Life under the WTO will require that China change
By Cao Siyuan
March 10, 2000
It is an unalterable trend that China's economy is being privatized, its politics democratized, and its society becoming more pluralistic. China must engage completely with the world. Its entry to the World Trade Organization is not only about trade and investment. Directly or indirectly, WTO entry calls for complete reform in economics, politics, culture and education. It will change the life of every Chinese. It is China's "Second Reform."
WTO membership will transform China, and not only the economy. A major effect will be on all-round reform. China's embracing of the world inevitably will promote increased demands for change in the economic, administrative and political systems. In over 20 years of economic reform, the good pickings are all gone. What remains are the hardest bones. Why did it come to this? Because of the lag in political reform.
Reform of the political system was a policy set at the Chinese Communist Party's 13th Congress in 1987. The 15th Congress in 1997 raised the issue of continuing to carry it out. But aside from rural grassroots elections, one cannot see political reform playing out. The problem is that an internal impetus for change has not been found. Once we enter the WTO, however, external forces may gradually transform into an internal push for political reform.
The push will be in two areas. The first is expanded contacts with the world. So far, China's opening has been like a door ajar - we've reached out to shake hands. But once China is in the WTO, it will enter an era of full contact with the world. Through trade, cultural products and the massive exchange of people, horizons will be broadened. Chinese desires for press freedom, transparency in matters of state, political competition and the division of powers will be strengthened.
The second push will be domestic economic pressures. Foreign businessmen operating in China will have the right to demand a level playing field with local firms. This will help demolish the "class line" prejudice that has existed for some time: state-owned enterprises (SOEs) as first-class citizens, collective enterprises as second class, and private enterprises as the lowest. It will lead to a non-discriminatory principle of equality for all. International trade and investment will demand that China's legal transparency, political openness and clean government meet "international standards." Any foot-dragging will hurt our trade and jeopardize foreign investment. All this will serve to put political reform on the front burner.
Market economics and the rule of law demand clean government. We have expended much effort in this area. But the punishment of corrupt officials still lags far behind the incidence of corruption. If we are to meet the standards demanded by the WTO, our anti-corruption methods must be modernized. We must mobilize public opinion through the media. Every citizen has the right to expose corruption. Using the freedom of the press, we will improve the efficiency of our fight against corruption.
The WTO's impact on the economy will be enormous. Take trade liberalization. As China gradually reduces tariffs and eliminates non-tariff barriers, total trade, according to official estimates, will increase 87% from $320 billion in 1998 to over $600 billion by 2005. A cloud that has hung over Sino-U.S. trade negotiations - annual renewal of normal trading relations - will be removed. In the WTO each country enjoys NTR treatment from the others.
As a result of investment liberalization, not only will foreign companies be allowed to set up joint and cooperation ventures and wholly owned entities, but new arenas for their investment will be opened - mergers and acquisitions and the purchase of SOEs. This will greatly lift foreign investment, by one estimate from $45 billion in 1998 to $100 billion in 2005, a jump of 122%. Foreign investors not only bring in funds but technology and new management thinking. Some of the methods are very stimulating and will play a powerful role in promoting modernization.
Market competition will be boosted. Under the planned economy, there was no competition, and without it the entire economy lacked vibrancy. Another obstacle to competition is regional protectionism. Recently, departments of the Hubei government ruled that all Santana cars bought in the province be subject to a 70,000-renminbi ($8,454) surcharge. It turned out to be a tit-for-tat move against Shanghai's levy in 1998 of a 60,000-renminbi surcharge on non-Shanghai-made cars. Under the WTO, local protectionist barriers such as these will be torn down.
Living standards will be improved. When lowered tariffs lead to a fall in prices, consumers will enjoy inexpensive quality goods and more quality services. Employment will benefit. In 20 years of reform, we have created more than 10 million jobs. With the WTO, our GDP will increase by 3% each year. As each 1% increment represents 4 million jobs, that is 12 million jobs.
The WTO will promote world peace. In the past, we saw everything through the prism of "class struggle." The logic was: War is inevitable so let's ready ourselves for a big and early one. Now we can turn this logic upside down - war is an obstacle to business. For China, reform and development require a long period of peace.
Cao Siyuan is director of the Beijing Siyuan Merger and Bankruptcy Consultancy and a leading advocate of reform in Chinese society
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