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Statement by H. E. Mr. Yu Jianhua Assistant Minister of Commerce, Head of the Chinese Delegation at the First Day of the Fourth WTO TPR of China


12 June 2012

Distinguished Mr. Chairman Ambassador Munoz,
Distinguished Director General Lamy,
Distinguished Discussant Ambassador Smidt,
Excellencies, dear colleagues,

I am very pleased to head the Chinese delegation to attend the fourth WTO Trade Policy Review of China. On behalf of the Chinese delegation, I would like to thank you, Mr. Chairman, for your warm opening remarks.

I would also like to thank His Excellency Ambassador Steffen Smidt, for kindly agreeing to act as our discussant. And by the way, congratulations on your first victory in Euro 2012 and I hope Danish team could pick up this momentum to go further and further in the tournament. My gratitude also goes to colleagues in the TPR Division of the WTO Secretariat, especially the capable team led by Mr. Richard Eglin. We appreciate all the efforts they have put into the preparations for the upcoming two-day meeting. Specifically, the Secretariat Report they draft contains a lot of factual information on China's economic and trade policies in the past two years, and can serve as a good base for the smooth process of this Review.

Mr. Chairman, as of now, we have received 1720 questions from 30 members till yesterday for this Review. We have just received question from Ecuador, which we will provide answer as soon as possible. In view of the heavy workload and the short time frame, officials in dozens of Chinese government agencies have been working around the clock to answer these questions. I am proud to inform you and the Membership that written responses are ready for all of them. In the limited cases where English translation is still ongoing, it has been so indicated in the response on the table. We will do our best to finish translating the rest by Thursday so that they could be circulated in time at the second session.

Mr. Chairman, since the last Review, China has been confronted with a complicated economic and trade environment. However, to promote robust, sustainable, and balanced growth, the Chinese government has deepened reform and opening up, expanded domestic demand, and accelerated economic restructuring and the transformation of the economic growth model. The development of China’s economy and trade has maintained a good momentum, and China's economic and trade links with other countries and regions have been further strengthened on the multilateral, regional, and bilateral fronts.

Mr. Chairman, my presentation will mainly cover two parts. The first is the macro-environment for China’s economy and trade, and the second is trade and investment development and related policies. In the end, I will briefly touch upon future prospects.

Part one, on macro environment.

1, Challenges China faces

Since the last review, external environment for China's development has been very complicated. The ongoing financial crisis and the non-conventional monetary policies adopted by some members caused many negative impacts on China.

External demand has been sluggish, and the influence of the Eurozone debt crisis has been deepening. The European Union is China's largest trading partner. In the first quarter of 2010 and the first quarter of 2011, China’s export to the EU grew by 31% and 17.2% respectively over the previous year. In sharp contrast, the year-on-year figure for 2012 dropped by 1.8%. EU’s investment in China increased by around 10% in the first quarter of 2010, 26.54% in the first quarter of 2011, but decreased by 31.2% in the first quarter of 2012.

The Chinese currency RMB continues to appreciate. According to the Bank of International Settlements, the nominal effective exchange rate of the RMB was up by 21.37% compared with 2005 when the reform of the exchange rate regime kicked in, and the real effective exchange rate was up by 29.38%.

Against this background, many Chinese companies, in particular the export-oriented SMEs along the coastal regions are having a hard time dealing with dwindling orders, rising costs, and the difficulty of financing.

Inside China, the government has been under much pressure to stabilize price. During the ten years from 2000 to 2009, CPI increased by only 1.85% on average every year. But from the first quarter of 2010 to the third quarter of 2011, CPI’s growth rate surged from 2.2% to 6.2%.

The cost of labor has shot up while the aging population brings more challenges. In 2010, 30 out of the 31 provincial-level governments raised minimum wage by an average of 22.8%. In 2011, 25 of them raised the benchmark by another 22% on average.

China has 185 million elderly people, and it is the only country in the world to exceed the 100 million threshold. The elderly population is growing by 3% every year, and is expected to climb to the peak of 487 million by 2053, which is not far from now, taking up 34.8% of the whole population, compared to the current figure of 13.3%.

