On Oct. 23, British financial expert Stewart Paterson, who has spent many years living and working in Asia, gave a talk at the National Press Club in Washington to launch his book China, Trade and Power: Why the West’s Economic Engagement Has Failed. During his presentation, Paterson talked about the negative consequences of China’s Dec. 11, 2001, accession to the WTO.
Paterson said Western countries originally thought that helping China join the WTO could change the Chinese Communist Party (CCP), but things have not worked out as they hoped.
The CCP adheres to values that are antithetical to those of Western society and threaten the West’s political system, and China has become a rival of the West.
“Without political change, China did not move towards Western liberal norms as intended. Worse, economic success cemented the Chinese Communist Party in power... China flooded global markets with cheap labor and tradable goods and accentuated existing divides in Western society. Corporate profitability was enhanced at the expense of labor and wages,” Paterson said.
Following China’s accession to the WTO, its annual GDP growth accelerated rapidly, from about 10 percent between 1992 and 2000 to about 15 percent between 2000 and 2008. The total value of China’s exports surged from US$250 billion in 2001 to US$1.2 trillion in 2007.
China’s share of the global manufacturing market quadrupled in 12 years from 6 percent in 2001 to 24 percent in 2013. Flows of foreign direct investment into China tripled within a decade, from US$300 billion between 1990 and 2000 to US$1 trillion between 2000 and 2010, and China’s foreign exchange reserves grew from US$170 million in 2000 to US$3.8 trillion in 2014.
Paterson said the real problem is that, following its accession to the WTO, China did not implement deep structural reforms or move toward the kind of economic system that Western countries expected, one with market-driven capital allocation, exchange-rate flexibility, state-owned enterprise reform, respect for intellectual property, fair and unbiased competition policies, even provision of information, rule of law and a market economy.
Since joining the WTO, China has employed neo-mercantilist policies that have caused great harm to the economies of other countries.
In the US and the UK, employment in manufacturing industries fell by one-third between 2001 and 2011. In the EU, manufacturing industry employment fell from 30 percent of the workforce in 2000 to 25 percent in 2010.
Western countries have not gained substantial benefits from their trade with China. On the contrary, it has caused living standards to fall for the majority of people in those countries.
In the first decade after China’s accession to the WTO, the median growth of household incomes in the US slowed from 5.3 percent to 1 percent in nominal terms, and in real terms the median household income fell 10 percent.
Paterson said that China’s economic rise could result in a shift of political allegiances among Third World countries, which see China as a potential friend, investor and partner, while Beijing aims to win their “hearts, minds and wallets.”
All in all, following its accession to the WTO, China has exported huge quantities of goods all over the world. This success has allowed it to avoid making deep market-oriented economic reforms, because the rise in living standards of Chinese has strengthened the CCP’s legitimacy as the ruling party.
China’s economic model is seen by some as an alternative to Western liberalism, while the West has gained a new rival that is antithetical to its value system.
How can Western countries undo these dire consequences?
Paterson said the first thing that they need to do is to “have a proper understanding of how naive we were in the first place, and the depth of the impact that it has on our societies,” and the next thing is to decide “where we want to end up in terms of our relationship with China.”
To put it plainly, allowing China to join the WTO was asking for trouble. Now, 17 years later, the US has finally woken up and is urgently trying to set things right.
Since becoming US president, Donald Trump has completely changed the US’ method of dealing with China. The US no longer plans to help China solve problems to promote its development. Trump is moving toward a trade war and even threatening to withdraw from the WTO.
His ultimate purpose is to rebuild the US, remodel China and revitalize the world, enabling a harmonious and mutually beneficial global division of labor.
The time has surely come for everyone to wake up, help correct the mistaken policies of the past and dispel their ill effects.
Wu Hui-lin is a researcher at the Chung-Hua Institution for Economic Research.
Translated by Julian Clegg
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