Chapter 4 explores the utility of different WTO rules in disciplining market-distortive behaviour of SOEs and subsidies, including GATT rules on import monopolies, state trading enterprises (STEs), transparency, and anti-dumping (AD) measures. In our view, these rules are all of limited utilities, albeit for different reasons: the rules on import monopolies and STEs are quite narrow in terms of the coverage of policy instruments and the prescribed obligations, the transparency obligation is rather tooth-less, while the ability to use AD measures to deal with market distortions due to state intervention has been curtailed by the Appellate Body (AB) in recent cases.

Chapter 6 provides a critical evaluation of the new rules on SOEs developed in international trade and investment agreements, with the CPTPP as the leading example. Despite its reputation as a ’twenty-first century high-standard trade agreement’, we argue that the SOE rules in the CPTPP do not add much to the existing rules in the WTO and are less rigorous than China’s WTO-plus obligations discussed in Chapter 5. This chapter then examines some major post-CPTPP trade and investment agreements with significant rules on SOEs, including the EU–Japan FTA, the EU–Vietnam FTA, the United States–Mexico–Canada Agreement (USMCA) and the CAI. As one of China’s latest international agreements, the CAI is also the first treaty where China agreed to SOE rules outside the WTO. Again, the main substantive obligation here – the one on commercial considerations – simply repeats the existing obligation in China’s WTO accession package. While all of the FTAs discussed in this chapter should be praised for setting new and higher standards of transparency, they do not resolve the longstanding problem of enforcement – the most challenging issue under the WTO’s transparency regime.

Chapter 3 deflates the myth that China’s state capitalism is a new problem with an extensive review of China’s WTO accession. Drawing from the negotiation records, we demonstrated that WTO Members have been well aware of the potential clashes between WTO rules and China’s state capitalism since the very beginning. Yet, contrary to those who argue that state capitalism is inherently incompatible with the WTO, the Members believed that practical solutions could be found. Thus, they meticulously identified specific aspects of the Chinese system that might undermine its WTO commitments and carefully crafted surgical solutions to address these problems in WTO-consistent ways. Such an approach is much better than the one asking for a complete overhaul of China’s economic system, as it not only minimises the resistance of China but also ensures that the problematic areas are fully addressed. Thus, the theory that the accession negotiation failed to address the problems presented by China’s state capitalism is unconvincing. Instead, the practical approach adopted in the negotiation demonstrates the faith among WTO Members in the ability of the WTO to act as a neutral forum.

Chapter 8 summarises the main findings from the preceding chapters, and discusses the best way to deal with the China challenge. Contrary to those who prefer unilateral and plurilateral approaches, we argue that the potential of multilateralism has yet been fully explored. As we have documented, it was the desire to normalise its trade relations within the multilateral framework that prompted China’s initial decision to return to the multilateral trading system. While China did pursue unprecedented market-oriented reform, the potential of the multilateral rules in taming China’s state capitalism has not been fully unleashed since China’s accession. Of course, recognising the potential of multilateralism does not mean that multilateralism is perfect. Instead, we believe that multilateralism is the most promising compared with unilateral measures and bilateral and plurilateral negotiations outlined above. In addition to making fuller use of the existing rules under the WTO, this book has also put forward some approaches for the negotiation of new rules at the multilateral level where such rules are needed and suggested ways to engage China in a more constructive manner.

Chapter 5 discusses the great potential of China-specific rules on pricing and commercial behaviour of SOEs, coupled with WTO rules on subsidies both in the original Agreement on Subsidies and Countervailing Measures (SCM Agreement) and further elaborated in China’s WTO Accession Protocol. In particular, in response to the argument that WTO subsidy rules have been rendered ineffective by the AB’s interpretation of the term ’public body’, we argue that the utility of the provision has been rehabilitated by the AB’s subsequent decision in US–Countervailing Measures (China) (Article 21.5). Moreover, even the original ’authority-based’ test is no longer an insurmountable hurdle due to the back-tracking of China’s SOE reform in recent years, which resulted in more micro-management by the Party and state in the management of SOEs. Thus, the best way to tackle China’s state capitalism is through WTO litigation based on existing rules discussed in this chapter.

Chapter 1 introduces the main theme of the book, that is, challenging the conventional wisdom that the existing WTO rules are inadequate to address China’s state capitalism and demonstrating that China’s WTO-plus obligations, coupled with the general rules on subsidies, do provide ways to address the problem. It also provides summaries of the chapters to explain the structure of the arguments in the book.

Chapter 2 traces the contours of China’s SOE reform since 1978. We divided the reform into five phases, where the first two phases focused on ensuring the survival of SOEs by granting them operational autonomies, first at the firm level and then at the managerial level. The third phase saw the adoption of corporatisation strategies for the ones deemed promising and privatisation of the ones deemed unviable. The fourth phase covered the first decade after China’s accession to the WTO, where the earlier trajectories continued, as we can see in the efforts to continue the market-oriented reform for SOEs with plans of commercialisation and modernisation. At the same time, a worrying trend also started to emerge when the government launched various campaigns to create national champions. This trend continued in the fifth phase as we entered the new era of ’Socialism with Chinese Characteristics’, where SOEs, strengthened by the previous rounds of reforms, started to squeeze out private firms in various forms. At the same time, the CPC also stepped up its efforts to enhance its influence in the SOEs by launching aggressive drives to build Party cells in these entities.

Chapter 7 is dedicated to a more focused discussion of how to tackle China’s state capitalism in the WTO. The first option is utilising existing WTO rules, especially those China-specific provisions, to bring cases against China, which so far has not happened. This is partly due to the perception that WTO litigation does not work against China, an argument which we refute by referring to China’s good compliance record with WTO decisions. At the same time, we do agree that a more strategic approach should be taken in bringing such cases and proceed to suggest the types of cases that should be brought and how the evidentiary burden could be met. The second option is through trade negotiations. While bilateral negotiations such as the US–China Phase One deal do not really work, there is great potential in multilateral negotiations. Here, we caution against those advocating the exclusion of China in such rule-making efforts and argue that China should be engaged to make the negotiation fruitful. To make the discussions more productive, we also suggest certain guidelines to make sure that China will be more constructively engaged.