The Limits of Liberalization: WTO Entry and Chinese State-Owned Firms

Does state ownership limit the liberalizing effects of the WTO? We examine the case of China, which is not only the largest exporting state but also lends active support to state-owned enterprises (SOEs) that could distort global trade. Using data on import purchases disaggregated by ownership from 1993 to 2012, we analyze how WTO entry affects the commercial orientation of state-owned and private imports. We demonstrate that after WTO entry, tariff cuts have a larger effect on private compared to SOE trade. We then show that state ownership alone does not block the WTO's liberalizing effects. For most industries, SOEs and private firms are alike in their commercial orientation. However, where strategic goods targeted by industrial policy hold a large share of bilateral trade, lowering tariffs has no impact on SOE trade. These findings highlight the tensions between state-led economic models and global trade law premised upon market principles.