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China Is ‘Drifting Away’ From WTO Promises

From Reuters:

Insight: Ten years on, American business rethinks China dreams

By Paul Eckert and Stella Dawson
December 9, 2011

WASHINGTON (Reuters) – … China’s entry into the [World Trade Organization] ten years ago] is having… huge ramifications [for the United States].

The flood of cheap manufactured goods gives an extra $600 a year for the average American family to spend on clothing, shoes, household goods and electronics. But Made in China has hastened the decline of U.S. manufacturing. Factory jobs have shrunk in number by 25 percent the past decade to 11.5 million today, and average factory wages adjusted for inflation have virtually stagnated.

Chinese imports meanwhile have ballooned the U.S.-Sino trade deficit to $273 billion, four times that with any other country. It has stirred anti-China sentiment, a labor union backlash and legislation in Congress to try and force China to let its currency strengthen more rapidly to lower its export advantage.

Now American business, lured a decade ago by the promise of a fast-growing Chinese middle class, is starting to shift gears and rethink what the China dream can deliver. Some chief executives are questioning whether the United States is pressing China hard enough to hold up its side of the bargain in joining the elite trade club…

Almost 10 years to the day that China joined the WTO on December 11, 2001, Washington is growing concerned that China has lost its commitment to freer trade and that as new leaders prepare to take over next year, China is abandoning its march toward market capitalism in favor of state mercantilism

The U.S. complaints about China are well known — widespread theft of intellectual property, a lack of transparency about its regulations, missed WTO deadlines for opening markets, foot-dragging in allowing its currency to rise in value and subsidies such as low-interest state loans that favor domestic industries

The policy that perhaps most frustrates American business stems from a 2008 announcement by China’s State-Owned Assets Supervision and Administration Commission. It identified "economic lifeline" sectors that China says it must dominate.

The list is long — aviation, air freight, coal, oil and petrochemicals, power generation, telecommunications and weapons. Industries such as chemicals, equipment and auto manufacturing, electronic communications, steel and nonferrous metals are set as state controlled to varying degrees. These state-owned enterprises enjoy a monopoly or oligopoly in the Chinese market; subsidies for land, water and power; and below-market cost of capital

China’s policies have helped vault its industries to global prominence. It has 61 companies today among the global Fortune 500 list, almost quadruple the number in 2005. The U.S. tally over the same period has fallen to 133 from 176. What American business finds disturbing is that most of the Chinese companies are state-owned, including the three in Fortune’s Top Ten — China Petroleum and Chemical Corp, China National Petroleum and State Grid.

The U.S. Chamber of Commerce said in a joint report with the Coalition of Services Industries that China and other countries lavish regulatory favors and generous subsidies on their state-owned firms, making it very difficult to compete

The country took a huge leap in the 1990s as it prepared for WTO entry, slashing red tape, removing layers of protection for domestic factories and farms and opening its markets. That work is widely credited inside and outside China with turning the country into the industrial dynamo of today

Some trade experts say reform fatigue then set in and they expect opening measures to resume. Other U.S. experts say China turned away from market liberalization as early as 2003, when the reform-minded team of President Jiang Zemin and Premier Zhu Rongji retired and handed power to the more cautious current leadership of Hu Jintao and Wen Jiabao, respectively.

"Nobody who was watching China enter the WTO back then saw this change coming," said China trade analyst Derek Scissors of the Heritage Foundation. "It was as if a different government with different priorities came in," he said

The cost could be high, said Long Yongtu, who negotiated China’s WTO entry in the late 1990s. He told a recent symposium he was extremely worried that "essentially, after 10 years, it seems China is drifting away from the WTO."

A statist model that denies fair competition for all enterprises, domestic and foreign, could stifle China’s economic growth, Long said.

"We cannot only have large-scale and state-owned enterprises. That is only the skeleton of the economy. We need thousands upon thousands of small and medium-sized private enterprises. They are the flesh and blood of the Chinese economy."

But of course it will be great for our country.

This article was posted by Steve on Friday, December 9th, 2011. Comments are currently closed.

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