Compilation of the Legal Instruments on China’s Accession to the World Trade Organizations

Chapter Five: Assessment of Shanghai's Adaptation to the WTO Accession

Part One Economic Development Features
in the Year of the Accession
　　The year 2002 is the first year after China's accession to WTO. Shanghai, at the forefront of reform and opening up in China, is the place where the initial effects of opportunities and challenges brought about by WTO accession have first surfaced. The impact is to be found in the following aspects:
　　1) A good momentum in attracting foreign investment is kept. In 2002 the reduction of import tariff rates and the gradual lifting of nonげtariff barriers further brought down the production cost in China. This vigorously encouraged the international manufacturing to move into China. Meanwhile, China fully implemented the Agreement on Tradeげrelated Investment Measures of the WTO, made positive changes to the Guiding Catalogue of Industries for Foreign Investment and ceased mandatory requirements on raw material purchase, local content ratio and foreign exchange balance previously imposed on joint ventures. These measures effectively encouraged foreign investors to expand their investment scope or increase the capital input.
　　To grasp the new opportunities that emerged after China's accession to the WTO, Shanghai closely tracked and studied the trend of change in international investment and further improved the investment environment. As a result, foreign investment kept increasing at a doubleげdigit rate in 2002, particularly in such service sectors as finance, telecommunications and logistics. The initial positive effect of WTO accession on Shanghai in respect of foreign investment has emerged.
　　2) Foreign trade growth in Shanghai is higher than expected. Before and after China's accession, other WTO members also actively fulfilled their commitments to China, offering China more market access and better trading facilitation, which, to some extent, laid the ground for Chinese products to enter the international market, effectively promoted the export of products and services from China, and further expanded the development space for Chinese enterprises. The aggregate economic output of Shanghai has been growing fast at a twoげdigit rate for over a decade, and several pillar industries of this city have already acquired fairly strong competitive edges. These have laid a solid foundation for the development of foreign trade in a further opened international market. At the same time, the reform on the system of the examination and approval of foreign trade rights, the establishment of multinational procurement center and the full implementation of the “Easy Clearance System” have ensured the further increase in import and export trade volume.
　　3) There is a strong trend for the improvement of market access for trade in services and Shanghai enjoys a clear edge in this respect. Important service sectors including banking, insurance, telecommunications, retailing, education, medical care, audioげvisual service, transportation, tourism, real estate, legal and accounting services are being gradually opened in accordance with the accession commitments. In 2002, trade in services enjoys the fastest growth in foreign investment, which has provided Shanghai with an important opportunity to improve the service quality and competitiveness of the service sector of Shanghai and to further consolidate Shanghai's edge in market environment, human resources and management level.
　　4) Shanghai enjoys a much improved market environment. First, Shanghai has actively fulfilled its WTO obligations, stepped up the protection of intellectual property rights and enforced the related laws and regulations strictly. As a result, it has won positive comments from enterprises at home and abroad as well as intellectual property right owners. Second, Shanghai has reinforced the marketげdriven pricing system and further strengthened the selfげdiscipline of various industries, which led to stable market prices. Third, Shanghai has launched onげline bidding for government procurement, abided by the Most Favored Nation Treatment principles, and fully achieved transparency, fairness and justice in government procurement.
　　5) The ability of utilizing WTO rules is noticeably improved. Since last year, the sluggish world economy has given rise to trade protectionism, and as a result, frictions between China and its major trading partners increased. Against this background, the Shanghai Municipal Government is trying to establish the antiげdumping early warning system and the industry injury investigation system, and to improve the standardization, fairness, orderliness and transparency of trade remedy system. In November 2002, the Shanghai Municipal Government invited distinguished advisers of the Shanghai WTO Affairs Consultation Center to address government functionaries, enterprise executives and lawyers in a threeげday seminar on trade remedy system within the framework of WTO. 　　Although Shanghai has been enjoying a generally sound economy in the first year after the WTO accession, some problems inevitably cropped up that are worthy of special attention.
