China’s Market Economy Status: A Political Issue

Written by | Saturday, October 29th, 2016

Meadhbh Costello (The Institute for International and European Affairs)

In recent years, China has increasingly occupied the position as one of the world’s leading powers. Gone are those days when China was the most vocal spokesman for developing countries. Nowadays, the People’s Republic of China (PRC) represents a major economic and military power to be reckoned with. China’s efforts to change the status of its economy to a market economy are related to its economic growth and primarily to international trade.

In this case, the change in the status of its economy is related to China’s membership in the World Trade Organization (WTO). It is mostly a political move rather than a fundamental indica-tor of how the country has developed its market economy, which is precisely in China’s case rather problematic. On the other hand, this also means that it is a political gesture from the WTO Member States. Among the individual EU countries, there is some disaccord as to whether or not the PRC should be granted this status.

This disaccord is partly the result of the concerns prevalent in some EU members, such as France or Italy, which see it as a threat to their domestic steel industries. Steel is China’s major export article, with which the European steel cannot compete, at least in terms of the price. However, other sectors are jeopardized by Chinese exports as well. Chemicals and ceramics are among the products that are potentially dangerous for the EU internal market.

Another factor affecting the issue of granting China the market economy status is the lack of clarity in understanding the terms of China’s accession to the WTO, which should have prevent-ed China from flooding the other members’ markets with products at dumped prices. The cur-rent status is to last until 11 December 2016 and the Chinese representatives believe that after this date, the Chinese economy will be automatically recognized as a market economy and the above-mentioned anti-dumping protection clauses will cease to apply. Voices from the EU, however, are much less unequivocal and there are also proposals that call for further negotia-tions.

The EU is one of China’s largest trade partners, whereby the latter would, in order to maintain good relations, certainly prefer to continue negotiations on further economic cooperation. It is, however, not a one-way relationship. China is expressing its willingness to make substantial investments in EU countries. Chinese capital in the EU countries is welcome, which is also why the Union must play its cards very carefully.

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