Truth, Inspiration, Hope.

China’s Most-Favored-Nation Status Is Ending, What Are the Implications?

He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in China,” which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues.
Published: January 18, 2022
China's-most-favored-nation-status-is-ending-what-are-theimplications-Getty-Images-1343569420
The workers climbed the ladder and installed the national flag on the street lamp post on Sept. 28, 2021 in Wuhan, Hubei province, China. China is losing its most-favored-nation (MFN) treatment. What does this mean for the red regime? (Image: Getty Images)

China is now roughly back to the trade status that it was before its accession to the World Trade Organization (WTO) in December 2001, as the United States has de facto removed China from the most-favored-nation (MFN) treatment. 

From December 1, 32 countries, including the European Union, the UK, Canada, Turkey, Ukraine, and Liechtenstein, ceased to apply MFN status to China. Compared with the pre-WTO period, China has lost an important foreign trade hub after the U.S. cancelled the special tariff zone treatment for Hong Kong last year. The MFN treatment granted by Norway, New Zealand and Australia was retained.

Some commentators believe that China has been knocked back to its pre-WTO accession position and thus is in serious trouble; but this is a misjudgment. The circumstances are different now. 

China is not the China of 20 years ago, and the U.S. and Europe are no longer in the same glory. Furthermore, considering what U.S. National Security Advisor Sullivan said about China in a CNN interview on Nov. 6 — that the Biden administration is not seeking to change China — this is not such a big blow to China.

China’s national power accumulated over its 20 years of WTO membership

China’s relatively calm stance toward the 32 countries comes from Xi Jinping’s conclusion that “the East is rising, and the West is declining,” and that “China finally has more equal footing on the world stage.” When Beijing presented China’s emission reduction plan at the UN Climate Summit in late August last year, it learned that the EU was ready to put China on the list of “medium developed countries.” Indeed, with the world’s second largest GDP and a GDP per capita of more than $10,000, it is too embarrassing for China to continue to be taken care of as a “developing” country.

More importantly, China has basically obtained the benefits it had wanted by joining the WTO. Under the strong advocacy of President Clinton, China officially joined the WTO in December 2001, and the Chinese economy has been taking off rapidly ever since. As the data shows, in 2001, China’s GDP totaled $1.34 trillion, or 4.0065% of the world’s GDP. Then, 18 years later, in 2019 (in 2020 the pandemic occurred in China and then spread throughout the world), China’s GDP totaled $14.28 trillion, or 16.2763% of the world’s GDP. The data shows that the growth of China’s economic power is owing to its accession to the WTO.

In Globalization v1.0, China has indeed become the center. It’s the largest developing country to introduce foreign investments, with the total number of established foreign enterprises exceeding one million. It’s the world’s largest exporter and the second largest importer and is the biggest buyer from resource-rich countries. Especially after the U.S. shale oil production changed the global oil supply, Russia, the Middle East, and other oil-producing countries are scrambling to enlist China. 

After the COVID-19 pandemic emerged, oil prices plummeted, and China’s oil orders had therefore made China the “king”. By the end of 2020, China’s total outward foreign direct investment (FDI) reached $2.3 trillion, second only to the U.S. and the Netherlands. Over 28,000 domestic Chinese investors set up 44,000 outward FDI enterprises in 189 countries and regions around the world, with total assets reaching $7.9 trillion. In the UN, China has successfully turned the UN Commission on Human Rights, WHO, etc. into a tool to serve its own interests. Under these circumstances, the removal of China’s MFN status by the U.S. and EU is indeed an option to gain leverage.

China thinks that it has the power to bargain with the U.S. and EU over tariffs.

According to statistics released by China Customs on Nov. 7, in the first 10 months of 2021, the total value of China’s imports and exports was 31.67 trillion RMB, up 22.2 percent year-on-year, of which exports were 17.49 trillion RMB, up 22.5 percent year-on-year; imports were 14.18 trillion RMB, up 21.8 percent year-on-year, and up 21.4 percent over the same period in 2019.

The trade surplus was 3.31 trillion RMB, up 25.5 percent year-on-year. ASEAN, the European Union, the United States, and Japan, are the first, second, third and fourth largest trading partners, respectively. China has a trade surplus with the top three trading partners; 448.51 billion RMB with ASEAN, an increase of 6.6 percent, and 1.04 trillion RMB with EU, an increase of 38 percent. 

The total value of trade between China and the U.S. was 3.95 trillion RMB, an increase of 23.4 percent. China’s trade surplus with the U.S. was 2.08 trillion RMB, an increase of 18.9 percent. The trade deficit with Japan was 182.25 billion RMB, an increase of 47.8 percent. In addition, China’s foreign exchange reserves grew in October for the first time since July of last year. China has the world’s largest foreign exchange reserves, reaching $3.218 trillion at the end of October, which was up 0.53 percent from September and slightly lower than the $3.232 trillion at the end of August.

