Commentary
Punishing China would boomerang
By David Polhemus
Advertiser Editorial Writer
BEIJING — Perhaps the most perplexing question facing the shapers of U.S. China policy is something of a chicken-or-egg proposition.
Should we punish China for its terrible human rights record by barring it from the top echelon of world trading nations — that is, the World Trade Organization — until its record improves?
Or should we speed China's accession to the WTO, in hopes that as it grow richer, it will also grow freer?
It's a question that sort of answers itself when you spend some time in China. I'm no China hand, but I've been lucky enough to visit in 1980, 1997 and now, and it's obvious the country is getting richer and freer.
It's not clear how the two qualities correlate in China; GDP growth surely doesn't guarantee civil liberties. Perhaps what the former Soviet bloc and now the Chinese are proving, however, is that economic growth requires at the very least the freedom to innovate and take risks.
The very antithesis of innovation and risk-taking is the Chinese albatross, its state-owned enterprises. These dinosaurs devour most of the public investment in China, only to produce, often enough, inventories of commodities they can't sell.
And this is the critical point to understand about China's WTO membership: It commits the country to abandon its state-owned enterprises. China's leaders have a clear-eyed understanding of the short-term costs and the long-term gains this will bring.
The state-owned enterprises epitomize the communist welfare state: They provide housing, schools, hospitals — everything the worker needs from cradle to grave. The demise of the state-owned enterprises will bring great short-term pain —sweeping unemployment without a social safety net — but, in the end, will speed China's transformation toward a thriving, developed market economy.
"After WTO accession, in the first few years, China will have a difficult time," says Shawn Xu, chief economist for a joint-venture investment bank based here. "This is the cost that we have to pay in order to make even faster and more sustainable growth. Growth must come from improved efficiency. For that, we have to shut down the inefficient (state-owned enterprises). They should have died years ago."
In a way, says Xu, the WTO is a faith-based leap into the dark from which there's no return. "But we cannot continue to throw precious resources down this black hole" that state-owned enterprises constitute.
"That's why we want WTO," says Xu. "It's not about market share or exports. It's about the fundamental economic reform of China. We can't support these millions of redundant jobs. If you want social security in China, you must shift resources to the private sector, to create new jobs."
And yes, says Xu, the private sector, at 42 percent of GDP, is already strong enough to do the job.
It's possible that the disruption caused by this transition will tear the country apart, like a giant Yugoslavia. That's why China's leaders — and most of China's people — are so concerned about stability.
With a floating population —largely peasants who have headed for the city lights — already exceeding 100 million, plus 24 million layoffs in recent years and 300 million underemployed, Muslim and Tibetan separatists, Falun Gong practitioners and opposition party organizers are seen as absolutely unacceptable threats to the stability required to endure the transition.
They have seen China torn by the Taipings and the Boxers of the 19th century; they have seen the self-devouring paroxysm of the Cultural Revolution; they have seen what a "big bang" theory of economic liberalization has done to the former Soviet Union, and they are determined to bring change in a more orderly way.
There have been big, sometimes violent confrontation in China, "but so far there's been no Lech Walesa to link them up," said a Western diplomat.
But China hasn't waited to get started. Eighty-five percent of the small- and medium-sized state-owned enterprises have been sold off, while most of the big ones await the impetus of WTO requirements.
Xu's company assisted in restructuring one big state-owned enterprise, Petrochina, an enormous octopus embracing everything having to do with oil, gas and refining in China. "Assets, debts and personnel were restructured," says Xu. Some of it was sold to private companies. Much of it was simply closed and written off.
"Before restructuring, Petrochina had 1.5 million employees. One million have been laid off" over three years, says Xu, adding that the job isn't done. "That leaves 500,000 employees -— still about four times bigger than Exxon's worldwide workforce." But for the sake of stability, he says, that's all that can be done for the moment.
Can the Chinese people endure this transition? A people who could handle decades of civil strife, the Great Leap Forward and the Cultural Revolution should be able to handle this, I suggested to a Chinese friend.
"But China had a powerful ideology to unite it through those times," he pointed out gravely. Ideology is dead in China.
What the party center substitutes for fervor these days are two things:
• The leadership has resorted to nationalistic jingoism, beginning in the wake of the Tiananmen killings. It's a two-edged sword that now haunts them at times. True, they can blame outsiders for their own weaknesses, as well as some of the transitional pains under way (the Americans are blocking our WTO membership or our Olympics bid to keep us poor, they say). But now people often get angry when the leadership fails to stand up to the foreign ogre, and that's counterproductive when the chosen course is integration with the global economy.
• Above all, the leadership's claim to credibility and legitimacy depends on economic growth. The people are willing to put up with party troglodytes as long as the wheels don't come off their revolution of rising expectations. Prolonging growth at a 7 or 8 percent of GDP growth rate is no mean trick, and that growth is perilously uneven. The urban economy grew 8 percent last year; the rural economy 2 percent — and the first two years of WTO membership will actually shrink the rural economy. Just half of rural households have access to running water.
But China is much freer in many ways today. College graduates no longer are assigned to jobs. People can move from the countryside to town. They can change jobs. People can own their own homes and cars.
These are enormous, obvious differences, and this buys the government some time. But it will take WTO accession to pull China toward international standards. "Getting into the WTO will be good for China's 'face,' " said a Western diplomat, "and good for business."
And we must hope that WTO accession will bring the growth, and with it the confidence, to allow political reform in China. China probably will never resemble the United States, politically or socially, nor should it. But it's more pluralistic, its people are hopeful, and WTO can only reinforce and speed this trend.
"If you want to hurt reform in China," said Xu, "if you want to halt the evolution to democratization, then block China's WTO accession."
I've seen nothing here that leads me to doubt that Xu is right.
Advertiser editorial writer David Polhemus is traveling in Asia as a Jefferson Fellow from the East-West Center.
