America is in the midst of a supposedly great debate over China policy. Congress will soon hold a seemingly momentous vote on whether to extend indefinitely China's trading rights in the United States. The Clinton administration and the business community are pressing hard, indeed desperately, for congressional approval, which they argue is necessary for American companies to reap the full benefits of China's expected membership in the World Trade Organization (WTO).
Yet oddly enough, from a broader perspective, the upcoming congressional test is not nearly so important as it is commonly portrayed to be. Sheer political realism tells us that Congress will soon approve permanent normal trading rights (PNTR, as they are now called) for China, as it has already authorized one-year renewals of trade with China annually since 1980. Even if opponents in the labor movement should succeed in postponing a vote this spring, then PNTR will almost certainly be approved at the end of the year or during the early months of Al Gore's or George W. Bush's presidency, much as the North American Free Trade Agreement was enacted during President Bill Clinton's first year. Put simply, the American business community's yearnings for the China market and the accompanying belief that WTO membership is the way to achieve this goal are now far too great for Congress to resist. Serious questions about whether China is ready, willing, or able to enforce the strict trading rules of the WTO are being downplayed or ignored.
The business community in particular, along with America in general, is headed for a big letdown. Ten years from now, America may well look back on this vote and China's WTO membership not as the beginning of a new relationship between China and the United States, but as the start of a new wave of disenchantment. China's membership in the WTO isn't going to open China's markets as much as America's corporate leaders dream because China won't comply with the trading rules as much as they hope. Nor will China be transformed politically by WTO membership. (Despite the naïve, almost magical incantations now emanating from Silicon Valley, China's political system will not be fundamentally altered merely by access to the Internet.)
Indeed, Congress, the two presidential candidates, and the American public are unprepared for what they are about to face in China over the next few years. They are operating now with assumptions about China--namely, that the country is economically powerful and politically stable--that may have fit the country in, say, 1995. But as usual, China has been changing faster than the American images of it. And over the first years of the twenty-first century, as China changes, the politics of China in Washington will probably alter, too--in ways for which, in the fervor of the current debate, no one seems ready.
China through a Rearview Mirror
History is repeating itself. Both of the past two American presidents took office ready and eager to deal with the wrong China. Both found to their dismay that China had changed in ways that made most of their assumptions out of date.
In 1989 George Bush carried into the White House the views of China that he had developed during the 1970s and early 1980s. He believed that China was vital to the United States as a strategic partner against the Soviet Union, and also that China remained such a well-controlled society that questions of democracy and freedom were either premature or irrelevant. Bush's approach was epitomized by his administration's preoccupation in the spring of 1989 with arranging a U.S. Navy port call in Shanghai to coincide with Soviet President Mikhail S. Gorbachev's visit to China; the White House hoped that this display would upstage Gorbachev and remind Moscow of the continuing close military links between China and the United States. By the time the port call was made, both Gorbachev and the American warships were endeavoring to be as unobtrusive as possible and to get out of China quickly, as hundreds of thousands of protesters gathered in the streets of Beijing and Shanghai. After Deng Xiaoping's bloody crackdown on these demonstrations, Bush was obliged to sever the military relationship with China he had only weeks earlier been so eager to flaunt. From that point on, Bush found himself dealing with a China different in many respects from the one he'd known: Its leadership had become sullen, unhelpful, and mistrustful; its economy had gone flat; and its usefulness to America's Cold War foreign policy had vanished with the fall of the Berlin Wall and the collapse of the Soviet Union.
Bill Clinton carried into the White House new assumptions about China, ones that took into account the changes of the late 1980s and early 1990s. Clinton and National Security Adviser Anthony Lake were prepared to treat China as the international pariah and as the economically fragile regime it had become immediately after the Tiananmen massacre. Clinton had two regular refrains during the 1992 campaign. The first became famous: President Bush, he said, was "coddling" China's Communist Party leadership. The second was more meaningful for foreign policy. Using words Lake had drafted for him, Clinton said repeatedly during the 1992 campaign that "it makes no sense to play that China card now, when our opponents have thrown in their hand." In other words, Clinton was saying that the strategic rationale for close ties with China had disappeared. And so, based on these assumptions, Clinton imposed his ill-fated threat in 1993-94 to cut off China's annual most favored nation benefits in this country if it didn't make significant changes in its human rights policies.