　　1) The problem of “internal strife” among domestic enterprises. Along with the gradual market opening by other WTO members to Chinese products and the gradual liberalization of the right to trade, there is an urgent need for building a uniform market in China. Some enterprises, for the sake of shortげterm interest, undercut each other by launching price wars, which led to a surge in production and a substantial drop in profits. This has undermined the advantage of Shanghai products and therefore exerted negative impact on the textile, garment, and household electrical appliance industries of Shanghai.
　　2) Problems concerning industrial upgrading and core competitiveness. In 2002, industrial exports from China remain mostly laborげintensive products. Although the export volume of mechanical and electronic products has surpassed that of textiles, most of them were laborげintensive products, processed or assembled products. Meanwhile, the import of mechanical and electronic products exceeded USD80 billion, mostly high value added. Given favorable geographical location and economic heritage Shanghai has not managed to develop a capitalげintensive and technologyげintensive industry of its own. There is an acute lack of R＆D capability and core technology needed in international competition.
　　3) The serious unemployment in the short run. In the long run, WTO accession will boost the growth of the aggregate economic output and contribute to the increase of job opportunities. However, due to industrial restructuring, urbanization, baby boom and a massive inflow of migrants, Shanghai faces a rather severe employment challenge: the overall more supply than demand, lack of highげend human resources and lowげskilled worker surplus for a continuous period of time.
　　Part Two Outlook of Shanghai's Economic
Development in 2003
　　1. The aggregate economic output and foreign trade volume of Shanghai will keep growing at a fairly fast speed. The import duties for some raw materials will be further reduced and some nonげtariff measures eventually eliminated. These will vigorously reduce the production cost of downstream products in Shanghai and contribute to the expansion of the market share of its competitive products in the international market. The 2003 official production launching of the Shanghai Chemical Industrial Park will considerably strengthen the international competitiveness of the petroleum and chemical industries of Shanghai. The further opening of financial and professional services in Shanghai promotes the prosperity of Shanghai's service industry in 2003.
　　2. Dynamic momentum of foreign investment and private investment in Shanghai is expected to continue. With the further improvement of the legal framework in China, manufacturing and service industries will appeal more to foreign and private investors. In addition, in early November 2002, the State Economic and Trade Commission, China Securities Regulatory Committee and the central bank of China issued, on different occasions, special administrative directives governing the restructuring of stateげowned enterprises with foreign investment. This will lead to a significant rise in the participation in the capital market by foreign investors.
　　3. Enterprises will make more complaints to and demands on the government. With the domestic practices getting increasingly in line with international rules and the awareness of their rights to equality and legitimate interests enhanced, enterprises in market economy will raise higher demands on the role of the government, to spur the government bodies at all levels in Shanghai to further improve their service to the enterprises.
　　4. Along with the further opening of the domestic market, the disadvantaged industries and enterprises will face heavier pressure. Reduction in duties, phaseげout of nonげtariff barriers and liberalization of trade operation right will inevitably result in the bankruptcy or transformation of the enterprises which lack in competitiveness. Further opening in distribution services will not only sharpen the competition among domestic distributors but also bring more pressure on domestic industries when international distributing groups come in with their international logistics systems. The continual expansion of market access in the service sector and the opening of investment areas to foreign and private investors ask for worker skills and qualifications not traditionally available. Therefore, severe reemployment challenge will continue to exist in Shanghai.
　　5. The capacity of the government and export enterprises to confront trade barriers needs to be urgently enhanced. A rise in trade protectionism adopted by some WTO members against China is expected in 2002 due to the slow recovery of the world economy. Therefore, Chinese exporters have to remain somber regarding the unusual export growth in 2002 and get prepared for transitional productげspecific safeguard mechanism which is likely to be taken by countries against Chinese exports. In the circumstances, Shanghai has to put on the agenda the upgrading of export structure.
