June 5, 2001
CHINA ON THE ROAD TO CAPITALISM
A long and bumpy road
This past March, Robert Cassidy – the chief negotiator in bilateral talks with Long Yu Tu, China’s Vice Minister of Foreign Trade, over China’s entry into the World Trade Organization – made a promotional tour of Chinese universities and business organizations pitching the wonders of trade liberalization. Cassidy no doubt expected a standing ovation sprinkled with profuse thanks after he delivered his speech “How the WTO will help China meet the challenges of the 21st century” at Chongqing Commercial Institute.
Instead, poor Cassidy was showered with questions in broken English croaked out by emotional students about the plight of the workers and the farmers after trade liberalization. Cassidy grew defensive, blustered about the need for those unfortunate men and women to retrain themselves and was finally rescued and ushered out by his Chinese translators and hosts.
As he left, the students smiled, thanked the American from New England profusely and asked for his email address – which he grudgingly gave. Afterwards students described in excited tones the need for China’s domestic economy to open itself to foreign competition in order to become more efficient and profitable. As most of them are from the west of China, they are also aware that foreign companies will put their mothers and fathers out of jobs.
DROOLING BUSINESSMEN
Cassidy is a member of a large informal club of drooling businessmen hooting and hollering over “China’s potential market.” One of their formal entities, the U.S. China Business Council, posts information about the concessions China will make in order to enter the WTO with glee, noting that “while China has a long list of commitments, all the US has to do is accept the offer.”
In response to arguments concerning job losses in the US, the USBC publishes “the cold hard facts,” which end up being a short list of quotes from members of the club. China joining the WTO will kickstart a number of industries currently in a slump.
The Chinese automobile industry is one of the fastest growing in the country and a priority for both foreign companies and the Chinese government. The industry is in its infancy and therefore will receive a lot of protection. Foreign automobile industries, faced with global stagnation in the auto market, are rubbing their hands in anticipation of WTO membership and the chance to sell cars and car parts to Chinese.
China has focused on building highways not railways and the potential market for cars (also a serious status symbol) is considered to be very large and very lucrative.
Foreign transnationals, with their advanced technology and huge sums of capital, might make mincemeat out of companies like the Jialing Group, China’s “King of Motorcycles.”
Chinese businessmen up and down the eastern seaboard are drooling too. Shanghai’s Pudong economic center is poised to compete with Hong Kong for the title of “China’s Global City,” although Joseph Yam, Chief Executive of Hong Kong Monetary Authority believes “China has room for two global cities.” Shenzhen has been a Special Economic Center for years now and has had extensive dealings with Hong Kong. Fujian and Guangdong provinces also have strong connections with the foreign business community, including overseas Chinese, the majority which are from these two provinces.
Businessmen in the west are anxious to get their hands on some dollars too, but they aren’t nearly as well situated as their eastern countrymen – many of which have already moved west to reap the benefits of an underdeveloped region in need of investment. But the west has oil and natural gas and minerals and is largely undeveloped – western businessmen expect a lot of foreign investment.
China is considered a developing nation by the WTO, but its list of commitments are more suited for a developed economy: cut all tariffs from 24% to 9% by 2005; eliminate high-tech tariffs by 2005; expand market access for US agricultural goods; open telecommunications, insurance, services and Internet sectors; and reduce auto tariffs.
Agriculture
and Telecommunications are especially sensitive as one employs 80% of the
population and concerns food security while the other is considered a vital
component of sovereignty and national security.
The reality is that China is divided into separate economic regions with the most basic division being between the developed East and the developing west. Both areas will experience sweeping changes come WTO membership – the experience of the west may prove the more vital one.
But China is not a member of the WTO yet. In a May 24th Agence Presse France article, incoming WTO director general Supachai Panitchpakdi told a seminar in Beijiing that China’s foundation was not up to the demands of the WTO.
“If China joins the WTO with a weak foundation … then China will not be a helpful member of the WTO,” he said.
WOES OF THE WEST
Nowhere is this weak foundation more obvious than in the west of the country.
“My father has not been paid in three years,” said one Chongqing Commercial Institute student from a town near Chengdu, the capital of Sichuan Province. “He is now using his savings and is waiting for the wages promised by his factory.”
