By Gordon G. Chang
November 15, 1999
Hong Kong - Many Americans seem to think it is vital that we find a way to get China into the World Trade Organization. The United States trade deficit with China, likely to reach $60 billion for 1999, is already the worst case of imbalance in all of our foreign trade -- imports from China are now about five times higher than our exports there. If China can't be drawn into the disciplined framework of the W.T.O., the alarmist thinking goes, the United States may never be able to sell widely in the huge Chinese market.
A W.T.O. agreement, the proponents think, would lead rapidly to lower Chinese tariffs and a fixed timetable for measures to open China as a market. Failure to lock up a deal now could mean the earliest that China could join would be three years from now, at the conclusion of the round of trade negotiations that begins in a couple of weeks in Seattle. But the worrying is wrong. America need feel little urgency to get China into the W.T.O. The Chinese economy is in big trouble, and ultimately it cannot be rescued without further economic reform of the kind that will let foreign businesses operate far more freely and fairly. Whether there is an agreement or not, China is going to have to liberalize its economy.
A trade agreement now, before the inevitable structural reform, might have little positive effect anyway. China, after all, does not always live up to its agreements as foreign nations see them. Ask the elderly Falun Gong practitioners who were dragged by their hair from Tiananmen Square this month, for example, about Beijing's adherence to the United Nations International Covenant on Civil and Political Rights, which it signed last year. Chinese citizens have human rights, but only as their government defines them.
Foreign investors know that China has a similar genius for reinterpreting economic agreements as its ministries make new rules. What China cannot interpret away are the signs of its own economic failure. Two years of deflation have taken their toll. Heavy government spending has not worked to restart domestic consumption. China is now an addict in the debt markets. It builds roads and bridges and dams and hands out increases in pay and pensions and benefits, but it cannot persuade its citizens, who evidently see hard times ahead, to become bigger spenders.
At the core of the problem, China's state-owned enterprises are dying, noncompetitive even in its restrictive system. Beijing forced domestic commercial banks to lend them money that, as it turns out, will never be paid back, leaving the banks with bad and nonperforming loans that some estimate at $500 billion. Obsolete inventory scars balance sheets. Foreign investment sinks monthly. Corruption eats away at the fabric of society, and, most telling of all, foreign currency flees the country. China claimed its economy grew 7.8 percent last year. Adjust the statistics for exaggeration and subtract out economically useless production, and China barely had positive growth. The country has tens of millions unemployed or underemployed citizens, with millions more young people ready to enter the job market.
All of this is why, despite all of the anti-American sentiment in China these days, Chinese negotiators have been talking so intensely in the last few days to Charlene Barshefsky, the United States trade representative. And it is why, W.T.O. or no W.T.O., China will open its economy. Take telecommunications, one area of contention with the United States. China's telecommunications ministry is trying to prohibit foreign investment, but Beijing has staked much of its future on the growth of technologically advanced industries. Its leaders know that the fast way of building them is with the technical and financial help of foreigners. In banking, another controversial area, the future is even clearer. After failures of China's nonbank financial institutions, the country is facing an acute shortage of liquidity and is accelerating the relaxation of rules that hampered foreign bankers. Perhaps even more important, its troubled domestic banks have begun to benefit from foreign know-how and will need more of it.
Deng Xiaoping, President Jiang Zemin's illustrious predecessor, talked about making China rich and strong. Mr. Jiang knows that, in these troubled days, his country cannot go it alone in reaching that goal. China will move forward, whether inside or outside the W.T.O. At the end of the day, it really doesn't matter which it is.
Gordon G. Chang is a lawyer based in Beijing for an American firm.
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