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All change
In two articles, we examine how China has been altered by its entry into the
WTO ten years ago. First, the economy. Second, the political impact
THE World Trade Organisation (WTO), like many clubs, denies patrons the right
of automatic readmission. Having quit the organisation s predecessor shortly
after the Communist revolution of 1949, China had to wait 15 long years to gain
entry after reapplying in the 1980s. The doors finally opened on December 11th
2001, ten years ago this week.
The price of re-entry was as steep as the wait was long. China had to relax
over 7,000 tariffs, quotas and other trade barriers. Some feared that foreign
competition would uproot farmers and upend rusty state-owned enterprises
(SOEs), as to some extent it did. But China, overall, has enjoyed one of the
best decades in global economic history. Its dollar GDP has quadrupled, its
exports almost quintupled.
Many foreigners also prospered. American foreign direct investment reaps
returns of 13.5% in China, compared with 9.7% worldwide, according to K.C. Fung
of the University of California, Santa Cruz. China imposes lower tariffs on
average than Brazil or India. The gap between what it can charge, under WTO
rules, and what it does charge is also unusually small. So unlike its peers,
China could not raise tariffs much even if it wanted to (see chart).
Yet in America, China s single biggest trading partner, sentiment towards the
country has turned starkly negative. In a recent poll, 61% of Americans said
that China s recent economic expansion had been bad for America; just 15%
thought it had been good. This partly reflects China s controversial currency
regime. By keeping the exchange rate down, China s critics allege, it has
gained a substitute for the mercantilist measures it gave up to join the WTO.
Foreign frustration is partly a sign of China s success. As its economy has
grown and matured, the stakes have risen. Foreign firms lament losing trade
battles they might not bother to wage in a less lucrative market. They also
face competition from local upstarts in markets where no such rivals previously
existed.
Electronic payments are one example. China s first ever payment card was issued
in 1986 by MasterCard. Foreign brands remained dominant at the time of China s
WTO entry. But shortly afterwards, China s central bank established a domestic
competitor, China UnionPay, and gave it a de facto monopoly over the handling
of local-currency payments between merchants and banks. This setback might have
been easier to take for foreign companies had the market not since grown
tenfold, to $1.6 trillion, according to The Nilson Report, an industry
newsletter.
China s economy has evolved faster than anyone hoped. But its economic
philosophy has not. Long Yongtu, who helped China win admission to the WTO,
recently said that China is now moving further away from the organisation s
principles. To modernise its economy, it has remained wedded to industrial
policies, state-owned enterprises, and a techno-nationalism that protects and
promotes home-grown technologies.
Many foreign companies feel they must compete not with Chinese firms but with
the Chinese state. Between them, China s central and local governments own over
100,000 companies and implicitly favour many more. Thanks to the WTO, foreign
firms are no longer required to hand over technology in exchange for entry to
China s market. But many still feel an informal pressure to do so. China is
also keen to promote its own firms by enforcing its own technological
standards, such as for 3G mobile phones.
Many of these interventions violate the spirit, if not always the letter of WTO
rules. In response, America often pushes back bilaterally rather than in
Geneva, according to a former American trade negotiator. This is partly because
companies worry they will face retribution from China s government if they
provide evidence against it in a trade case. It is also because much of what
China does falls into a grey area that is not easy for the WTO to police.
China, on the other hand, is growing more comfortable with the WTO machinery.
In its early years as a member, it shied away from confrontation, points out
Henry Gao of Singapore Management University. In 2006, for example, America
threatened to file a complaint over China s duties on kraft linerboard. China
lifted the duties the next working day. But now the Chinese have learned the
ropes, they have also become more proactive. Now they defend themselves, says
Nicholas Lardy of the Peterson Institute, a Washington think-tank. They
initiate cases. And when they lose, they comply.
In some cases the discrimination is no worse than before, it is simply more
visible. As part of its WTO agreement, China now circulates draft laws and
regulations for 30 days to collect comments. That has made it easier for
foreigners to spot foul play. America recently complained that China had failed
to notify the WTO of nearly 200 subsidy programmes, such as those supporting
green-energy technology. It knew this in part because China, following its
newly transparent practice, had disclosed many such programmes online, the
former negotiator said: Similar policy announcements were neibu (for limited
distribution) in the past.