　　Part Three Measures Suggested for 2003 in
Response to the WTO Accession
　　 Based on Shanghai's response to the WTO accession in 2002 and the outlook of the situation in 2003, Shanghai will continue the implementation of China's obligations and push its economic and social development to a new stage by taking full advantage of the accession.
　　1. Expedite the transformation of government functions to build a highly efficient and responsible government. First, Shanghai should further separate and standardize the two functions of the government, i.e. the administrator of public affairs and the owner of state assets, and withdraw from direct management of stateげowned enterprises (SOEs). Second, further efforts should be made to improve, weaken or reduce administrative examination and approval procedures. For the areas where examination and approval is necessary, government behavior and transparency of relevant procedures have to improve through public hearings in the examination and approval of major projects. Third, market disorder needs to be rectified so as to establish a fair, transparent, stable and predictable environment for competition. Fourth, the government needs to further improve the work ethics, eliminate bureaucratic practices, and grant autonomy and provide convenience to enterprises.
　　2. Further improve the investment environment and enhance the efficiency and quality in the attraction of investment. In view of another surge of foreign investment in China and further liberalization of domestic private investment, Shanghai should continue to strengthen guidance, consolidate its unique strengths in attracting investment by putting forth its best efforts. First, while endeavoring to construct more modern physical facilities, Shanghai should also do its utmost to improve the “software”, in particular, the municipal services, cultural, financial, and living environment. Second, the city should continue to configure an effective market system by protecting intellectual property rights, regulating market order and safeguarding the legitimate rights and interests of investors. Third, while welcoming more foreign direct investment, Shanghai should also expand the scale of foreign indirect investment and domestic private investment. Fourth, Shanghai should go on with structural adjustment and geographic relocation of industries, as conducive to employment, industrial competitiveness, urbanization and sustainable development.
　　3. Standardize various statistics work and ensure transparency in public announcement of statistics. We should continue to benchmark our statistical indicators in accordance with the prevailing international practice so as to integrate the existing calculation and statistics systems of national economy, standardize data collection and calculation of regional GDP, and improve the related systems, mechanisms and methodology. The existing GDP components are to be further optimized while necessary new items added. At the same time, the data standardization and transparent management are the goals to achieve.
　　4. Strengthen the role of trade associations and other NGOs as social intermediaries. The establishment of the communication channel of governmentげtrade associationsげenterprises can lead to the integration of separated resources. First, the development of national or regional trade associations defined by product line will help regulate the competition order and exercise selfげdiscipline. It is hoped that internal fight in price undercutting in the international market will be eliminated in the longげterm interest of domestic enterprises, including those in Shanghai. Second, difference in ownership must be downplayed so as to foster loyalty to Shanghai in cultivation of an international brand of “Shanghai Enterprises”. This common “Shanghai brand” affords the local enterprises' reputation and name recognition of the Shanghai metropolis. Third, enterprises are to be encouraged to make proper use of WTO rules as well as domestic legal system to protect their own legitimate rights and interests.
　　5. Intensify training on WTOげrelated knowledge and expedite the cultivation and recruitment of senior professionals. The human resources need include managerial personnel, business talents, language experts, law specialists and WTO specialists. In order to optimize the allocation of human resources and promote the rational flow of talents, we should break down barriers set up by various departments.
　　6. Speed up the process of establishing a uniformed trade remedy system in compliance with WTO rules. To ensure that enterprises are fairly treated in international trade, Shanghai will combine efforts of the government, intermediary agencies and enterprises to establish an effective trade remedy system in light of relevant laws of China so that economic environment will be further improved.
　　7. Promote the reform on social security system, protect disadvantaged groups, maintain social stability in order to ensure sustained economic growth. First, the government is to provide employment guidance, eliminate system barriers in employment, improve employment service and facilitate the structural transfer of the labor force. Second, an effective subsistence security system needs to be established and consolidated. Third, the rights of disadvantaged groups have to be well protected while laws, regulations and policies not in line with international practices or the new domestic situation are to be amended for a sound employment environment. 　　
　　