Can China stand on its own?
The reason is that China was never like other developing countries. In 1820 China was the biggest economy in the world with about 40 percent of U.S. per capita income (which would qualify as high-income by today’s standards). It had a long history as a nation state with an effective bureaucracy. For external and internal reasons, by the time Chairman Mao died it was poorer than sub-Saharan Africa. But once it re-engaged with the world after 1978 it started bouncing back quickly to its former place in the world.
What sets China apart is not the sheer size of its economy but the capacity of its bureaucracy. I do not want to lionize the bureaucracy; it is beset with problems of corruption and infighting. But its bureaucracy is more like that of the lower half of rich countries than its middle-income peers. We should not be surprised then that China is able to effectively carry out complex international initiatives, such as launching the Asian Infrastructure Investment Bank, and we should welcome China playing a larger global role in this way.
At the same time, it is reasonable for the world to expect China to continue to open up its economy. Ever since China joined the World Trade Organization there has not been much further progress. China’s tariffs on merchandise are moderate so the main issues lie elsewhere.
China has yet to join the Government Procurement Arrangement that would open up its public procurement to international competition. It is not part of the negotiation on the Trade in Services Agreement. In the area of direct investment, China is far less open than advanced economies and even less open than big developing countries such as India or Indonesia.
In economic negotiations China likes to play the developing country card, trying to protect domestic sectors as much as possible. There would be significant gains to China and to the world if the country opened up more. It is reasonable to expect China to adopt developed country standards on procurement, services and investment – perhaps with a short phase-in period of three years or so. China is mostly hurting itself by stalling on these reforms.