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China's Leaders Uneasy About WTO Entry

[WTN-L World Tibet Network News. Published by The Canada Tibet Committee. Issue ID: 01/11/13; November 13, 2001.]

Inefficient Farms, Businesses to Face Tough New Rivals

By Clay Chandler and Phillip P. Pan
Washington Post Foreign Service
Tuesday, November 13, 2001; Page A27

SHANGHAI, Nov. 12 -- Chinese Prime Minister Zhu Rongji would seem to have every reason to celebrate the conclusion of China's 15-year bid for membership in the World Trade Organization.

Zhu, the reform-minded technocrat who ranks second in China's Communist hierarchy, has worked tirelessly for China's admission to the global trade body. Indeed, his attempt to win U.S. support for China's candidacy by offering sweeping market concessions to President Bill Clinton in 1999 nearly cost Zhu his job and so infuriated conservative party colleagues that many branded him as a traitor.

And yet Zhu is toasting accession warily. "Everyone is very happy about the WTO except me," he told a group of Chinese journalists who traveled with him to Brunei earlier this month to attend a meeting of Southeast Asian leaders. The prospect of more global competition for China's inefficient farms and business, he said, "gives me a headache."

In fact, Zhu is hardly the only Chinese official rubbing his temples because of the WTO. In joining the trade group, China's Communist rulers are taking a historic gamble. For two decades, they have limited political reform and kept a tight grip on power while loosening control of the economy little by little. That strategy has proved an enormous success: The economy flourished, lifting hundreds of millions out of poverty and winning popular support for the Communist Party long after China's people stopped believing in communist ideology.

Now the party is embarking on radically different course. To secure the approval of trade ministers gathered this week in Doha, Qatar, China was obliged to promise that it would slash tariffs, curb official subsidies and scrap many other barriers that have long shielded workers here from the rough-and-tumble competition of global capitalism.

Those changes are expected to bring long-term economic benefits, for China as well as its trade partners. But they also will bring short-term hardship for hundreds of millions of ordinary Chinese citizens, and pose daunting challenges to the party's continued legitimacy.

Adherence to the terms of the WTO deal will squeeze farm incomes, topple state-run banks and businesses, push up unemployment rates, hasten migration to already overcrowded cities, and widen the gap between China's rich and poor. China has taken on these risks as the world is hurtling into recession and the party itself is enmeshed in an internal battle over leadership succession.

Hai Wen, an economist at Beijing University, argues that Chinese leaders' determination to press ahead with WTO membership, despite the potential dangers, reflects a broad recognition within the party that the program of limited market-oriented reforms launched by Deng Xiaoping two decades ago had become hopelessly bogged down.

Joining the WTO was necessary to ensure that China "will take the market economy road and can't turn back," Wen said.

Gordon Chang, an American lawyer who spent five years in Shanghai advising foreign businesses, predicts in a recently published book, "The Coming Collapse of China," that WTO membership will stir currents of political and social unrest that will sweep the Communist Party from power within the decade.

Other China watchers aren't so ready to write the party's epitaph. But there is wide concern, even inside the party, that WTO membership will destabilize the current regime in unexpected ways.

In Brunei, Zhu said he was particularly worried about the impact of WTO membership on China's farmers. Experts say tens of millions of Chinese who now cultivate wheat, rice and cotton could be thrown out of work as tariffs on foreign products fall. Under WTO rules, countries classified as "developed" have the right to subsidize as much as 5 percent of their agricultural output, while those designated as "developing" can provide subsidies of up to 10 percent. After long and acrimonious negotiations, Beijing won the right to subsidize its farmers up to 8.5 percent, even though China is treated as a developed country in other parts of the agreement. But in the end, that hard-won exemption may not matter: Economists say revenue is stretched so thin that the Chinese government can barely afford to continue farm subisides at the current level of 3.5 percent.

"There's no doubt the peasants will have it worst," said Yuan Gangmin, a senior economist with the Chinese Academy of Social Sciences.

But other sectors will be hard-hit, too. Under the WTO agreement, China must slash tariffs on auto imports to 25 percent, from the current 80 percent to 100 percent. Duties on auto parts will be scaled back to an average of 10 percent. China has more than 130 automakers. Industry analysts say no more than three or four are capable of producing vehicles in the sort of quality and quantity required to be internationally competitive.

WTO membership will create new opportunities for exporters and people with technical skills or access to capital. Chinese manufacturers of clothes, toys, shoes and other labor-intensive products will reap big benefits. China's apparel exports could triple, according to one estimate, creating millions of new jobs.

The United States and other nations have the option of blocking excessive "surges" in textile imports from China, though. And the export boost will be much smaller than the leaders had anticipated if the global economy continues to deteriorate. China's exports expanded at an annual rate of only 7 percent in the first nine months of this year, compared with 28 percent in 2000. Many analysts predict growth of China's overall economy will sink next year to a decade-low rate of 6.5 percent.

The WTO deal will pare the thicket of regulations preventing foreign firms from offering financial services in China. Foreign banks will gain the chance to accept deposits and make loans in the local currency. Those changes could have far-reaching implications for the rest of the economy.

Under current rules, Chinese households are forced to deposit their money in state-controlled institutions that have lent billions to unproductive state-owned companies with little hope of paying them back. Those borrowers could be forced into bankruptcy if savers can shift their funds to foreign lenders with better service and less-risky lending policies.

WTO membership also is expected to intensify conflicts between Beijing and local governments that have sought to protect their companies even from domestic competition, sometimes using violence. And it doesn't help that China is leaping into the global economy just as Zhu and President Jiang Zemin, both strong advocates of market reform, are due to retire. Their presumed successors are relatively unknown figures who haven't been formally anointed. However, it's unclear whether Jiang really intends to step aside.

And even if party leaders manage the difficulties of transition successfully, the shift to a rules-based, market-oriented economy envisioned in the WTO deal implies a radical diminution of their powers.

In the new, post-WTO China, "instead of relying on the mayor to solve problems, business can rely on the market," said Guan Guoliang, chairman of the board of New China Life Insurance, one of the country's few private insurance firms. "Government [officials] are going to have to figure out what their jobs are."

(c) 2001 The Washington Post Company

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