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Commentary: China's development deserves market economy status

By Ni Hongfu (People's Daily)    10:41, December 20, 2017

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On October 26, 2017, the US Department of Commerce released its latest report, maintaining its classification of China as a non-market economy.

To support its conclusion, the report listed six criteria, ranging from currency convertibility, free bargaining for wages, foreign investment, to government's ownership or control of production, government control over the allocation of resources, and other appropriate factors.

These accusations played the same old tune, indicating that China is dumping goods to other countries using currency manipulation and providing preferential treatment to State-owned enterprises. Following the example of the US, the EU also deemed China as a "non-market economy."

The biased classification of the US and the EU not only contradicts the spirit of the WTO agreement but also neglects the tremendous achievements of the socialist market economy with Chinese characteristics. They also overlooked the diversified historical and cultural tradition of different countries. China’s development during the past decade deserves a market economy status.

First of all, according to the WTO accession protocol China signed in 2001, the nation would automatically be recognized as a "market economy," which means the “surrogate country” provision terminated on December 11, 2016. Item 15(d) of the protocol made it clear that in any event, the provisions of 15(a) (ii) shall expire 15 years later.

However, China has not received the legal rights conferred by the protocol. Some Western economies, headed by the US and the EU, have refused to identify the status of China's market economy and continue dumping their accusations against China. This has severely breached the contract and broke international law. This is a new kind of protectionism, and such practice is incompatible with the trend of globalization and will impede the global economic recovery, undermine world peace and development as well.

Secondly, China has an established socialist market economy system and made remarkable achievements since the reform and opening up movement. China not only lifted more than 700 million people out of poverty, regarded as a miracle of human development, but also contributed significantly to world economic growth.

It is a gross distortion of the socialist market economy with Chinese characteristics by turning a blind eye to China’s economic and historical development and continuing to identify China as a“non-market economy.”

Facts speak louder as China’s practice has proved that the socialist market economy is also a sound economic system, which suits China’s economic and social development.

Since its entry into the WTO, China has embarked on sweeping reforms in every field and gained recognition from numerous countries.

Speaking of a manufacturing industry, China never stopped its reform of State-owned enterprises. Private enterprises and foreign capital have been introduced into the monopoly sectors, which helped form a pattern of open competition.

In the monetary and financial sectors, China conducted a joint-stock reform of its major State-owned commercial banks. All the big four State-owned banks were listed overseas after establishing a modern corporate governance structure. Moreover, China has realized currency convertibility and promoted cross-border trade settlement through Chinese yuan. Since 2005, China has gradually decreased foreign exchange control, adopting a managed floating exchange rate system based on market supply and demand.

Besides, China has actively participated in the world trade system and established free trade zones with ASEAN and South Korea, which has effectively promoted regional trade development.

To attract foreign direct investment, China further opened its domestic market, adopting unified corporate income tax between domestic and international enterprises (25 percent). China has implemented some preferential measures to encourage foreign direct investment.

To protect property rights, China has promulgated property law and enterprise bankruptcy law in 2007. China also implements the new labor contract law to ensure that salary is determined by the market.

All these facts showed that the socialist market economy system has gradually improved and its achievements are being universally recognized. A total of 81 countries around the world have recognized China's "market economy status." The denial of China’s market economy status by the US, Japan and the EU cannot change the fundamental fact.

Thirdly, the low cost of Chinese goods is determined endogenously by economic factors, rather than the result of government support and manipulation.

One of the basic tenets of dumping products is that the prices of imported goods are below their "normal value." As a result, how to gauge "normal value" on the condition of fixed prices of imported goods is key to the definition of dumping.

In non-market economies, to determine whether the product is of "normal value," we cannot use the prices of similar domestic products as "normal value," but to let surrogate countries with similar products as a reference. It is highly likely to declare dumping to the "non-market economy status,” when using a surrogate country to determine the normal value.

If the low prices and low cost of Chinese products are due to the government's manipulation of economy and trade, then using the prices of a "surrogate country" as the normal value would be reasonable. But, if the low prices and low cost are inherent in the economic development, such exports should be encouraged because it will bring benefits to the whole world.

China’s advantages in cost come from the large number of surplus labor, which is the result of a demographic dividend and the spirit of the Chinese nation (diligence and hard work). Therefore, China enjoys a lower labor cost, and the competitiveness of the economy is innate instead of from market factors.

Last but not least, the classification of China's non-market economy status by the US and the EU is not only an economic issue but also of political significance and represents competition of different values. The current market economy system, which represents the Western values, barely respects systems and culture of different countries.

Each country features its cultural tradition, leading to the various development of market economy. For the sake of peace, development and stability of the world, we should allow the existence of a US-styled market economy as well as the development of a market economy with Chinese characteristics.

As long as it can improve the living of its residents and contribute to the world's economic growth, such a market economy is a good one. It is unnecessary to judge China’s economy by using the criteria of the US market economy.

Today’s world is far from tranquil as the human beings are challenged by various threats and turbulence. Though the future of economic recovery is bright, it is still not out of the doldrums. At the moment, it is better to unite the world to establish a new partnership than to debate China's market economy status. A more inclusive world needs the creation of a community of shared future.

It is time to stop the unnecessary argument of China’s market economy status.

(The author is an associate researcher at the Institute of Economics, Chinese Academy of Social Sciences)

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Bianji, Liang Jun)

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