On WTO, China Concedes Much on Paper, But Little in Reality
Summary:
China and the United States have signed the bilateral trade
agreement vaulting China over the largest hurdle to membership in
the World Trade Organization (WTO). But for the West, the agreement
holds less than meets the eye. Beijing will still have considerable
control over how - and where - Westerners invest. China appears to
be playing for short-term benefits, such as a surge in Western
dollars. Indeed, before the ink was even dry, Beijing portrayed
this as a sign of political strength versus the United States, not
as an important economic reform.
Analysis:
The United States and China signed a bilateral trade agreement Nov.
15 in Beijing. Upon completion of the long-running talks, U.S.
Trade Representative Charlene Barshefsky claimed that the deal will
open the Chinese economy to the West, saying, "The agreement itself
is absolutely comprehensive." In addition, she said the agreement
will help China continue its economic reform and strengthen the
rule of law.
The agreement with the United States overcomes the largest obstacle
in China's 13-year effort to join the WTO. China has to still
strike bilateral agreements with the European Union and four others
before the WTO will formally consider China's petition for
membership. But it seems likely that Beijing will continue to
protect its markets and find new ways to control them - whatever
the paper terms of the agreement. For Beijing, signing the deal
carried primarily political implications, not economic ones.
The euphoria with which the Clinton administration is meeting the
agreement works to China's immediate advantage, likely spurring a
quick surge in investment. China's economic statistics are
notoriously unreliable but even they paint a picture of an economy
increasingly needing an infusion of foreign money. After direct
foreign investment reached a cumulative total of $222 billion
between 1979 and 1997, newly-pledged foreign investment dropped 20
to 30 percent, according to the U.S. International Trade
Administration. By moving toward WTO status, China may now convince
Westerners to invest - long before Beijing opens up the economy at
all.
Over the long term, it is unlikely that the agreement will actually
force China to open key markets. Before the two sides finalized the
deal, China's chief WTO negotiator, Long Yongtu, told the
Guangdong-Hong Kong Information Daily that the agreement would not
keep the central government from restricting foreign access to both
key industries and domestic markets. Today, foreign insurance
companies may not operate in China. Long said that they will be
allowed in two years after WTO accession - but only if they get
government-issued licenses. "If it is not necessary [for China], we
will not issue licenses," Long reportedly said. In other words, no
licenses, no business.
Overall, China seems to have conceded a lot on paper but very
little in reality. The deal's new agreement on rights to the
telecommunications market may be less solid than it appears. This
agreement allows foreign access to 49 percent of the domestic
telecom market immediately upon accession and 50 percent two years
later. But access is wholly controlled by the Information Ministry;
this is the same ministry that in September upheld a ban on foreign
investment in Internet services. Already Western analysts are
concerned, according to Agence France Presse.
Rather than compromise, China has likely committed itself only to
exercising available loopholes. China clearly has the tools to
safeguard fragile state industries from the sudden threat of
ruthless competition. It will open slowly and controlled while
taking advantage of the good publicity, backed by "proof" that
China is ready to offer its markets freely.
Indeed, China's state-run press is already portraying the agreement
as Beijing's generous gift to an eager President Clinton. The
Guangzhou Morning Post has claimed that the U.S. president saw this
as his "best shot" at stabilizing U.S.-China relations during the
remainder of his term. The newspaper has said that Clinton called
Jiang on Oct. 16, offering to make the first move. The paper said
that the initiative "indicated how desperately Clinton [was] trying
to put back together the far-reaching China trade deal he walked
away from in April."
The official press has also downplayed the notion that this is an
important victory for economic reform. Barshefsky has said that her
11th hour meeting with Prime Minister Zhu Rongji was "pivotal" in
resolving the final outstanding issues. But the Chinese media has
either focused attention on Shi Guangsheng, the trade minister who
signed the deal, or on President Jiang Zemin. In his statement,
Jiang applauded the negotiations' success positioning himself to
take credit for whatever short-term economic gain the agreement
produces.
By shifting the focus off of Zhu the government indicates that it
does not want the population to see the deal as a victory for
reform - and certainly not as victory for Zhu.
(c) 1999, Stratfor, Inc.
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