China has failed to meet its stated reform goals and is not on track to become a market economy, a report assessing China’s development concluded.
As a result, the United States and other market economies must develop trade rules to better protect their systems when dealing with China until it becomes a more open economy, according to the report, China scout, published Tuesday by the Atlantic Council and Rhodium Group.
The report found that while the past decade has seen some progress, China’s decline to a more open economy, which began in 2016, was particularly significant last year when Beijing began cracking down on them. private companies in the technology and education sectors and pursued a growth strategy aimed at making China less dependent on the outside world.
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When China was admitted to the World Trade Organization in 2001, it agreed – as it moved from a state-controlled economy to a market economy status – that other countries could use. safeguard provisions to protect against any uneven market policies that China might still use, such as state subsidies.
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Researchers in the report said that, 20 years later, the United States and other nations must go beyond the tools allowed by the WTO, since China “is clearly not what was envisioned in 2001. “. However, the report stopped before proposing specific measures.
The report aims to clarify the complex issues of China’s economic goals, its global strategies, and corporate responses to those goals, to help develop better U.S. policies.
“Mutual trust between the world’s two largest economies has completely eroded, with neither side being able to agree on the basic facts,” said Josh Lipsky, director of the Geoeconomic Center of the Atlantic Council.
“The United States believes this is being taken advantage of, while China remains convinced that it is being unfairly maligned for doing what it insists any other nation would do as its economy matures.”
Lipsky warned that “a lack of clarity can have devastating consequences,” and cited the protectionist policies that exacerbated the Great Depression as an example. “In recent years, economic policies emanating from Washington and Beijing have started to follow this oddly familiar path,” he added.
The report came as Chinese observers struggle to understand Beijing’s recent crackdown on tech companies, allegedly to close the widening income gap between the rich and the poor, and on businesses in the education sector. to tackle high child care costs that have discouraged couples from having children.
“Even the perennial reform optimists have been shocked,” the report said, by China’s sharp turnaround from the progress it has made towards a market economy since joining the WTO. Beijing has put measures in place, including an increase in public ownership of companies and the growing economic role of its state-owned companies.
“He oversaw the unexpected nationalization of private data and supported the overbreadth of state planners in designing tomorrow’s market structure,” the report said.
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Evaluating China’s economic system in six areas, the researchers said some areas conformed more to open global market rules than others.
Trade has been the brightest point: China has outperformed South Korea, and its trading practices are in line with those of market economies. Beijing even scored higher than Washington on tariffs in 2020, cutting them off with other countries while the United States, in its trade war with China, imposed tariffs on around $ 350 billion. American Chinese products.
Regarding innovation, according to the report, China was approaching the benchmark of the market economy, ranking close to Spain and Italy. Chinese venture capital’s commitment to its economic growth has been particularly strong last year, ranking only behind the United States and Britain.
On other parameters, China, however, failed to meet its stated reform goals, the report concluded, concluding that market competition was the weakest area due to the ramping up of planning. the state and the role of public enterprises. Such a trend will lead to lower productivity and hurt economic growth, according to the report.
As a result, according to the authors, Beijing is likely to struggle to maintain an annual growth rate above 3% by 2025. This compares to the double-digit average annual growth that China has experienced over the past two decades. , according to the World Bank – growth that catapulted the country to the rank of second economy behind the United States in 2010. Such a slowdown in growth would present fewer opportunities for companies.
Foreign direct investment, which is expected to increase relative to a company’s gross domestic product as its economy grows, has declined as a percentage of that of China since 2010. Policies to liberalize outward capital flows are also suspended since 2017, pushing China further away from a market. economical, according to the report.
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