” project in 2004, newly created employment increased month by month. In the first half of the year, there were 420,000 new jobs created. Registered unemployment for urban residents was basically brought under control. In the period of January to June 2004, the registered unemployed population totaled 283,000, 11,000 less than the same period of last year, and 18,000 less than the end of last year.

5. Tariffs

Having obtained approval from the 4^th plenary session of the Tariff Heading Committee of the State Council after its examination, and approval by the State Council, China formally began to implement its tariff reduction obligation from January 1^st 2002 as committed to the WTO.

The average arithmetic tariff level of China was lowered from 15.3% to 12% in 2002, 11.5% in 2003, and 10.6% in 2004. Among it, the tariff level for agricultural products including aquatic products stood at 18.33% in 2001, 15.6% in 2002, 17.4% in 2003 and was lowered to 15.8% in 2003. Tariff level for industrial products was 14.3% in 2001, 11.6% in 2002, 10.5% in 2003 and was lowered to 9.8% in 2004. Some of the imports of information technology products are entitled to zero tariffs. (Figure 1.3)

II. Foreign Trade and Attraction of Foreign Investment

1. Import and Export (Trade in Goods and Services)

In spite of the severe difficulties experienced in early 2002, Shanghai took a series of measures over the past three years after China joined the WTO to bring the export of Shanghai back to the track of fast growth. These measures include the reform of the examination and approval system for foreign trading rights, the attraction of multinational sourcing centers to Shanghai, the construction of the Easy-Clearance Project, and the vigorous efforts to tackle the international market. In 2002, import and export volume of Shanghai totaled 72.664 billion US$, of which import was 40.609 US$, and export was 32.055 billion US$. In 2003, import and export of Shanghai totaled 112.397 billion US$, of which import was 63.915 billion US$, and export was 48.432 billion US$. From January to October 2004, import and export of Shanghai reached 130.65 billion US$, up 43.6% over the same period of last year, of which import and export was 71.154 billion US$ and 59.496 billion US$ respectively, up 39.3% and 49.1% respectively. (Figure 1.4)

2. Attraction of Foreign Investment

Over the past three years, Shanghai has grasped the opportunity presented by China’s accession to the WTO and the global industrial restructuring. Following closely the trends in industrial adjustments, Shanghai has made further efforts to improve its investment environment and to attract foreign investment. As a result, foreign investment maintained the momentum of rapid growth in Shanghai. The attraction of foreign investment in real terms hit 5.03 billion US$ in 2002, and 5.85 billion US$ in 2003. In the period of January to October 2004, it reached 5.801 billion US$, up 17.5% over comparable period. (Figure 1.5)

III. Implementation of WTO Commitments and Construction of Trading Systems

1. Transformation of Government Function to Administration by Law

To meet the WTO accession requirement in transforming government functions and raising its capability to administration by law, the Shanghai Municipal Government has taken active measures over the past three years to comb through relevant laws and regulations. In 2002, the Leading Office was established to comb through local regulations, municipal government rules and other policies and measures. 13,000 pieces of administrative documents stipulated by municipal government agencies, county or district governments have been reviewed, of which 4,000 were abolished, and over 600 amended. In 2003, 24 local regulations were amended. Rules for administrative charges were clearly spelled out. In 2004, 1,242 items subject to administrative licensing were reviewed, among which, 1,039 items or 83.7% were created by the state, and 203 items or 16.7% were created by Shanghai. Among these 203 items, 102 items or 50.2% have been removed.

Meanwhile, in accordance with the Implementation Guideline for Promoting Administration by Law (hereinafter referred to as the Guideline) issued by the State Council on March 22 2004, Shanghai issued the Viewpoint of Shanghai on How to Enforce the State Council’s “ Implementation Guideline for Promoting Administration by Law” (hereinafter referred to as the Enforcement Viewpoint). Based on the Guideline, and the real situation of Shanghai, the Enforcement Viewpoint puts forward the goal of building the Shanghai Municipal Government into a “responsible government to serve the public on the basis of rule of law”. It is proposed that during the term of this government, i.e. by 2007, it shall select ten tasks and measures to be completed in fulfilling the goal of administration by law.

2. Legal System Construction and Transparency Improvement

Remarkable progress has been made in the legal system construction and transparency improvement in Shanghai over the past three years since China joined the WTO. In 2003, Shanghai took a series of initiatives to promote public participation in its legislative activities. Among other things is the establishment of the observation system during the sessions of the Standing Committee of the Shanghai Municipal People’s Congress. It is an important part in the efforts to improve the People’s Congress system in China and to promote socialist democracy. Another important measure is the solicitation of comments from the pubic for legislation involving public interests by publishing draft laws on the media. It is hoped that by doing so, it can improve the legislative quality and public participation in legislation.

Information disclosure system has also been further promoted in Shanghai. On January 20 2004, the Rules on Information Disclosure by the Shanghai Municipal Government was issued and the system was formally adopted starting from May 1 2004.

