November 29, 2005
China and the Hong Kong WTO MeetingsBy Brian Schwarz
While many free trade advocates are rightfully concerned about the potential collapse of the Doha Round of trade negotiations at a WTO ministerial meeting to be held in Hong Kong next month amid thousands of anti—globalization protestors, they should step back for a few moments and ponder the larger picture.
As they consider their next move, the world's trade negotiators should note two articles recently published on the other side of the Pacific Rim. In The Australian, Mr. Alan Oxley argues the WTO, while spending so much precious time debating agricultural subsidies, is overlooking a far more important task of 'keeping China on the path of free—market reform.'
There is the very real possibility of an economic jolt from China should domestic turmoil result in economic policy changes. An economic jolt from China? Don't start laughing. It could happen.
Playing By the Rules
China is now a leading trading partner for many countries, and Mr. Oxley recognizes how Beijing often tries to mix politics and trade. As a former Australian ambassador to the GATT and chairman of a Washington—based NGO called World Growth, Mr. Oxley argues:
While China has been a proud member of WTO for the past three years, many of its market—opening commitments —— such as in the banking sector —— have yet to be implemented. Many of the challenges of doing business in China develop because of the fragmented nature of political authority. Every time Beijing issues a policy change, some local officials in the vast hinterland fail implement it because it goes against their protected self—interest.
A Change of Heart
In an interesting twist, it seems one the leading voices calling for more backtracking is one of the key architects of reform during the Deng Xiaoping era in the early 1980s.
According to Mr. David Wall writing in the Japan Times, Professor Liu Guogong, a loyal Communist Party member and former director of the Institute of Economics, a home of many market—oriented reformers, now says it was all a big mistake. As research associate for the East Asia Institute at the University of Cambridge, Mr. Wall writes:
Does Mr. Liu really want to return to the bad old days of a centrally planned economy where everyone was equally poor? Someone please give this man a one—way ticket to that economic paradise called North Korea.
In the past few months, the Western media have been overflowing articles discussing the economic rise of China and India and the threat they pose to America's economic and political leadership. While it is true that many American enterprises face growing competitive pressures from Asia, we must keep this economic challenge in perspective.
Projecting China's high growth rates out into the future, researchers at Goldman Sachs, for instance, tried predict how the world would look by 2050. Their report claims that China's economy could overtake the US by 2041. (And India may bypass Japan by 2035.)
While every economic evaluation system has its flaws, many of these studies fail to grasp the scale China's internal weaknesses. According to another report released a few months ago by the World Economic Forum, China's overall global competitiveness has, in fact, declined for the past three years.
With the massive social problems that Beijing now has to deal with, it is easy to fall victim to Professor Liu's perspective. Mr. Wall goes on to explain:
And coal miners are not the only victims. Last year alone some 3 million workers joined a total of 57,000 protests countrywide, according to China Labor Bulletin, a Hong Kong—based rights group.
In Hong Kong, WTO officials should realize the risk that growing unrest in China's countryside poses to the global economy. In the past few years, more than 100 million poor farmers have migrated into the urban areas in search labor, many facing discrimination from abusive managers.
Unfortunately, many Communist elders like Professor Liu fail to understand how Communist rule, has made the situation worse, not better. Because Beijing's rulers fear instability, their reactions may be exaggerated.
Nobody can predict the future, but without doubt the next few years are going to be very interesting times in China.
Brian Schwarz publishes the website China Challenges, and is based in Shanghai.