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Two from Saul LandauÉChina/Cuba


Robin Hahnel

After

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.

 

The

Deal

In

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

particular.

Finance:

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.

Telecommunications:

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.

Agriculture:

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.

Cars:

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.

US

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

necessary.

Chinese

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.

Internet:

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

later.

Movies:

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.

 

What

Does It Mean for the US?

Who

are the Winners?

Just

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."

Who

Stand to Lose?

Not

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.

The

Final Tally in the US:

Wall

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.

 

What

Does It Mean For China?

On

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.

Why

Did They Do It?

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.

Greed,

Arrogance and Ignorance:

As

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.

Who

Are the Winners?

The

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.

Who

Stand to Lose?

Displaced

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.

The

Final Tally in China:

I

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.

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