But while America was preoccupied with the 1992 presidential election and Clinton's arrival in the White House, China was changing in ways that severely undermined the Clinton-Lake policy. As the United States and other Western governments were imposing various economic sanctions on China, Beijing opened the country up to new investment from within Asia: Taiwan and South Korea, in particular, which had been barred from doing business in China for political reasons until the late 1980s, rushed into the market. Then in 1992, Deng Xiaoping suddenly cleared the way for rapid economic growth once again, overcoming the resistance of economic traditionalists like Li Peng, who feared a renewal of inflation and political turmoil, and thus favored slower rates of growth.
The result: By the time Clinton was ready to deal with China in mid-1993, his policies, like Bush's, were based on outdated assumptions. China was no longer economically fragile: Its annual economic growth soared well above 10 percent and would stay at that high level for half a decade. Between 1986 and 1991, China had attracted between $2 billion and $3.5 billion each year in foreign investment (that is, money actually put into China, not just contracts signed). But in 1992 alone, foreign investment shot up to $11 billion; in 1993 it was $27 billion, and in 1994, $34 billion. The idea of using America's trade leverage to force changes in China might conceivably have had some chance of working in 1989-90; such an approach had not the slightest chance in 1993-94, the year of Clinton's attempt to link trade and human rights. And China was not an international pariah any more: By 1993 foreign leaders were falling over one another to visit Beijing in pursuit of business contracts. Clinton's miscalculation was epitomized by his humiliating failure in Seattle of November 1993. Clinton flew to a meeting in Seattle hoping to convince Jiang Zemin to make the human rights changes the administration had requested; on the very day he arrived for the meeting, newspapers reported that German Chancellor Helmut Kohl was in Beijing, signing contracts for $2 billion in new business for German companies.
And so, after two years, Clinton readjusted. He embraced the new assumptions about China that have held sway ever since, ultimately installing National Security Adviser Sandy Berger to replace Lake and take charge of the revised policy. Under the Clinton-Berger view, China is an economically strong nation with a politically cohesive leadership under President Jiang Zemin, a nation whose market is so attractive and so important to American business that it would be fruitless, if not politically suicidal, for any president to challenge, pressure, or threaten China.
Commerce as Ideology
We might call this viewpoint commercial realism: America needs to temper its principles and ideals in dealing with China because of China's vital importance to the United States, not for geopolitical reasons (as in Henry Kissinger's day), but for economic ones. This view has been embraced not only by Clinton and Berger, but by a host of other Democratic leaders, too--prominent senators like Diane Feinstein of California and Democratic officeholders like former Ambassador to China Jim Sasser, a close confidant of Gore. Not incidentally, this approach also warms up the New Democrats' relationship with business. Clinton's approach carries its own series of corollaries and almost-religious beliefs: Commerce with China, it is argued, is not merely good for American companies, but will lead to an opening of Chinese society and eventually to political freedom. ("Just as eventually the Berlin Wall fell," Clinton told one press conference three years ago. "I just think it's inevitable.")
Facing somewhat different political dynamics, the Republicans, too, have arrived at their own policy of commercial realism. The congressional Republicans have been trying for years to find ways to challenge Clinton on China policy without jeopardizing the Business Roundtable support and the corporate contributions on which the Republicans have traditionally relied. It is forgotten now, but a few years ago, the House Republican leadership assigned Congressman Chris Cox of California the task of coming up with a package of China proposals that it could present as an alternative to the Clinton administration, but that (the key requirement) would not impinge on China's most favored nation trade benefits. Cox dutifully developed a package of detailed legislative measures, such as more money for Radio Free Asia and studies of missile defenses for Taiwan: Some of the bills passed, some didn't, and none attracted much public attention. Only later did the Republicans hit on the solution of launching an unending series of congressional investigations of Clinton's China policy (fundraising, satellite sales, espionage)--investigations that attracted press coverage without bringing about significant legislative changes and certainly without impinging in any way on American trade with China. (Once, in 1998, the House of Representatives temporarily went astray by approving a ban on American satellite sales to China as a response to one of the Clinton scandals it was investigating. That idea was delayed for months by Senate Majority Leader Trent Lott and then quietly killed.)
