14 April 2008

ITC Examines Chinese Government Efforts to Influence Economic Decision Making

This article is extracted from the 14 April 2008 edition of “World\Trade Interactive”.

The International Trade Commission has recently made public a report examining the practices and policies that China’s central, provincial and local government entities use to support and attempt to influence decision making in the economy, including the manufacturing, agricultural and services sectors. This report provides a description of such practices and policies with respect to industrial development, restraints on imports and exports, the rationalization and closure of uneconomic enterprises, the privatization of state-owned enterprises, price coordination, utility rates, taxation, the banking and finance sectors, infrastructure development, research and development, and worker training and retraining. The report also provides an analysis of the likely impact of the December 2006 policy directive from China’s State-Owned Assets Supervision and Administration Commission (SASAC), which outlines the industries the Chinese government considers to be strategically important.

According to the ITC, the involvement of the Chinese government in the economy varies by sector but overall is less than in the past.

In addition, China’s economic practices and policies are rapidly changing. For example, in 2007 alone the government instituted a new bankruptcy law, a new enterprise income tax law, new banking regulations, a property rights law, an antimonopoly law and regulations to remove tax rebates for exports. Nevertheless, the report states, China’s economic policy and political traditions, as well as continued government intervention in all aspects of the economy, have created substantial ambiguity in the way laws are interpreted and applied in China. In addition, competing lines of political and economic control effectively give China’s local and provincial government authorities significant independence under the framework of broader central government policy directives, which can lead to inconsistency in the interpretation and implementation of policies and regulations at different levels of government.

Highlights of the ITC’s findings with respect to specific issues include the following.

Restraints on Imports and Exports. Since 2004 China’s central government has issued regulations to restrict or prohibit imports used under the processing trade relief program as well as the types of products that can be exported under this program. Other restraints on imports include automatic licensing requirements for certain items, import bans on certain technologies and machinery, a lack of transparency with respect to customs regulations, burdensome documentation requirements, tariff-rate quotas on certain agricultural products and fertili