China’s overcapacity problems complicate granting of market economy status
February 29, 2016 Category Foreign trade, Weekly
European Union countries will find it difficult to grant market economy status (MES) to China because its efforts to achieve that transformation have fallen short, according to a report by the European Chamber of Commerce in China. It said industrial overcapacity had worsened since 2009 and this was a problem that could not be solved by the “One Belt, One Road” initiative or the Asian Infrastructure Investment Bank (AIIB). Deep changes in the government and its approach to managing the economy were required, it said. “China has not managed to actually become a market economy as its leaders anticipated in 2001,” Chamber President Joerg Wuttke said. The EU is about to review whether it should grant market economy status to China this year as part of Beijing’s accession agreement to the World Trade Organization (WTO), but the bloc’s member countries are divided on the move, while the United States has opposed it, arguing the economy relies heavily on central organization and government-set pricing. Wuttke said it was widely held inside the European Parliament that China was challenging jobs in Europe. He said concerns over job losses had fueled protests in Brussels. A weakening yuan could give China’s exports a boost, making it more difficult for the EU to reach a decision, he added. Conferring market economy status on China would mean Chinese firms could have a better defense against allegations of anti-competitive trade behavior. The Chamber believes protectionism at the local government level is a main reason for China’s growing overcapacity. Beijing should address the roots of overcapacity by reforming its fiscal system to give local governments more funding options, Wuttke said, as reported by the South China Morning Post.
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