In this year's Republican primaries, neither George W. Bush nor his main opponent, John McCain, challenged the commercial-realist view of China. Indeed, Bush has carried the rapture about China's commercial possibilities to new heights. In foreign-policy speeches, debates, and press conferences, Bush has repeatedly rehashed a few memorized lines about the importance of helping China's entrepreneurs. "Trade with China is trade with an entrepreneurial class," Bush rhapsodized on CNN this January. "The burgeoning trade ... in China is capital to entrepreneur, entrepreneur to entrepreneur." Such claims gloss over the fact that many, if not most, American joint ventures in China have been with state enterprises. And Bush's mantra diverts America's eyes away from critical or embarrassing questions: Just who are these Chinese entrepreneurs? How many of them became entrepreneurs because they are the relatives of high-level Communist Party officials, or former officials themselves? How much resentment is there in China of these entrepreneurs? How many of their ventures are set up as private stock companies, but with a majority of their shares still owned by the state enterprises from which they were derived?
Such questions will not be answered during the current presidential campaign. The next president, Gore or Bush, will be sworn in next January with the same business-oriented assumptions about China that have held sway in the last years of the Clinton administration.
Missionaries and Mandarins
Earlier this year, The New Democrat, the magazine of the Democratic Leadership Council (DLC), published an astonishing picture on its cover to accompany stories on the importance of bringing China into the WTO. The photograph showed two young, attractive Chinese women, clad in red satin Chinese dresses, with harmonious smiles on their faces, striding purposefully in front of a yellow-tiled Chinese imperial temple. Each woman was carrying two boxes of Microsoft software, with the familiar Windows logo. The subtext was clear: If every person in China buys just one Microsoft product, Bill Gates won't care about his antitrust case. "Welcome to Our World," the cover headline said, taking for granted that China needs to join the world of American business and not the other way around.
On one level, the cover picture looked like a modern-day update of old socialist-realist propaganda. It brushed away unpleasant complexities. (How many of the 1.3 billion Chinese own or use computers? How many will buy new Microsoft products? Whatever happened to China's endemic problem of software piracy?) The happy Chinese workers, peasants, and minorities of the Chinese art of the 1950s and 1960s have simply been replaced by happy Chinese Web surfers of the year 2000.
On another level, the picture represented merely the latest embodiment of the age-old American fantasies of capturing the China market as an outlet for American products. Those dreams have helped fuel American foreign policy since the nineteenth century: The desire for the China market was one of the factors prompting the McKinley administration in 1898 to keep hold of the Philippines, which were seen as a stepping stone for commerce with China. The eagerness for American sales to China was a motivating factor behind the Open Door policy promulgated by Secretary of State John Hay a year later. With the Open Door, Chairman of the Senate Foreign Relations Committee Cushman K. Davis declared that "we can now commercially [do] what we please" in China, giving way to the sort of over-optimism that would have made him feel right at home on Capitol Hill today.
These commercial dreams are themselves a subset of the larger Western illusions about the ease of changing China--illusions that over the years have haunted missionaries, educators, soldiers, presidents, prime ministers, Comintern agents, socialists, and freemarketeers, all of whom discovered, eventually, that the country was more intractable than it first seemed. Indeed, Chinese leaders often come up against the same immutability themselves. Mao Tse-tung's most dramatic efforts at transforming China, notably the Great Leap Forward and the Cultural Revolution, were disasters. As soon as Richard Nixon sat down for his one and only meeting with Mao in February 1972, he tried a bit of flattery: "The chairman's writings have moved a nation and have changed the world." Mao grumbled back: "I haven't been able to change it. I've only been able to change a few places in the vicinity of Beijing."
The current frenzy over China's admission to the WTO represents an unusually intense revival of these old historical patterns. America's business community and its political leaders are hoping that by bringing China into the world trading system, they can gain access to a vast new Chinese market and, in the process, change the country. And indeed, the prospects of WTO membership have touched off some dreams inside China, too. In Beijing this January, one Chinese intellectual told me that after China's entry into WTO, he hopes to move to the far-out suburbs. Why? Cars will be able to be imported into China at lower duties, he figured; car prices will be much cheaper, and he will be able to buy one for the first time.
