China 2002: WTO entry and world recession by Ross Garnaut and Ligang Song

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Catching up with America

THE HURDLES OF 2002 IN CHINA'S RACE TO CATCH UP

Ross Garnaut 
In Australia and the Northeast Asian Ascendancy, I noted that the powerful sus-
tained growth that had propelled first Japan and then Hong Kong, Singapore, Taiwan 
and Korea from poverty into the ranks of the medium or high-income economies 
seemed inexorable only in retrospect (Garnaut 1989). Along the way, the path of 
growth was strewn with barriers, many of which at the time had seemed as if they 
might be the one that brought the whole process to an end. In the end, at each 
hurdle the domestic interests that favoured growth turned out to be strong enough to 
break through, and rapid growth continued until the productivity and income fron-
tiers of the reasonably rich countries had been reached, first of all by Japan in the 
early 1970s. So it was likely to be with China. And in China's case, too, there would 
be great challenges to sustained growth along the way. No-one could be sure in 
advance that a particular hurdle would not turn out to be too great for the polity and 
the society to overcome, although each time there would be be powerful tendencies 
for continuity in the growth process. 
China is at present above what an informed observer would see as one of the 
biggest hurdles-or two big hurdles piled on top of each other. The first of the joined 
hurdles has been recession in China's main trading partners and sources of invest-
ment in 2001, amidst fears that it would stretch an indefinite period into the current

year. The second, piled on top, is China's entry into the World Trade Organizaton 
(WTO) in December 2001. 
The rapid expansion in China's external trade and investment has been a major 
factor in its sustained growth. Continued growth has underpinned far-reaching and 
increasingly radical reform to convert an inward-looking centrally planned economy 
into an internationally-oriented market economy. Mainland China's external trade 
and investment is concentrated strongly in the Asia Pacific region-with its imme-
diate neighbours in East Asia, and across the Pacific in North America, particularly 
the United States. In the Asia Pacific region as a whole, the year just passed, 2001, 
has been the weakest for growth in output and trade since China's reform era began 
in 1978 (PEO 2001). The Asia Pacific downturn is deeper than in the depths of the 
East Asian financial crisis in 1998 because, this time, it extends to the United 
States and its North American partners. Indeed it has had its centre in the United 
States. The effects of United States recession have been expanded by its being 
focused first of all in the high technology and wider electronics industries, inputs 
into which had become the major export commodities of a number of East Asian 
economies, most notably Taiwan, Singapore and Malaysia. Recession elsewhere 
has compounded Japan's continuing economic weakness. 
At this difficult time for China's external trade and investment, China was at last 
admitted into the WTO in December 2001. This concluded a long process of China 
exploring the possibility of, and then seeking, membership of the WTO, stretching 
back to discussions between the then Ministry of Foreign Trade and Technical Co-
operation and the Australian Government, and the Australian provision of technical 
assistance on what was involved, in 1986. As described in chapters 6, 8, 9 10 and 
11 of this book, China's entry into the WTO is no mere formality. China's accession 
agreements embody commitments to further far-reaching trade and investment lib-
eralisation. On a number of important matters, the commitments go beyond those 
of any other member at the time of WTO entry or in the Uruguay Round. The imple-
mentation of these commitments, commencing immediately and continuing over a 
number of years, would intensify structural change throughout the economy (see 
especially chapters 2, 5 and 7). These changes compound the ongoing challenges 
to the viability of the surviving state-owned enterprises (chapter 3), of unemploy-
ment (chapter 12), and dispersion in income distribution (chapters 4 and 12). 

China 2002: WTO entry and world recession by Ross Garnaut and Ligang Song