China Cooling to WTO Deal? Don’t Bet on It

Now what’s going on in China?

Why are its leaders suddenly acting as if they don’t care about the Big Deal they’ve sought for years, an agreement for China to join the World Trade Organization?

A month ago, after President Clinton schmoozed his old friend Chinese President Jiang Zemin in New Zealand, it looked as though the way was being paved for a milestone WTO deal--one that would integrate China into the global economy and make it easier for foreign firms to do business in China.

But since then, silence.

U.S. Trade Representative Charlene Barshefsky pushed to complete a deal in New Zealand, to no avail. When another round of talks was held in Washington three weeks later, China sent only its tough trade minister, Shi Guangsheng, and not its chief WTO negotiator, Long Yongtu, who has handled most of the talks with the Americans. The negotiations broke off quickly.

The Clinton administration has told China that if it wants to get into the WTO this year, time is getting short. Right now, China’s answer seems to be, “So what?”

Three theories are circulating in Washington to account for China’s apparent change of heart:

1) Withdrawal: Jiang and his aides have decided they really don’t want a WTO deal after all.

By this theory, Beijing has belatedly decided that a WTO deal will bring the leadership nothing but mafan--the Chinese expression for trouble.

Maybe Jiang and his aides have looked ahead, more clearly than the Americans, at the messy aftermath of a deal. China would have to carry out a politically risky reform of its economy, phasing out protections for its state enterprises in a way that could lead to layoffs and social unrest.

And even when the Chinese rulers make what they consider painful and far-reaching changes, these won’t be enough for the Americans and Europeans, who will complain, often accurately, that China still isn’t meeting the WTO rules. For the dirty little secret is that China is so far away from the WTO’s standards of an open economy that it can’t possibly meet them any time soon.

Beijing’s problems with Washington may increase. The two governments may become bogged down in endless economic disputes, as many American industries seek to invoke the international trade rules against China.

Moreover, once China enjoys permanent trading rights in this country as a WTO member, the political dynamics in Washington may change. Corporate America may stop lobbying on China’s behalf. U.S. firms won’t be able to blame the White House or Congress for their failures in China any more. All the impediments to doing business in China will come from China itself.

China’s leaders may have decided: Who needs this?

2) Stalemate: China can’t make a WTO deal because its leadership is divided.

By some accounts, the Chinese Communist Party’s top policy-making body, the Standing Committee of the Politburo, is split over the wisdom of membership.

Jiang and Premier Zhu Rongji are said to be in favor of the idea. Two conservatives, Li Peng and Li Lanqing--strong defenders of China’s heavily protected state sector--are said to be opposed. And the other three Standing Committee members are said to be wavering. So, say the stalemate theorists, the Chinese regime can’t act because it’s paralyzed.

3) Ploy: China’s seeming detachment is a bargaining tactic aimed at getting a better deal from the United States.

It is hardly unusual for Chinese officials to hold off until the last days, hours and even minutes of a negotiation before coming up with a plausible offer. By waiting, they make the other side so eager to wrap up a settlement that not too many questions are asked about the details.

That may be what the Chinese are doing right now. “They know the United States is anxious for a deal, so they’re not in any hurry,” observes one former U.S. official who has done business in China.

Under Theory 3, China won’t show much interest in making the Big Deal until just before the big WTO meeting in Seattle at the end of November. Just when the Clinton administration and the U.S. business community think the deal they want has eluded them, China will come forward and offer considerably less than the Americans had sought.

Any one of these theories could be the correct one. But the guess here is that we’re now witnessing a well-executed Chinese negotiating strategy.

Watch for Jiang to raise the pressure on the United States by lining up support for China’s WTO membership on his tour of Europe this week. Then keep an eye on Treasury Secretary Lawrence Summers’ trip to Beijing next week.

China may try to use Summers to circumvent Barshefsky, who wants a deal but also has insisted that the administration won’t sign a WTO deal unless it’s a good one for U.S. commerce.

My bet’s on Theory 3 and a deal next month. But if not, I have Theory 1 and Theory 2 to fall back on. Pundits can explain anything, retrospectively.