Why Development of China’s Economy Is in U.S.’ Interest

As the West reassesses China 10 years after Tiananmen and after recent disclosures of Chinese espionage, critics of U.S. commercial overtures to that huge country are missing the point.

The point of fostering China’s successful economic development is not to make profits for U.S. companies, but to prevent China from becoming a political or economic menace to Asia and the world.

Foreign business prospects in China are long-term at best, and most companies are reappraising their initial enthusiasm. Any thoughts that China’s 1.2 billion people would provide an instant market for toothbrushes, cars or computers have faded. Inevitable difficulties in working out joint ventures in China have chastened U.S. and other foreign companies.

But economic development has greater importance because it would open China’s economy to foreign competition and force its institutions to observe the rules of the global economy. Such reforms in China have major significance for all of Asia, where U.S. economic interests are vital and immediate.

As it happens, China’s government has already agreed to many reforms in the concessions it is ready to make to join the World Trade Organization, the 134-nation regulatory body of global commerce.

But as we know, China’s application to join WTO is a nonstarter, as relations with the U.S. have sunk to their lowest point in decades.

President Clinton provided a counterpoint to those relations Thursday as he informed Congress of his intention to renew China’s privileges to trade with the U.S. on the same terms as most other countries. Congress has up to 90 days to accept or reject his decision, so we can expect heated debates about China to continue till fall.

But to get at the realities behind those debates--to understand why China’s development is important and where U.S. interests really lie--we have to look at what is going on inside China today.

Premier Zhu Rongji’s political stock has fallen, according to Chinese sources, because he offered trade concessions to the U.S. last April without getting a deal from Clinton on WTO access.

At the same time, Zhu’s program of reforming bloated state industries, encouraging entrepreneurial ventures and transferring ownership of houses and apartments to workers who live in them, is not succeeding as quickly as envisioned by government plans.

China’s economic growth has slowed, to perhaps 6% this year and less next year, say international bank analysts. Joblessness is rising. Officials of state industries and government departments are understandably resisting reforms that would displace their jobs. Tensions are rising.

Yet China’s government is not backing away from the reforms or from attempts to gain access to the WTO. Chinese Trade Minister Wu Yi recently emphasized in a speech in Shanghai that gaining entry to WTO is a firm policy despite the need for concessions. She said talks with the U.S. are “temporarily� suspended but would resume.

But why should the U.S. help China’s regime, even presuming it can divorce economic matters from questions of China’s military build-up and allegations of nuclear spying?

Because the alternative of isolating and economically weakening China is not feasible and would be counterproductive.

China is still the low-cost producer for many of the world’s goods. It competes directly with the still-recovering economies of Asia--South Korea, Thailand, Malaysia, the Philippines--and with those of Latin America.

If a weakened China is forced to devalue its currency and adopts a policy of aggressively pumping goods out to the world, it would hurt those other developing economies, perhaps halt their fledgling recoveries. And “growth in those economies is much more important to the United States than China is right now,� says Jeffrey Garten, dean of the Yale Graduate School of Management and former U.S. undersecretary of commerce.

But if China can hurt the recovering world economy, it is capable also of helping it--if only by example. Despite the size of its population and its ambitions on the world stage, China’s economy is relatively small--$937 billion in annual output of goods and services--less than the gross state product of California. That amounts to $780 per person in China.

Poor as China is, it is not technologically weak, as was, for example, the Soviet Union. Students at China’s universities and many residents of China’s cities are adept in computer technology. Within its Communist Party-run system, China harbors a vibrant entrepreneurial culture that is fed by more foreign investment--almost $50 billion a year--than any other developing country receives.

Those investments come from a variety of sources--overseas Chinese investors, Japanese and other foreign companies and Taiwan.

Taiwan illustrates the interdependence of China and the rest of Asia. Paradoxically, the island republic is at once a target of Beijing’s military threats and mainland China’s greatest economic benefactor--a big buyer of its exports and an investor of more than $80 billion in manufacturing and technology related ventures.

Critics of commercial linkups with China ask why the U.S. doesn’t make a similar fuss over India. The answer is that China is ahead of India in economic development and is key to East Asia, where vital U.S. allies Japan, South Korea and Taiwan are located.

Successful economic development that would link huge and ambitious China more closely to the community of nations can only help those allies, that region and U.S. interests.

That’s the reality behind debates over seeming abstractions such as “most favored nation� trade status and Chinese entry to the World Trade Organization.

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James Flanigan can be reached by e-mail at [email protected].

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