As rationale for their support of China's WTO entry, many of the world's governments have not only emphasized the potential for expanded commerce, but also the chance to encourage China to become a responsible member of the international system.
The potential benefits of success in both directions have been repeated often, and loudly, by governments and business interests, with only an occasional warning -- mostly by out-of-government academics and think tanks -- that such expectations may not be met.
Now that China's entry into the WTO is imminent, there has been a noticeable increase in the number of articles warning of the potential downside of China's participation. In a few days a new book, The Coming Collapse of China, will be available in bookstores, and given its impressive marketing buildup, will inevitably add to the public discourse on China's future.
However, there continues to be a steady stream of news items, articles and TV coverage extolling China's commercial opportunities. The old phrase "Greater China," which is supposed to include China, Hong Kong and Taiwan, is again being used increasingly, especially by financial companies expanding their services in China. By extension, pundits are already speculating that Taiwan will follow the path of Hong Kong, and presume it will be a favorable trend, even for Taiwan.
The thrust of all this is that China's economy is still growing and its domestic market expanding, while other countries in Asia are experiencing an economic slowdown.
There is no question that China is changing. The urban areas on the coast are becoming a sizeable market. Foreigners are attracted by not only low labor costs, but also the significant government concessions being given to entice their investment. When one considers only the commercial potential for business, China is indeed very attractive.
The key word, however, is "potential." There is an interesting article in the current issue of Foreign Affairs (written by George Gilboy and Eric Heginbotham) on China's near future. The principal point the authors try to make is that the US should avoid having an adversarial relationship with China.
They maintain that China's immediate future will be perilous, and that political change is inevitable. If the US mishandles its relationship with China, it could cause the direction of change to be counter to US interests.
What makes the article interesting to me is how the scenario of near-term unrest painted in the article contrasts with the basis for the present "China fever" felt in the business communities of the US, Taiwan and elsewhere.
The authors posit that the present direction of China's leadership is unsustainable. Economic reform cannot, even in the near term, out-pace political reform, as it is now doing, without eventually causing chaos. The candidates to succeed the present leadership in Beijing are now jockeying for position, but they will have little choice but to continue economic reform as the only means of making China a world power.
The article argues that they will have equally few alternatives but to further loosen the political system. The new group, however, will face the same dilemma the present leadership has been experiencing -- how to do this without losing power.
"They are as likely to throw China into domestic turmoil as they are to create a stable partial democracy."
"Beijing is increasingly unable to sustain both social stability and economic growth."
"China is on the cusp of more than just a change in leadership personnel. The coming set of reforms is likely to set in motion a process of political change that may be longer and more tumultuous than anyone has yet imagined."
These statements are found in the article, which argues the US should be more accommodating to China to help prevent unrest. From the perspective of "China fever" in the business community, such a scenario is hardly attractive for outside investment.
US support for China's entry into the WTO remains very strong -- with business pointing to the expanding opportunities it will bring to US companies, and government pointing to the prospects for favorable political as well as economic and social change. It is, however, a monumental crap-shoot, but one that arguably is worth taking. Indeed, there may be little alternative. But the public, including most American businesses contemplating commerce of some kind with China, have higher expectations than may be warranted.
While predictions of unrest and general instability grow, analysis such as that in the Foreign Affairs article presents a broad strategic scenario that often appears irrelevant to business analysis about investing in China. Many companies in any event feel compelled to invest in China because of the competitive advantage of being close to the multinational customers they normally supply. The risk factor is, however, much greater for such companies than for the large multinationals that are their customers.
The Coming Collapse of China is written by Gordon Chang, a Chinese-American lawyer who has lived and worked in China for two decades. In the book, Chang predicts that China will soon implode. Chang is a businessman with obvious affection for China, but is deeply disturbed by what he believes is a forthcoming catastrophe. His message may not be new -- much about what he writes has been reported in the past -- but it is wrapped up in one book, and it is likely to become widely read. It should be of particular interest to those in business making decisions about a China relationship for their company.
Both Chang and the authors of the Foreign Affairs article recognize the impressive progress China has made in raising the living standards of so many on the nation's coast, and in such a short time. But the three quarters of the Chinese people who have not benefited by this progress have been harmed. And such rapid change without any outlet for relieving the unfamiliar pressures of economic growth has brought increasing social unrest.
Are companies from abroad, especially the medium-sized and small enterprises that are contemplating investment in China, prepared for that kind of chaotic outcome? US companies have pressed their government to support WTO entry for China, and with success.
Expectations are high despite past experiences of investing in China, and we are likely to once again witness a flood of businesses going there. But American business understands the rules regarding any government involvement beyond negotiating broad trade agreements, or getting involved in cases of obvious discrimination against US companies. Beyond that business is pretty much on its own.
Social unrest abroad is considered a business risk, not a government responsibility. One wonders, with all the pressures Taiwan's businesses are placing on their government to throw open trade and investment to China, whether they have the same understanding?
Nat Bellocchi is the former chairman of the American Institute in Taiwan and is now a special adviser to the Liberty Times Group. The views expressed in this article are his own.
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