University of Westminster 6ECON005W International Economics

An analysis of the trade policy review of China

Abstract

This academic paper provides an analysis of the WTO Trade Policy Review of China published in 2021. The key points
discussed are – the financial recovery from COVID-19 pandemic, specifically the rapid growth after the initial hit. Foreign
direct investment – inward flow from the European Union (major export partner) and the United States (despite the trade war
and political issues). Trade policies and agreements – the importance of the One Belt and One Road Initiative, Free Trade
Agreements signed globally and commitment to create global network of RTAs.

Keywords: trade, investment, growth

approximately $400bn worth of merchandise. (Collback L.

Introduction 2020)

The latest World Trade Organisation (WTO) Trade Policy
Review of China concerns the period from July 2018 until
September 2021 (WTO 2022). The outbreak of the COVID‐
19 pandemic in early 2020 had a major impact on output and
employment. At the beginning of 2020, China's economy
contracted by 6.8%. Virtually all sectors were severely hit by
the pandemic, with the notable exceptions of financial services
and information technology. (WTO 2022) However, China
quickly brought the pandemic under control, and growth
resumed in the second quarter of 2020 and accelerated further
over the second half. Thus, output in 2021 in the first quarter
was 18.3 percent above the depressed level of 2020. The pace
of expansion in subsequent quarters compared to the prior year
inevitably fell, since the level of output in the previous year
was successively higher. (Peterson Institute for International
Economics).
Between 2016 and 2019 foreign direct investment (FDI)
inflow continuously grew, yet the increase was much slower
than previous periods. China is an active member of WTO,
furthermore, in order to achieve its trade policy goals, China
places considerable emphasis on the multilateral trading
system and regional trade agreements (RTAs) in which it
participates.
During this review period, the United States and the European
Union maintained their position as prime destinations of
China’s merchandise. The European Union increased their
import form China by 1.6% from 2016 to 2020, although, the
United States’ share fell by 2.5%. This has been caused by the
trade war between The United States and China. The election
of Donald Trump introduced tariffs in two stages, to bound
Covid-19 pandemic
This review includes a significant amount of information
about the impact of COVID-19 pandemic. It can be seen how
COVID-19 impacted not only human life, but also, economic
growth. During this review the World was still fighting the
pandemic. The decline has been the most severe in 40 years,
between the end of 2019 and the beginning of 2020 the
progress fell around 13%. Furthermore, 6 months in 2020
China is recovering slowly. The sectors with the most rapid
growth are public investments and international trade,
however, private equity remained slow and uncertain.
The rapid recovery is influenced by a huge demand of
electronics, textiles, and most importantly medical devices. In
addition, in 2021, after this review has been developed, it can
be said that China has been one of the most efficient countries
when it comes to recovering from COVID-19 pandemic. (Hale
T. 2021).
Foreign direct investment into China plummeted at the start of
the year when coronavirus emerged within its borders. But its
rapid recovery from the pandemic, as well as the chaos the
virus has wrought elsewhere, is now encouraging a flood of
money into the country. (Hale T. 2020).
Foreign Direct Investment
Foreign investment in China continuously grew between
2016 and 2019. Outward FDI outgrew the inward, for
the first time in many years. The main structural reforms
since the 2018 WTO Trade Policy Review are cutting the

