By Mark Magnier in Beijing and William Mauldin in Washington
China's 15-year anniversary as a member the World Trade
Organization on Sunday threatens to trigger a clash with growing
forces in the West that cast Beijing as an abuser of open global
markets.
The anniversary marks Beijing's eligibility for "market-economy
status," which would remove many risks of punishment when Chinese
companies are accused of selling products below cost. But the issue
is bringing to the fore mounting global frustration over China's
state-led economic policy.
Since joining the WTO on Dec. 11, 2001, China has leveraged the
open markets the organization fosters to lift millions of people
from poverty and catapult itself to become the world's No. 2
economy. But Beijing's critics say it has gamed the system by
curbing access to its markets and marshaling massive state
resources to compete against foreign companies.
"China wanted the advantages without meeting its obligations,
and trade won't work when it's a one-way street like that," said
Rep. Sander Levin, the top Democrat on the House committee that
overseas trade. "They went in with full knowledge and essentially
began thumbing their nose." Mr. Levin voted for legislation tied to
China's WTO accession but has since become a vocal critic of
Beijing's compliance.
Changing China's market-economy status is dependent on
individual countries declaring that they are changing the way they
handle antidumping and other trade cases--something the Obama
administration isn't ready to do.
"It is a conversation that we are engaged in, but it is not ripe
for us to change our protocols," said Commerce Secretary Penny
Pritzker said last month after talks with Chinese officials.
President-elect Donald Trump has threatened to declare China a
currency manipulator and slap big tariffs on its $483 billion in
annual exports, although some of his aides have played down those
warnings as laying the ground for future negotiations. "They
haven't played by the rules, and they know it's time they're going
to start," Mr. Trump said at an Iowa rally on Thursday, naming
"massive theft of intellectual property" and "product dumping."
Mr. Trump's comments and choice of advisers--including steel
executives--suggest his administration will step up trade
enforcement against China through the WTO as well as in antidumping
and subsidy cases within the U.S., trade lawyers say. Trump
representatives didn't comment on the issue.
The European Commission, the EU's executive arm, also isn't
ready to declare China a market economy. In November, the
commission proposed a new formula to calculate antidumping duties.
In cases where it determines markets are distorted by state
intervention, the commission would eliminate the concept of
nonmarket economies and instead allow for high tariffs to be
imposed on imports deemed to be priced below international-market
levels.
"We are not declaring China a market economy status but we are
reforming the system so as to make it country-neutral," Cecilia
Malmström, the EU's trade chief said Wednesday.
Japan said this week it continued to view China as a non-market
economy.
Beijing bridles at being a lightning rod for global angst over
trade and unemployment and on Thursday renewed vows to take WTO
countermeasures if it doesn't receive market status.
"We are playing by the rules and you need to keep your promise,"
Xue Rongjiu, a trade adviser to the State Council, China's cabinet,
said this month. "It's unfair to blame China for your problems,
which have resulted from bad management and operations."
Economists say China generally abides by WTO rules, a system
largely designed to address the movement of goods across borders,
making it difficult to deny Beijing market-economy status over the
long term.
But the rules are ill-equipped to handle China's massive state
companies, investment inequity, intellectual property issues,
limited transparency and restricted access to new economic sectors
like services, internet and the cloud, critics say.
"The WTO seems like a single-stroke engine in a jet-engine age,"
said James McGregor, former chairman of the American Chamber of
Commerce in China. "China has played into our open system with
great skill."
Free-trade advocates focus on Chinese state-owned entities,
which are granted such benefits as preferential funding, free land,
protected domestic markets and limited pressure to turn a profit,
saying the system fuels debt and inefficiency that distorts global
markets. President Xi Jinping has vowed to maintain the central
economic role for state-owned firms.
Zak Fardi, founder of U.S. solar panel maker 1SolTech Inc., said
China's system victimized him. The Dallas-based company prospered
until late 2011 when Chinese state-subsidized panels began flooding
the U.S. market, he said. The Chinese sold panels at 40% below his
production cost and offered customers multimillion-dollar lines of
credit he was unable to match.
Panel makers petitioned for help, leading to punitive U.S. and
European duties on imports of Chinese solar cells even as their
manufacturers denied competing unfairly. But by then the damage was
done. Not only did Mr. Fardi's business fail but dozens of Chinese
solar makers did too after the subsidies sparked a competitive
glut. "They kicked our butts," Mr. Fardi said. "It was definitely
dumping. It seemed very well organized."
Aside from solar panels, China has used an array of state
financing, subsidies and price cutting to secure globally dominant
positions in disc drives and personal computers, said Dirk Thomas,
principal in Hong Kong-based Summit Partners, a tech advisory firm.
Beijing is now setting its sights on mobile phones and
semiconductors, he said. "It's the same game over and over again,"
said Mr. Thomas, who helps Chinese technology companies acquire
assets overseas.
Beijing's industrial policies are driving discontent to new
levels, especially over excess Chinese production of steel,
aluminum and other products. In the first half of 2016, 17
countries and regions launched 65 trade investigations against
Chinese products, a two-thirds increase year-over-year, according
to Chinese data. Beijing has pledged to cut 150 million tons of
steel production by 2020, but industry analysts say that would
reduce only about a third of China's 30% excess capacity.
A new source of concern to foreign companies is the "Made in
China 2025" blueprints released last year that call for indigenous
development and import substitution in many strategic industries
where Western companies have an edge, including semiconductors.
"The global system of trade is under siege and has been
challenged by the biggest new kid on the block, China, not playing
by the rules," said Joerg Wuttke, president of the European Union
Chamber of Commerce in China. "China points at growing
protectionism of the West, but they only have themselves to
blame."
Calls also are rising to tighten curbs on Chinese technology
investments in the U.S. in response to investment bans Beijing has
imposed, often on national security grounds.
"With [China's] expansive definition, national security could be
your local ballet school," said Claire Reade, a former U.S. Trade
Representative negotiator and now a trade lawyer.
This month, President Barack Obama blocked on national security
grounds the proposed acquisition by a Chinese company, Fujian Grand
Chip Investment Fund, of German chip maker Aixtron SE, which has
operations in California.
In response, a Chinese Foreign Ministry spokesman said this week
that Beijing hopes Washington will "cease making groundless
accusations" against Chinese companies.
Viktoria Dendrinou in Brussels and Chieko Tsuneoka in Tokyo
contributed to this article.
Write to Mark Magnier at mark.magnier@wsj.com and William
Mauldin at william.mauldin@wsj.com
(END) Dow Jones Newswires
December 09, 2016 05:46 ET (10:46 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.