Turning quantity into quality: WTO accession

China's greatest economic miracle consists in having been able to turn from a producer of cheap electronic products and textile (its exports) into a leader in Mars exploration, technology, Artificial Intelligence, e-commerce, high speed rail network, quantum computing and many other industrial sectors.

Since China's accession to WTO, China's trade values have experienced rapid growth, from US$500 billion in 2001, to US$4.6 trillion last year, an increase of almost 10 times, resulting in accumulation of foreign exchange reserves that, at some point, had reached US$4 trillion.

Such sudden increase in gross income could have led to inefficiencies and dispersion, but China had soon understood that it needed to use this opportunity to acquire, from abroad, raw materials, know how, technology, aircraft, industrial machinery and even management techniques.

And that's exactly what China did, a strategy that has allowed the country to benefit from its WTO membership over the past 20 years.

The boost to GDP coming from trade is unquestionable. But the Chinese leadership has always known that export, that is external demand, is not a way to maintain a sustainable economic growth.

So, it has always seen this as a tactical opportunity, but not a long-term strategy.

Having your economy relying on the whims of foreign consumers, global economic cycles and – more importantly as we are witnessing over the last few years – geopolitical tension is not a good idea.

Therefore, after the initial boost, just like a rocket sent into space, China has made itself less and less reliant on exports.

In 2010, exports accounted for roughly one third of total GDP, today, they are less than 20 percent, with net exports almost reaching 10 percent of GDP during the Global Financial Crisis.

A parabolic trajectory: first taking advantage of new trading opportunity (2010-2008), then observing and learning how the 2008 financial crisis led to contagion to even non-US economies and third, slowing rebalancing its economy away from such heavy dependence on both exports and imports (2010-2020).

Dual circulation

The West, preoccupied with its own challenges, perhaps, did not take much notice of such transformation in the structure of the Chinese economy which has occurred in only 10 years. A strategy that, like in all new reforms in China, follows the "Crossing the river by feeling the stones," or more simply, trial-and-error approach.

A strategy that has indeed been so successful that has been given a new theoretical framework by President Xi Jinping: dual circulation. Which does not mean the decoupling that some Western countries are advocating and disrupting global supply chain.

Rather a more benevolent, I believe, tendency to rely on domestic demand as the core of its economy and then having both imports and export at a healthy level to guarantee normal business interaction with the rest of the world, without subjecting socio-economic stability of the country to either imports or exports.

And, probably not well understood by Western analysts, China's main source of wealth in recent years have been imports, not exports. This is a shift in strategy from the first decade of WTO membership when exports were more crucial.

It is within this context that issues related to renminbi undervaluation, alleged dumping, and state subsidies to boost exports – if valid argument in the years between 2001 and 2010 – have already been superseded by new developments: Common prosperity also means allowing the average Chinese citizen to be able to afford foreign goods, hence a relatively stable renminbi, rather than a force devaluation, is in the interest of the Chinese economy.

With regards to dumping the issue has even more clearly been resolved by the simple passing of time: over the last 20 years, China has built a large manufacturing scale that has allowed its companies to accelerate the path along the learning curve, with product quality having increased significantly thanks to the positive cycle created by 1) large quantities leading to 2) lower average costs, leading to 3) higher profits, leading to 4) excess cash available, leading to 5) more investment, leading to 6) improvement in quality of product and, back at the beginning, more and more quantities.

In practice, China has made another miracle: turning quantity into quality. Therefore, it is very hard for foreign competitors to argue at WTO level that China is exporting at prices below international market level since China IS, almost by definition, the international market.

A few weeks ago, I met with WTO Director General Dr Ngozi: we shared the view that more needs to be done to allow world trade to continue to develop and China can play a leading role in the post-pandemic age by continuing to maintain an open East to West supply chain, notwithstanding recent spike in shipping costs and continuing to lower trade tariff and Non-Tariff-Barriers. Not only will Chinese consumer benefit from this, but also China's international standing.

Michele Geraci is professor at Nottingham University, China, adjunct professor at NYU Shanghai, and former undersecretary of state at the Italian Ministry of Economic Development.