Market economy status on agenda
By Dai Yan (China Daily)
Updated: 2004-04-21 14:10

Some 25 years after it launched market-oriented reforms, China has become the world's largest anti-dumping target - largely because it has been labelled a "non-market economy."

That is why China has put the market economy status (MES) issue high on the agenda at the Sino-US Joint Commission of Commerce and Trade, which is set to open today in Washington.

New Zealand officially recognized China's MES status last week, while Australia and the European Union (EU) have agreed to grant China's MES requests.

And it is important for the United States, China's major trading partner, to give a response on the matter as soon as possible, analysts say.

A positive reply will create more motivation for China to complete its market economy system, which has been generally established.

Li Xiaoxi, an economics professor at Beijing Normal University, said about 70 per cent of China's economy is market-based, above the recognized minimum level of 60 per cent for a market economy.

He was commissioned by the Ministry of Commerce to assess China's market economy.

About two-thirds of China's gross domestic product growth is created by the non-State sector. In State-owned companies, more than 89 per cent make decisions free of government influence and have introduced a modern corporate system, Li said.

The government's direct intervention in the economy has been substantially reduced and the market plays a dominant role in financing, land use and labour services, he added.

An ever-improving market environment and legal system have also made China a lucrative destination for foreign investors.

China's Constitution, in an amendment made a decade ago, stipulates the country should adhere to a market economy system.

"It is funny to say China is a non-market economy, as it is the fastest-growing market economy and attracts tremendous goods and investment from around the world," Li said.

It is fair to say that China's non-market economy status is the result of compromise, but by no means an objective assessment, according to Li Yushi, deputy director of the Chinese Academy of International Trade and Economic Co-operation.

To enter the World Trade Organization (WTO), China agreed with other members that it would be recognized as a non-market economy within 15 years of its entry.

By defining China as a non-market economy, Western trade authorities have long refused to recognize the nation's domestic costs of production.

Instead, they use costs of production in a surrogate country to calculate the so-called "normal value" of Chinese exports.

The use of a surrogate, usually an emerging economy such as India, Turkey or Mexico where material and labour costs are much higher than in China, often means local exports are deemed to be selling below normal value, which is more commonly referred to as "dumping."

By taking advantage of China's concession, these countries have turned anti-dumping into a means of trade protectionism, which is designed to prevent competition, Professor Li said.

The professor said it is understandable that some countries, out of self-interest, do not want China to have full market status.

"But with the constant development of China's market system and enhanced understanding between China and other WTO members, China's market status should be a negotiable issue."

Li noted that the EU and the United States have granted market status to Russia and some Eastern European countries because their markets have opened wider to the West although these former Soviet member states started market reforms much later than China.

Their definition between "market" and "non-market" economies is not based on universal norms but their political and economic interests, he claimed.

If trade authorities eliminate prejudice as well as domestic political and economic interests, it is not difficult to acknowledge that China has a market economy, fully deserving the same status as every other WTO member, Li said.

The discriminatory use of the market economy criteria has distorted many trade activities and become an obstacle to free trade.

By joining the WTO, China wanted to free its domestic market and establish wider trade links with international partners under recognized and reciprocal rules, said Li.

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