Research brought to you by China.org.cn, presents the ten most popular buzzwords (or phrases) that have come to the fore in China’s first WTO year and looks at what lies behind them. So let’s look at commitment, rules, anti-dumping, world factory, made in China, multinational companies, benchmarking, competitive ability, global purchasing and localization.

Commitment

It has often been said that China’s WTO entry brought with it important commitments to what is after all one of the world’s great institutions. Both in the run up to and now following entry, foreign governments and non-governmental organizations alike have been keeping a close watch to see how well China will keep its word. For many watching alone is not enough as they make predictions, analyze what’s been happening and of course pass judgement.

In the past year, the Chinese government has made tremendous efforts to meet its commitments. Laws and regulations have been amended, much work has gone into increasing transparency, opening up has been extended into new fields, the list goes on and on.

For example the State Council has already reviewed no fewer than 2,300 foreign-related economic regulations. This scrutiny has resulted in 830 of these being abolished and a further 325 being amended.

It is still not possible to be sure just how long and difficult the road will be before all China’s WTO promises have been fulfilled. However it is interesting to see foreign friends emphasizing the difficulties while China itself prefers to focus on the work in hand.

And of course let’s not neglect to mention the reciprocity in all of this. China has made its promises to the WTO but firmly struck on the other side of this coin are the commitments made to China by the WTO and all its members.

Rules

When referring to the opportunities brought by WTO membership it is worth remembering that China now has the opportunity to input to the drafting of WTO rules as well as the obligation to comply with them. Of course it’s still rather early for people to know just how influential China’s role might eventually turn out to be within the WTO.

Looking at the big picture, joining WTO clearly means honoring the commitments that go with the rules of membership. Interestingly the rules of the game are not now just the old rules made prior to China’s membership, they also include any new rules. These are now made with China as one of the rule-makers.

It is worth mentioning the words of US Trade Representative Charlene Barshefsky during the Sino-US WTO negotiations, “I do not think it realistic or reasonable for the West to ask China fit into western values. Tolerance is a goal for different countries to work towards in different ways. The most important thing is that all parties move forward in the same direction.”

Anti-dumping

It is widely agreed that China’s WTO membership has brought new opportunities for Chinese enterprises in global markets. Cheap labor ensures they can offer products that are highly competitive in terms of price.

Thus anti-dumping has become an unavoidable topic for debate within Chinese enterprises as they face an expanding global rush to claim the protection of anti-dumping rules.

Such protection is of course a two edged sword. China can also use it to combat cheap foreign imports. However while China’s exporters find themselves dealing with one anti-dumping charge after another, this is in sharp contrast to the very few cases in which it has been used against imports into China.

Unlike other WTO members who are barely affected, something like 70 percent of China’s export goods could well be vulnerable to the challenge of anti-dumping claims.

Will Martin is lead economist with the World Bank's Trade and Development Research Group. He sees China’s products remaining exposed to anti-dumping bias in the market for say 10 to 15 years.

This has led Chinese Foreign Trade Vice-Minister Long Yongtu to urge caution in the application of non-tariff protection measures like anti-dumping rules. Otherwise international trade will still not be freed up even if the whole world were to realize a goal of zero tariffs.

World Factory

In the past year, world factory has come to be the term that is both the most frequently mentioned and the most contentious. So just what does world factory mean? It can be hard to define. Some commentators point to China’s share of the world market in say air conditioners as 25 percent, color TVs 25 percent, refrigerators 20 percent and so on. Yet no one seems to know the significance of these simplistic statistics.

Others insist that at most China could be called a world workshop, a very different concept altogether. Meanwhile the world factory version is giving rise to a so-called ‘China-threat’ theory among some of China’s neighbors who complain bitterly of losing their jobs to the Chinese.

There is a saying that it’s OK for a lion to boast about how strong it is but what if a sheep should do so?

Made in China

People are usually not much bothered to differentiate between made in China and world factory. Does it really matter?

One way of putting it is that the term world factory is just something that has arisen from multi-nationals optimizing their costs while the made in China label carries with it thoughts of China’s new strategic re-positioning in world markets.

