Article: China’s SOE Reform: Using WTO Rules to Build a Market Economy

A new article co-authored by Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre’s member, Dr Weihuan Zhou, argues that albeit China’s ongoing state-owned enterprise (SOE) reform brings challenges to the world trading system, it is not necessary to create new rules as the existing WTO rules on subsidies and countervailing measures, alongside with China’s WTO-plus commitments, are sufficient to deal with these challenges. The key is how to properly utilise these rules.

In this article entitled “China’s SOE Reform: Using WTO Rules to Build a Market Economy”, which will be published in the forthcoming International & Comparative Law Quarterly in July, Weihuan and his colleagues reviewed the ambitious SOE reforms that China has continuously undertaken since 1978 with a focus on the current reform commenced in 2013. They found that although the country seems to be committed to a market-based transformation of SOEs, the recent rounds of reform have actually strengthened state capitalism.

As such, there are increasing concerns among WTO members on China’s state capitalism, “which not only regards the current set of multilateral rules as insufficient in dealing with Chinese government’s intervention in the market, but also deems it as a systemic failure in the WTO.” The article said.

Through a detailed analysis of the major relevant WTO rules, the article submits that the rules on non-discrimination, tariffs, quantitative restrictions, transparency and anti-dumping are indeed limited in dealing with SOE-related issues. However, the article argues that the WTO subsidy rules and China-specific obligations may have the potential to tackle these issues and should be used more often to test the boundaries and utility of these rules. 

Therefore, this article suggests that “instead of trying to negotiate new rules, the WTO Members need to make more active use of these existing rules.”

The full paper is now available at SSRN.