The 173-page assessment – which, as is standard, was met with a 28-page response from the Chinese government – is being debated by WTO members in the Swiss city on Wednesday and Friday, in what is expected to be a spicy exchange.
The peer review is designed to “enable regular analysis of the trade policies of all WTO members”. The four biggest traders – the United States, the European Union, China and Japan – are reviewed every three years, with other members having less frequent evaluations.
Washington and Brussels weighed in with similar criticisms about China’s trade and economic policies at the start of the review process, foreshadowing how feisty the debate may become.
The WTO said that while China had provided notifications of “support programmes” through the evaluation period, “the replies provided by China do not enable the secretariat to have a clear overall picture” of the amount of subsidies given to its firms.
18:59
Why the EU, US are concerned about China’s overcapacity
Why the EU, US are concerned about China’s overcapacity
“In particular, the secretariat was not able to gain deeper insight into the levels of financial support for certain highly traded sectors, such as aluminium, electric vehicles, glass, shipbuilding, semiconductors, or steel,” read the report, namechecking some of the hot-button industries that have been highlighted by the EU, US and others.
The report cites estimations from academic and private equity sources that these subsidies could top US$900 billion, saying “the incentives provided by these funds have generally not been notified to the WTO”, even as the Chinese authorities say they “operate under market principles”.
“While more work is needed in this area to get a clearer picture, the overall lack of transparency in China’s government support may also contribute to debates on what is perceived by some as overcapacity in some sectors,” it continued.
Major players including the EU and US – but also Brazil, India and Mexico – have placed duties on Chinese imports in sectors such as electric vehicles, steel and aluminium.
The governments in question have cited surplus capacity and unfair subsidies as reasons for doing so.
These two issues will feature prominently in the two-day debate, according to a confidential list of questions anonymously submitted to the Chinese WTO delegation that has been seen by the South China Morning Post.
The EU’s permanent mission to the WTO and David Bisbee, the US deputy permanent representative to the body, issued separate statements highlighting both issues, among others.
“We consistently encourage China to implement reforms to move from a production-driven economy to a consumption-driven economy and to evolve from a primary emphasis on manufacturing to a more balanced economy with a strong, open and diversified services sector,” the EU delegation said. “More effort is needed to rekindle this objective and to implement appropriate corrective policies.”
“Systemic imbalances are worsened by the negative impact resulting from China’s distortive industrial policies and practices, in particular with regard to the widespread support for the manufacturing sector that tilts the global playing field,” it added.
Bisbee said that what sets China apart from other non-market WTO members “is that Beijing operates its non-market economy in a ‘predatory’ manner”.
“The PRC targets key industries for domination, both in the PRC-based market and globally, and the full weight of the PRC state is deployed in support of this goal of domination,” the US envoy said.
“It means that foreign companies are not competing against individual PRC companies; they are competing against the PRC state and PRC companies acting in concert.”
Bisbee’s statement also accused China of practices including forced or pressured technology transfer; state-sponsored cyber theft; data restrictions; inadequate protection and enforcement of intellectual property rights; the use of competition law enforcement for purposes of industrial policy; and forced labour.
Other issues on the WTO’s list include the Communist Party’s involvement in private businesses, protecting foreign investors against forced technology transfers and whether Chinese retaliatory trade measures are consistent with WTO agreements.
During China’s last review, the debate devolved into a heated exchange, according to an account seen by the Post at the time.
Long critiques of Beijing’s trade policies came from Australia – which was at the time embroiled in a tit-for-tat dispute with China – the US, the EU, Japan and Canada.
The latest report praised China for “continuing to liberalise its foreign investment environment” and reducing the sectors that are off limits to foreign investors to 31.
It said the country’s integration into the global trading system had resulted in rising wealth in recent decades and “the eradication of extreme poverty”.
But it warned: “China’s strong growth has been accompanied by high levels of income inequality and strong urban-rural wealth contrasts.”
Overall, it found Beijing’s tariff structures had “remained largely unchanged” since 2021, but a number of trade and export controls had come into force in the period studied.
These include the suspension of seafood imports from Japan over the release of waste water from the Fukushima nuclear plant and a broadening of the items requiring export licences, including gallium, germanium, graphite and drones.
The report pointed to China’s “limited progress” in joining the WTO’s agreement on government procurement – something that has frustrated policymakers in Europe and triggered an investigation earlier this year into the perceived lack of market access for its firms in China’s lucrative government tenders.
In its response, Beijing said that “in the face of complicated and severe international situations, China overcame the pressure of declining external demand and insufficient domestic demand and realised steady growth on foreign trade and overseas investment”.
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Chinese-made electric vehicles face additional EU import tariffs of up to 38%
Chinese-made electric vehicles face additional EU import tariffs of up to 38%
It said it had “deepened reform” of its state-owned enterprises, and pointed to last summer’s 24-point plan to assuage the concerns of foreign investors, which Beijing said would ensure they were treated in the same way as domestic firms in certain areas.
China’s report said it was making reforms with a view to joining multilateral deals, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement.
It also said it was “taking steps to pilot high-standard international economic and trade rules in areas such as reforms on SOEs [state-owned enterprises], digital economy, intellectual property rights and government procurement”.