The government has taken a host of control measures including in the real estate sector to curb price hikes. However, the measures have backfired on consumption. Car sales in China rocketed by 46% in 2009 and 34% in 2010, but only edged up by 2.5% in 2011. Rural market boasts great potential, but it is a long and slow process to materialize this potential. China must address the long term problems of unbalanced, uncoordinated and unsustainable development of its economy, while resolving short term imperatives.

2, Countermeasures by the Chinese government and effects

Facing such an environment, the government has adopted a host of policies to deepen reform and opening up, improve people’s livelihood, and expand domestic demand, in particular consumption demand.

In September 2011, the revised Individual Income Tax Law came into effect, slashing personal income tax by a large margin. This is the second round of individual income tax cut since 2008, reducing the number of taxpayers from 84 million to 24 million.

Social security system has seen breakthroughs in the past two years. The framework of a social security system covering 1.3 billion urban and rural residents is basically put in place. While the sustainability of the system is insured, the level of insurance has been boosted. A better social security system will certainly contribute to expanding domestic demand, in particular consumption demand in the long run.

In terms of deepening reform, in the past two years, the reform of resource tax and the pilot reform on converting business tax to VAT have been launched. Reform of RMB exchange rate pricing mechanism and the cross border use of RMB have made headways. By the end of March 2012, the People’s Bank of China had signed bilateral local currency swap agreements with 17 countries and regions. 83 overseas institutions can now invest in China’s bond market, including monetary authorities, international financial institutions, commercial banks, insurance companies and fund management companies.

In merely two months after the Chinese Government Report was drafted, the Chinese government has continued to take essential reform measures in many key areas.

The central bank expanded the floating range of RMB against the U.S. dollar in the foreign-exchange market. The Ministry of Transport, Ministry of Railways, China Banking Regulatory Commission, and the State Assets Supervision and Administration Commission announced a series of opinions on private capital’s access to certain sectors or their participation in the reform and restructuring of state owned enterprises. Just a few days ago, that is on June 8, China’s central bank decided to cut RMB benchmark interest rates by 0.25 percentage points, and to adjust the upper limit of the floating range for deposit interest rates to 1.1 times the benchmark rate and the lower limit of the floating range for loan interest rates to 0.8 times the benchmark rate. This is yet another important step towards market-based interest rates.

Under the efforts of the Chinese government, 2010 and 2011 witnessed a strong growth in China's economy. GDP was up by 10.4% and 9.2% respectively, while CPI growth dropped to 4.6% in the fourth quarter of 2011. In the first quarter of 2012, GDP grew by a fairly strong 8.1%, while CPI growth further dropped to 3.8%.

Economic and social development has become more balanced. This is manifested by the declining share of current account surplus in GDP, which dropped from 10.1% in 2007 to 2.8% in 2011, and to merely 1.2% in the first quarter of 2012. The level of urbanization exceeded 50% in 2011, signaling a historic change in social structure.

Part two, on trade and investment development and related policies.

1, trade development.

Mr. Chairman, China attaches equal importance to export and import. Import growth has outpaced export in the past two years, indicating that trade is on the way to become more balanced.

In 2010 and 2011, China's total export of goods was 1.58 trillion U.S. dollars and 1.9 trillion U.S. dollars, up by 31.3% and 20.3% respectively over the previous year, while the total import was 1.4 trillion U.S. dollars and 1.74 trillion U.S. dollars, up by 38.8% and 24.9% respectively.

Trade surplus in goods has been going downward in recent years. Surplus hit a peak of 298.1 billion U.S. dollars in 2008, but then dropped to 195.7 billion U.S. dollars in 2009, 181.5 billion U.S. dollars in 2010, and 155 billion U.S. dollars in 2011.

In 2010, trade surplus in goods took up 6.1% of total trade and 3.0% of GDP. In 2011, the figures dropped to 4.3% and 2.1% respectively.

Mr. Chairman, an important reason for the more balanced growth of trade is that the Chinese government has been making greater efforts to further open up, expand import, and stimulate domestic demand.

During these years, the Chinese government has set interim import tariffs that are lower than the MFN rates, and made tariff reductions and exemptions. We hope to import more products that can stimulate domestic economic and social development and raise people's living standards. In this way, import could contribute to macroeconomic balance and economic restructuring.

