In this book we are concerned mainly with trade liberalization as required under the WTO rules, competition and its impact on employment in the Chinese economy with particular reference to the industrial sector and State-owned Enterprises (SOEs). It is often claimed that WTO membership will benefit China by increasing exports and employment and forcing domestic firms to improve efficiency through competition, and that benefits will accrue through improved resource allocation and greater economic efficiency resulting from trade liberalization and greater global competition. We argue that net overall benefits will accrue only in the long run. In the short term, some sectors will benefit from competition but others will suffer a great deal. Tariff reductions agreed under the WTO Protocol of Accession could force some weak domestic firms to close, thereby contributing to unemployment. Although trade will expand after accession, this will be less important for a large-sized country like China with its huge domestic market than it is for smaller economies. At any rate, depending on the particular sectors exports will expand with a time lag due to capacity and other constraints. During the transition period China will face enormous problems related to the restructuring of SOEs, and banking, insurance and financial services, entailing loss of employment.
Western and Chinese literature has thus far neglected an analysis of such social effects of accession as unemployment and income inequalities, which, we believe will present a major challenge to Chinese politicians and policy-makers. This book is a modest attempt to overcome this lacuna.
The book addresses three sets of related issues: (i) the employment impact of China’s accession to the WTO; (ii) the applicability of a ‘flying-geese model’ of trade and development within China whereby low labour costs in the hinterland would help maintain its comparative advantage and global competitiveness; (iii) China’s possible response to global competition which might aggravate the serious unemployment problem especially resulting from the closure of inefficient SOEs. Some observers believe that social hardships resulting from accession may trigger a drastic response by China. We study three possible scenarios here: (i) non-compliance of the WTO Agreement, (ii) devaluation to protect inefficient industries, and (iii) a shift from the global to rapidly growing domestic market. We examine whether the benefits of WTO entry (such as . . .