Since the reform initiative in 1979, the Chinese government has promoted an aggressive policy of export-led growth that has resulted in an annual average of double-digit growth rate. The transition of the Chinese economy from an administratively controlled regime to a market oriented one was under the close observation of international trading bodies. Many member countries of WTO were apprehensive about the possible impact of Chinese accession to WTO. China’s internal economic strength led the world to believe that the twenty-first century will be dominated by China. Despite such apprehensions, many however believed that the immediate imbalance in the foreign trade of many countries, created because of China grabbing the world market, will get off-set by the world consumer’s gain in the long run. It was also expected that this will also put China under pressure to comply with the changing global norms, tastes, and preferences. After an effort over a decade, China could ultimately become a member of WTO in the Doha Ministerial Conference (2001). For many, China’s entry into the WTO is still a source of anxiety. Low labour cost and devaluation of Chinese currency are imminent in China. This will spark job losses in domestic markets. Many even subscribe to the feeling that China will destroy the basic fabric of free trade under WTO regime, as still largely follows its regulated economic practices, violating the principles of free market. Some believe that China’s accession to WTO is a deliberate political move to sort out its disputes with trade partners subscribing to commonly agreed principles of WTO.
Impact on India
On the positive side, China’s entry into WTO may provide some relief to the Indian industry. As a member of TO, China will have to abide by multilateral rules and agreements and make its policies transparent. All these may lessen the anxieties of the Indian industry about infiltration of exceptionally low-cost products from China into the Indian market. China is likely to lose several of its existing advantages in the process of being WTO compliant. Substantial lowering of tariffs, reduction of subsidies, etc. should provide significant opportunities for accessing the Chinese market. Removal of quantitative restrictions (since China is not a country with balance of payment difficulty) is also expected to widen export opportunities. Moreover, with transparent economic and trade policies, it should be easier for Indian companies to understand this complicated and vast market, establish their presence, and develop long-term strategies.
On the negative side, China’s accession in the WTO has created new challenges for India in the sphere of trade and foreign policy. India will come under increased pressure to further liberalize, particularly because China’s offers of trade liberalization go well beyond India.
Chinese entry into WTO is also likely to create an impact on some sectors of the Indian industry as under:
i. In the manufacturing sector, China has developed an excellent edge over the Indian industries. Further, India cannot impose anti-dumping duties on Chinese imports without discretion.
ii. In the textile sector, China will capture India’s market share in the EU and other countries because of its higher productivity.
iii. The Indian auto industry, more particularly the two-wheeler industry, will also get adversely affected due to China’s relative cost advantage. For example, China can manufacture scooters for as little as $100.
In order to reap the advantages arising post-Doha conference and China’s subsequent accession to WTO, the following Indian companies decided to set up joint ventures with Chinese companies:
i. Bajaj Auto Ltd
ii. Ajanta Clocks
iii. Videocon
Various trade associations and the Confederation of Indian Industry feel that, on the whole, trade between China and India will increase after China’s accession to WTO.
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