Joint Centre for Asia Pacific Studies
Hong Kong Scholar Says China in Zero-Sum Game at WTO

TORONTO, March 29, 2000 -- Hong Kong-based China scholar Wang Shaoguang says the consequences for China of joining the World Trade Organization (WTO) will be profound, creating a class of losers among China's rural peasantry and older workers that could undermine economic growth and the support base of the Chinese Communist Party.

In a paper entitled, The Social and Political Implications of China's WTO Membership, Wang will present his analysis on Monday, April 3 at 3 p.m. in a lecture sponsored by the Joint Centre for Asia Pacific Studies at York University and the University of Toronto.

Wang says increased foreign access to China's vast market under the global trade regime will result in the closure of numerous state-owned firms unable to compete, resulting in layoffs of workers whose skills are obsolete and who are deemed too old for retraining. He says economic and political instability in China will be alleviated only by an expansion of institutions that give voice to public concerns and allow for public participation in the economic transformation.

"When large segments of the population lack an effective mechanism of expression about matters that affect them, they naturally resist any effort by the state to extract their cooperation," says Wang. He says that in all of today's advanced, industrial countries, the expansion of the role of markets historically has gone hand in hand with the strengthening of social welfare institutions to protect those most at risk. "But in China the capacity for redistribution of wealth is currently very weak," he adds.

Wang is a professor of political science at the Chinese University of Hong Kong, and a former associate professor at Yale University in the United States. His research is focussed on economic and political development in East Asia and former socialist countries. He is the author of five books, including Challenging the Market Myth (in Chinese, Oxford University Press, 1997), and The Political Economy of Uneven Development: The Case of China (English edition, M.E. Sharpe, 1999; Chinese edition, China Planning Press, 1999). His presentation will take place at the Koffler Institute, 569 Spadina Avenue, University of Toronto.

Among Wang's observations concerning the benefits and costs to China of WTO membership:

Workers and farmers are most likely to suffer the negative consequences of China's WTO deal in job losses and downward pressure on wages. In rural China, an estimated 15 million or more growers of the country's main agricultural crops will become unemployed, representing about three per cent of the rural labour force.

It is projected that 13 million growers of rice, wheat and cotton will become unemployed, and between 1999 and 2010, about 10 million agricultural workers will have to be transferred to non-agricultural sectors.

If restructuring is too rapid, it will result in very high levels of urban unemployment. Only a fraction of these newest additions to the ranks of the unemployed will find employment in new, foreign-owned, labour-intensive manufacturing enterprises.

Between 20 and 25 per cent of urban labourers currently are redundant. Zheng Xilin, Deputy Director of the State Ministry on Economy and Commerce, disclosed the following: In 1999, production capacity usage for more than half of all industrial goods was less than 60 per cent, and redundant industrial sector employees amounted to about 20 million.

Under the terms of China's agreement with the US for WTO membership, US companies will secure market access to whole areas of the economy to which they were previously denied. These areas include information technology (IT), automobiles, paper making, steel, chemicals, petrochemical, machine-making, pharmaceuticals, telecommunications, banking, insurance, securities, movies, and music.

Almost every industry in China is already at excess capacity. Recent census figures on industry show 83 per cent suffer from under-use of production capacity and the problem is more serious in the above-mentioned sectors. The result is that Chinese firms in those sectors will be forced out of their own domestic market.

Most of these firms are state-owned. It is estimated that state firms still employ almost two-thirds of all urban workers.

Wang says empirical studies based on regressional testing show countries with higher initial inequality at the outset of liberalization grow slower than others. Citing Brazil, he says the difference between rich and poor is wider than ever after a quarter century of liberalization. Unemployment is more than 9.5 per cent and workers' buying power is 27 per cent of what it was in the 1980s. He says the situation in Mexico is similar.

Chinese economists predict that before 2005, rural residents' income will drop, while urban residents' income increases, further widening existing urban-rural gaps. Growing inequality among social groups will result in the better-educated winning out against those with less education and outdated labour skills.

Some of China's industrial sectors could become more competitive in international markets and will be able to increase exports, particularly in labour-intensive sectors, such as textiles, toys, garments, shoes, home appliances, and bicycles. But China has also agreed to four years of protection for the US textile industry after quotas are lifted in 2005, and to 15 years of special protections for the US against "dumping" of Chinese goods in the US market once China becomes a WTO member.

It is believed that China will be able to attract at least $100 million US more in direct foreign investment up to 2005, compared to a total of $250 billion invested over the last decade. But China is already ranked number two in the world in foreign direct investment and has been a net capital exporter in the last few years, so shortage of capital has not been a problem.

China's trade partners expect that as a WTO member China will treat all firms -- state-owned, foreign and domestic -- equally, will increase the transparency of government policy-making, accept the rule of law, and fight corruption. But Wang says a simple test of whether this is a reasonable expectation is to take a look at the records of those countries with WTO membership.

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For further information, please contact:

Bernie Frolic
Director, JCAPS
York University
(416) 736-2100, ext. 88821
bfrol@yorku.ca

Lynne Russell
Program Coordinator
JCAPS
University of Toronto
(416) 946-8987
lynne.russell@utoronto.ca

Susan Bigelow
Media Relations
York University
(416) 736-2100, ext. 22091
sbigelow@yorku.ca
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