China s trade policies may look a little uglier than WTO members had hoped when
they opened the club s doors ten years ago. But that is partly because the
lights have been turned on.
Chinese politics and the WTO
No change
Hopes of sparking political change have come to nothing so far
WHEN trying to persuade Congress in 2000 that China should be let into the
World Trade Organisation (WTO), America s then president, Bill Clinton, knew
how to win over the sceptics. China s admission, he said, was likely to have a
profound impact on human rights and political liberty . A decade on, China s
disappointed liberals no longer suggest that freer trade will speed political
reform.
China s media have been trumpeting the tenth anniversary on December 11th of
the country s WTO accession. In China as much as in America, the event was seen
as of far greater importance than a mere pledge by China to reduce barriers to
its markets (moves towards which had long been under way). For both countries
it was a crucial part of restoring calm to a relationship that had been marred
by annual fights in Congress over whether to keep granting China
most-favoured-nation trading status (as enjoyed by most of America s other
trading partners). Mr Clinton s remarks preceded bitterly contested votes in
Congress in 2000 that ended the annual renewal process and ensured America
would share any benefits from the market-opening measures pledged by China on
entering the WTO.
Chinese officials did not share Mr Clinton s belief in what he called the
quite extraordinary change that the WTO would bring about in China,
politically as well as economically. Such views were bolstered in the West by
supportive comments from some Chinese dissidents. ( Before, the sky was black;
now it is light. This can be a new beginning, Mr Clinton quoted one of them,
Ren Wanding, as saying.)
But even the man seen by many in the West as China s arch (economic) reformer,
the then prime minister Zhu Rongji, had no truck with such views. A recent
four-volume set of Mr Zhu s speeches, including many not previously published,
shows him to have shared hardliners concerns about perceived Western efforts
to undermine Communist Party rule in China. Western hostile forces are
continuing to promote their strategy of Westernising and breaking up our
country, he told provincial officials in one now-declassified speech, four
months after China had joined the WTO. He accused such people of conducting
infiltration and sabotage in an effort to foment instability, pointing to
large-scale protests early in 2002 by workers in state-owned enterprises
(independent observers detected little if any sign of foreign involvement).
Mr Zhu s reformist zeal in the economic realm helped to foster the impression
of a country willing to take considerable political risks in order to create a
more market-driven economy. The then party chief, Jiang Zemin, was also pushing
through a controversial revision to the party s constitution to allow owners of
private businesses to become members. But high hopes among some Chinese
liberals faded as the decade wore on.
Cao Siyuan, who heads an independent think-tank in Beijing, says he and
like-minded intellectuals were over-optimistic about the ability of the WTO
to promote further change, such as the development of a robust and independent
legal system. The last decade has seen huge social changes, but these have been
a legacy mainly of pre-WTO membership reforms, such as the privatisation of
housing and the loosening of controls on internal migration.
And with the Communist Party again facing a big leadership shuffle next year,
few believe that long-neglected political reforms will be revived any time
soon. Mr Cao has recently published a call for a division of powers within
the party as a step towards making China more democratic. He claims many in the
party support such a notion, but do not dare say so openly. Mr Cao says police
stopped him from leaving his home during the visit to Beijing in August by
America s vice-president, Joseph Biden.
In his speech in 2000, Mr Clinton said that WTO membership would accelerate the
shrinkage of the state-owned sector which had been a big source of the
Communist Party s power . This, he said, would lead to profound change . Many
liberals complain, however, that remaining state firms not only still control
the commanding heights of the economy but are in some cases stepping up their
resistance to encroachment by the private sector. In recent years officials
have increased their efforts to ensure that party cells are set up in private
firms. Several local governments have started requiring private companies to
contribute about 0.5% of their payrolls to sponsor party activities on their
premises.
Such was the seeming status symbol of WTO membership a decade ago that few in
China openly criticised the decision. A Beijing academic, Han Deqiang, was a
rare exception. His book, Collision: the Globalisation Trap and China s Real
Choice , gave warning of an American plot to use the WTO to Westernise China.
He remains a fierce critic. Karl Marx, he says, would have agreed with the view
that economic liberalisation leads to political change. It s a matter of time,
he says. Perhaps Mr Clinton can draw comfort.
from the print edition | Asia