China Deserves Access to Global Economy
As part of Chapman University’s executive MBA program, students are required to spend two weeks in China, including Hong Kong, Shenzhen and Beijing. We had an opportunity last summer to join our students and take part as observers in this exciting and provocative educational experience.
Just reading about China does not do justice to the incredible potential and the formidable challenges facing this vast country. One needs to be there to truly get a sense of the enterprising spirit taking hold. Seeing thousands of bicyclists talking on their cellular phones while negotiating the nightmarish traffic of Beijing alerts one to the telecommunications miracle transforming this nation of 1.3 billion people, while the constant din of construction activity reminds one of the Wild West.
Perhaps most telling about China’s economic future is the fact that various trade districts established in all major Chinese cities appear to be in stiff competition with each other to attract foreign enterprises and capital. The director of one told us proudly that more than 2,000 foreign companies had been attracted to his area because of action to improve the investment environment.
Unfortunately, U.S. economic policy with China seems rooted in the past, with no long-run vision. A first order of business should be to strongly support World Trade Organization (WTO) status for China. Many concessions have already been made by China, including sharp reductions in tariffs in almost every service and industrial sector. China has agreed to not place any restrictions on the percentage of a company that can be foreign-owned or the percentage of profits that can be sent back to the national origin of the foreign firm.
China is incurring some major risks, including more bankruptcies, increased foreign competition and loss of freedom in setting trade policies. Even more risky is the fact that reducing tariffs tends to lower domestic prices, thereby exacerbating China’s deflationary problem.
To be sure, the benefits to China of being more closely integrated with the global economy through the WTO are also significant. More foreign investment will surely increase China’s employment and export levels. Trade liberalization will also speed up badly needed reforms in state-owned enterprises as well as in the legal, accounting and regulatory environments.
Certainly the most compelling argument for giving China WTO status is the horrible price we may pay by locking it out of the global economic community. An isolated China could become unpredictable.
We have a choice now between developing policies and strategies that create economic linkages between China and the world or those that separate us and lay the groundwork for a new Cold War--a Cold War with a much more formidable adversary than the former Soviet Union. To us, the choice is easy.
