It is probably not so clear cut, but what was once a unified World Trade Organization WTO, appears to want to split into two camps, based on their form of government. On one side is the democratic Western group, now countered by China and Russia in the totalitarian group. This cleaving seems to be necessary because of fundamental differences of the independence of companies from their governments.
China joined the WTO in 2001 and pledged to, over time, do market liberalization and open its economy. Under Deng Xiaoping, and then Hu Jintao this was happening. Under Xi Jinping in 2014 China began an rolling back and tightening of its economy. While enjoying the openness of Western trading partners, China then reversed market reform and openness. The world now has a problem with China’s unfair trade practices. There are other issues with China’s very lax IP theft, forced joint ventures, forced technology transfer to the Chinese partner and fixed currency issues that also comes into play.
Chinese Companies Must Pledge allegiance to the CCP
Crucially for the world is Xi Jinping’s insistence that the Chinese Communist Party CCP play the most important role for all Chinese groups, including schools, companies and individuals. This document was released on 2017 Oct 18 at the 19th Communist Party Congress (CPC), and is the roadmap China will use going forward.
Adhere to the party’s leadership over all work.
The party, government, and the people’s studies, the East, the West, the Middle East, the Middle East, the party is leading everything. We must strengthen political awareness, overall awareness, core awareness, and sense of conformity, consciously safeguard the party’s central authority and centralize unified leadership, and consciously maintain a high degree of unity with the Party Central Committee in ideological and political actions, improve the system and mechanism of adhering to the party’s leadership, and adhere to stability. In the overall tone of the work, we will promote the overall layout of the “five in one”, coordinate and promote the “four comprehensive” strategic layout, improve the party’s ability to direction, plan the overall situation, set policies, and promote reform, and ensure that the party always takes over. Global, coordination of all parties. source
Implications for International Trade
In 2001 the world watch China pledge to open its economy as it grew. Over 17 years later we see a strong China that not only has not opened up but is increasingly closing down not only on openness but also on fair trade. This cannot continue.
What this means for international business is that all Chinese companies are at least state sponsored and influenced and at worst state run companies. This has serious repercussions for international trade, as joint ventures are forced to hand over IP knowledge to their Chinese partners, who will then provide it to the CCP for the good of the country.
Western countries have a clear split between state, companies and religion. China controls all three. Of course an independent Western company cannot compete on a level playing field against a Chinese company that has the technical and financial backing of the CCP and China. International companies will always be at a disadvantage. These two methods of running a company cannot co-exist within the same trading system because of the great advantage to Chinese companies.
Fair trade needs to be reciprocal to all countries involved. It is clear that the West’s openness is not being returned in China. International companies have been patient but have experienced decades of roadblocks and outright IP theft in China.
Supply chains that have been developed over the past 17 years need to be rethought and possibly redrawn. This is a great opportunity for other less wealthy countries to step up and decide if they are willing to trade fairly with the West.
Western countries have heavily invested in Chinese factories but this has not had a reciprocal benefit to both sides. China has used this mechanism to pull its people out of poverty, to the detriment of Western countries. Blame should also be shared with greedy Western countries and a naive thought that increased wealth would bring democracy to China. Nothing could be further from the truth.
The Cleaving of International Trade
It is not that Western countries will not trade with China, but that the openness within the World Trade Organization needs to exclude countries that will not be reciprocal. Western countries can and should trade with China, but there should be no expectation of any reciprocal trading agreements as there are in the WTO, or any other international agreements. Preferential country agreements need to end for China.
In turn, China can start its own trading organization, where it can strike new agreements with other totalitarian and smaller countries. They are free to do as they wish.