World Trade Organization Admits China, Amid Doubts (NYT) -
By JOSEPH KAHN, The New York Times, November 11, 2001

DOHA, Qatar, Nov. 10 - China joined the World Trade Organization this evening, completing a quest that required 15 years of haggling over whether the nation's fitful embrace of a market economy entitled it to the full trading rights of capitalist countries.

Trade ministers from the United States, Europe and India referred to the marathon negotiations over China's admission as difficult, acrimonious and politically charged, but the admission ceremony was brief and cordial. Michael Moore, the organization's director general, hugged Shi Guangsheng, China's trade minister, as a moderator itemized articles of membership and declared, "The ministerial conference so agrees."

Chinese officials have presented the nation's membership as one of their most significant diplomatic achievements since China displaced Taiwan and took a seat on the United Nations Security Council in 1971.

That step decades ago gave China the political rank of the United States and the former Soviet Union. Today's step ensures China equal status for its fast-growing economy, though in return it will have to grant foreign companies access to its 1.3 billion consumers.

World trade ministers have gathered in this Persian Gulf emirate to hammer out an agenda for trade liberalization globally, and China's admission ceremony came on the second of five days of these talks.

Qatari troops in purple camouflage and security guards wearing flowing white robes and kaffiyehs surrounded a complex on the shores of the gulf to protect delegates, who had been warned of potential terrorist action. There were no disruptions.

The discussions are at an early stage, and few were predicting breakthroughs before Tuesday. The goal is to begin a three-year round of negotiations on virtually all aspects of trade, but there is no guarantee that the effort will not fail as it did in Seattle two years ago.

American and European negotiators who strongly advocate trade liberalization showed few signs of having quelled a rebellion by some developing countries. Poorer nations are demanding concessions on trade issues they care about most before agreeing to discuss the demands of their industrial counterparts.

The most divisive issues include an attempt by India and Brazil to allow nations to violate medical patents when public health is at stake, an issue that pits a broad swath of the developing world against the United States. Europe and Japan are under heavy pressure to remove some protections for farmers, a longtime goal of the United States and many poor nations that want to export more farm products.

Murasoli Maran, India's trade minister, said his nation would stand firm against any new round of trade liberalization if its demands are not met. "We will withstand all pressures," he said.

China's accession was greeted by delegates here as an important moment. But many officials say privately that the long-term implications are uncertain. "I believe that as this century unfolds and people look back on this day, they will conclude that in admitting China to the W.T.O. we took a decisive step in shaping a global economic and commercial system," said the American trade representative, Robert B. Zoellick. He added, however, that the changes China would have to make to comply with international trade rules remain a "daunting challenge." American officials have argued for years that trade commitments will force China to open areas of business that have been closed or restricted, like banking services, agriculture and retail chains. Beijing, they say, will ultimately have to improve its legal system and remove government from day-to-day interference in business affairs.

Whether membership marks a more profound transformation is another question. Some Western experts predict that open trade and freer investment will act as sea water on a wooden pier, weakening the pillars of the Communist Party's power. For its part, China expects to expand the market for its own export industries while maintaining the dichotomy between an open economy and a closed political system.

Anne M. Veneman, the secretary of agriculture, who is here to focus on farm trade, predicted that China's entry could increase American exports by $2 billion annually.

And though Mr. Shi, the trade minister, echoed the trade-wary sentiments of India and other nations, American officials foresee that China's passion for development will make it a solid ally in pushing for trade liberalization in coming years.

China's Leaders Uneasy About WTO Entry (WP)
Inefficient Farms, Businesses to Face Tough New Rivals
By Clay Chandler and Phillip P. Pan Washington Post Foreign Service
Tuesday, November 13, 2001; Page A27

SHANGHAI, Nov. 12 -- Chinese Prime Minister Zhu Rongji would seem to have every reason to celebrate the conclusion of China's 15-year bid for membership in the World Trade Organization.

Zhu, the reform-minded technocrat who ranks second in China's Communist hierarchy, has worked tirelessly for China's admission to the global trade body. Indeed, his attempt to win U.S. support for China's candidacy by offering sweeping market concessions to President Bill Clinton in 1999 nearly cost Zhu his job and so infuriated conservative party colleagues that many branded him as a traitor.

And yet Zhu is toasting accession warily. "Everyone is very happy about the WTO except me," he told a group of Chinese journalists who traveled with him to Brunei earlier this month to attend a meeting of Southeast Asian leaders. The prospect of more global competition for China's inefficient farms and business, he said, "gives me a headache."

In fact, Zhu is hardly the only Chinese official rubbing his temples because of the WTO. In joining the trade group, China's Communist rulers are taking a historic gamble. For two decades, they have limited political reform and kept a tight grip on power while loosening control of the economy little by little. That strategy has proved an enormous success: The economy flourished, lifting hundreds of millions out of poverty and winning popular support for the Communist Party long after China's people stopped believing in communist ideology.

