By Gang Lin

"Chinese Membership in the WTO: Domestic Economic and Political Implications for China" April 21, 2000 Capitol Hill Breakfast Seminar

Barry Naughton, Professor of Economics, University of California - San Diego
Joseph Fewsmith, Associate Professor of Political Science, Boston College

Chinese membership in the World Trade Organization (WTO) and the upcoming congressional vote on China's permanent normal trade relations (PNTR) status hold significant implications for both China and the United States. While the impact of China's WTO membership on the American economy and U.S.-China relations has been frequently addressed in recent months, the implications for China's domestic economy and politics have not aroused enough public attention in the United States. Who within China will be the economic and political winners following China's entry into the WTO, and who will be the losers? Will China's membership in the WTO result in economic disorder and social chaos, or accelerate China's ongoing reforms?

At an April 21st Capitol Hill breakfast seminar, two eminent China experts spoke to senior congressional staff on Chinese membership in the World Trade Organization, focusing on the domestic implications for China. Both speakers agreed that Chinese membership in the WTO would bring positive but potentially destabilizing effects to China's economic and political development.

Professor Barry Naughton of the University of California-San Diego focused his analysis on China's domestic economy. According to Naughton, China has experienced dramatic economic changes in the past few years, including the rapid shrinking of state-owned enterprises, growth of the urban private sector, a rising urban unemployment rate, improvement of government revenues, and less involvement of the government in the economy. China's entry into the WTO will move the country substantially towards its own comparative advantage -- from land- and capital-intensive sectors towards labor-intensive industries. China's agriculture and capital-intensive sectors such as automobile, steel and paper will face substantial pressure to restructure, while its labor-intensive sectors, including garments, textiles, toys, sporting goods, and light chemicals will benefit from Chinese membership in the WTO. China's entry into the WTO will also dramatically change its undeveloped distribution network and non-tariff trade barriers. Its banking system will face competition from foreign banks. Since the United States exports capital-intensive machinery and land-intensive agricultural crops, and has a rich marketing experience, it is well positioned to take advantage of these changes in China.

Professor Joseph Fewsmith of Boston University argued that the United States would gain rather than give up leverage on China by granting China permanent normal trade relations (PNTR) status. According to Fewsmith, one of the most disturbing aspects of U.S.-China relations in the last decade has been that the Chinese admiration of the U.S. has declined, beginning in 1993 with American opposition to the Chinese hosting of the 2000 Olympic Games. The Chinese people have since come to think that the United States does not really care about human rights in China and that the U.S. generally seeks to keep China from enjoying its rightful place in the world. These beliefs have contributed to the upsurge of Chinese nationalism, which was further enhanced by the 1995 Taiwan Strait crisis and the hostile atmosphere last year resulting from the bombing of the Chinese embassy in Yugoslavia. By contrast, improvements in U.S.-China relations in 1997 and 1998 resulted in a remarkable change in the Chinese political atmosphere. President Jiang Zemin gave a reform-oriented speech during the 15th Party Congress in 1997, declaring Beijing would promote the rule of law. During that period, Jiang also stated that China needed to be a part of the global community and subject to international rules. If China fails to attain WTO membership and PNTR, Beijing's reformers including Premier Zhu Rongji and Jiang Zemin will be criticized by the public, and their political position will be greatly weakened, Fewsmith concluded.

The two speakers' presentations were followed by a heated discussion among the audience. Some participants voiced the concern that the United States would lose its only leverage over China's human rights and nonproliferation behavior by granting PNTR status to China, and that Beijing would gain more technology and capital from the world while still retaining its non-tariff trade barriers. Others believed Chinese membership in the WTO would accelerate China's economic and legal reforms, though one cannot expect China to change overnight after it gains WTO membership. In general, participants in the seminar agreed upon the following points:

1. Despite the social costs, most reformers in China, including some military figures, support China's entry into the WTO, while conservatives regard Chinese membership in the WTO as a threat to their interests protected by the current economic system.
2. China cannot simply blame the United States for the worsening relationship between the two countries. While Beijing has reproached the United States for demonizing China, it has also demonized the United States by manipulating issues such as the mistaken bombing of the Chinese embassy in Yugoslavia. Chinese leaders should understand that the U.S. administration and many in the Congress do want to maintain a good relationship with Beijing.
3. In dealing with Beijing on China's human right issues, the United States should not focus solely on the famous political dissidents. The United States should pay more attention to the human rights of all Chinese people, which can be improved only through China's further integration into the global community, and maintaining its economic and legal reforms.
4. The United States should keep a comprehensive record of China's human rights performance each year. Due to various developmental levels across China, it is necessary to monitor China's human rights record province by province. The United States should also rely on multilateral forums and work closely with other democratic countries in persuading China to improve its human rights.
5. Granting PNTR status to China does not mean the United States will necessarily lose its leverage over China's nonproliferation behavior. The United States can still legally sanction China if Beijing violates the international nonproliferation regime after it joins the WTO. Enhancing the regional military security system and increasing arms sales to Taiwan are other ways to persuade Beijing from engaging in arms and nuclear technology proliferation.