declining to sign a "better deal" last April, the Clinton
Administration has signed off on conditions for permitting China to enter the
World Trade Organization (WTO). Even though China’s premier was in Washington
last April begging for Clinton’s signature to lock in a victory for his faction
of economic liberalizers over their internal opponents, April was politically
inconvenient for the Administration because anti-China sentiment in the US had
crested over alleged thefts of US nuclear secrets, alleged covert funding of the
Democratic Party, alleged Chinese saber rattling at Taiwan, and confirmed
repression of political dissent inside China. But now the Clinton Administration
needs a "big win" to save the upcoming WTO meetings in Seattle where
the Administration program of accelerating liberalization appears to be in more
trouble with every passing day. The announcement that all barriers to China’s
entry into the WTO have finally been cleared away will undoubtedly be proclaimed
by Administration spin doctors a sufficient "coup" to render the WTO
meetings in Seattle a success no matter what actually occurs inside the meetings
or at the demonstrations outside.
1985 the US exported $5 billion to China and imported almost exactly the same
amount. By 1998 the US exported $14.4 billion to China and imported $71.2
billion, and in August 1999 the US had a larger trade deficit with China than
with Japan. US direct foreign investment in China never topped $200 million a
year between 1985 and 1992. By 1998 US direct foreign investment in China had
reached $1.5 billion a year. Like NAFTA before it, while ballyhooed as a deal to
free trade, the deal clearing Chinese entry into the WTO is more about
liberalizing foreign investment and ownership than liberalizing trade. Steven
Mufson admitted as much in the Washington Post on November 16: "The biggest
benefits of the deal will be for American companies investing in China, not for
American exporters." Most importantly the deal will greatly increase US
corporate investment in China, opening whole new areas previously off limits
like telecommunications and finance. The deal will also expand US agricultural
exports to China significantly. And the deal will gradually increase US imports
of Chinese labor intensive products like textiles and toys, putting more
downward pressure on wages in general, and the wages of unskilled US workers in
US banks can offer services in local currency to Chinese enterprises two years
after China joins the WTO, and to individual Chinese after 5 years. Foreign
insurance companies can offer property and casualty nationwide.
Foreign phone companies, now restricted to equipment sales, will be able to own
up to 49% of all telecommunications service ventures upon China’s entry into the
WTO and up to 50% two years later.
Foreign companies can sell China large amounts of wheat, corn, rice, cotton and
other commodities. For example, China now imports roughly 2 million tons of
wheat a year; the agreement immediately permits 7 million tons with almost no
tariff. Moreover, a substantial share of these goods can be imported by private
companies rather than Chinese State enterprises.
Foreign auto companies will have full distribution and trading rights. By 2006
China will reduce tariffs on cars to 25% from the current 80% to 100%. China
will also permit foreign financing of car purchases.
Heavy Industry Exports to China: Chinese tariffs on imports of industrial goods
will drop from an average of 24.6% in 1997 to 9.4% in 2005. Foreign companies
will have the right to sell, distribute and market industrial goods, including
steel and chemicals, without going through a Chinese middleman as is now
Light Industry Imports into the US: US import quotas on Chinese goods such as
textiles, toys, shoes, bicycles, portable stereos and computer parts will
disappear in 2005. But China agreed to 4 years of protection after the quotas
are lifted for the US textile industry and 15 years of special protections for
the US against "dumping" of Chinese goods in the US market.
Foreign firms will be allowed to invest in Internet content providers such as
Sohu, the Chinese equivalent of Yahoo. Companies will be allowed to buy 49% of
Chinese Internet firms upon China’s entry into the WTO and up to 50% two years
China will import 40 foreign films a year, double the current number and 50 by
the third year of the agreement, and foreign film and music companies can share
in distribution revenues for 20 of the films.
Does It Mean for the US?
are the Winners?
listen to those who reacted with joy at news of the signing as quoted by Steven
Mufson and Robert Kaiser on November 25 in the Washington Post. Sy Sternberg,
chairman of New York Live Insurance Company: "This is probably the most
important economic development in China in the last 50 years. My company is
working for a license to enter China." Scott Shearer, director of national
relations for Farmland Industries: "What we’re hearing is that this will be
the largest market-access agreement in US agricultural history."America
Online Inc., who already has an online service in Hong Kong and investment in an
Internet company serving Hong Kong, China and Taiwan: "We welcome the
agreement." Christopher Hansen, executive vice president and Washington
representative of Boeing Company: "The vote in Congress that would enable
China to join the WTO is really for all the marbles."
Stand to Lose?
all in the US reacted with joy at the prospect of Chinese entry into the WTO.
John Sweeney, President of the AFL-CIO immediately warned: "This is a grave
mistake. China is a rogue nation that decorates itself with human rights abuses
as if they were medals of honor." (Washington Post, November 16.) Sweeney
reiterated his anger on November 19 in a speech at the National Press Club
calling it "disgustingly hypocritical for the White House to posture for
workers’ rights in the global economy at the same time it prostrates itself for
a deal with China that treats human rights as a disposable nuisance."
