Al-Ahram Weekly   Al-Ahram Weekly
2 - 8 December 1999
Issue No. 458
Published in Cairo by AL-AHRAM established in 1875 Issues navigation Current Issue Previous Issue Back Issues

Front Page

China takes the plunge

By Sameh Naguib

The deal brokered last week between the United States and China is probably one of the most significant steps yet taken in China's long march from state-led development towards the market economy. For the Chinese regime this decision is, as it always has been, essentially a pragmatic one. As the late Deng Hsiao Peng used to say, "The colour of the cat does not matter, as long as it catches mice".

China, however, will not be participating in this week's WTO summit meeting in Seattle, and will probably join the organisation next year. The European Union, along with several other WTO members, are yet to agree entry terms with China.

The deal also has to be endorsed by the US Congress. Under American law, trade relations with China are conditional on an annual congressional vote. But this process is incompatible with WTO rules, which forbid countries from placing conditions on access to their markets. It is still not certain that Congress will agree to amend the legislation concerned.

Nor is the deal guaranteed approval in other important constituencies. The AFL-CIO, the voice of the American trade union movement, has issued one of its strongest condemnations ever, describing the agreement as a "betrayal" of American workers, and promising to use every available avenue to block its passage through Congress.

Over the last two decades China has plunged into a process of rapid integration with the world economy. Over the last 20 years, the value of Chinese exports has risen on average by 15 per cent a year, to reach $184 billion dollars in 1998, while imports have grown by 13 per cent annually and are now worth $140 billion.

China now makes a quarter of the world's toys, a third of its suitcases and handbags, and one eighth of its footwear and clothing. However the vast majority of the population is still extremely poor, with average annual per capita income only $773.

Nor has the growth been evenly spread across the economy as a whole. Thus, for example, China's share of the world market in garments has been held down at 17 per cent by quotas imposed under the Multi-Fibre Agreement. Up until the mid-1990s, an estimated 62 per cent of Chinese exports to the US and 48 per cent of Chinese exports to the European Union faced non tariff barriers.

This situation is not set to disappear overnight. The US intends to keep some of its protectionist barriers against Chinese imports in place, despite China's immanent entry into the WTO. Provisions against import "surges" of Chinese textiles and other products are due to be maintained for another 12 years, while special "anti-dumping" provisions, under which China is still defined as a non-market economy, will remain effective for 15 years.

Yet despite the continuation of such restrictions, the concessions China must now make to multinational capital are staggering. Multinationals will effectively be allowed to import and export as they please, and will now be able to set up wholesale, retail, distribution and after-sales networks within the country itself.

From the date of WTO accession, foreigners may now take stakes of up to 49 per cent in telecommunications and Internet companies, rising to 50 per cent with management control in two years.

But the terms that have been negotiated are not simply a one-way street. Henceforth, any trade sanctions against China in response to internal political repression will be simply illegal under international trade law, whatever the political or humanitarian context. As a result, whatever horrors may be inflicted by the Chinese state on its people, the rulers of the Western democracies will be able to hold hands with their Chinese counterparts without any need to feel embarrassed.

It is not just trade in finished goods, but in primary commodities too, which will be wholly transformed by the new arrangements. If the WTO's market mechanisms are fully implemented, Chinese agriculture will face a massive shock and the livelihood of millions of small farmers will be at risk.

Wheat imports, for example, are set to rise sharply, and that large part of the Northern Chinese peasantry which is still dependent on growing wheat will suddenly be plunged into crisis.

The speed of the changes that are forecast for the coming decade will be spectacular -- a feat to rival the shock-therapy liberalisation that was imposed on Eastern Europe and Russia during the 1990s.

From rural peasants to urban businessmen, no sector of the economy will be spared. Thus, under WTO rules, tariffs on imported cars are to fall from around 100 per cent to 25 per cent, and foreign car makers will be allowed to supply financing for buyers. Chinese car makers will have to reduce their costs drastically if they are to survive. Indeed, most of the country's 120 car manufacturers are expected to shut up shop as a result.

The social implications for the cities are equally amazing. State firms still employ about two thirds of all urban workers in China. Over 90 per cent of these companies are unprofitable and will quickly go under if protection is removed.

And so the list goes on. China is the world's biggest steel producer, for instance, but it is estimated that only four out of its many thousands of iron and steel companies are internationally competitive. The majority will face collapse in an open market. The Financial Times sanguinely estimated that up to a third of China's 140 million industrial workers may be "surplus to requirements".

These developments will take place in a country with no serious social welfare system to provide a safety net for the millions that will be thrown out of work.

Faced with such lopping off of root and branch, free market enthusiasts would simply say good riddance. They would argue that the long-term effects will be to increase the efficiency of the Chinese economy, reduce consumer prices and thus eventually increase living standards. In practical terms, this means that they are willing to sacrifice the current generation of small farmers who will not be able to compete with cheap, imported -- and probably genetically modified -- agricultural products, along with the current generation of Chinese industrial workers whose skills will suddenly become worthless, in the hope that the world economy will continue to expand rapidly enough to absorb China's swelling exports and thereby transform the country into an advanced industrialised nation, without threatening its political and social stability.

This is a huge gamble. Yet it is being taken mainly by people who will not have to live with the consequences, should it all go wrong. The beneficiaries will be the owners and directors of a small number of large corporations, and their political henchmen. Whatever colour the cat, it would seem, there will always be mice waiting to be caught...

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