Socialism Today - Let a hundred Seattles bloom
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Issue 45, September 1999

Let a hundred Seattles bloom

BARELY A week before 100,000 protesters besieged the World Trade Organisation (WTO) summit in Seattle, China's Communist Party leaders gave it a massive vote of confidence. The deal reached between Beijing and Washington over China's WTO membership in November was a 'a giant step towards embracing capitalist principles', according to the Financial Times.

Shen Jiru, spokesman for a Beijing think-tank, called the US-Sino deal 'the biggest economic event in China since the open door policy was launched' (in 1978). China-related shares on Hong Kong's stock market surged 10% on news of the deal, which also got the thumbs up from Western governments.

What does it all mean, and who really gains? Western multinationals are licking their lips at the prospect of greater access to the 'world's largest potential market' and exploiting opportunities to expand into lucrative sectors of the Chinese economy, like telecoms and banking, previously off-limits to foreigners. Imperialism also sees the WTO deal as a means of underpinning China's privatisation programme. As Stephen Roach, chief economist at Morgan Stanley Dean Witter put it, 'WTO is the lock-in to Chinese reforms'. This is also a factor in Beijing's thinking. Fierce opposition to the downsizing of state enterprises, and mass lay-offs estimated at between ten and twenty million workers last year, mean that the ruling Communist Party want to hide behind 'external pressure' (in much the same way as European governments have relied on the EMU criteria to push through austerity measures).


The US side made few concessions while for Beijing the deal was a major retreat. It involved bigger concessions than those made by prime minister Zhu Rongji in April, and which Washington rejected. The April offer was subsequently disowned by Beijing and seemed to have been buried after the bombing of China's embassy in Belgrade by Nato forces.

What China gains is greater access to the US market. At present 62% of China's exports face non-tariff barriers. Quotas on Chinese textile imports will be phased out by 2005, but Washington retains the right to impose 'anti-dumping measures' for 15 years. Already one-eighth of the world's footwear and clothing, and one-third of all suitcases and handbags, are made in China. US textile manufacturers warn that China's entry into the WTO could cost 150,000 American jobs. This is a factor, especially with a US presidential election approaching, which could block the deal going ahead, especially given the uncertainty following the fiasco in Seattle.

There is pressure, however, from decisive sections of US capitalism, and other imperialist powers, to clear the way for Chinese membership. Canada has approved a deal with China and talks between China and the EU will start soon. The effects of WTO membership in China will be dramatic, giving an extra spur to the 20-year process of 'reform' - privatisation, restructuring of state companies, phasing out of 'socialist-era benefits', and mass sackings.

'The cost will be defined mainly by unemployment', says Hu Angang, a researcher at the Academy of Sciences. Already over 15 million people (8%) are unemployed in the cities. The biggest effects could be in the countryside. China will have to cut agricultural tariffs to 14.5% by 2004 for bulk products like wheat and maize. Import quotas will be enlarged, spelling ruin for millions of poor farmers. Already rural incomes are a mere 40% of urban incomes - a greater gap than in Bangladesh. The land reform of the 1980s, dismantling the commune system in favour of private farming, led to massive inequality. At one extreme, big capitalist agri-businesses; at the other, 200 million landless peasants. Beijing forecasters are expecting a further flood of between 150-200 million people into the cities by the year 2020. Peasant demonstrations and attacks on officialdom have been a persistent feature of the 1990s.


The WTO deal opens China's economy to foreign takeovers in key sectors like telecoms and the internet. The mobile telephone market is already dominated by three multinationals: Nokia, Motorola and Ericsson. China is Ericsson's single biggest market, and two of its nine factories producing mobile handsets are located there. Now telecom networks, as a result of the WTO deal, will be open to foreign ownership after two years. China is the world's second-largest market for mobile phones and one of the fastest growing for fixed-line systems. Market penetration (existing telephone access) is just 10% in China as a whole, 27% in the cities.

Beijing made an even more dramatic retreat concerning the internet, having previously insisted that foreign involvement was ruled out. The Chinese market is still small but growing rapidly, from 4.2 million to ten million users in less than a year. US multinationals are jubilant. Those with a base in China hope to gain from an export boom - 75% of China's manufacturing exports are made by foreign-invested companies. Those exporting to the Chinese market will be able to set up their own distribution networks and financial institutions, instead of going through state-controlled agencies. The state monopoly of foreign trade is now, even formally, abolished.

The agreement to let foreign banks conduct local currency business after two years has, in turn, led to proposals which 'would revolutionise the state-dominated banking industry', according to the Financial Times. Within weeks of the deal, top bankers in Beijing called for the conversion of the big four state-owned banks into shareholding companies, something which is common in other branches of the economy. These account for 80% of total banking assets and are technically insolvent because of massive lending to loss-making state-owned enterprises. Semi-privatisation or stock market floatations of these banks, with foreign involvement favoured by some ministers, will force a change of policy as far as the state sector is concerned. This will result in more bankruptcies. The alternative under the WTO, as one government think-tank has warned, is 'a run on state banks' as foreign banks move in.


It is clear from this that Beijing has taken a huge gamble on the WTO. Opposition to the deal was massive, from both the state sector and private-sector capitalists fearing bankruptcy and loss of markets. The ministry of communications, wanting to protect its interests in the telecom sector, is said to have opposed the deal until the very end. Even in the capitalist heartland along China's coast there is opposition, as these provinces will lose their special status.

So why has Beijing taken this road? China first applied for membership of GATT (WTO's forerunner) in 1986, but the terms forced upon China today owe a lot to the Asian crisis of 1997 and the resulting slowdown in China's economy. Growth this year is expected to reach 7.4%, a drop from 7.8% in 1998. The latest five-year plan aims for annual growth of 7% until 2004. This is a far cry from the explosive growth of the early 1990s but is still unrealistic. Thomas Rawski of the University of Pittsburgh says that last year's GDP growth was only half the official claim. Even the projected growth for next year is wholly dependent on the government's huge Keynesian spending programme. An additional $12 billion will be pumped into infrastructure projects in the coming year, on top of a $7 billion increase last year. Like Japan, China's budget deficit is soaring upwards, doubling in the last year alone.

The regime is staking everything on a new 'fix' of foreign investment as a result of the WTO deal, even though this will be at a much greater price - in terms of lost market share and greater foreign control - than the record foreign investment levels of the 1990s. The other potential gain - export growth - is wholly dependent on the Wall Street 'bubble' continuing to fuel US consumer spending.

Armed with its WTO agreement, the Chinese regime is about to step up its attacks on the working class. On this basis the 'battle in Seattle' is set to be repeated in city after city across China in the coming years.

Laurence Coates

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