Reform and Unrest
Unfortunately, the economic and political fundamentals in China are changing once again in ways that will make the current Clinton administration's (and the incoming Gore or Bush administration's) views of China out of date. These changes make it all the more likely, too, that the American business community will be disappointed by China's membership in the WTO.
China's growth rate has been declining year by year since the mid-1990s. In the past three years, the growth rate has slowed to about 7 percent annually. Such a figure seems high in the United States but is considerably less impressive in a huge developing country like China, which needs to create 18 million jobs each year just to prevent a rise in unemployment. Nicholas Lardy, the Brookings Institution specialist on the Chinese economy, points out that these growth figures hide other serious problems: China has experienced a remarkable buildup of inventories, representing low-quality goods that were produced but will never be sold.
China is also starting to find it more difficult to attract foreign investment. For the first time in 15 years, the amount of money coming into the country from overseas is beginning to wane. The investment surge of the past decade peaked at $45 billion a year in 1997 and 1998. Last year, the figure dropped to about $40 billion, and in the first two months of this year, the level declined again. Bank lending from overseas has declined, too, because foreign lenders have become more nervous and careful about China since the 1998 bankruptcy of the Guangdong International Trust and Investment Company.
Meanwhile, as China tries to overhaul the state enterprises that were the backbone of its socialist economy, Chinese workers are becoming more and more restive. China still has no nationwide social security or unemployment system; its state enterprises have for years served as what we would call the social safety net.
What most Western economists term economic reform can be accomplished in either of two ways. The first is a kind of shell game: You take a big Chinese state enterprise, carve out anything that can be profitable, and set it up (with the help of Western accountants and investment bankers) as a private stock company whose majority shares are controlled by the Chinese state enterprise. Then you preserve all the money-losing ventures of the state enterprise (including the health clinic, the dormitories, the kindergarten) as a kind of welfare system existing in a symbiotic relationship with the private company. The second approach represents more genuine change. You actually close down state enterprises. Workers may be given severance pay but are otherwise left to fend for themselves.
Both of these variants of economic reform are taking place in China today. The result is that the remaining state enterprises, having been deprived of their profitable ventures, are losing ever more money, while workers are getting ever more angry. Most strikes and worker protests are kept hidden from the rest of the world, but sometimes they become so big or so violent that the news leaks out. This spring, Western newspapers uncovered the story of the riot in February at Yang-jiazhangzi, a mining town in Manchuria where 20,000 laid-off workers and their friends and families fought for three days with the police until the army was finally called in to put down the revolt. The workers were upset that they were offered so little in severance pay when the mine closed down. In addition, according to an illuminating account by The Washington Post's John Pomfret, the workers also complained that ownership of parts of the mine were transferred in a corrupt way to private individuals.
China's labor unrest is not confined to the big state enterprises. In the mostly private, export-oriented industries in south China and along the country's eastern coastline, Chinese workers confront different problems as they churn out shoes, clothes, and toys for American Kmarts and Wal-Marts These workers have jobs, but often under miserable conditions: workdays of 12 hours or more, low wages, and poor safety conditions, with Korean and Taiwanese bosses pressing for ever-higher output. Anita Chan, an Australian scholar who has studied the life of these workers, describes a system in which factories recruit peasants from distant provinces and house them in dormitories they are sometimes barred from leaving. The letters Chan obtained that were left behind by one group of workers who died in a factory fire give a picture of their lives: "Got December's pay on March 15," said one woman. "Got 140 yuan [less than $20]." Another wrote her friend: "Here the work hours are like this: 7:30 to 11:30 a.m., 1:30 to 5:30 p.m., 6:30 to 10:30 at night. Sometimes we also have to do overtime work."
Americans rarely get to see or learn much about these Chinese workers because their government makes it extremely difficult to gain unimpeded access to them. (A personal note: During the 1980s, when I was writing a book about a Sino-American manufacturing venture, it took me 18 months to be able to interview the factory's workers outside of the presence of their American and Chinese bosses. When I finally succeeded, I found them to be among the angriest people I'd ever interviewed; they believed that both the Chinese government and the American company were exploiting them. If anything, Chinese workers are probably angrier today than they were back then.)