In both 2010 and 2011, over 600 eight-digit tariff lines were subject to low interim import tariffs. In 2012, the coverage extended to more than 730 tariff lines, with an average tariff rate of 4.4%, 50% lower than the MFN tariff rate.

Mr. Chairman, China is now the second largest exporter next to the EU. However, it is different from many other WTO members as its export contains a large proportion of import. This explains why China is also the third largest importer after the U.S. and the EU.

Take information technology products for example, they take up nearly one third of China’s total export. The export of such products in 2010 was around 600 billion U.S. dollars, but of which only 40% of the value was added in China. In comparison, domestically added value in exports from the U.S. and the EU to China usually accounts for over 80%.

2, Investment policies and climate

Mr. Chairman, China has fully capitalized on its comparative advantages, adhered to reform and opening up, endeavored to create a sound investment climate and facilitated trade and investment. It has become an indispensable manufacturing link in the global value chain, and has been one of the most attractive investment destinations for many years.

In 2010 and 2011, foreign direct investment rebounded after the backlashes of the international financial crisis. Paid-in foreign investment registered 17.4% and 9.7% growth in these two years, reaching 105.74 and 116.01 billion U.S. dollars respectively, exceeding the threshold of 100 billion U.S. dollars for two consecutive years, setting record highs.

In the first 4 months of 2012 however, paid-in investment dropped by 2.38% over the same period last year, which is not optimistic. This is probably due to the sharp fall of EU’s investment as I mentioned earlier. We will pay close attention to this trend and make further analysis.

In 2011, the Chinese government revised the Catalogue for the Guidance of Foreign Investment Industries, making more sectors open to foreign investment. Investments are particularly encouraged in central and western China, as well as in such sectors as high-end manufacturing, high and new technologies, energy conservation and environmental protection and modern services. We have also further simplified investment review and approval procedures to facilitate investment.

In terms of trade in services, China has taken voluntary and autonomous liberalization measures in a number of sectors that go beyond our WTO accession commitments.

In tourism, from August 2010, foreign travel agencies began to offer outbound travel services to mainland citizens on a pilot basis.

Pilot project also began in 2011 to allow the establishment of wholly-foreign-owned medical institutions in major Chinese cities.

In insurance, from 1 May 2012, the market of the compulsory third party liability insurance for automobiles was open for foreign services suppliers.

In securities, the foreign equity cap in joint venture securities firms was raised from 33% to 49%, while joint venture futures companies with no more than 49% of foreign equity are also allowed to establish.

Protection of intellectual property rights is a key concern for foreign investors. Since the last Review, the Chinese government has been pushing forward software legalization in government agencies and enterprises, and launched nationwide campaigns to crack down on IPR infringement and manufacturing and sales of shoddy and counterfeiting products. The Chinese government also established a permanent high-level working group to ensure uninterrupted efforts on fighting infringement for a long time to come.

Since the last review, China has signed new bilateral investment treaties with 5 countries, namely Uzbekistan, the Democratic Republic of the Congo, Libya, and Japan and Korea together. By the end of May 2012, China has signed 131 bilateral investment treaties with 128 countries and regions. The negotiations between China and Canada have also concluded, and the agreement is expected to be signed in the near future.

While inbound investment is welcome, outbound investment has also picked up pace. China's outbound investment took up 1.3% of the world total FDI by the end of 2009 and rose to 1.6% by the end of 2010. In both 2010 and 2011, China's non-financial overseas investment exceeded 60 billion U.S. dollars.

3, China’s bilateral and multilateral trade and economic relations

Mr. Chairman, China staunchly supports and upholds the multilateral trading system. Last year, the Chinese government celebrated the 10th anniversary of China's accession to the WTO. China has honored the tremendous commitments it made during the accession, which greatly promoted trade and economic relations between China and other WTO members.

China is strongly against trade protectionism. We have refrained from using trade remedies and have been trying to settle trade and investment differences through dialogues and cooperation according to multilateral rules. We respect the decisions made by the WTO dispute settlement mechanism.

According to a recent report on G20 trade measures by the WTO, the OECD and UNCTAD, during the 6 months between October 2011 and April 2012, the number of trade remedy measures initiated by China was reduced by 25% over the previous 6 months.

