WTO Entry Risks Social Upheaval in China

“As Keynes said, ‘In the long run we are all dead,’ so we should pay attention to the short-term costs and challenges.” So concluded Myoung-Ho Shin, Vice President, Asian Development Bank at the Asia Business Conference recently hosted by HBS.

Other panelists discussing China’s accession to the World Trade Organization (WTO) echoed similar concerns about the short-term implications of WTO membership for China.

While most panel experts agreed that the long term effects of China’s WTO membership would be economically beneficial for China, all commented on the short term challenges the country faces during the “adjustment period.”

According to Shin, the WTO estimates that in coming years, WTO membership will add 1 to 2 percentage points of GDP for China, but not before structural reforms take effect. Those adjustments include higher competition in more open markets, lower regulations, and higher efficiencies that will not always accrue to national companies.
Shin pointed to the banking, insurance, and telecom industries as being particularly vulnerable to foreign competition. Ya-Fei He, Minister and Deputy Chief of Mission, PRC Embassy to the U.S., also pointed to the agriculture industry, which he said will not be able to stand up to competition from U.S. multinationals in an open market.

For example, though China can produce enough soybeans to meet its demand, it can import them from the U.S. for half the cost. The results could mean high unemployment and instability for Chinese farmers.
Rudolph Schlais, Jr., President and CEO of General Motors Asia Pacific, agreed and warned that the broad social impacts of the “elimination of inefficient and money-losing companies” is “really the issue that needs to be addressed.”

Schlais added that GM hopes to become a significant domestic producer in China, in addition to being an importer, and that GMAC is launching a joint venture with the Chinese government later this year to provide automotive financing to Chinese consumers.

Mr. He said the challenges of WTO membership would be greatest for the Chinese government, which “must change its function. It’s used to micromanaging the economy and now it’s having to divorce itself from it in a gradual process.” He warned that some government officials are not ready to relinquish control, despite years of preparation.

Regardless, Mr.He said WTO membership will “complete the process” of opening the economy. Mr. He said his government “hasn’t been idle” and that China has been preparing for integration into the global market for the past ten to fifteen years at both the national and local county levels.
“My government is very much on the road to reform and opening up, ” said He. “We are opening markets and trading will become more open, transparent, and credible.”