And so the images we get of China in this country are skewed. In television footage, newsmagazine glossies, and newspaper interviews, we see Chinese business executives talking on cell phones or Chinese traders giving the high sign on the stock exchanges, but we rarely see Chinese workers engaging in job actions or returning to shabby dormitories. The ultimate problem with pictures like the one on the DLC cover is that they are so hopelessly unrepresentative. Less than 1 percent of China's population have access to the Internet. For every two Chinese workers carrying boxes of Microsoft Windows, there are millions who have never turned on a computer in their lives. And yet these multitudes of anonymous workers are a more important political factor inside China today than Microsoft or the Internet.
What WTO Membership Really Means
Once China joins the WTO, it will be obliged by the organization's rules to open its markets to foreign competition. In theory, at least, the Chinese firms that can't compete will face the prospect of closing up or going broke. But China's economy is not strong enough now to absorb easily the extensive changes that WTO membership will require. And so the Chinese leadership will face a dilemma.
On the one hand, the Chinese regime can go along with these WTO market-opening requirements and open the way for widespread layoffs. If so, the regime will face ever more serious problems of labor unrest--strikes, riots, and other upheaval that could perhaps grow serious enough to jeopardize the regime and the whole system of economic reforms it has been espousing.
On the other hand, the Chinese leadership can seek to head off labor unrest by delaying, undermining, or otherwise failing to go along with the WTO's requirements. It can, in effect, borrow the strategy Japan employed for many years in the face of American economic pressure: China can pretend it is opening its economy, while setting up every possible roadblock to avoid doing so. Many Western business executives living in China are convinced the authorities will take this latter approach. When I told a Western auto parts executive about my Chinese friend's hopes of buying a low-priced foreign car after China joins the WTO, he predicted it won't happen any time soon. "China will keep on protecting its domestic automobile market for years," he said.
It's not an either-or choice. The regime can go along with some WTO requirements, while avoiding others. But the result will likely be that over the next few years, as the Chinese regime struggles to cope with economic upheaval, American and other Western companies will grow increasingly disappointed and frustrated by China's lack of compliance with the WTO rules. Then the next president, whether Bush or Gore, will begin to face demands by the American business community to get tougher with China. Unhappy business executives will be asking why the Chinese aren't keeping the promises they made when they joined the WTO.
In the process, the politics of China in Washington may change. In the 1990s, the business community was pressing for more conciliatory U.S. policies toward Beijing. But over the next few years, after China joins the WTO, American business may well be pushing for tougher U.S. government action against China, just as it did in the late 1980s and early 1990s with respect to Japan. America's leading CEOs may be rushing to the White House to ask, why can't we make China obey the WTO rules?
As China faces mounting labor problems and as it seeks to delay the WTO requirements, Americans will increasingly be asked to take sides in China's internal politics. To be specific, the plea will be made to "help the reformers" in the Chinese leadership by backing off from insistence on adherence to the WTO rules.
Such pleas are not new. They have been made repeatedly in the past 20 years. Indeed, one of the main arguments being advanced in Congress now, as the trade vote approaches, is that approval of PNTR is necessary to help the right people within the Chinese leadership. "The failure of the U.S. Congress to grant permanent normal trade relations would undermine the position of reformers in China," Lardy testified in early April. Those particular words are hardly unique or idiosyncratic; they represent mainstream American thinking on China.
Curiously, in this respect, the conventional wisdom about China policy in Washington these days is precisely the opposite of the received wisdom about Russia. Talk about Russia, and America's foreign policy experts now regularly argue that the Clinton administration got too swept up during the 1990s in trying to help the reformers in Moscow; this effort is now generally conceded to have been a mistake because our policy shouldn't have been so personalized. On China, by contrast, Washington's thinking is precisely the opposite: It is assumed that the United States should help Premier Zhu Rongji and other economic reformers in the Chinese leadership.
It's also worth noting that the tactic of "helping reformers" on economic issues runs contrary to mainstream Washington thinking concerning human rights and democracy in China. When it comes to human rights, the line within the U.S. government and among America's China scholars usually goes like this: The United States shouldn't try to lecture or hector China because doing so would be counterproductive; moreover, America shouldn't actively help political dissidents because it runs the risk that the Chinese it helps will be branded by their opponents as tools of the West or the United States. Yet switch the focus from politics to economics, and Washington does not hesitate to give China free market lectures that come right off the editorial pages of The Wall Street Journal, or to promote and cheer for Premier Zhu to the point that he could be seen within his own country as an agent for foreign interests.
