The Advantages and Disadvantages of China's Accession to the WTO

In July, 2001, Chinese economist Han Deqiang visited the European Parliament at the invitation of the Green Group, to participate in a workshop entitled China’s Accession to the WTO: Alternative Voices. What follows is an edited version of his speech.

First of all, I must declare that all the viewpoints stated below are only my own opinions and have nothing to do with my government and my university. I am among the few scholars in China who have been consistently criticising the WTO, IMF, the World Bank, globalisation and neoliberalism. Understandably, I am very concerned about the consequences of China's accession to WTO. Unfortunately, this is not the attitude of the mainstream media in China.

The first point is that China's accession to the WTO will bring about more disadvantages than advantages. Chinese enterprises do not have adequate competitiveness in international markets. General Motors alone has annual revenue comparable to the total annual gross revenue of China's first 500 enterprises, and the average gross revenue of China's first 500 enterprises is only 2% of that of the top 500 in the world. It's true that China ranks in the forefront of the world as far as the total volume of several products is concerned, products such as steel, cement, coal, cotton, fertiliser, electricity, colour TVs, refrigerators, air conditioners and motorcycles, but this large quantity is produced by hundreds of thousands of firms, each of them remaining small in scale.

China's average industrial concentration is too low to compete with foreign counterparts. The level of equipment is more backward, which results in more energy consumption per unit product, lower quality and performance. Furthermore, China's enterprises are seriously short of capital in general and have no ability to improve technology and market share rapidly. As well as this, few of China's products are famous internationally, so high quality products do not attract high prices, which means lower profits and higher costs.

Obviously, if China's enterprises compete with transnational corporations (TNCs) under such conditions, a great number of them must go bankrupt, or be taken over by the latter. In fact, the beverage, brewing, detergent, bicycle, paper, medical, elevator, computer, aviation, and machine tool industries are all controlled by transnational corporations, or at the least the high value-added markets of these industries have been totally conquered by foreign companies. Other industries under more strict protection of government, such as the automobile industry, petrochemicals, steel, coal, even agriculture, are under serious threat from imported products and the penetration of TNCs. Some domestic firms within these industries have become the production base of TNCs. Hence, China's enterprises have been suffering from decreasing profits since 1996, and have been forced to dismiss workers, reduce wages and freeze welfare. One of the results has been that the bad debts in China's major banks have been soaring. In my opinion, the primary reason for the rising bad debts is fierce competition, especially  competition from foreign enterprises and imported goods. The second important reason is corruption.

I want to emphasise the issue of agriculture. The rural population in China adds up to 900 million, 500 million of whom have the ability to work. The average household owns only 0.4 hectares of land. To ensure that such tiny plots of land produce enough food, the price of food must be maintained at a high level, which means that the prices of the main agriculture products such as wheat, rice, and corn of China are constantly higher than those of the international market. The price of agricultural land has been decreasing since 1996. The price fell to such a level that, per hectare, wheat brought $120 loss to peasants in the autumn of 2000, while an average peasant's annual income in purely agricultural areas is only $80. Almost 600 million people live in such areas. If the "Agriculture Cooperation Agreement between P.R.C and U.S.A" is implemented after China joins WTO, the income of peasants will go down steeply, more land will lie waste, and more peasants will flood into every city and fall into a poverty trap without any hope.

As a result, China's GDP might increase temporarily, but employment, tax and wage per GDP unit will decrease continuously. More importantly, China will no longer have an independent industrial system, and will become instead the production base of transnational corporations. Most of the rural population will lose land and income. The financial system could collapse because of increased bad debts. Meanwhile, China will have no ability to construct a social security system with sufficient funds because the government will be unable to levy enough taxes on foreign enterprises, which will certainly lead to a deterioration in public security.

Then, a second question naturally arises: why is China so eager to join WTO?

A great many of people find it hard to understand the motivation of China's accession to WTO. However, China's mainstream media spares no enthusiasm in its praise of the WTO. They loudly proclaim that accession will speed up the pace of reform and open up policy, motivate the energy of China's enterprises in the face of international competition, normalise China's market economy, and finally make China run in the same orbit as a developed country. If some enterprises are eliminated, this is only the necessary cost of China's development. The media also appeals to consumers, implying that they will be able to buy more high quality imported goods with less money.

