China in WTO

NO MATTER whether the cat is white or black, it is beyond doubt that it has caught the mouse. Now the trillion-dollar question is not so much as to whether the successful cat would turn from black to white or white to black. Rather it is whether the cat would fall into the rat trap after entering the WTO. By the CPC’s own admission they are building up capitalism only, state capitalism for a historic phase, which they call ‘primary stage of socialism’. Hence it is futile to debate the character of China in terms of black and white. Observers, of course used to wonder how long the communist party-led state and the capitalist economy would remain compatible with each other. Now, as per the terms of China’s WTO entry, it is clear that the Chinese leadership is aiming for something qualitatively different, and hitherto unseen, viz. an economy fully integrated with global capitalism but directed by, professedly, a proletarian state. However vexing might be the problems it poses for theory, the Chinese reality never ceases to surprise.

Many observers have wondered, why in spite of its booming foreign trade and high growth rates, the Chinese leadership put so much at stake and offered so much concession to enter into the WTO. Probably their apprehensions of the US isolating China in a new cold war played a part. Or, probably they saw greater opportunities and trade security in becoming part of a multilateral trade regime. Or, perhaps they saw this as one way of building up internal pressure for further reforms. Whatever it is, the Chinese decision to enter WTO can only go down in history as equally far-reaching, if not more, as that of the Third Plenum of the Eleventh Central Committee, in 1978, to open up China and go for ‘four modernisations’.

The market access commitments and other concessions extracted by the West from China as conditions for its WTO entry are mindboggling. The average tariff level would be brought to less than 10%. Agricultural tariffs, at 17%, would be half of what they are for India. For commodities like wheat it is almost zero. Quantitative restrictions on imports and curbs on foreign investment, especially in telecom, financial sector and retail trade, would go. So much they need to do in so little time, by 2005 to be exact. These are much more than a higher fee for late entry. They are far more savage compared to what other new entrants had to agree to. Hitherto China has only gained from its integration with the global economy. For the first time, it would be making a big sacrifice and suffer major disruption and pain.

During the last two decades China has been a major powerhouse of the global economy. No other country has grown so fast in this period and expanded its integration with the global economy so rapidly. From about $20 billion before reforms started in the late 1970s, China’s foreign trade rose to $475 billion in 2000. After opening up, China also witnessed a FDI boom, ranking second only to the US in attracting FDI during the 1990s. Almost one-third of the FDI flows into the developing world went to China in the 1990s. But there is also a flip side. The growth miracle is on the wane, the phase of quantitative growth giving way to the challenge of intensive growth. The reform of state-owned enterprises (SoEs) is far from complete. Unemployment is already on the rise. Social sector challenges are onerous.

China’s entry into the WTO has rekindled hopes in the West of ‘peaceful evolution’. September 11 has both given a reprieve for China as well increased its strategic vulnerability, what with the increasing presence of the US in Afghanistan and Central Asia. Meanwhile, there have been reports of ‘independent’ unions mushrooming in different parts of China and workers going on wildcat strikes and directly confronting the authorities with their demands. From 1992, until last year, the number of labour disputes has jumped 14 times, to more than 120,000, according to official statistics from the Ministry of Labour. There have been reports of protests by peasants, too. China has entered the WTO in such an uncertain backdrop.

Having gained entry into the WTO, China might be up to a different ballgame there. Future trade agreements and even negotiations are impossible without the consent of China, one of the top ten trading nations in the world. Though it is too early to say whether it could emerge as a champion of the Third World in the global trading body, China is bound to make its presence felt. The visiting Chinese Premier, Zhu Rongji, hinted as much in Bangalore when he took time off from his business promotion efforts to make some remarks on trade politics. India and China should not see themselves as competitors but come together to fight for common interests, he said. Having crossed the Rubicon, the Chinese leaders sound quite confident in the run up to their next party congress. Cat o’ 9 tales, black or white!

– BS