CHINA, the incumbent super-power

The Bottom Line, McGill Department of Economics, November, 1999

In signing a bilateral trade agreement this November 15th with the U.S., China moves one step closer to joining the World Trade Organization and asserting its position as a world power. President Jian Zemin’s main goal in accepting to reduce tariffs from an average 23% to 17% is to open China to the world and eventually turn it from a market into a producer. Once membership in the WTO is achieved, China will be in the advantageous position of possessing bilateral low-tariff accords with many WTO countries, a huge labour force, new technologies and production methods, and the drive to be the leading power in global economics.

The hope is that this deal, the terms of which come into effect when China joins the WTO, will boost and eventually stabilize China’s failing economy. Chinese economic hard-liners complain this deal will cause massive unemployment as inefficient state-subsidized industries will fail. Premier Zhu Rongii, counters that although state-industries will fail and unemployment will rise, new jobs will be created in the ever-expanding private sector and eventually the economy will stabilize.

Allowing 49% investment by foreign telecommunications companies at the time of accession and 50% two years thereafter, China’s telecommunication network, technology and telecom potential will flourish. In this field, China might be seen as yielding to economic pressure from U.S. companies seeking access to 1.2 billion new customers. Foreign interests, however, must first build the telecom network. Even if half-owned by foreign interests, the technology thus introduced will allow China to leap forward and quickly be on par with the West. What’s more, telecom companies will use Chinese labour.

Under the new deal, foreign banks will be able to conduct business in local currency and will, therefore, be able to provide loans directly to Chinese private interests. (For years, China has maintained two hard currencies: one for foreign trading and one for internal trading.) Heretofore, much of the state’s funds were tied up in state-industries. With these industries disappearing, further moneys will become available to the private sector. Foreign and government funds will thus be readily available to reinvigorate China’s capitalist economy, introduced two decades ago by the late Deng Xiaoping.

WTO director-general, Mike Moore, sees the deal as a huge step towards China’s joining the global economy. Indeed, he said, as he has said before, that “we are not the World Trade Organization until China has joined.’ With such glib wit from the man-in-charge, China’s eventual membership in the WTO seems assured. Canada will shortly be signing a similar bilateral agreement with the incumbent super-power as will the European Union – although the latter is not expected for quite some time.

U.S labourers are not so keen on the bilateral U.S. – China accord. China has a large and inexpensive labour force. And for years, many goods have been produced in China and imported. U.S. labour now fears that with lower U.S. import tariffs on goods produced in China and that countries increased output capacities, U.S. manufacturers will be unable to compete.

This concern, persistent concerns regarding China’s human rights record and the treatment of Taiwan are some of the Congressional points raised in opposition to this deal. Even after thirteen years of halting talks, the U.S. Congress can scuttle the deal. Economic analyst, Robert Litan argues that Congressional mood will depend greatly on the success of the WTO summit in Seattle. If all goes well, freer global trading will be seen positively and the U.S. – China deal will most likely pass. If not, China will be forced a few steps back from its WTO membership.

China’s economic manoeuvres do not come without a cultural price tag. China will loose the ability to block the import of such consumer goods as cars and Hollywood films. Automobile tariffs will be cut from 80-100% to 25% and China must import at least 20 Hollywood films a year.

Activists claim that human rights stand to benefit from China’s WTO membership. Economic co-dependence as well as general openness will allow for greater pressure and influence from human rights groups and the United Nations. China thus sacrifices its legendary economic and cultural sovereignty in order to win out in the end.

The accord at a glance
-Average tariff levels drop from 23% to 17%
-China will allow 49% foreign-ownership of telecom providers, rising to 50% two years after
-U.S companies will be allowed to invest in Chinese Internet content providers, heretofore prohibited.
-Chinese import tariffs on automobiles will be cut from 80-100% to 25%
-Auto companies will be allowed to provide financing.
-Foreign banks will be able to conduct business in local currency.
-China will cut import tariffs on agricultural products to 15%. China will also phase out state trading of soy oil.
-Measures will be adopted to prevent unfair dumping of textile products.

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