No voice from businesses directly faced with international competition appears in the media. Collective enterprises owned by villages and towns or small private enterprises are unable to compete directly with TNCs, and their main rivals are domestic firms. Although these small businesses feel vaguely the threat from foreign goods, they have little information about the whole situation, no organisation, and no representation in political affairs. Most big enterprises still belong to the state, their leaders are appointed by central or local government, and bear no final responsibility. If the government is dedicated to joining the WTO, they will raise their hands automatically. These leaders will have the possibility to enjoy salaries as high salary as do their foreign counterparts, a consideration which far outweighs their concern for the overall interest of the enterprises. Workers and peasants might be expected to hold different opinions, but they are much less informed and organised. Most do not even know what the WTO is.

What kind of force could get rid of all these obstacles and push forward the process of accession to WTO? The answer lies in the logic and history of China's reform-open policy. It is generally considered that the reform-open policy allows the Chinese economy to grow rapidly, and the living standards of Chinese people to improve rapidly. However, the thing is not so simple. The core of reform-open policy is the introduction of market logic, which means putting the development in the hands of those with the desire and ability to become wealthy, which at the same time means allowing the law of the jungle to start functioning. Before 1985, the central government improved the price of agriculture products and the wages of workers while keeping the consumer price. Local governments and state-operated enterprises gained more self-determination power and were able to use bonuses and other incentives. As a result, the largest and weakest group won a greater share in wealth distribution, which strongly promoted development. The open-reform up policy won support from all social groups.

After 1985, however,  peasants' income grew slowly while their costs grew rapidly. Leaders of state-owned enterprises gradually seized more profit for themselves while the political position and relative income of workers fell continuously. Nobody seems to care about the long term; every one, from top to bottom, even the workers, learned to use power for himself. State-owned enterprises began to die gradually under the pressures of internal erosion and external pressure.

This process has produced a large wealthy group which included cadres in all levels of government who hold real power, leaders in state-owned enterprises, grass roots cadres in the countryside, leaders of collective enterprises owned by villages and towns, owners of private enterprises, and those employed as white-collar workers in foreign capital enterprises.

Foreign capital once played a positive role in China's economic development. During the 1980s, the scale and level of foreign capital was relatively low, constituted mainly of capital from Hong Kong, Macao, and Taiwan, which did not threaten China's enterprises. Meanwhile, the government adopted a strict protectionist policy. The domestic market boomed for five years or so, supplying all kinds of commodities whose production once fell short of demand. The internal and external problems of state-owned enterprises existed but were not so serious.

At the end of 1980s, however, overproduction visited every walk of life, and competition became very fierce. In other words, China ran into its first economic crisis, the most notable marks of which were "triangle debts". To solve the crisis, it is necessary to enlarge domestic demand, reduce the gap between the wealthy and the poverty, and absorb overproduction capability, using financial, monetary and taxation tools; but this solution was excluded from the beginning, because it could not gain support from the new wealthy group, against the logic of the law of the jungle. Instead, the door was opened far wider to foreign capital, the hope being that foreign direct investment could stimulate growth. After 1992, and the publication of the famous speech of Deng, all levels of government in every district competed with each other to supply more favourable treatment to attract foreign capital. Many areas were designated "development zones", within which governments were responsible for providing a high standard of infrastructure. Not surprisingly, a great boom developed because of the building real estate and infrastructure in these development zones. All the storage space was sold out, and idle productive capacity was put to use; but the boom ended as rapidly as it appeared. Real estate prices fell sharply.

A similar story was taking place in the entire China economy. All competitive industries went into a descending spiral. The prices of colour TVs, refrigerators, air conditioners, motorcycles and other manufactured goods went down by more than 50%. Idle capacity was much more extensive than in the last crisis. The growth rate may have been 7% p.a., but growth was evident only in foreign direct investment and export/import, which at the same time compressed the market space of domestic industries, and aggravated the domestic economic crisis. Indeed, foreign direct investments focused in two fields: high value-added industries such as automobile, medical, chemical, and micro-electronics; and labour-intensive export-oriented industries such as toys, shoes, leather, and garments. Though export industries generated some employment, wages were too low to compensate for the lost high wage jobs in high value-added industries. More inimical to her long-term interest, China runs the risk of losing an independent industrial capacity. To indicate how China's economy relies on foreign capital and markets, the ratio of the sum of export and import to GDP rose to 46% in 2000.

