China's entrance to WTO: Govt must stop meddling

China Daily, Asia News Network, Beijing

China's entry into the World Trade Organization (WTO) means the government's commitment to manage economic issues should be in line with global market norms.

The government should no longer directly meddle in the allocation of resources, instead, it should strive to ensure the market functions well in resource allocation.

The shift in the government's role is the first and most difficult step for China to take after WTO entry, the Study Times quoted an official from the Development and Research Center (DRC) as saying.

The government's function and behavior in managing the economy will be subject to restriction and standardization of rules and regulations of the international trade body. This is sure to inject momentum to on-going reforms to change the government's role, said Chen Qingtai, deputy director of the DRC in the State Council.

Some think that China's entry to the WTO is mainly aimed at increasing exports to drive economic growth. But that belief is not comprehensive, Chen said.

Joining the WTO is a strategic approach taken by China to promote the establishment of the market economy. The Chinese government aims to solve the deep-rooted systematic and structural problems hindering economic development through wider market opening and deepening reform.

If the expansion of exports was the sole purpose, the devaluation of the RMB would be an easier approach to take, said the official in the article.

Against the backdrop of globalization, China has made a significant re-adjustment to its development strategy. The old governmental practice to ensure the survival of domestic industries and development by laying down trade and investment barriers will be abandoned.

The government should endeavor to improve the efficiency of resource-allocation through the invisible hand of the market, and create a sound domestic market environment to attract more international economic resources.

China set strategic goals for its WTO entry, according to Chen.

First, it aims to pursue a sound external environment for China's reform and development, and for the use of more international economic resources.

Second, it will actively take part in the drafting of world trade rules and regulations, and safeguard the country's legitimate rights using the international dispute-settling process.

Third, it will learn from the experiences of advanced countries to accelerate the process of changing the role of the government, and to accelerate the building of the socialist market economic system.

WTO entry means both opportunities and challenges. Industries that have enjoyed less government protection and boast strong competitive advantages will benefit immediately from China's WTO entry.

But sectors that used to be under heavy government protection will face the biggest challenge.

These sectors should deepen reform and sharpen their competitive edge to withstand the shock that they are facing with WTO entry.

The government should not be worried over the temporary shortcomings of these sectors and go back to the old practice of strengthening government intervention and protection, said Chen.

Even if such "self-protection" measures could be carried out successfully for a time, what they are protecting is nothing more than an outdated and backward operational system and industrial structure.

Such a practice, called "defensive strategy," should not be the government's option, said Chen.

He urged the government to use an "active strategy." The government should take the chance and speed up its changing role by building an efficient market mechanism and setting up an efficient macro-guidance system for market operation.

The adoption of an "active strategy" starts with internal reform of governments at all levels.

In the transition from the planned economic system to a market one, the government is at a special and crucial position. On the one hand, it is the driving force behind systematic reform; it is also the target of the reform, said Chen.

Following China's WTO entry, some key fields can enjoy a transitional period, which is common practice among WTO members. The transitional period however, should not be regarded as a protection period. Instead, it is a training period for industry competitiveness and a period to accelerate government reform.

The three to five year transitional period is crucial for Chinese governmental departments and industries and should be used efficiently, the official urged.

Chinese industries still have a long way to go to win an upper hand in the international market.

An urgent task now is to build a group of high-quality enterprises, which are free from government intervention and have clarified ownership rights.

The formation and growth of these enterprises should be a result of market competition, not choices by the government, Chen stressed.

The government should endeavor to create an environment of fair competition for enterprises with various ownerships.

It should especially provide equal market access for private enterprises so that they can take part in market competition on equal standing.