In short, "helping the reformers" is a poor basis for American policy. It is too risky. It plays into (and, indeed, accentuates) China's internal political tensions. The aim of U.S. policy should not be to help the Chinese reformers do what America wants over the objections of the rest of the Chinese people. Rather, the U.S. goal should be to have the entire Chinese leadership--reformers, traditionalists, and everyone else--decide that political and economic changes are in the country's own interests.
The WTO, Nationalism, and Communism
The impact of WTO membership and China's economic slowdown could well hasten two other long-term political changes in China, neither one of which is being mentioned today in the current American discourse.
First, over the next decade or so, China could well experience a dramatic lurch toward the political left. The gaps are becoming ever greater in China between rich and poor, between the developing eastern coastline and the poor inland areas, between the cosmopolitan elites of Shanghai and the tradition-minded cadres of the small towns and countryside. And China does not have, of course, a political system that can easily accommodate dissent or balance competing interests. At some point, the many millions of Chinese who have not gotten rich from the boom of the 1990s (retirees, bureaucrats, factory workers, teachers) could find common cause for political action--not for a return to Maoism, but for a considerably more egalitarian, welfare-oriented state. WTO membership will probably spur China in this direction if it leads to wide-scale layoffs and job reassignments. The victims of these economic upheavals will create a new pool of people unhappy with the Chinese leadership.
The second political change the WTO will accentuate is already evident in China today. In the face of growing economic difficulties, the Chinese leadership is likely to adopt a much more assertive foreign policy. Strident nationalism is the traditional diversion for any regime that is in trouble at home, and the Chinese Communist Party is already treading down this well-worn path. There are officials and scholars in China today who argue privately for more tolerant and conciliatory policies toward Taiwan, but they are being increasingly marginalized as the Chinese leadership finds the need for a show of toughness. If WTO membership leads to economic and social upheaval in China, then Beijing will probably become still more truculent in its dealings with Taiwan, Japan, and the United States. (Once again, the next American president will be forced to confront a problem with outdated assumptions and outmoded policies: The carefully qualified "one China" policy formulated in the 1970s, when Generalissimo Chiang Kai-shek's Nationalist Party still dreamed of ruling the mainland, doesn't fit today's realities.)
In short, membership in the WTO could well change China's politics, but in ways that Americans do not expect. It's far from certain that it will lead to a political liberalization in the way that President Clinton and American business executives regularly suggest.
During the mid-1990s, the Clinton administration became fixated on a delusion. Relations between America and China could finally be put on solid footing if only the two countries put behind them the acrimonious legacy of the 1989 Tiananmen crackdown. And so for two years, the Clinton White House slowly built up to a presidential visit to China. Bureaucracies were energized; a package of minor agreements was sketched out; political deals were made. China asked Clinton to walk through highly symbolic welcoming ceremonies at Tiananmen Square, and the president agreed. The Clinton administration asked China to televise a live press conference at which Clinton could espouse American ideals of democracy and freedom, and China went along.
Clinton made the visit in the summer of 1998. For a week, the trip seemed highly successful in establishing a new harmony between the United States and China. And then, over the following year, the impact quickly faded. The two countries returned to the acrimony that had preceded the summit--predictably so, since the conflicts derived not merely from the events of Tiananmen Square, but from the larger long-term strategic and political competition between America and China.
China's membership in the WTO will not be a panacea, any more than was Clinton's summit. It may change China, but not as much as or in the ways that Americans now hope, because the Chinese economy is not so strong as America's business executives and political leaders now believe. WTO membership will probably produce a fierce political backlash in China, leading to widespread avoidance of the WTO rules and also to strikes and other labor unrest in those areas where the WTO's requirements are carried out.
As they have so often in the past, Americans are overestimating the ease of changing China. As the congressional vote approaches, WTO membership has become above all an emotional symbol of America's history-laden dreams for the world's most populous country. "Welcome to Our World," say the magazine covers. Not until afterward, it seems, will our world confront the hard realities of China itself. Welcome, indeed. ¤