During the process that saw China’s economy fall into the long term deflation crisis from the boom-bubble-bust of the 1990s, the law of the jungle functioned to its extreme. Workers and peasants experienced a ten years' stagnation of income, while cadres in central government and rich regional governments enjoyed an income growth to a factor of ten and white-collar employees and intellectuals gained even more. These latter three groups are the core force in contemporary China's politics, economics, and culture. They all benefit from the foreign-oriented economy, even from the lasting deflation. In their eyes, if domestic growth demands more tax and fewer imported goods, then it must be the worst solution. Hence, when China’s economy is faced with the choice of acceding or not acceding to the WTO, they automatically support joining.

We are told. ‘Join the WTO, so that reform and the opening up policy won't be reversed.’ This could be translated as ‘Join the WTO, so that the wallets of the rich won't be under threat.’

The third question is simply,  `how could the public be persuaded?’

In reality, even the rich will become dependent on transnational corporations if China's accession to the WTO does take place, and thus they would not be so enthusiastic in their support if they were fully aware of the probable consequences. It does no good, either, to other countries and most of the people in the world if China loses the ability to grow independently and becomes a country competing with others by its low wage level. However, such a "fail-fail" game was presented as a "win-win" game by both the Chinese and world media - why?

The reason lies in the neoliberalism which dominates academic discourse and public opinion, and which has been strongly supported by transnational corporations. Almost all Chinese economists embrace Adam Smith's "invisible hand" and its modern representatives such as Milton Friedman; every leader in all levels of government is trained in Smith's dogma. In fact, it's Adam Smith not Karl Marx who is the real hero. With no exception, the media, reporters and editors all embrace Smith's dogma, and seldom know that protectionism rather than free trade was the secret prescription of development of America, Germany, France, Japan, and even Great Britain. In their eyes, protectionism is equivalent to "close the door".

It is very interesting that under the surface of rejecting the western model China learnt everything from America, putting it into practice with the reform and opening up policy. American neoliberalism became Chinese fashion; Nasdaq upswings, the second board stock market, became the hot topic of China's capital market; American communication industry opens to competition, and China's communication industry becomes eager to be dismantled. This kind of model thinking plays an important role in persuading the public.

The fourth point I would like to point out is that things are changing. 

With the explosion of the Asian financial crisis, with the rapid growth of the unemployed population and the deterioration of the countryside, with more state-owned enterprises going bankrupt, public feeling against market-oriented reform strengthened. In economic academia, critiques of the IMF and the Washington consensus from several American economists such as Joseph Stiglitz and Paul Krugman became clearly influential. The translation of a German book on the way in which globalisation undermines democracy and welfare gave a shock to intellectuals both inside and outside academia. Suffice it to say that anti-neoliberalism forces are developing quickly.

Since the first half of 1999, I have written many papers criticising the policy of accession to WTO and the related treaties. My book Collision: The globalization trap and China's real choice was published in January 2000. Though I fell under all kinds of pressures and difficulties, I am also gaining more support from a broader base. To my surprise, China's central policy research institute published a long summary of my book, and the journal International Trade belonging to the Ministry of Foreign Trade and Economic Cooperation published my article "Thinking on anti-globalisation". In addition, dozens of magazines have published abstracts of and made comments on my view. I have been invited to attend various seminars and give lectures. At the beginning of every lecture, I am in the minority, but when I finish my speech, I have become one of the majority.

It is evident that the Chinese economic academia has been split. Those neoliberal scholars still command the majority, but have lost their arrogance, while anti-neoliberal scholars are the minority but are now more confident and encouraged, with justice on their side. This is why I  could come here and introduce my opinion. I believe deeply that democratic forces all over the world must oppose neoliberalism, outlaw it, because it promotes polarisation, tragedies, and disasters in every corner of the world.