April 12, 1999
Knight-Ridder/Tribune Media Services, April 12, 1999
Now that Chinese Premier Zhu Rongji has left the United States without getting a deal that would allow China’s entry into the World Trade Organization, there is a lot of cursing and moaning about the big fish that got away. But is the world really any worse off for this failure to reach an agreement?
Our trade with China is the most lopsided of any country, with a deficit approaching $60 billion– more than any president could ever hope to offset with illegal campaign contributions. It’s tough to argue that we want to lose more manufacturing jobs or subject our economy to more competition with companies, including American ones, that pay their Chinese workers some of the lowest wages in the world. Not to mention prison labor.
What about the Chinese side? The conventional wisdom has it that China is badly in need of economic “reform,” and that the openings to foreign ownership and access sought by the Clinton administration are just what the Chinese economy needs. Since the beginning of the Asian financial crisis, there has been widespread speculation that China would be the next domino.
But China has weathered the terrible storm in Asia better than any other country: the Chinese economy reportedly grew at about 7.8% last year, and is projected to grow at 7% this year. These are high rates of growth by any standard, but compared to neighboring countries– some of whom, such as Indonesia, have had many years of economic progress wiped out by the regional depression– they are a life-saver for millions.
In the interests of objectivity, it is worth looking at what the Chinese are doing right. First, they never allowed their economy to become hostage to the volatile and at times irrational herd behavior of international financial markets. Recall that the Asian financial crisis was set off by the sudden outflow of tens of billions of dollars from Indonesia, Thailand, South Korea, Malaysia, and the Philippines. But the Chinese government has control over its banking and financial system, and it currency is not even freely convertible. So it is not vulnerable to the types of speculative excesses and sudden reversals in investor confidence that brought the rest of the region to its knees.
China was also exempt from the International Monetary Fund’s prescribed medicine for the crisis, which turned out to have lethal side effects for neighboring countries. It is now widely recognized among economists that IMF austerity policies seriously worsened the Asian economic crisis.
China’s economic independence has allowed it to respond to the economic crisis of its neighbors in a more rational way, and one that is best for the region as well. The Chinese government is embarking on a $200 billion public works program to stimulate the domestic economy. This is an enormous commitment of over twenty percent of GDP– the equivalent in our economy would be more than our entire Federal budget. The alternative for China would be to devalue its currency in order to grab a larger share of the region’s exports, a “beggar-thy-neighbor” policy that could set off another round of currency depreciations and financial crises in the region.
Although China receives practically as much foreign direct investment as the rest of the developing world combined, it is not dependent on that investment. The country has accumulated reserves of $145 billion– enough to pay off its entire foreign debt.
All this is not to hold up China as an example– no government with its record on human and labor rights should ever be supported. But these issues did not even come up in Premier Zhu’s talks with President Clinton, who is much more interested in expanding markets for U.S. brokerage, insurance and telecommunications firms, or getting more Hollywood films into Chinese movie theaters.
China is practically the only developing country in the world that can choose its economic policies on the basis of its own national interests. For most of the rest of the developing world, these decisions are quite literally made in Washington, at the IMF. The evidence suggests that China’s national economic sovereignty has been essential to its economic success.
Most of China’s 1.3 billion people have an interest in retaining this economic sovereignty, even as they struggle for political and civil rights. Their Prime Minister’s failure to gain admission to the WTO on this trip is no loss to them. And given the hundreds of thousands of manufacturing jobs that our trade with China is costing us every year, it’s no loss to us either.