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tariffs, the opening of financial sector further and the
elimination of the investment quota for investors of foreign
institutions. China continuously holds power in being one of
the biggest investors abroad, the annual outward has drooped.
The most significant projects are under BRI (Belt and Road
Initiative). The sectors that receive the biggest shares are
leasing, manufacturing, financial intermediation. Around 13%
of China’s FDI goes towards BRI.
When you look at the urbanisation . . . the consumption
spending that has evolved in China — foreign investors have
consistently tried to find a way to invest in that mega theme.
(Agenthen G. 2020).
This is how the world is reacting to China’s rapidly growing
economy. During the review period, China provided financial
support to all different sectors and industries. This indicates a
measure taken to increase the innovation, promote
development, competitiveness and attract Foreign Direct
Investment. The trade war between China and the United
States is slowing down the relationship development between
the two countries, however, the European Union is one of the
biggest trading partners of China. The political issues are a big
factor of the very fragile relationship between China and its
partners.
Trade policies and agreements
In 2013 China launched Under the One Belt and One Road
Initiative, or the Belt and Road Initiative (BRI). The vision for
this project is to unite 140 countries through rail lines,
highways etc. According to an OECD analysis, BRI
infrastructure projects may have an impact on recipient
nations' debt load. Nonetheless, the authorities disagree with
the study's result. The authorities also emphasise the
initiatives' trade-enhancing and mutually beneficial character.
To reform its economy, China aspires to further liberalise its
trade and investment regime. The Government continues to
nurture the future vision to expand its international trade. The
outward direct investment is one of the ways to promote trade.
The Government states the commitment to create a global
network of RTAs is one of their biggest priorities. A two-way
trade an investment flow is key to maintain strong economic
and trade ties between Chin and its trading partners. 19 RTAs
with 26 countries have been signed by China until February
2021. Free Trade Agreements between China and partners
hold significant value. The WTO Trade Policy Review
recognises a significant number:
1. 12th November 2018 – China and Singapore – the original
agreement has been revised in six areas.
2. 28th April 2019 - China and Pakistan – the original
agreement has been revised, in addition, the changes were
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made in terms of market access and tariff concessions of trade
in goods.
3. 17th October 2019 – China and Mauritius – the areas
covered are trade in goods, services, and economic
cooperation.
4. 12th October 2020 – China and Cambodia – the agreement
includes provision on trade in goods, services, investment,
cooperation under the BRI. Both parties are pleading to
remove tariffs on approximately 90% of tariff lines.
5. 15th November 2020 – China and 14 other countries –
signed the Regional Comprehensive Economic Partnership
(RCEP) Agreement. The areas include trade in goods,
services, investments, access to markets. The elimination of
tariffs in over 100 sectors.
6. 26th January 2021 – China and New Zealand – The Upgrade
Protocol revised the original, added new points, such as
competition policy and environment and trade chapters.
7. 15th January 2020 – China and the United States – Phase 1
Economic and Trade agreement, containing – intellectual
property, technological transfer, financial services.
The majority of free trade agreements (FTAs) allow for
bilateral cumulation. One of the most important events from
mentioned above are the Regional Comprehensive Economic
Partnership Agreement (RCEP). Financial Times’ editorial
board mentions - The signature of the Regional
Comprehensive Economic Partnership, or RCEP, marks a
milestone for economic integration in the region; it spans 15
nations that together account for almost a third of the world’s
gross domestic product. It is the first trade agreement to bring
together China, Japan and South Korea and brings Asia a step
closer to the prospect of a cohesive trading bloc. The
agreements that have been signed hold significant value
in China’s economic growth. Some experts disagree,
when it comes to China being able to make decisions that
benefit their Free Trade Agreements.
Conclusion
This academic paper provides an analysis of the WTO
Trade Policy Review of China published in 2021. The
WTO Trade Policy Review mentions all the significant
points when it comes to China’s economic situation.
China has made some crucial changes over the review
period. The affects can be seen in Foreign Direct
Investment, Trade Agreements and Recovery from
COVID-19 pandemic. China holds a lot of power in
World’s economic. The FDI inward finances a
significant number of sectors within the country. The
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FDI outward finances countries, for example – The European And unlike back then, America’s prestige has been battered.
Union, The United States etc. China’s performance, in Yet public opinion in the rich world is now wary of China.
financial sectors is outstanding, when it comes to the recovery
from world-wide pandemic. Although, in 2021 we can see a
slight decline in FDI.

References
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China can compete in a free-trading world, but is not yet ready to

write trade regulations on its own. They welcome a chance to
help shape norms during negotiations such as the cptpp-
accession process, which they expect to take years. They hope
that external pressure will overcome special interests at home,
as happened when China joined the World Trade Organisation
(wto) in 2001.

Even before Europe’s snub this was a daunting task for the
incoming Biden administration, on a par with the creation
of nato or the world trading system after the second world war.

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