China and the global trading system: Then and now

Openness to international trade and investment has been integral to Chinese economic transformation over the past four decades. Within that relatively short time, China has profoundly changed the way it engages with the rest of the world. The development of domestic markets—a key element of Chinese reform—has been significantly enhanced by integration into international markets via trade, investment flows, technology transfers, people-to-people exchanges and the spread of knowledge. China’s reforms coincided with an era of increasing globalisation, which was characterised by a more open global trading environment resulting from significant reduction in tariffs and other forms of trade protection. In the postwar period, these reforms were driven by various rounds of multilateral trade negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT) and, later, the World Trade Organization (WTO). After the late 1980s, unilateral liberalisation in the Western Pacific region gathered pace under regional cooperation arrangements such as the Asia-Pacific Economic Cooperation (APEC) forum. The new era was marked by two key factors: rapid adjustment in the structure of world trade in response to more open cross-border flows of goods, capital, people and technology; and rapid reductions in transaction costs because of substantial improvements in transport, communication and information technologies. International markets presented China with opportunities greater than those available during Japan’s and South Korea’s periods of extraordinary growth (Brandt and Rawski 2008: 13). China’s seizing of these opportunities has enhanced global interdependence to a degree the world has never seen before. China’s integration into the global economy brought one-fifth of the world’s population into the international economic system, increasing market potential and integration to an unprecedented level. The increased scale and depth of international specialisation propelled by enlarged global markets offered new opportunities to boost world production, trade and consumption, with the potential for increasing the welfare of all countries involved (Golley and Song 2011). It promised an era of unsurpassed global economic growth and prosperity—a ‘golden age’ of world economic growth. The promise of the golden age is now under a shadow. The era of globalisation is challenged, in part because of the shifts in the global economy and global power that China’s trade and economic success delivered to the world; in part, because of deep structural problems and their mismanagement in other countries. The dimensions of the challenge, and what course might be open to deal with it, we turn to at the end of the chapter.