FEER: Deal of the Century ( US-CHINA)-- Mo+`i ca'c ba'c ba`n tie^'p

[Dao Van <daotb@yahoo.com>]

TRADE Deal of the Century Beijing's WTO deal will have far-reaching
implications for China and the rest of Asia.  Our first story examines
the huge changes afoot for the Chinese economy.  The second story looks
at what's in store for Chinese and foreign companies.  Finally, we
assess what the deal means for the rest of Asia. 
====================================================
By Susan V. Lawrence in Beijing with Lorien Holland Issue cover-dated
November 25, 1999

=====================================================
The relief was palpable as Chinese President Jiang Zemin and U.S.  Trade
Representative Charlene Barshefsky celebrated a deal on terms for
China's entry into the World Trade Organization on November 15 in a
red-carpeted hall in the Zhongnanhai leadership compound.  Their
vigorous handshake led the evening news, the cameras showing them
beaming at each other and their entourages. 
"Good,
good, good," Jiang gleefully repeated in English. 

The deal had been a full 13 years in the making.  Although China must
still conclude bilateral negotiations with the European Union and
Canada, among others, before entering the trade body, Barshefsky
predicted full accession early next year, maybe even in January.  Once a
member of the group that sets the rules for global trade, China is to
open its markets to a level of foreign participation hard to imagine a
year ago.  It's now committed to opening everything from banking and
insurance to telecoms and the Internet.  Over a phase-in period of up to
six years, the agreement cuts duties on a wide range of products, gives
foreigners the right to distribute their goods within China, allows
foreign auto makers to provide car financing, and increases imports of
foreign films on a revenue-sharing basis. 

Just six weeks ago, it remained uncertain whether Jiang would leave any
lasting legacy from his decade in power.  His legacy is now clearer. 
The deal decisively levers China out of an ideological debate about how
to reconcile socialism and the market, and locks it in an embrace with
free trade and the world economy.  In remarks to reporters, Barshefsky
emphasized that trade among WTO members is based on a strict set of
enforceable rules, which should make doing business in China more
predictable.  The deal could have even broader significance, says China
scholar Edward S. Steinfeld of the Massachusetts Institute of
Technology.  "It will lead to an expansion of the Chinese economy, which
we hope is the best shot for China's long-term stability.  It is hard to
imagine a prosperous China going out of its way to go to war with Taiwan
or anyone else."

Joining the WTO will be painful for some Chinese industries, especially
agriculture.  It will infuriate the leaders of some ministries who see
their interests threatened--notably the Ministry of Information
Industry, which oversees telecoms and the Internet and had resisted
foreign participation in both.  But Jiang and his premier, Zhu Rongji,
held firm in their determination to reach a deal in the belief that only
through exposure to foreign competition will Chinese enterprises be able
to hold their own in the global economy. 

At home and abroad, the deal is being hailed as a defining moment in
China's modern history.  It's "the most significant move since the start
of economic reforms themselves 20 years ago," says Shawn Xu, head of
research at CICC, a Beijing-based joint venture between China
Construction Bank and U.S.  investment bank Morgan Stanley.  Even New
York-based Human Rights Watch, a frequent critic of China, hailed the
deal as "good for trade but also for human rights and the rule of law."

For Hai Wen, deputy director of Beijing University's China Centre for
Economic Research and a nationally recognized authority on WTO
membership, the prospect of sweeping away ideological barriers to market
reform is of greatest importance.  Hai remembers how, in his 1977-82
college years, Chinese economists were preoccupied with how to
rationalize the need to hire workers with the Marxist concept of
exploitation. 
"Hiring two people to work for you was
not exploitation, but hiring more than two was," he recalls.  Deng
Xiaoping's concept of a "socialist market economy," moved China beyond
that debate.  Yet even today, Hai notes, Chinese policymakers struggle
to define the "dominant" role for state-owned industries that socialism
would seem to demand. 