Chinese citizens travelling abroad would at first be happy to encounter the made in China mark. However they might soon become somewhat disillusioned to discover the products it was associated with were all too often small, low-cost and low technology items.

Given this reality, it does seem a bit over the top to suggest that made in China could mean some sort of China-threat.

Multinational Companies

Long before China’s entry to the WTO, multinational companies had become a familiar expression. It is now being used rather more following actual entry.

According to the latest statistics from the United Nations Conference on Trade and Development, there are currently some 65,000 multinational companies. These in turn combine the activities of as many as 850,000 associated companies representing 11 percent of global GDP and a third of all exports.

It is no exaggeration to say that some multinational companies are richer than some countries. Of the top 100 economic entities worldwide, 29 are multinational companies. For instance, Exxon Mobil is valued at US$63 billion putting it in 45th place and ahead of Pakistan.

As for China, the multinational companies are the harbingers of internationalization. China needs to engage with them with particular care as they contribute so much to the modernization process.

Benchmarking

Some years ago the Chinese government took the decision to withdraw the guarantee of state support for the big state-owned enterprises. Nothing since then except benchmarking has given rise to such close interaction between them and government.

While the Chinese government was busy paving the way to WTO, China’s big enterprises were hard at work sourcing their relevant benchmarks abroad. These targets represent best international practice. Identifying them puts the enterprises in a position to compare performance indicators and devise their own strategies to catch up with the world.

In fact, even before China became a WTO member, benchmarking had been practiced both in multinationals and in state-owned enterprises. Benchmarking is just a sound business practice involving finding good examples and learning from them. But who would have imagined the scale of benchmarking that has now been embraced by the Chinese enterprises.

Competitive Ability

Like other concepts, competitive ability was a well-known expression before China’s WTO entry. It has now however become much more widely used, especially in the international sense. It is a fact that today’s enterprises are not just familiar with the need for competitive ability, they have already become used to competing on the international stage.

However it is not proving easy to add on the international dimension. Once projected into the global context, it is sad to see the vulnerability of enterprises that had been very competitive within China itself.

Zhang Xuzhi, is a senior engineer with the China Petroleum & Chemical Corporation. He has spent years devising a system to gauge the competitive ability of enterprises. He said, “Even some good Chinese enterprises, though they may be able to match the multinationals in terms of total production, lag far behind in terms of productivity.”

According to the experts, China enjoys the advantage of cheap labor. But it is not so much of an advantage for the individual Chinese enterprise. In this regard, competitive ability at enterprise level is quite a different thing to the overall competitive ability of the nation.

Global Purchasing

If foreign direct investment (FDI) is viewed in terms of international norms, global purchasing is something that must be mentioned. Especially over the past two years, global purchasing has becomes a word tinged with a mixture of love and hatred.

The late 1990s saw a rapid increase in global investment due to a rapid increase in global purchasing. Then when global investment saw a sharp decline this was accompanied by a corresponding sharp decline in global purchasing.

According to the United Nations Conference on Trade and Development, global purchasing actually shrank by some 40 percent between January and June 2002.

But against this global background, the inflow of FDI into China has kept increasing. Some say this is because of China’s favorable investment environment. Others say it is due instead to China’s unwillingness to accept takeovers as a main means of attracting FDI.

Some experts point to three barriers to the multinationals buying Chinese enterprises. They cite an absence of laws and regulations coupled with a lack of suitable enterprises and even the market in which to trade these businesses.

Localization

Although the Japanese themselves use a different term when referring to localization, it is Japanese enterprises that have been the most active advocates and practitioners of localization in China.

This is another word, which has become more and more popular in China since WTO entry and is a concept that has come to be particularly well understood.

In common with the term world factory, it has implications going far beyond shop floor production for localization embraces thoughts of talent, management expertise, research, purchasing, public relations and enterprise culture.

It is well worth mentioning that the multinationals in China have been investing considerable efforts in their pursuit of localization.

(China.org.cn by Zheng Guihong December 26, 2002)