His father and most workers like him have no clue about the WTO. Throughout western China state sector employees find themselves with cut-back hours, low wages – if any at all – and little opportunity for other employment. But they have cheap housing, cheap medical care and a retirement package – all of which will disappear with WTO membership, either by self-induced reductions in the benefits or by the efforts of a foreign enterprise to make things more streamlined.
In downtown Chongqing last May, hundreds of factory workers who hadn’t been paid in months stopped traffic from then suburb of Sha Ping Ba to the city center – one of the busiest routes in this newly created Province of 32 million souls. Teachers in one of the richer universities in the Province, Southwest Normal University, have wages so low that they open up dumpling stands on the roadside to supplement their income. In a previous article I mentioned Chongqing’s Stickmen, which is an army of bamboo stick wielding peasants who do any physical labor for a little cash.
These stickmen are part of the 100 million “floaters” who come to the cities looking for extra work. They join the 7 million unemployed and the 40 million underemployed who are scouring the urban landscape for cash. Imagine the fun everyone will have when the state owned enterprises start going belly up and spewing forth barely educated men and women into the labor market.
These people speak reverently of going to the East to find jobs – leaving the country is not within the realm of possibility. For students, however, going abroad is a possibility, albeit a distant one. Most students from the west try and head to Shanghai or Guangzhou to find work: the students studying in the west who are from the East will head back as soon as possible.
There just isn’t any work in the west. Suining, a city between Chengdu and Chongqing in Sichuan Province, is experiencing a mass exodus. Young, old, male, female – all are headed to Chengdu or Chongqing for work, many search in vain. Suining is like any of the thousands of small towns in western China: rife with frustration and poverty, scarce in jobs or opportunity.
The "Great Strategy to Develop the West" was formally announced in 1999, but it began when the central government turned Chonging municipality into Chongqing Province in 1997. The new Province, now the industrial center of the west, receives funds and mandates from the central government, instead of Sichuan Provincial government. The Great Strategy is supposed to bring peace, prosperity and gainful employment to the people of the west.
To do so, it plans to accomplish the following three things: 1) improve the infrastructure by building roads, bridges, telephone lines, sewer pipes, gas lines, railroad tracks etc. 2) Develop the high tech industry by creating special zones and “high tech parks” were computer-heads can get busy. 3) Create lots and lots of policy and new regulations to “facilitate foreign investment.”
Peasants and Stickmen help with task number 1. They dati (Chongqingese for “work your butt off") eight to twelve hours a day for about 25 yuan ($4) a day. The word “coolie” comes from these guys – ku means suffer and li means power, kuli is used to describe a menial worker. Peasants line up for these jobs and consider themselves lucky to have one.
But wages come in short bursts which means so does the construction. Instead of waiting around for promised pay like the factory workers, the peasants pick up stakes and look somewhere else. The highway from downtown Chongqing to the northern suburbs has been under construction for two years now – it might be finished next year, or it might not. The new road from northern Chongqing into Sichuan, which looks and feels as if it hasn’t been repaired since the Japanese bombed the area during WWII, has been one year in the making. I make the trip too often, and more often than not, picks and hammers and tractors lie collecting yellow dust.
Part of task number 1 is the Small Town Program of the development strategy. The program is designed to urbanize the countryside and bring the underemployed and unemployed peasants and floaters into the industrial sector i.e. onto an assembly line. But the Small Town program also suffers from a lack of funds as well as “irrational planning” as one graduate student put it.
“They want to draw in all the peasants, but they have no houses for them to live in,” he said.
Officials are very vague about the amount of money the government is putting into the Strategy, perhaps because they are fervently hoping the solicitations that appear in the China Daily every day for foreign investment in construction projects will prove fruitful – if they are, the government can continue with its plans to spend $30 billion on preparation for holding the 2008 Olympics, while foreigners foot the bill for the Strategy.
Task number 2 is well on the way. Both Chongqing and Chengdu have large hi-tech bazaars and development zones that sell every electronic gadget you can imagine as well as stacks of pirated music, software and games. The Chongqing Hi-Tech Industry Development Zone covers 12 square kilometers and was established in 1991. More than 4000 enterprises have registered along with more than 300 foreign-funded ones and they reached an income of 12.5 billion yuan in 1999. The plan is to get 60 billion by 2010 and 120 billion by 2015. Net bars dot the landscape and a large swath of the population owns a cell phone. The cell phone bit is in part due to the exorbitant domestic fees charged by China Telecom and in part due to the state-sanctioned competition between the 136-, 1300-, 1302- and 1305- divisions of China Mobile (the numbers are the first digits of a cell phone number), which has lowered prices.