It is difficult for the U.S. and EU to break interdependent foreign trade relations with China. China will likely negotiate future tariffs with the U.S. and EU unilaterally in a reciprocal manner. Meaning “if exemptions for you then exemptions for me,” and if, “increases for you then increases for me.” 

The U.S. and EU will continue to treat China in the same way as they have in the past 20 years, “cooperation on one hand, confrontation on the other.” From the experiences of the past 40 years, China is confident that it will obtain preferential tariff treatment from all countries.

Companies with trade ties to China will automatically become lobbyists

Let’s recall China’s experiences since it opened to the world 40 years ago. 

Since the end of the last century, China has conducted a test run in its lobbying operations in the United States. According to the U.S. Center for Public Integrity, lobbying fees from China totaled $4,225,300 from 1998 to 2004. Lobbying was more indirect in later years. On the homepage of the Open Secrets’ website, the table “Lobbying Data Summary” records the total lobbying fees from 1998 to 2021.  

There are two types of such lobbying, one is lobbying agencies hired by the Chinese government. The Trump administration started to require these agencies to register as foreign agents. Although the policy was not strictly enforced, it has somewhat stifled these agencies. 

Over the years, multinational corporations have lobbied Congress heavily to protect their investments in China. They have dedicated lobbyists in Washington D.C. and have also formed alliances. Prior to China’s accession to the WTO, they fervently called on the U.S. government to unconditionally extend MFN status to China. In the face of China’s dire human rights situation and authoritarian politics, their main arguments for lobbying Congress were: “China is on a path for improvement to get closer to Western democracy,” “Economic development will promote political reform in China,” and, “Popularization of the Internet will bring freedom of the press to China,” etc.

Back on April 29, 1997, the New York Times published an article claiming that Boeing and other interested companies were lobbying the U.S. Congress for China. The April 2015 issue of the Atlantic Monthly also ran an article titled “How Corporate Lobbyists Conquering American Democracy”. These articles expose the fact that American conglomerates, such as General Electric, Microsoft, Boeing, Coca-Cola, Citi Bank, etc., and almost every major corporation that enters the mainland Chinese market automatically disguises themselves as a lobbyist on Capitol Hill. 

In addition, they are more eloquent and influential than professional lobbyists. They have a far better understanding of and the ability to act on U.S. lobbying politics than Chinese. In 2007, the U.S. introduced the “Revision and Clarification of Export and Reexport Controls for the People’s Republic of China (PRC)and New Authorization Validated End-User,” which added 47 controlled export products. What finally prompted the U.S. to reduce the number of controlled products was not the protest by the Chinese government, but rather the lobbying of U.S. multinational conglomerates such as Boeing and United Technologies.

My view is that the removal of China’s WTO treatment by many countries should not be seen as the Chinese Communist Party (CCP) under siege, as many commentators believe. These Western countries just think that China has become rich and has entered the ranks of medium developed countries, so they canceled all kinds of assistance. They also want to end preferential tariff treatment which categorizes China as a developing country. They will return to unilateral or multilateral trade negotiations on tariffs in the future. Coincidentally, as I finished writing this article, I came across an article published on November 8 on on.cc, entitled “Another crisis in global supply chain: US, UK and others want China to delay new import regulations.” Diplomats from seven economic systems, including the US, UK, Japan, along with Australia, Canada, EU, and Switzerland, sent a letter on Oct. 27 to Yuefeng Ni, the head of China’s General Administration of Customs (GAC), expressing their concerns about Chinese Customs Decrees 248 and 249, issued in April. 

The two orders ask food importers to meet the new requirements for comprehensive registration, inspection and labeling by Jan. 1, 2022. These countries argued that the decrees would disrupt the global food supply chain and delay food supplies to China. They suggested GAC delay the food import measures for “at least 18 months.” Up until Nov. 8 2021, neither the GAC nor the Ministry of Foreign Affairs is reported to have responded to these requests. 

“There are neither permanent friends nor permanent enemies in the world,” and China’s accession to the WTO is the best footnote to this famous saying. Before China joined the WTO, many countries were very glad to accept it, where the United States envisaged the bright prospect of democratizing China through the WTO. After China’s entry to the WTO, the countries then learned how much China, the new member, can stir up trouble. But in the end, there was nothing they could do about it. 

Today, 20 years later, they finally feel that China should no longer be allowed to enjoy the favored nation treatment as a developing country, and they want to return to the unilateral trade negotiation relationship that existed before 2001. The real problem for the West in the future is that China is not the same trading partner (or adversary) it was then, and it is far more difficult to deal with now.

This article was originally published by Radio Free Asia on Nov. 9, 2021.