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2011-12-13 08:21:03
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