May 01, 1999	atimes.com

China WTO entry is political prize but economic pain for China By Antoaneta Bezlova BEIJING - After 13 years of protracted negotiations, China seems poised to join the World Trade Organization (WTO), a crowning achievement that Beijing expects will bring it with it lots of political prestige. While U.S. President Bill Clinton was unable to sign an agreement on the issue with Premier Zhu Rongji during his visit to Washington earlier this month, the consensus in Beijing is now that a deal will be signed before November. That is the month the 133 WTO members begin discussions on a new round of trade reforms. For China, an admission to the WTO would mean solemn recognition by what may be the last world organization it does not yet belong to. It would also be a seal of approval for the major transformation its economy has undergone, from a state-run one into a market-oriented one. But pomp and politics aside, joining the WTO will present the Chinese Communist Party with one of the toughest challenges in its 50-year rule and create an economic shock that pundits here have begun to cautiously warn about. Yet many believe that exerting external pressure on China's ailing state industries and protectionist trade practices is exactly the goal being pursued by Zhu, who has been pressing hard for Beijing to join the world trade body. ''Zhu just realized the WTO is the only way he can push through all the reforms he has failed to implement domestically,'' says a diplomat from a western country here in Beijing. ''Introducing international competition in a large way will do what he was unable to achieve after a year of struggling with protective local officials and hard-liners among the ruling elite,'' he adds. When China's tough-talking economic supremo Zhu came to power last year, he pledged that in three years' time he would turn around the money-losing state industries and reform the financial and banking sector on purely market terms. Yet the government has failed to close the losing state firms, as it fears that would create mass unemployment and social unrest, and has shied away from cutting the lifelines of millions of workers. This policy has put a lot of pressure on the state banks, which have been asked to prop up industrial loss-makers. Pumping money into losing state enterprises, the banks have had little chance of becoming competitive. These pressures combined mean that, in many ways, China is an economic disaster waiting to happen - although it is closer than ever before to become a WTO member, which Beijing regards as an essential step to becoming a superpower. ''You can't run this kind of banking system indefinitely,'' warns Nicholas Lardy, a leading China watcher of the Brookings Institution in Washington D.C. ''Some day, there is going to be an event which causes a loss of confidence. This kind of economy can turn on a dime." Lardy believes the key problem lies in how the government is dragging its feet on closing the losing state firms. ''Until they are really willing to cut, to have these companies disappear, they are going to have continued problems in the banking sector,'' he said. Economic analysts say Zhu has taken the biggest gamble in his political career by pushing to join the WTO as a way of heading off or solving the potential crisis situation. But while Beijing welcomes admission to the body, the resistance here to China joining the WTO at an early date and under the conditions offered by Zhu is fairly strong. The concessions made by Zhu's team during recent negotiations in Washington are so sweeping that Beijing does not dare to publish them in the domestic press. For instance, tariffs on hundreds of U.S. industrial products will be lowered to 7.1 percent by 2003. Restrictions on the import of wheat, citrus, meat and poultry have been lifted. Americans can own up to 30 percent of joint ventures in the extra-sensitive telecommunications sector. Addressing the American business community during his U.S. trip this month, Zhu admitted a couple of times that by offering the WTO package, which the Hong Kong press has described as a ''big gift,'' he put his career at stake. The opponents of WTO membership here argue that the mainland's state industries, especially cars, metallurgy, machinery, electronics and steel, are too weak to withstand foreign competition without high tariffs. They say that membership will precipitate the closure of state firms, leading to even greater unemployment and will open the door to foreign takeover of much of mainland industry. Furthermore, they warn that this will threaten state ownership and control by the Communist Party. While the domestic debate on the WTO has largely been hidden from the public, signs of growing political resistance are beginning to emerge even in the state-sanctioned media. People's Daily, the Communist Party organ, ran an editorial last week talking at length about the ''long-term profit'' for China from the WTO membership but hinting that the immediate economic prospects are quite bleak. Other newspapers have been more outspoken on the price China would have to pay for joining the WTO party. China Daily Business Weekly carried a front-page story on Sunday that read: ''WTO demands pain as price of gain.'' It quoted an unnamed expert from the China Society for WTO Research who warned that ''there will be no free lunch'' for China. ''Adjustment after China's entry to the WTO will be a tough job, despite the transition period permitted by the WTO,'' the economist quoted by the paper said. (Inter Press Service)

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