Trade Win No. 8
China’s trade reforms lifted hundreds of millions out of poverty
China’s remarkable economic transformation over the past four decades is a testament to the power of openness as a driver of growth and development. Its progressive integration into the global economy fueled rapid economic growth and lifted hundreds of millions out of poverty. From 1990 to 2023, China’s GDP increased from $361 billion to $17.8 trillion and per capita GDP rose nearly forty-fold. Between 2001 and 2023, urban wages increased more than ten-fold. Some 800 million people in China have been lifted out of poverty since 1980, accounting for 75 percent of the overall reduction in global poverty.
China’s 2001 WTO accession granted China the Most-Favored-Nation status, and spurred trade liberalization in China as seen by sharp tariff cuts and the removal of many non-tariff trade barriers. Average tariffs decreased from 43 percent in 1992, to 15 percent in 2001, and then to 7 percent in 2023. The resulting import surge in China benefited consumers, upgraded domestic industries, and enhanced China’s international competitiveness. By 2024, China’s global export share reached nearly 18 percent by 2022 (from about 1 percent in the 1950s) as China provided global consumers with a wider variety of goods at lower prices.
China’s openness extended beyond trade to foreign investment. Since initial reforms in 1978, and accelerated by WTO accession, China relaxed foreign direct investment (FDI) restrictions - its FDI Regulatory Restrictiveness Index fell from 0.63 in 1997 to 0.23 in 2023 while FDI inflows increased nearly 50-fold between 1990 and 2023. Openness to FDI helped to provide vital financing, enhanced productivity, created jobs, and facilitated technology dissemination. Multinational enterprises brought advanced technology and management practices to their subsidiaries, generating both horizontal and vertical spillovers to domestic firms. Between 1994 and 2013, FDI contributed up to 34 percent of China’s GDP and up to 29 percent of its employment.
Openness to trade and investment delivered striking productivity gains. China’s aggregate labor productivity growth averaged around 7.3 percent annually over the four decades between 1979 and 2018 and its manufacturing productivity saw 3.1 percent growth between 2000 and 2009. China's innovation ability also improved, with the ranking in the Global Innovation Index rising from 37th in 2009 to 11th in 2024.
China’s experience vividly demonstrates that openness—through trade liberalization, FDI attraction, and integration into global value chains—can be a powerful engine for poverty reduction and economic growth. To build on this success, China should further liberalize its market, remove market barriers, actively engage in new trade agreements such as the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) and Digital Economy Partnership Agreement (DEPA), and spearhead negotiation and reform efforts at the WTO. A stable, transparent, and open environment will be essential for fostering innovation and attracting global partnerships.