Now the party is embarking on radically different course. To secure the approval of trade ministers gathered this week in Doha, Qatar, China was obliged to promise that it would slash tariffs, curb official subsidies and scrap many other barriers that have long shielded workers here from the rough-and-tumble competition of global capitalism.

Those changes are expected to bring long-term economic benefits, for China as well as its trade partners. But they also will bring short-term hardship for hundreds of millions of ordinary Chinese citizens, and pose daunting challenges to the party's continued legitimacy.

Adherence to the terms of the WTO deal will squeeze farm incomes, topple state-run banks and businesses, push up unemployment rates, hasten migration to already overcrowded cities, and widen the gap between China's rich and poor. China has taken on these risks as the world is hurtling into recession and the party itself is enmeshed in an internal battle over leadership succession.

Hai Wen, an economist at Beijing University, argues that Chinese leaders' determination to press ahead with WTO membership, despite the potential dangers, reflects a broad recognition within the party that the program of limited market-oriented reforms launched by Deng Xiaoping two decades ago had become hopelessly bogged down.

Joining the WTO was necessary to ensure that China "will take the market economy road and can't turn back," Wen said.

Gordon Chang, an American lawyer who spent five years in Shanghai advising foreign businesses, predicts in a recently published book, "The Coming Collapse of China," that WTO membership will stir currents of political and social unrest that will sweep the Communist Party from power within the decade.

Other China watchers aren't so ready to write the party's epitaph. But there is wide concern, even inside the party, that WTO membership will destabilize the current regime in unexpected ways.

In Brunei, Zhu said he was particularly worried about the impact of WTO membership on China's farmers. Experts say tens of millions of Chinese who now cultivate wheat, rice and cotton could be thrown out of work as tariffs on foreign products fall. Under WTO rules, countries classified as "developed" have the right to subsidize as much as 5 percent of their agricultural output, while those designated as "developing" can provide subsidies of up to 10 percent. After long and acrimonious negotiations, Beijing won the right to subsidize its farmers up to 8.5 percent, even though China is treated as a developed country in other parts of the agreement. But in the end, that hard-won exemption may not matter: Economists say revenue is stretched so thin that the Chinese government can barely afford to continue farm subisides at the current level of 3.5 percent.

"There's no doubt the peasants will have it worst," said Yuan Gangmin, a senior economist with the Chinese Academy of Social Sciences.

But other sectors will be hard-hit, too. Under the WTO agreement, China must slash tariffs on auto imports to 25 percent, from the current 80 percent to 100 percent. Duties on auto parts will be scaled back to an average of 10 percent. China has more than 130 automakers. Industry analysts say no more than three or four are capable of producing vehicles in the sort of quality and quantity required to be internationally competitive.

WTO membership will create new opportunities for exporters and people with technical skills or access to capital. Chinese manufacturers of clothes, toys, shoes and other labor-intensive products will reap big benefits. China's apparel exports could triple, according to one estimate, creating millions of new jobs.

The United States and other nations have the option of blocking excessive "surges" in textile imports from China, though. And the export boost will be much smaller than the leaders had anticipated if the global economy continues to deteriorate. China's exports expanded at an annual rate of only 7 percent in the first nine months of this year, compared with 28 percent in 2000. Many analysts predict growth of China's overall economy will sink next year to a decade-low rate of 6.5 percent.

The WTO deal will pare the thicket of regulations preventing foreign firms from offering financial services in China. Foreign banks will gain the chance to accept deposits and make loans in the local currency. Those changes could have far-reaching implications for the rest of the economy.

Under current rules, Chinese households are forced to deposit their money in state-controlled institutions that have lent billions to unproductive state-owned companies with little hope of paying them back. Those borrowers could be forced into bankruptcy if savers can shift their funds to foreign lenders with better service and less-risky lending policies.

WTO membership also is expected to intensify conflicts between Beijing and local governments that have sought to protect their companies even from domestic competition, sometimes using violence. And it doesn't help that China is leaping into the global economy just as Zhu and President Jiang Zemin, both strong advocates of market reform, are due to retire. Their presumed successors are relatively unknown figures who haven't been formally anointed. However, it's unclear whether Jiang really intends to step aside.

And even if party leaders manage the difficulties of transition successfully, the shift to a rules-based, market-oriented economy envisioned in the WTO deal implies a radical diminution of their powers.

In the new, post-WTO China, "instead of relying on the mayor to solve problems, business can rely on the market," said Guan Guoliang, chairman of the board of New China Life Insurance, one of the country's few private insurance firms. "Government [officials] are going to have to figure out what their jobs are."

(c) 2001 The Washington Post Company