How Zhu Rongji helped China join the WTO and become the world’s factory

“After that, China built upon its enormous labour force and domestic infrastructure buildout, and the whole manufacturing ecosystem developed from there. This transformed China into the so-called factory floor of the world,” she said. However, that position has also invited severe criticism, including on China’s trade imbalances with countries like the United States and India.

Why China sought the WTO, and vice versa

For the Chinese state, Lee said, WTO membership was a “buffer” for the economy at a time of major structural changes. As part of a government led by President Jiang Zemin, Zhu was also a key part of this transition. He supported the dismantling of many State-Owned Enterprises under an efficiency drive, which resulted in job losses.

Amit Kumar, a researcher at the Takshashila Institution in Bengaluru who focuses on the Chinese economy, told The Indian Express that China’s entry into the WTO was the culmination of a “long battle among Chinese elites over the direction of the economy.” Deng argued for opening up, but more conservative leaders saw it as a “surrender to capitalism”.

It also came soon after the Tiananmen Square incident of 1989, which saw large-scale protests against the state, partially fuelled by economic woes in the decade after liberalisation. Nonetheless, leaders like Deng prevailed in their reform push. “Accession to the WTO, a Western liberal economic institution, was the last frontier to be conquered,” Kumar said.

Many in the US had great hopes from the process. “I think the thinking back then was that integrating China into the global trading system would be commercially beneficial (low-cost inputs, labour, etc.). There was some gesturing about how this would push China toward more market-oriented rules and institutions, but I see that more as a political point,” Lee said.

“Washington believed accession would create a large middle class in China, and that as this class reaped the benefits of economic freedom, it would eventually demand political rights,” Kumar said.

Author and journalist Martin Jacques wrote in When China Rules the World (2009) that for the Chinese leadership, the goal was never Westernisation, but rather to restore the Communist Party’s “legitimacy after Mao through economic growth.” Given its sheer size and a Communist government at the helm, China had to invent its own way of reform and opening up to the rest of the world.

What joining WTO did for China, the world

WTO negotiations took 15 years. China’s political structure meant that it was viewed with “considerable suspicion” by the US, with its entry based on “the most detailed agreement ever made with any country — contrasting strongly, for example, with the far less demanding terms required of India a few years earlier,” Jacques wrote.

Academic Yeling Tan wrote in Foreign Affairs that WTO accession “triggered many significant changes” in China, including “large cuts to import tariffs, loosened rules around trading licenses to introduce domestic private and foreign competition,” and an overall greater role for market forces.

Two charts paint a stark picture of how things changed for China. The share of trade in its GDP rose significantly, as did its exports of goods and services.

What happened after China joined the WTO. (World Bank data, created using generative AI)

In their 2016 paper “The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade”, American academics David H Autor, David Dorn and Gordon H Hanson argued that WTO regulations led to several changes. For instance, “China idled many state-owned manufacturing enterprises, moving toward compliance with WTO provisions… Capital and labor were then reallocated from smaller, less productive state-owned companies to privately owned manufacturing plants, raising productivity,” they wrote.

As Kumar put it, the accession was an “inflection point” for the economy. “Almost every deviation from the average economy or structural imbalance that we today attribute to China, such as extremely high savings, very high investment, and suppressed consumption, is a product of and a feature of China’s post-WTO period or accession,” he said.

Fallout today

At a 1999 joint press conference with US President Bill Clinton in Washington, Zhu said, “The competition arising (from WTO membership) will also promote a more rapid and more healthy development of China’s national economy.” While the “rapid” part of that assertion is unquestionable, the “healthy” bit has increasingly become debatable on several counts.

First is the loss of manufacturing jobs in countries like the US, also raised as a political concern by US President Donald Trump. The idea of “China Shock” argues that although lower-priced goods became available to consumers thanks to the boom in Chinese manufacturing, it was also accompanied by major job losses. “There were enormous productivity gains in the US, but the costs and benefits were unevenly distributed, with costs heavily concentrated particularly in manufacturing communities, ” Lee said.

A related phenomenon is cheap Chinese goods competing with local industries. Lee said China’s tendency to “produce too much” is a result of complex factors, including state subsidies, labour availability and infrastructure. But its ability to massively expand and sell goods for cheap also “exposed limits in WTO rules that were largely designed for more conventional market economies.”

“High investment in the economy meant that China was producing more goods than anywhere else in the world. However, subdued consumption meant a substantial portion of China’s production was not being absorbed or consumed by its population,” Kumar said. With problems of youth unemployment, a real estate crisis and low demand within China today, its exports have again become contentious, drawing strong responses from industries in the US, Europe, and other parts of the world.

Leaders like Zhu helped lay the foundation for that growth, but its fallout is complex and still unfolding. “He was a formidable figure who used WTO accession to force a lot of competition… but he was also not a liberaliser. The asymmetry/imbalance today, therefore, reflects not simply a failure of Zhu’s policies; it is also related to political choices made in the decades that followed,” Lee said.