Regarding the Doha development agenda, China is open to all efforts that may facilitate the negotiations. Meanwhile, China believes that members should not abandon the development mandate, and should not deviate from the multilateral approach.

At the same time, China is willing to advance regional and bilateral cooperation with other countries and regions with an open and inclusive mind. In promoting world trade liberalization, the Chinese government believes that the multilateral system should play a major and fundamental role, while regional cooperation being supportive and supplementary.

Mr. Chairman, as a developing country, China has always attached great importance to South-South Cooperation. China has been the largest export market for the least developed countries for 4 consecutive years since 2008. According to statistics of the WTO Secretariat, in 2010 China’s import of goods from the least developed countries increased by 58% over the previous year, accounting for nearly a quarter of the LDCs’ global total export. From 2000 to 2010, China’s import from the LDCs had been growing by an average of 27% annually.

Following the duty-free-quota-free market access initiative for the least developed members adopted at the Hong Kong Ministerial Conference, China decided to further expand market access for the LDCs in spite of our own difficulties. During the G20 Summit held in Cannes of France in November 2011, Chinese President Hu Jintao announced that China would give zero-tariff treatment to 97% of tariff lines products from the least developed countries, up from our former promise of 95%.

On the issue of cotton, which is an important concern for over 30 African countries, many of which LDCs, China launched a multilateral cooperation project on cotton with the major cotton producers in Africa during the Eighth WTO Ministerial Conference. China is now earnestly implementing its commitments of offering improved seed varieties, chemical fertilizers, agricultural machines, advanced techniques and human resource training.

Mr. Chairman, a few days ago a roundtable for LDCs’ WTO accession was held by the WTO Secretariat under the China’s LDC and Accessions Program. We were very pleased to welcome in Beijing WTO Director-General Lamy, His Excellency Mr. Fonotoe Nuafesili Pierre LAUOFO, Vice Prime Minister of Samoa, and ministers and ambassadors from 12 other WTO members and acceding candidates , including our discussant Ambassador Smidt who chairs the LDC Sub-Committee.

Within the framework of South-South cooperation, China has also been providing help to other developing members to the best of its capacity through bilateral channels. China has canceled the interest-free debts that were due by the end of 2010 from 50 heavily indebted countries and least developed countries. We have promised to send another 3000 agricultural experts and technicians to other developing countries by 2015, and provide training opportunities for 80,000 professionals. We have committed to continue providing assistance for development projects such as infrastructure for other developing countries.

Mr. Chairman, I just made a brief account on China's trade and economic development and related policies since the last Review.

About future outlook, Mr. Chairman, in March 2011, the Fourth Session of the 11th National People's Congress adopted the 12th Five-Year Plan for National Economic and Social Development, which outlined a clear roadmap for China's development in the next five years, featuring expanding domestic demand and accelerating the transformation of the economic growth model.

In the next five years, China will maintain a growth rate of over 7%. The share of services in GDP will be raised from 43% in 2010 to above 47% in 2015. 45 million new jobs will be created. Another 36 million low-income apartments will be built. Pension and medical insurance programs will be bolstered.

In the next five years, as effect of the strategy to expand domestic demand is felt, China’s consumption structure will be further upgraded, and consumption potential will be further unlocked. Social retail sales is expected to grow by 15% on average every year, reaching 32 trillion RMB yuan in 2015, making China’s domestic market one of the largest in the world. China’s total import will surpass 8 trillion U.S. dollars within 5 years, only to bring huge business opportunities to countries and regions all over the world.

The Chinese government will push forward reform in all fronts with greater determination and courage, particularly reform in the economic system. China will adopt a more proactive opening up strategy, expand and deepen opening up and the convergence of interests with other parties.

China will take an open, inclusive, cooperative and responsible attitude in building and maintaining a sound international economic and trade environment together with its trading partners, and in shaping a balanced multilateral trading system featuring benefit for all. We hope that with our joint efforts, the mutually beneficial and win-win trade and economic relations between China and all other WTO members could continue to develop soundly and steadily.

Mr. Chairman, this is the end of my statement. I am ready and eager to listen to comments by the Discussant as well as other members.

Thank you.

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