By Satya J. Gabriel

This essay was written for the Center for Popular Economics newsletter (from July 22nd plenary talk at CPE Summer Institute).

Why is the current leadership in China pushing so hard for entry into WTO?  Why is China’s membership so crucial to both transnational firms from both the European Union and the United States?  In whose interest is China’s membership in WTO?

Since the economic reforms began in 1978, foreign trade between China and the rest of the world has grown dramatically.  Most importantly, China’s economic institutions have accumulated massive hard currency (primarily U.S. dollar) reserves.  These hard currency reserves are critical to the so-called four modernizations of the Chinese economy and military.  Hard currency is needed to import advanced technology (both in hard and soft forms).  Indeed, the pragmatic rightists (pro-capitalist members of the Communist Party of China (CPC), many of whom were labeled as such by Mao and his closest allies) have made the continued adoption of more advanced technology a cornerstone of their economic development strategy.  This strategy has won them the support of the leadership within the People’s Liberation Army (often seen as the swing faction within the CPC). Therefore, as long as foreign technology is necessary to modernization (of the economy and military) and hard currency is necessary to obtain such technology, then support for export growth will be built into the political dynamics in China.

But does this mean WTO is the only way to go?  Is WTO the necessary, if not sufficient, condition to keep those hard currency earnings flowing into China? Most economists probably think this is the case.  They believe that continued normal trading partner agreements with the United States, for instance, are linked to China entering WTO. Indeed, China’s foreign exchange earnings from the United States are substantial (the trade imbalance between China and the U.S. is larger in absolute terms than any such imbalance between the China and any other country and between the U.S. and any other country).

But could not the Chinese leadership forge individual agreements with countries and ignore WTO?  We should not presume that the eagerness with which U.S. and European firms have pursued business interests in China (China is second only to the United States in foreign direct investment) would wane in the absence of WTO membership. It is likely that the existing pressure from transnationals upon their host governments to make it easier to do business in China would continue unabated, even if somehow the train to WTO derailed.

In other words, there must be more motivating the drive for WTO, especially within China.  WTO comes with a long laundry list of strings attached, binding agreements that force “sovereign” governments to change their economic rules of the game.  On first glance, this external intrusion upon the sovereignty of the Chinese government would seem to be something to be avoided, particularly given  Chinese sentiment about such external coercion (and very much active memories of “Western” imperialism in China).  Indeed, there is opposition within the Party to the growing role of foreigners in Chinese economic life, especially from the left.  But perhaps it is precisely this continued struggle within the Party over policy that is the reason for the pragmatic rightists pushing so hard for WTO.  They recognize that the long-term struggle within the Party between themselves and the left (including the remaining Maoists) may be in a relatively quiet period but is hardly over.  The pragmatic rightists may be using WTO as a mechanism for forcing more rapid and deeper pro-capitalist changes in China’s economic rules over the objections of the leftist minority.  In other words, WTO provides a convenient tool for defeating the left within the CPC.

In addition, WTO provides the current leadership with a fall guy for the problems that developing a competitive capitalist economy, linked to the expanding global capitalist economy, have produced. So-called restructuring of Chinese state-owned enterprises has resulted in a rapid increase in unemployment, street demonstrations, and sabotage.  The potential for even more wide scale anti-government demonstrations increases with each new set of plant closings and lay-offs.  The fact that membership in WTO has been promoted as crucial to continued economic prosperity in China and that the United States and the European Union are seen as forcing China to make major concessions provides the pragmatic rightists with the raw material for blame shifting.  They can blame the growing unemployment and other economic ills on the U.S. and E.U., saying that they (the leadership) had little choice but to cave into the demands, even if it cost many Chinese their jobs.

And recognizing that the Party’s old constituencies, the farmers and urban wage laborers, may become disenchanted with the reforms as rural incomes stagnate and unemployment rises, the leadership is moving to change its base of support to the new capitalist class that it is creating.  The Party recently began recruiting more members from the ranks of capitalist “entrepreneurs” and managers.  This would further dilute the strength of the left within the Party and build a foundation for even more dramatic reforms in the future.  It will also create the basis for the Party and government being captured to serve the interests of a narrow constituency that is more focused on individual profit than social development.

It could all backfire, of course.  The growth of Chinese capitalism brings with it the increased potential for social unrest, particularly in the context of a Thatcherite/Reaganite reduction in the central government’s provision of social services (another aspect of the reforms).  Millions of Chinese are now without access to good quality health care.  A social security system is still in the planning phase, even as the elderly find it increasingly difficult to obtain services that had once been considered a right of citizenship. Young people are becoming increasing unhappy with what they see as a culture of corruption and selfishness. Photos of Mao are once again starting to proliferate. The form of competitive capitalism being promoted by the pragmatic rightists is a new world for the Chinese population to inhabit. To make matters worse, many of those most likely to adapt to these changes, the better educated and technically trained workers --- those most needed by Chinese firms hoping to effectively compete against foreign firms in both domestic and foreign markets --- are taking advantage of the opening up of the Chinese economy by joining foreign firms at pay levels well in excess of salaries in similar Chinese firms. This results in a subtle but continuous erosion of Chinese competitiveness from within. The problem will only worsen under WTO. Finally, the assumption on the part of the Party leadership that the legitimacy of their continued rule rests on economic growth may prove overly simplistic. It could turn out that the contours of this new world are not recognized as consistent with the ideals of the People's Republic. If that should turn out to be so, a serious crisis of legitimacy (of continued one-party rule by the CPC) could already be in progress. Calling upon the citizenry of China to recognize the logical necessity of participating in WTO and reorganizing Chinese society according to the global dictates of the "West" may not be sufficient to resolve the crisis in favor of the CPC leadership.

In any event, the recent vote of the International Olympic Committee to accept China’s bid to host the 2008 summer games may have been a signal that the pragmatic rightists have succeeded in convincing the so-called West to play ball with an increasingly capitalist China.WTO entry is next. Whether this is in the best interests of the Chinese people or even the global community (not simply the transnational firms) remains to be seen.

Copyright © 2001, Satya J. Gabriel, Mount Holyoke College.   All Rights Reserved. 

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