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INTBUS-18 International Business and Trade

Assignment #1 Critical Thinking and Discussion Question

China is playing a growing role in the world economy.  It is one of the world's fastest growing
countries and is the tenth largest exporter.  Today, it is the world's second largest economy and
produces 9.3 percent of global GDP.  If current trends continue, discuss the possible
implications of such a development for:

1.  the world trading system;

 China’s entry into the WTO depends on successful completion of the multilateral
phase of accession negotiations that are currently underway. China’s
membership would be of great significance for the future of the international
trading system for several reasons. The terms of its admission will serve as a
template for a number of other transition economies that are seeking WTO
membership, including Russia. Given the extraordinarily demanding conditions
that the Chinese have accepted during the bilateral phase of WTO admission
negotiations, the bar of entry conditions for new members has been set very
high. Second, although China has taken important steps toward meeting some of
its WTO obligations, the speed with which it is able to complete the process may
disappoint some members of the organization. Given the large volume of its
international trade, there is a risk that trade conflicts involving China could
overburden the dispute settlement capacity of the WTO. Third, China is likely to
play a significant role in shaping the agenda for the next round of multilateral
trade negotiations.

2.  the world monetary system;

 The worst risk is the ticking time bomb within the nation's financial system.
Banks are state-funded and owned. This means the government sets interest
rates and approves loans. They pay low-interest rates on deposits so they can
lend cheaply to state-owned businesses. As a result, banks have channeled
government funds into an unknown number of projects that may not be
profitable.

3.  the business strategy of today's European and U.S. global corporations

 China’s entry into the WTO is not likely to reduce the bilateral trade deficit or
eliminate trade friction with the United States for a number of reasons. First, the
benefits of China’s accession may have been oversold by an administration
seeking authority to extend permanent normal trade relations (PNTR) to China to
 avoid being frozen out of the benefits of China’s WTO commitments. Although
the bilateral agreement between China and the United States, which will
become part of China’s multilateral commitments, does provide increased
market opening, China’s markets for merchandise are on average far more open
than is commonly recognized.

4.  global commodity prices.

 The drag on commodity prices from China’s growth moderation is real. But the
sharp and generalized drop seen in commodity prices should not be laid entirely
at China’s feet. Perhaps more important, with the country still importing large
volumes of commodities and the rest of developing Asia set to generate a new
surge in commodity demand, the prospects for a commodity-price rebound look
brighter.