(Washington Post, November 21) While Sweeney’s professed concern for human
rights abroad is not as hypocritical as Clinton’s, this is hardly the basis for
Sweeney’s opposition to Chinese entry into the WTO. He and the AFL-CIO correctly
estimate that their membership is the constituency within the US most likely to
suffer negative consequences from the deal in the form of lost jobs and downward
pressure on wages.
Final Tally in the US:
Street wins, Main street loses. High-tech and finance win, light industry loses.
High skill wins, low skill loses. If you are lucky enough to keep your job and
avoid a drop in your real wage, you will be able to buy more (Chinese made) toys
to put under your Christmas tree. If you lose your job, or like most Americans,
fail to get wage increases commensurate with inflation, Christmas will be all
the more bleak for you and yours when China enters the WTO.
Does It Mean For China?
one hand, Chinese elites — both the old Party elite and the young educated
elite — should get much richer, and finally have their chance to take what I am
sure they consider to be their "rightful" place among the
international economic elite. On the other hand, it means that hundreds of
millions of Chinese peasants will lose their jobs to international food imports,
joining the 100 million of unemployed already sleeping in cardboard boxes in
China’s cities where the construction boom has slowed and almost every industry
already has excess capacity. It also means that hundreds of millions of Chinese
workers in state owned enterprises will lose their jobs as
"downsizing" Chinese style makes the last 10 years of downsizing in
the US look like a proletarian picnic. And since only a fraction of these newest
additions to the ranks of the world’s most dispossessed will find employment in
new, foreign-owned, labor-intensive manufacturing enterprises, and since the
Chinese version of a "social safety net" — subsistence wages in State
enterprises regardless of productivity — will have been dismantled, it means
that either the Chinese political repressive apparatus will set new standards
for brutality and effectiveness at the beginning of the new century, or,
hopefully, the feast of the Chinese and international corporate elites at the
expense of hundreds of millions of Chinese peasants and proletarians will prove
mercifully short lived.
Did They Do It?
was not difficult to understand why US multinational banks and businesses
relentlessly pursued this deal. Nor is it any longer surprising that a "New
Way" Democrat like Clinton would negotiate and sign a deal that is
detrimental to the economic interests of a majority of Americans and the
Democratic Party’s core political constituency in particular. But why has the
leadership of China’s Communist Party signed such a lopsided deal guaranteed to
create social unrest that may shake their ability to continue to rule? That is
more difficult to understand.
Arrogance and Ignorance:
is often the case when ruling elites miscalculate, this decision on the part of
China’s rulers probably results from getting too greedy, being too arrogant
about their powers to suppress dissent, and not understanding the full
consequences of the forces they will unleash. Greed: The old political elite
believe they, as well as the young educated elite, can profit handsomely from
the deal, not only in the short run, but also from the changes it will lock the
Chinese economy into in the long run. Up to now the Party elite have been like
gate-keepers collecting bribes from foreign firms seeking entry into China, and
they have been appropriating assets from State enterprises for new small private
businesses of their own. They are quite adept at both activities, but these are
still only penny ante games. Bigger money can be made by becoming stockholders
in fabulously profitable enterprises owned and operated jointly with foreign
multinational companies. And bigger money still can be made by lending other
people’s money to these highly profitable enterprises at highly profitable rates
of interest. Unless I miss my mark provisions have already been made to take the
big Chinese fish aboard the 49% and 50% foreign owned banks and insurance
companies that will be tapping into 40% of the income of 1.2 billion Chinese.
Arrogance: The Chinese Communist Party must believe it is more proficient at
stifling political dissent and repressing social unrest than either Stalin or
Hitler — neither of whom had to deal with the sheer number of hopelessly
abandoned victims China’s leaders will have to cajole in the decade ahead.
Hopefully they have overestimated their prowess. Ignorance: Despite all the
evidence available to them from the last decade — that dismantled Communist
economies who embrace capitalism are far more likely to join the ugly capitalist
periphery instead of the alluring capitalist center — Chinese reformers are
apparently far more knowledgeable about the devil they know, command planning,
than the devil who was banished from China 50 years ago and seems to have been
forgotten, capitalist imperialism. They know the frustrations of a system where
"workers pretend to work and the government pretends to pay them" all
too well. But they have yet to meet a twenty-first century global hedge fund.
Are the Winners?
nimble among the Party elite will get far richer than they have ever been
before, and have an easier time passing their wealth and power onto their
children than under Communism. The better educated and the well established in
mega cities like Shanghai will do well.
Stand to Lose?
peasants and workers — those who foreswore freedom and accepted grinding
poverty in exchange for the "iron rice bowl" of minimal health care
and old age pensions — will suffer. Hundreds of millions of them will suffer in
ways that will be hard for Westerners to even imagine. Others who find work for
the profitable enterprises that survive the great shake down are unlikely to
enjoy rising real wages to go along with their rising productivity. High levels
of unemployment, a ban on independent unions, and a highly repressive government
apparatus devoted to achieving high levels of investment so China can fulfill
its "destiny" to become an economic super power will conspire to keep
the wages of the fortunate who find work from rising for decades if all goes
according to plan.
Final Tally in China:
shudder to offer a final tally in China. Hopefully the Chinese Communist Party
leadership has greatly underestimated the powers of perception and
resourcefulness of ordinary Chinese people. I know they have grossly
underestimated the maelstrom of "creative destruction" capitalism is
about to wreak on China.