WashPost. China Braces for Open Trade Bid. On Eve of Summit, Nation Weighs the Stakes of Competition [See bolded section]
By Clay Chandler
Washington Post Foreign Service
Saturday, September 11, 1999; Page E01
BEIJING?Bai Guang is about as close as you get in China to Ross Perot.
In a new book, "World Trade Tidal Wave," he warns that if China
succeeds in its 13-year bid to join the World Trade Organization, fledgling
manufacturers in this sheltered economy will take a beating from foreign
competitors.
To win admission to the global trade body, his book explains, China will
be forced to slash tariffs and clear a thicket of regulatory measures that
have protected domestic enterprises here for decades. Tens of thousands
of Chinese businesses--including ventures in key sectors such as autos,
steel and electronics--could be wiped out. Legions of Chinese workers
could be laid off.
"The tidal wave hitting China's iron and steel industry will be enormous,"
Bai declares in a typical passage. "Many small and medium enterprises,
and even some of the big producers, could go bankrupt. All of society
could be affected."
But don't expect to find Bai, a 48-year old economist, jousting with
government leaders on national television, brandishing charts and hurling
insults as then-candidate Perot did during the 1992 presidential race, as he
warned of dire economic consequences to befall the United States if it
entered a free-trade pact with Mexico. This is China, after all, and
Communist Party leaders have pronounced China's inclusion in the
134-nation body that regulates world trade as a top foreign policy goal and
a matter of national prestige.
And so, on the eve of a long-awaited U.S.-China summit that could clear
the most significant remaining obstacle to China's entry into the
Geneva-based entity, popular discussion of the WTO is subdued.
But the muted public debate belies the enormous stakes for China's
citizens--and the ferocity of opposition within the Communist leadership.
Last April, to win U.S. support for China's inclusion in the trade body,
China's reform-minded prime minister, Zhu Rongji, put forward a package
of concessions so sweeping that it stunned business leaders in America. It
also enraged Communist stalwarts in China, who attacked Zhu as a
"traitor" guilty of "betraying China" by proposing to let foreigners gain
control of vital national industries such as telecommunications and oil.
Zhu offered a proposal that would have thrown open Chinese markets to
outside competition for a wide array of goods and services. It would have
chopped tariffs to an average of 10 percent, down from the current 17
percent, and rescinded a host of restrictions limiting foreign firms' ability to
invest, buy and sell goods and services and distribute their products inside
China.
Together, those measures would force wrenching economic and social
changes in the world's most populous nation, economists said.
But China's leaders are betting that however painful the short-term
adjustments, they will be outweighed by the potentially huge long-term
benefits of opening the nation's troubled $1 trillion economy to foreign
competition. They are hoping that WTO membership will help spur
economic growth by providing bigger markets for Chinese exports while
forcing Chinese businesses to become more productive.
China could take a giant step toward inclusion in the global trade group
today at a meeting in Auckland, New Zealand, between President Clinton
and Chinese president Jiang Zemin.
U.S. trade negotiators have spent the past week in Beijing and Auckland
haggling with their Chinese counterparts about WTO admission, resuming
talks that faltered after Clinton--bowing to pressure from congressional
critics and organized labor--rejected Zhu's April proposals. Talks broke
off altogether after NATO's May 7 bombing of the Chinese embassy in
Belgrade.
But during the past month, each government has shown its eagerness to
close a deal. Among U.S. business leaders and trade experts, expectations
are running high that Clinton and Jiang will emerge all smiles from today's
encounter to announce an agreement that matches, or goes beyond, Zhu's
April position.
"My view is that Zhu and the reformers have carried the day," said the
Brookings Institution's Nicholas Lardy, an authority on the Chinese
economy.
However, some economists who study China believe that, in the near term,
Zhu's market-opening proposals could slice 2 percentage points off
China's economic growth rate and throw many millions out of work. One
study by Unirule Institute of Economics, an independent Beijing think tank,
found that liberalized trade would achieve long-run gains in competitiveness
and efficiency, but at the cost of as many as 5 million industrial jobs.
That's a daunting prospect for China's wobbly economy. Unlike many of
its neighbors, China has yet to bounce back from the Asian financial crisis.
Growth has slowed dramatically in the past two years. Fred Hu, an
economist at Goldman Sachs in Hong Kong, estimates that in the long
term, gains solely from increased productivity could boost China's annual
economic growth rate by half a percentage point.
But those benefits aren't likely to be shared evenly. In China, as in other
developing economies, increased openness to the global market is likely to
aggravate disparities between rich and poor, between workers with
technical skills and those without. "It's no wonder China's senior leaders
want to avoid public debate about WTO," said Andy Xie, a China
specialist at Morgan Stanley Dean Witter in Hong Kong. Implementing the
proposals needed to win China a seat at the Geneva-based trade entity "is
going to be an incredibly divisive process."
Opposition to Zhu's market reform initiatives has flared most visibly in the
telecommunications sector. China is laying phone lines at a rapid pace. For
the past five years, it has added the equivalent of one of America's regional
phone companies every year. Still, fewer than 10 percent of China's 1.2
billion people have access to a phone and consumers complain about bad
service and sky-high rates.
Late last year, Zhu approved a plan that would split China's behemoth
phone monopoly, China Telecom, into four separate companies. But that
decision infuriated Wu Jichuan, the powerful head of China's Ministry of
Information Industries. When Zhu offered in April to allow foreign control
of up to 49 percent of Chinese phone networks and up to 51 percent of
paging services, Wu offered his resignation. (For now, he remains in
office.)
China's state-run banking sector would be sure to suffer in a more
competitive environment. Zhu's April offer would permit foreign investment
of as much as 100 percent in full-service retail banking operations by
2005, and allow foreign banks to conduct local-currency transactions by
2005.
Still, the recent development of China's electronic industry offers reason to
be optimistic about China's potential competitiveness. China lowered
import tariffs on personal computers and similar products in the early
1990s. The increased competition from brands such as IBM,
Hewlett-Packard and Toshiba hurt at first. But now the biggest player in
China's PC market is Legend Computers, a home-grown brand.
A final accord may elude negotiators again, of course. And if there is a
deal, key elements may be left unsettled. Some fear China will go the way
of India, Brazil and Korea--which have become WTO members but
nonetheless find ways to keep out foreign goods.
Many experts argue the important thing is that Beijing has made great
strides toward satisfying the criteria for WTO admission and demonstrated
a will to stick with needed but painful reforms.
"China has no choice," Hu said. "With or without WTO, it will have to
restructure. Foreign competition can only help if it accelerates that
process."
Staff writer Michael Laris in Beijing contributed to this report.
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