Net bars are full all night long, most of the day, even during lunchtime and dinnertime, a meal routine which is adhered to quite rigidly in China. Most (Chinese) westerners don’t have personal computers, but they do have VCD machines and the latest foreign movies are available at low prices (and low quality, due to the haphazard piracy) in even the most dismal backwater town. So, Chinese outside of the cities can access most electronic and Internet services, even if they do have to wade through a road of mud to get to the rental store.
In terms of policy and regulations, western China is truly starting from scratch. Whereas the eastern cities have dealt with foreign businessmen (in the modern sense) since the Opium War, the west didn’t have foreign investment until the 1980s. Before policy could be created, it had to be destroyed. Thousands of local regulations, fees, taxes, commissions and tolls had to be swept away to make the investment environment more hospitable. The most current set of regulations, developed in 1995, has undergone so many modifications and “improvements” that it is an ongoing process. Every year a new taxation policy is developed for foreign firms and new privileges are created with the growth of the foreign community.
In the words of bureaucrat Chen Huo Lin, involved in the drafting of policy towards foreigners and foreign businesses due to his English skills: “Every day a piece of policy leaves our office.”
The new regulations deal mostly with taxation of foreign-funded and joint venture enterprises and the extent to which foreigners can own an enterprise. But rules about how to go about investing in petroleum exploration and exploitation, whom to apply to for permission to invest, what the Mineral Resources Law of the People’s Republic of China entails and how to go about following it all have to be created and made clear to the bewildered investor. China’s ability to regulate foreign investment is critical to reining in the short term costs of WTO membership and to attaining power in the WTO.
SWERVING AROUND A BAD FOUNDATION
Despite the west’s lack of “a good foundation,” everyone from the student to the businessman to the bureaucrat sees WTO membership as a necessity and a boon. Although fully aware of the massive unemployment that will come as a result, the benefits of much needed structural reforms, better allocation of resources and larger market access are considered worth the price.
“The government knows about the unemployment problem and they will solve it in a step by step manner,” says Tong Jiang Hua, an Applied Economics major at Southwest Agricultural University.
Chen Huo Lin echoes those sentiments, as does Wei Xie, a Chongqing businessman.
Part of the government’s strategy to solve the problem is to commit to whatever the WTO demands, then use domestic regulations to swerve around the commitments and keep a tight rein on foreign enterprises. Applications and registrations are two favorite ways to keep the government involved in the economy as much as possible. The Telecommunications Industry, for example, is scheduled to open 5-6 years after entry, but foreign enterprises must register and apply at the Ministry of Information, notorious for its tight grip on Internet startups and chatrooms.
Another way is to “give preference to overseas Chinese and our compatriots in Taiwan and Hong Kong,” as a report by the New Chinese Academy of Social Sciences put it. This is in violation of the commitment to purchase and sell goods according to commercial considerations, but China views a Hong Kong takeover of a Chinese company in a much more positive light than a takeover by a US company.
There are also certain clauses which can be used to protect domestic industries such as WTO’s "Escape Clause" and the "Infant Industry Protection Principle." The Chinese version of the commitments to be met and the WTO version differ in that the Chinese government sees leeway for the protection of domestic industries and describes entry as a slow step by step process, whereas the WTO and the US see it as a complete and thorough reform of the industry with a transition period of 5-7 years.
The Chinese government is justified in wanting to hold on to the economy as much as possible.
Developed countries became as powerful as they are by relying on the power of the government to force open markets and keep tariff walls high during the previous colonial and imperialist years. The US “safeguard measures” in place against “dumping” by the Chinese textile industry are a current example.
Now that China’s membership application is held up and Congress is set to debate trade issues again, the pressure is on China to bow to WTO demands and remove all government protection from domestic industries. When China finally does become a member, the WTO and the US will be keeping a sharp eye on the government to make sure all demands are met. If the US dominated WTO is too strict with China in the face of a domestic crisis, Sino-US relations could get ugly real quick.
“Such a crisis could never happen in China,” said Wen Dou Lin, a journalist for the Youth Daily. “The government would never let it happen.”
That is exactly what the club of drooling foreign businessmen is afraid of.
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