For China, WTO Status Promises Risks, Rewards

At last, after 15 years of seesaw negotiations, political maneuvering and seemingly constant dispute, China has won approval to join the World Trade Organization.

Now comes the hard part.

Membership in the global trading club will set the world’s most populous nation on a path full of promise and peril, as outsiders gain access to markets that until not long ago were kept protectively sealed off.

The promise is abundant: a chance for the Middle Kingdom to integrate itself further with the rest of the world, to deepen its economic reforms, to tone its flabby industries and to put more money into the pockets of many of its 1.3 billion people.

But the peril is equally real. With WTO accession come the threats of millions of job losses in failed state enterprises, widespread anger with an already jittery government, and disruption for the WTO as a whole if China finds itself unable--or unwilling--to play by the rules.

‘China Keeps Moving Forward’

Despite the potential pitfalls, Saturday’s vote by the WTO’s 142 members in Doha, Qatar, to admit China to their ranks was greeted with anticipation and excitement here by those who have waited years for it to happen.

“Tonight, China enters the WTO,” exulted the Beijing Morning Post in a banner headline on the front of its Saturday edition.

“This is a milestone,” said Mao Yushi, chairman of the Unirule Institute, an independent economic think tank. “China keeps moving forward. . . . After joining the WTO, it will be further connected to the world.”

Only two decades ago, China was almost completely cut off from the rest of the world. That was the legacy of 30 years of decisions by Communist leader Mao Tse-tung to isolate his country and turn it into a self-sufficient powerhouse.

After Mao’s death, his successor, Deng Xiaoping, reversed course and began opening China to the outside, in a policy that set the stage for Saturday’s vote.

With membership in the WTO, at heart a capitalistic trading club, and the recent award to Beijing of the 2008 Olympics, China has virtually sealed its repudiation of its Maoist past. With the Communist Party also recruiting private entrepreneurs these days, the Beijing regime is now more Communist in its politics than in its economics.

Under WTO rules, China’s protective trade barriers are to be gradually dismantled over the next several years in areas ranging from agriculture to telecommunications. The certainty of a planned economy will be replaced by the uncertainty of the free market.

Most likely to emerge as winners are members of China’s booming private sector--which already accounts for at least a third of the country’s GDP--and companies that have already started overhauling to face up to the pressures of better-managed, better-funded and often better-known foreign competitors.

“It changes the rules of the game,” said Ye Xiu, a marketing executive with Dazhong, which manufactures cars in a joint venture with Volkswagen in Shanghai.

Auto Industry Seen as Big Battleground

The automotive industry is one where analysts expect a particularly aggressive slugfest between domestic and foreign manufacturers in coming years.

“If you don’t work hard, you don’t make money,” Ye said. “That’s an opportunity.”

“WTO also means competition for human resources,” added Lin Guoguang, the branch manager of a small local bank in coastal Zhejiang province. “Some people will definitely have to go, but only with competition can we improve. Only the best swimmers will survive.”

Weak swimmers are legion in China, especially among the country’s inefficient state-owned enterprises, many of them kept afloat by repeated “loans” from government-controlled banks that never get a dime back.

Thousands of such enterprises have already gone under in China’s toughening marketplace--textile companies, foundries and other heavy industrial concerns. Their demise will be accelerated by the onslaught of new competitors no longer kept at bay by high tariffs.

“They have better management and richer experience, and Chinese commercial enterprises are not ready to compete with them,” Wang Juntao said of the foreign players he sees circling like sharks.

Wang is head of the e-commerce division of one of Beijing’s biggest department stores, a state-owned venture on the west side of town. He and his colleagues are nervously eyeing retailing behemoths like Wal-Mart, which announced last week that it plans to open five stores in Beijing at a cost of $25 million.

According to a report this year by the investment firm Salomon Smith Barney, Chinese accession to the WTO could throw as many as 40 million people out of work over the next five years.

A quarter of those are likely to be farmers, already on the lowest rung of the economic ladder. Beijing is gambling on strong growth to create enough jobs to absorb the unemployed, lest rising discontent threaten the stability prized by the Communist regime as well as its own political legitimacy.

Critics from within and without warn of the widening disparity of wealth, which is disproportionately concentrated in the cities and on the eastern seaboard rather than in the vast Chinese interior.

Although China stands to benefit from WTO membership over the long haul, in the short term these income gaps could grow even wider.

“The benefit of the initial stages will be mostly limited to the coastal areas,” said Yiping Huang, one of the authors of the Salomon Smith Barney report. Recent state investment in the interior is encouraging, but it “still has a hard road,” he said.

To guard against getting hit badly, local authorities could feel compelled to fall back on the protectionist tactics that have frustrated many companies trying to crack the Chinese market.

The protectionist measures, which are supposed to be eliminated under WTO rules, are propped up by a crude legal system that encourages local judges to side with local authorities. Impartiality and competence--many judges have scant legal training--are too often hard to come by.

A key question for China is whether the central government can honor the rules imposed by the WTO or whether enforcement will be so lax that other member states will throw up their hands and write off the WTO as useless.

Lately, the government has passed batch after batch of new laws, covering everything from patent protection to workers’ rights, designed to bring the country more into line with international commercial standards. Beijing is also busy trying to assure foreign firms that their interests will be safe and subject to fair practices.

But the clock is ticking. Although scholars say China is moving steadily toward a more open system, legal reforms are still embryonic and piecemeal. The courts would be hard pressed to deal with a surge in WTO-related disputes.

“Judicial reform is something that’s in flux. It’s not like they have an overall macro plan for how this will work, any more than they did for economic reform,” said Randall Peerenboom, an expert on Chinese law at UCLA.

“It’s very much going to be a work in progress over the next few years.”

Successfully complying with the WTO’s rules could have more lasting impact than swelling Chinese pocketbooks.

It could even help restrain the central government, which has ruled virtually unchecked for decades, said Mao, the think tank economist.

“It will lose some of its powers. . . . It will have to follow the WTO’s regulations,” not just its own, Mao said.

“Chinese people enjoy little democracy compared with people in Western countries. After China joins the WTO, there will be another organization that can exercise some supervision on the government.”

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Chu reported from Beijing and Ni from Shanghai. Times staff writer Tyler Marshall in Hong Kong contributed to this report.