China,Will Step Up To The Plate>
April 8, 1999
World Trade Organization Defeat
May Slow China's Economic Reforms
By IAN JOHNSON
Staff Reporter of THE WALL STREET JOURNAL
BEIJING -- China's failure to win U.S. backing for membership in the
World Trade Organization threatens to end China's brief flirtation with
major economic reforms and diminish the prestige of its charismatic
premier, Zhu Rongji.
The six-week effort to bring China into the
WTO was remarkable because China was
willing to commit itself to a package of
far-reaching economic reforms, a first in the
country's two-decade shift from communism
to free markets. With the talks all but over for
now, there is a danger that China could return
to the piecemeal, gradualist approach of years
past, opening its economy at its own
deliberate pace.
The decision to offer a package of
comprehensive economic reforms can be
traced back directly to Mr. Zhu, and its failure
is also likely to hurt his standing in China. "This
is a terrible blow for Zhu," said a western diplomat here. "He had staked a
lot on a deal."
Although in office for a year, the blunt-talking 70-year-old only started to
focus on the WTO in late February. Mr. Zhu's first priority was China's
anemic economy, which forced him to initiate a Keynesian-style spending
program to keep growth from collapsing.
Inefficient Economy
But once convinced that China wasn't going to become the next Asian
country to fall, Mr. Zhu turned to the WTO, the global body that sets
trading rules. While confident that economic growth would continue this
year and next, Mr. Zhu noted last month in a report to the country's
parliament that "structural problems in the economy have become more
conspicuous, and the operation of the economy is inefficient with low
returns."
In addition, foreign investment and exports were both falling, as the
country became less attractive to investors and its industries less
competitive. Mr. Zhu's solution: faster reforms leading to WTO
membership.
Suddenly, China's once-timid trade negotiators were offering their Western
counterparts bold economic reforms, proposing that foreigners be allowed
to invest in telecommunications companies, expand banking and insurance
business, and sell goods directly to Chinese people without going through
Chinese middlemen.
All the while, however, Mr. Zhu was facing opposition in China.
Underground publications criticized China's sudden eagerness to join the
WTO, with one arguing that "it's still far too early for China to lift
protective barriers." Meanwhile, bureaucrats in powerful ministries said
WTO membership would destroy China's unprofitable state enterprises
and shatter its fragile banks.
Textile Quotas
Mr. Zhu liked to counter that joining the WTO meant that China's trading
partners would soon have to end quotas on many Chinese products, such
as textiles. By joining the WTO, Mr. Zhu argued, China's beleaguered
textile manufacturers would have to wait only a few years before the U.S.
was no longer allowed to restrict their exports.
But as the talks progressed, they stuck on
exactly these areas -- textiles and steel --
where WTO membership would benefit
China. The other main benefit, normalized
trading status with the WTO's 134
member states, is already enjoyed by
China.
With Mr. Zhu no longer able to bring
home tangible benefits of joining the
WTO, he became less and less willing to
make a deal. In an interview with The
Wall Street Journal last week, Mr. Zhu's
frustration was palpable, as he blasted U.S. trade negotiators over their
rejection of reforms that Mr. Zhu noted would have been "unimaginable
three or five years ago." (China Is Close to Deal on WTO, Premier Says,
but Politics Interfere, April 6)
Of course, Mr. Zhu wasn't running a renegade trade policy. According to
advisers close to Mr. Zhu, his strategy for joining the WTO had been
approved by the China's cabinet and endorsed by other top leaders,
notably President Jiang Zemin and Li Peng, the No. 2 man in the
Communist Party. (Mr. Jiang holds the top party post and Mr. Zhu is No.
3.)
Economic Pointman
But as the only leader with a grasp of economic detail, Mr. Zhu had taken
on the mantle of economic pointman and joining the WTO was his pet
project. Almost all substantive decisions were taken by Mr. Zhu, who
boasted last week that "I know better than anyone else how big the
concessions are that China has made."
While Mr. Zhu is likely to lose prestige, reforms are almost certain to
continue, even if their timing isn't so definite. Over the past two decades,
China has steadily reformed its economy and Mr. Zhu made clear in last
week's interview that if the U.S. blocks China's WTO entry, "without
WTO, we can continue to develop bilateral relations with nations and
regions all over the world."
Thursday, for example, the two sides ended years of acrimony over U.S.
farm exports to China, announcing a deal that would allow U.S. farmers to
export wheat, citrus, beef and poultry to China. China also has recently
allowed more foreign insurance companies and more U.S. airlines to
operate in China, and broken up its telecommunications monopoly.
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