The Impact of Accession to WTO on China’s Economy

The presented paper aims at providing a comprehensive analysis of the impact of China’s WTO accession. The analysis used a 41-sector, 10-households recursive dynamic CGE model of China. Dualistic foreign trade regimes ordinary trade regime and processing trade regimes, which represents an important feature of China’s foreign trade is introduced in the model. A 1995 social accounting matrix is compiled to serve as the benchmark date set. China’s WTO accession includes a complex package of trade and investment liberalization. This paper quantify the impact on efficiency and equality of the following four major aspect of China’s WTO accession: (1) tariff reduction in industrial products; (2) elimination of nontariff barriers in industrial sectors; (3) agricultural trade liberalization; (4) phasing out of MFA quota on textile and clothing. The results of simulation show that China would gain significantly in economic efficiency when China becomes a member of WTO. But the gains are not evenly distributed among either sectors or income groups. Accession to the WTO implies a relatively dramatic economic structural adjustment. Highly protected agricultural and some of the capital intensive industrial sectors would be the losers, while the labor intensive sectors such as textile and clothing would be the main beneficiaries. Since the dominant role of agricultural trade liberalization, rural households will get loss. The rural-urban disparity will enlarge, but the income distribution within rural and urban area would improve. Obviously, the role of government would be crucial to minimize the cost involved in the process of structural adjustment. * This paper is based on a research project supported by Washington Center for China Studies and Ford Foundation. The authors acknowledge Wang Zhi, Xu Lin and Wang Huijiong for their works and efforts in the research project. The views expressed in the paper are those of the authors and should not be attributed to their affiliated institution.