Meanwhile, as an important work to implement the transparency principle, and also in order to ensure the accuracy and authoritativeness of consultative services on WTO affairs, the Shanghai WTO Affairs Consultation Center was set up. Over the past three years, experts and scholars from the center have provided the government, businesses and individuals with timely and easily accessible information on WTO affairs through training, consultative and legal services.

3. Granting of National Treatment

In the run-up to WTO accession, Shanghai had already started to explore how to transform government functions, streamline items subject to administrative examination and approval, deregulate and make administrative procedures known to the public. After the WTO accession, Shanghai has been leading other areas in China’s reform and opening up by putting serious efforts into implementing WTO commitments made by the central government, abiding by WTO principles of non-discrimination and transparency, further reforming the trade regime, and granting most-favored-nation treatment and national treatment to all WTO members.

While implementing the WTO commitments according to the unified plan of the state, Shanghai has also done tremendous work in further raising its openness by amending local regulations and rules in relation to national treatment. It has issued a whole array of measures and policies aiming to attract headquarters of multinational companies, foreign investment companies and foreign R&D centers to be located in Shanghai. These measures have made it simpler for foreign companies to do business and invest in Shanghai. By the end of November 2004, Shanghai has attracted 104 foreign investment companies, 140 R&D centers of foreign companies and regional headquarters of 82 multinational companies.

4. Expanding Market Access and Broadening Investment Areas

When joining the WTO, China made the commitments to expand market access, progressively grant trading and distribution rights to foreign businesses, and remove such restrictions for foreign invested businesses as required percentage of domestic sales in China, domestic content, foreign exchange balance and etc. so that foreign companies can compete with their Chinese counterparts on a level playing field.

Shanghai has taken the following action in these areas:

(1) Trading rights: On the basis of relevant laws and regulations promulgated one after another by the state, Shanghai issued on July 12 2004 the Methods of Shanghai on Filing and Registration Required for Parties Engaged in Foreign Trade, which clearly spells out the specific steps to conduct filing and registration.

(2) Trade in services：Shanghai has granted national treatment to foreign businesses in accordance with state rules in the field of distribution services, banking, securities industry, insurance, auto financing, advertising, and etc. Meanwhile, opening of trade in services has furthered in Shanghai, particularly in the mode of commercial existence, which is the most influential as well as the most restricted mode in service trade.

In July 2002, the Shanghai Municipal Government issued the Temporary Regulation for Encouraging Transnational Companies to Locate Regional Headquarters in Shanghai. In March 2003, Shanghai further spelled out implementation rules for the Regulation by stating that a certified regional headquarter is entitled to financial support from the local government if it provides key skill training to its employees. In September 2003, the Shanghai Municipal Government issued the Idea on Encouraging Foreign Invested Businesses to Establish R&D Centers in Shanghai. In June 2004, the Idea on Further Improving the Socialist Market Economy System (abbreviated to “48 Points”) was issued by Shanghai, in which it is stated that “We must adhere to opening and reforms, follow the principles of market economy, observe the WTO rules, draw upon successful international experiences, and use creativity to build a modern system for the market economy”, and “to set up an open economic mechanism utilizing ‘two markets’ and ‘two resources’”.

5. Maintaining Fair Trade Environment

China has been confronted with severe challenges in its import and export since the first year when it joined the WTO. Global protectionism surged again. New types of trade barriers emerged one after another. As a result, over the past three years after accession, Chinese enterprises have learned how to understand international rules and use these rules to protect their legitimate rights and interests.

Starting from 2004 particularly, as most of the protective measures allowed in the transitional period have to be phased out, China will enter the “post-transitional period” to fully implement its WTO commitments. In the field of trade in goods, there will be increasing trade remedies and higher trade barriers to be imposed by both developed and developing members of the WTO against Chinese exports. In the field of trade in services, there will be fiercer disputes between China and developed nations around whether China’s market access policy has constituted trade barriers. In the aspect of intellectual property rights, there will be stronger friction with developed members of the WTO on the issue of China’s protection of IPR. In the field of trading system, there will continue to be conflicts with developed members of the WTO on the consistency and implementation of China’s trading system.

With the coming of increasing trade frictions, Shanghai, as the most internationalized city and most open port in China, has already experienced an increasing number of large cases on fair trade involving various industries, and of various natures. The efforts Shanghai has made to ensure fair trade has attracted great attention from other WTO members and has become an important window in monitoring China’s observation of WTO rules and implementation of WTO commitments.

Therefore, with the expertise and information supplied by the Shanghai WTO Affairs Consultation Center, Shanghai has been actively engaged in the legislation and policy consultation on fair trade. It has offered expert advice on the amendment of the Foreign Trade Law of P.R.C, the resolution of China’s “non-market-economy status” in anti-dumping cases against China, and China’s offer for the Doha Agenda negotiation. It has also provided early-warning services to Chinese exports to deal with anti-dumping measures and transitional safeguard measures imposed by the Unite States. It can be foreseen that Shanghai will play an increasingly important role in China’s efforts to ensure fair trade.