NCPA - National Center for Policy Analysis

WTO Membership Will Mean Chinese Firms Must Reform

November 18, 1999

As soon as China is admitted into the World Trade Organization and western goods start arriving on shelves there, the heat will be on inefficient operations to shape up -- and to do so immediately. That should be a sobering thought for Chinese officials, experts warn.

To achieve WTO membership, China has agreed to dismantle or reduce the barriers it earlier erected to protect its economic underachievers.

What enterprises are vulnerable?

  • Government-owned factories in industries such as steel, chemicals and autos that churn out shoddy goods nobody wants to buy.
  • Farmers who work tiny, arid plots of land and can only survive with government protection.
  • Middlemen who stand between foreign exporters and Chinese consumers -- skimming profits in return for cozy connections with local officials whose approval is needed to do business.
  • Insolvent banks that squander money on loans that are never repaid.

For the first time, foreign firms will be allowed to distribute products in China without going through middlemen. And foreign banks gradually will be allowed to do business in the Chinese currency.

Although foreign-backed plants account for nearly half of China's exports, foreign investment is down sharply this year. Nearly half the country's state-owned enterprises lost money last year. Experts calculate unemployment at more than 10 percent in cities.

China's officials seem to be betting that eventually the benefits of joining the "capitalist roaders" will exceed the economic dislocations of essential reforms.

Source: Paul Wiseman, "U.S., Global Competition to Set Change into Motion," USA Today, November 18, 1999.

 

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