"Ten years from now," Hai predicts, "we
are going to look back on this debate about state ownership the way we
look back on the exploitation debate," and conclude that it was
"meaningless." Entering the WTO means that "the next big idea is
integration with the world economy," Hai says.  And that will finally
allow policymakers to focus on making Chinese companies globally
competitive. 

China's leaders faced even more-daunting political hurdles to an
agreement than U.S.  President Bill Clinton.  The hurdles grew after
Clinton rejected what had seemed like a generous deal from Zhu when he
visited Washington in April, and climbed even higher after the Nato
missile strike in May on China's embassy in Belgrade.  That incident
unleashed an outpouring of popular fury at the United States.  By
summer, it appeared Jiang was far more caught up in pursuing a bizarre
political campaign against the mystical Falun Gong exercise group than
negotiating the terms of WTO membership.  Premier Zhu, who saw WTO
accession as the best way to push through the restructuring of China's
inefficient industries, reportedly came under fire within the
bureaucracy for selling out China's interests and largely disappeared
from public view.  Only in September, after popular anti-U.S.  sentiment
had cooled, did China's bid get back on track in earnest. 

Even now, popular mistrust of the powerful trade group lingers. 
Although Zhu's intervention was crucial to clinching the final deal, he
was absent from both the signing ceremony and the Zhongnanhai meeting
celebrating it.  That was apparently due to fears among the leadership
that if Zhu were too closely associated with the pact, the bureaucracy
might be less likely to support it. 

The Beijing Youth Daily felt obliged to reassure its readers on November
16 with a headline reading: "Not one of 134 member countries saw its
economy collapse because of entry into the WTO." A chart in the paper
addressed concerns that entry into the group would lead to soaring
unemployment.  The paper estimated that within seven years of China
joining the WTO, 14.5% of jobs in the car industry, or 500,000
positions, will be lost and 3.6% of agricultural jobs, or 10 million
positions, will disappear.  But it also predicted a leap of 52.3% in
jobs in the clothing industry and a 23.6% increase in positions in the
textile industry as foreign quotas on imports of the industries'
products are removed. 

Implementing the deal, however, won't be trouble-free.  "Jiang is going
to find bureaucratic resistance," says Joseph Fewsmith, a political
scientist at Boston University.  Still, Fewsmith says, "WTO is going to
give him a very effective tool to at least begin to beat the bureaucrats
into shape." An early confrontation with Minister of Information
Industry Wu Jichuan seems likely.  While Jiang and Zhu worked on the WTO
deal, Wu in recent months moved to cancel foreign equity stakes in
China's second telecoms operator, Unicom, and in Chinese Internet
content providers.  The WTO deal allows for 49% foreign ownership of
telecoms companies immediately upon accession and protects foreign
investment in Internet content providers, says the U.S.  government. 

Chinese commentators expect the agreement to lead to a fundamental
readjustment of the Chinese economy.  Chinese media have reported that
in the short term, labour- and resource-intensive industries will likely
be least affected by the deal because developed countries have largely
moved out of such industries.  Beijing University's Hai believes China's
electronics industry will gain importance and says China may even become
a
"major exporter" of cars, "not in one to
two years, but maybe in 10 years." He also sees opportunities in
knowledge-based industries such as information technology and the
Internet. 

Agriculture will be a big loser.  "The U.S., Canada and Australia all
have a comparative advantage over us" because of China's shortage of
arable land, Hai says.  To find jobs for agricultural workers who lose
their jobs, he says, the government must focus on developing small and
medium enterprises.  Such private companies will likely find it easier
to access much-needed capital now that the banking industry is to be
open to foreign participation. 

State companies also will face hard times. 
"The state sector will disappear
gradually," Hai says, as those companies that aren't profitable succumb
to the new competition and private owners take over.  When China joins
the WTO "we will all be competing in the same market, so our systems
must converge," he explains.  It's an "inevitable trend."

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