China and the WTO
by Supachai Panitchpakdi and Mark Clifford
Supachai Panitchpakdi and Mark Clifford's China and the WTO is a sober and balanced account of the importance of encouraging free trade and integrating an emerging China through the mechanism of the World Trade Organization into the global system.
Within a broader discussion of the gap between Western rhetoric and reality on the issue of free trade, the writers give an explanation of the nitty-gritty of China's accession to the WTO as well as a handy guide to recent Chinese economic history. Its best insight is to recognize that China's leadership views WTO membership as a political, not an economic, strategy.
There is, however, a schizophrenia about the book: much of the content is related to free trade and the WTO as an organization - as you would expect from Panitchpakdi, its forthcoming Director General. The chapters on China are almost separate, presumably the focus of Clifford, the Hong Kong-based Asia editor of BusinessWeek.
Nonetheless, with September 11th still fresh in our minds, the writers usefully highlight how large sections of the globe are not happy with globalization.
High tariff barriers in the West and quotas in the developed world on goods that the poorest countries produce most efficiently go against the grain of free trade. Western consumers commonly pay tariffs of over 100% on fruits, vegetables, meat and dairy products. The rich countries spend $360 billion every year protecting themselves with these tactics, dwarfing the amount they hand out in foreign aid.
With regard to China's marathon admission process, the writers remind us that some of the problems were not solely of China's making. During Premier Zhu Rongji's dramatic trip to the US during the Clinton administration in 1999, he offered groundbreaking concessions, only to be noisily sent packing, adding public humiliation to a tactical defeat. The absurdity of the administration's short-term politicking was revealed seven months later, when Washington accepted a deal slightly less in its favour.
Unfortunately the book offers only a dry prognosis of the potential economic aftershock that WTO membership could create in China. There is no ambitious attempt at crystal ball gazing, or even of reaching some conclusions as to the ultimate effect of WTO entry. Instead, the writers resort to exhortations about the importance of countries cleaving to the spirit, not just the rhetoric, of Free Trade - a worthy endeavour but one that leaves the reader hungry.
The writers do examine the rising strength of China in the low-end manufacturing sector and track its move up the ladder to producing more sophisticated products. This is already making inroads into Japanese and Korean markets but the real losers, the writers suggest, are the fragmented and "inward-looking" Southeast Asian countries.
On the other hand, China's internal problems of a weak central government, corruption, and a poor legal system will slow the behemoth's growth, say the writers, which is true but has certainly been said before.
Importantly, the writers also point out that while the rest of the world may have serious worries about how to deal with a rising power such as China, there is just as much dread in China about the effect of WTO on China's domestic market.
Barriers to foreign entry into China will be ripped down. Whereas foreign direct investment was previously channeled toward exports out of China, foreign companies will now be able to aim their artillery against Chinese competitors - a bombardment many local merchants are not looking forward to.
This part of the book chimes with Gordon Chan's recent entertaining rant "The Coming Collapse of China", where he sees WTO entry acting less as a cold shower and more as a lethal injection. Chan's thesis is flawed but he did not shy from tackling the controversial issue of whether China's is a bubble economy ready to collapse under the wrong combination of circumstances (see FinanceAsia, November 2001).
But the real motivation of China's motivation in joining the WTO, the writers suggest, is less related to the need to accelerate growth rates, but rather to lock the country's often fractious Party members and bureaucrats into the reform process.
Overall, the book is a practical summary of the many issues surrounding free trade and China's new status as a member of "the Club".
