Today I have the honor to be invited to give a brief report on the relationship between China and the multinational trading system, which is a very complicated issue. While the university wanted me to talk about China's journey into the World Trade Organization and the economic prospects after its entry, I will try to present a review of this negotiation process, since most of you here are young and know little about China's WTO entry negotiations.
Three years after China's WTO accession, we realized, more and more, that the 15 years of negotiation, in particular the last 10 years, is an extraordinarily painful process. To some extent, this process reflects the complexity and hardships accompanying China's reform and opening up, demonstrates our political courage in this process and shows how the world is gradually accepting and adjusting to a rising power. So a review of the WTO entry negotiations reflects some major historical changes of China.
The 15 years' negotiations from 1986 to 2001 can be divided into three phases, and we learned a lot of important things during each of them. During the first six years from 1986 to 1992, as I mentioned in my report right after the entry, the negotiations concentrated on the market economy. Now the concept of market economy is widely accepted in China. However, you may not believe that before the year 1992, market economy is actually a taboo phrase in China and the adoption of market economy equals the adoption of capitalism.
We all know that GATT, or later the WTO, is a global club of market economies and one indispensable precondition for joining this club is the acknowledgement of market economy. Unfortunately, we were unable to meet this critical requirement at that time, which made the negotiation extremely difficult. We all know that China's economic system back then was called "a commodity economy system with the combination of planned and market regulations"—a rather complex one. And our counterparts had no clear idea about commodity economy. They thought that China's economic system was something like various commodities stacked up in a department store. Therefore, we went to great lengths to explain the commodity economy only to find that they still couldn't persuade themselves to accept it.
In addition, they didn't believe it's possible to adopt both market and planned regulations at the same time. In their mind, market regulation is objective and subject to the objective economic rules whereas planned regulation is subjective and determined by governmental decisions and policies. The two can never be combined. Of course, we explained to them that this kind of combination is feasible in China. And they then said that this kind of combination, though feasible, would result in non-transparency, instability and the lack of predictability of China's economy system simply because we could not determine the right time, vigor in adopting either of them. At this point, China's WTO entry negotiation was faced with formidable difficulties.
The major difficulty is that the concept of market economy was not accepted in China. As it was not easy for us to approach China's economy system at the macro level, then we shifted to the micro level, studying market economy based on the operation of enterprises. We know that enterprises are the cells of a nation's economy. Whether the national economy is sound or not can be observed from individual enterprises, so we shifted to the micro level.
During the negotiations in Geneva, many foreign diplomats in China were present and they knew China very well. At one of the sessions, a senior American diplomat in China asked us about how come a factory head, the center of an enterprise and a party secretary, the core of an enterprise shall be combined into one. Many of our delegates were quite annoyed at such a question which touched on political issues, while the negotiation was about economy. The establishment of party secretary system in an enterprise is our internal affairs which permits no foreign interference. Therefore, we refused to give any comments.
The American diplomat felt rather wronged and later he came to me explaining that he had not meant to annoy us by asking such a question. He thought that we Chinese delegates had long been talking about the combination of planned and market regulations but without success, it might be better to show them how this combination is realized in the operation of a single enterprise. After his explanation, I realized that he was right, except that he did not have a thorough understanding of the party secretary system. He took the party secretary as being assigned by the government hence representing planned regulation and the factory head as representative of the interest of the enterprise, hence market economy. Therefore, he believed that the explanation of the party secretary system in an enterprise equals the explanation of the commodity economy. As a matter of fact, we felt so enlightened that we decided to focus on the party secretary system in enterprises. Later, back in China, we sent lots of experts to Geneva to explain this system, only to make things more complicated and we ourselves were also confused. We know that both the party secretary and the factory head are assigned by the central government and they have the same objectives. In short, we couldn't avoid one major difficulty throughout the negotiations, that is, how could China adapt its planned economic system to the multinational trading system featuring a set of international rules based on market economy.
I remember that Li Lanqing was our minister during the hardest time of the negotiations. He had a relatively open mind. He suggested that we propose Chinese economy system is a planned market economy system. I thought this might be a way out. Therefore we invited delegates from the USA and other western countries over and asked whether it is feasible if we promised the economy of China is planned market economy. They said of course we could. As long as we promised to be a market economy, it did not matter if there was planning. Many market economy countries were also planned. We were so happy that we filed a report immediately after we came back to China. But this report didn't even make half the trip, because at that time, we described Chinese economy as a commodity economy with a combination of planned and market regulations. We could not change this fundamental description just for the sake of an international trade negotiation. So this didn't work out either.
The situation didn't change until 1992, when Deng Xiaoping, in his speech during his tour to South China, proposed that under socialist environment we could also have market economy. In other words, there was no confliction between socialism and the market economy. From today's point of view, Deng's remarks seem to be very common. But for the reform of the entire Chinese economy system, and for the negotiations, it came as such a great breakthrough! Everyone was enlightened. In June that year, Jiang Zemin made a speech in the Party School of the CPC Central Committee and talked about the issue of a socialist market economy. Then the 14th CPC Congress officially declared that the purpose of the reform of our economy system is to establish a socialist market economy, and thus market economy was officially acknowledged in the CPC documentations. So we went to Geneva soon after the 14th CPC Congress to attend a meeting, a meeting for GATT contracting parties. I remember that time when we announced that we China have market economy, they applauded for three minutes. They seemed to be more excited than we were because they had been trying for so long and finally we admitted we are market economy. So from then on, we stepped into a new era in terms of China's economic development, the reform, as well as Geneva negotiations. From 1986 to 1992, we had been negotiating for six years and we finally got through by promising we are market economy. This laid the most important theoretical foundation for China to take part in international economy, especially in economic globalization.