China: 20 years after WTO membership, time to take stock in the post-Covid era.
Please note that this is a courtesy translation of the Italian language article originally published in the Panorama Magazine Issue at: https://www.panorama.it/economia/cina-adesione-omc-bilanci-covid
The People's Republic of China, which celebrated 20 years in the WTO on 12 December, symbolizes a challenging growth process that has taken place dynamically, within a wider framework of structural reforms, and continues to confirm itself as one of the global superpowers. Today, two years after the emergence and spread of Covid-19, it is not easy to draw a balance. However, despite the economic and political frictions in the international context that emerged during the height of the pandemic, this development process does not seem to have come to a halt.
In fact, after an initial GDP contraction of 6.8% in the first quarter of 2020 (outbreak of the pandemic), China continued its growth with its singular dynamism, although at a lower rate than in the past, and still remained the only major economy to grow in 2020 together with Vietnam, the other tiger of South East Asia.
In 2021, China's growth rate was very high. Its GDP increased by 9.8 % during the first three quarters of 2021, well above the annual growth target of 6 %. However, this process has been uneven. On the one hand, GDP growth fluctuated widely (e.g. year-on-year growth of 18.3 % in the first quarter of 2021, and 7.9 % and 4.9 % in the second and third quarters, respectively). On the other hand, there was no shortage of slowdowns on the domestic economy front, although these were offset by high exports ( so that in September 2021, China achieved a monthly surplus that ranks third highest so far).
In order to enhance growth further and push for more modernization and more connectivity, the National People's Congress on 11 March approved the latest five-year plan (the fourteenth), covering all aspects of growth for the next five years (2021 to 2025).
The new five-year plan is also well received by the European Union Chamber of Commerce in China, which points out that it is in China's interest to push for a more open market with more liberalization. However, some aspects of the fourteenth five-year plan do not seem to be moving in this direction, for as much as European companies have noticed China's focus on innovation and manufacturing, they are still hoping for a more open tertiary sector in 2022. On this front, progress is nevertheless being recognized, as witnessed by the recent opening up of logistics services with the possibility for foreign shipping companies to go to the port of Yangshan in Shanghai and use an international cargo relay locally, something not previously possible.
However, Covid-19 had a negative impact on the development of connectivity, given China's implemented 'zero tolerance' policy to limit regional outbreaks due to the pandemic. While this policy has been very successful in controlling the pandemic, it is not encouraging foreign companies to stay in China, as it significantly complicates domestic and international travel. In addition, the introduction of less stringent quarantine measures than those currently in force still seems far off, despite the fact that the Beijing Winter Olympics are just around the corner. However, the re-establishment of direct flights operated by Neos between Milan and Tianjin is an important signal in the direction of a slow return to normality, welcomed by managers and entrepreneurs with interests in both countries. However, the presence of only one flight a week connecting Italy to China is not enough. The implementation of new direct connections between the two countries is desirable, perhaps operated by the new national airline ITA Airways, but also by the company Blue Panorama, in order to improve a very unstable situation and a clear competitive disadvantage on a commercial level. Moreover, after two years of stoppage due to the Covid pandemic, it is also hoped that Chinese airlines will soon resume direct flights to and from Italy; in fact, it is not difficult to understand how important air connections are for attracting resources and investment, as also shown by France and Germany, which have re-established more than one direct flight a week.
What hope and what critical issues then for investors interested in the Chinese market?
On the first front, 20 years of China's WTO membership have brought benefits both for consumers, who have had the opportunity to buy 'made in China' products at a competitive price, and for companies, which have had the opportunity to enter a growing market and produce at competitive costs. On the second front, that of critical issues, there are still many uncertainties for those operating in the Chinese market. Many European companies are concerned that China is not significantly liberalizing many strategic sectors, as reported in the results of the European Chamber's Business Confidence Survey 2021 in China, also stating that in 2020 the ease of doing business in China has not improved or has even become more difficult; finally, WTO accession commitments have not been fully met, making China still far from a true market economy system.
In conclusion, there is still work to be done on the reform front for China to be ready to settle down as the world's largest economy. Given the vertiginous pace of expansion of the Chinese society and economy in recent decades, commonly referred to as 'China speed', it is important for Italian SMEs to study China's potential to invest in the Chinese market and gain access to a pool of over 1.4 billion people.
Edited by: Avv. Carlo D'Andrea, Vice President of the European Union Chamber of Commerce in China