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  November 5th, 2017 | Written by

Commerce Department: China Not a Market Economy

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  • The Commerce Department refuses to use Chinese prices and costs when it performs antidumping analyses.
  • China objects to US use of “alternative country” approach to determine prices and costs of Chinese exports.
  • China: US approach in antidumping cases violates World Trade Organization rules.

In a report released last week, the United States Department of Commerce concluded that China is a non-market economy. The government’s role in the Chinese economy and the resulting “fundamental distortions in China’s economy” was the main basis for the report’s conclusion.

The report acknowledged that Chinese Communist Party’s stated fundamental objective is to develop a “socialist market economy,” but this involves the Chinese government and the CCP directing economic actors to meet the targets of state planning.

“The Chinese government does not seek economic outcomes that reflect predominantly market forces outside of a larger institutional framework of government and CCP control,” the report concluded.

As a result, the Commerce Department refuses to use Chinese prices and costs when it performs antidumping analyses and instead uses the “alternative country” approach to determine prices and costs. The department is authorized to impose antidumping duties on imports when it finds that they are being sold in the US at less than cost or at less than prices in domestic markets.

The department’s conclusions are based on the analysis of factors including the convertibility of China’s currency; whether wages are based on free bargaining between labor and management; whether and to what extent foreign investments are permitted; government ownership or control of industrial assets; and government control over resource allocation and over price and output decisions of enterprises.

The analysis found that the Chinese currency, the renminbi (RMB) is convertible, but that the Chinese

government maintains significant restrictions on capital transactions and intervenes in foreign exchange markets. With respect to wages, the report found that independent trade unions are prohibited in China and that workers do not have the right to strike.

The Chinese government’s foreign investment regime is restrictive, the report concluded, the Chinese government exerts significant ownership and control over industry through state-invested enterprises, and other means, and state planning remains important in the Chinese government’s industrial policies.

The Chinese government pushed back on these assertions in a speech made by a Ministry of Commerce spokesperson and reported on the Ministry of Foreign Affairs website. The spokesperson particularly addressed the Commerce Department’s imposition of antidumping duties on Chinese aluminum foil and its use of the “alternative country” approach to calculate prices and costs.

The spokesperson described China as a “socialist market economic system” and accused the US of ignoring “the great achievements made by China’s market economy…”

The spokesperson added that the use of the “alternative country” approach violates World Trade Organization rules.

“The Chinese side will take the necessary measures to safeguard the legitimate rights and interests of Chinese enterprises,” the spokesperson concluded, “and retains the relevant rights under the WTO dispute settlement mechanism.”