Stratfor claims ...

Charles Brown CharlesB at SPAMCNCL.ci.detroit.mi.us
Tue May 23 09:46:47 MDT 2000


>From Stratfor



Washington Debates Free Trade; Beijing Calls for Greater Party Power Over Business
0055 GMT, 000517
Summary

As the U.S. Congress nears a historic vote on normalizing trade relations with China,
Beijing appears to be engaged in a pattern of economic behavior at home that would
undermine its credibility as a member of the World Trade Organization. There are
increasing signs that economic reformers are losing the power struggle in Beijing. And
in the midst of the debate in Washington, President Jiang Zemin himself is calling for
the Communist Party to play a greater role in China*s private businesses.

Analysis

China faces two crucial tests in order to enter the World Trade Organization (WTO). On
one front, the European Union*s trade commissioner, Pascal Lamy, is in Beijing
hammering out the details of a bilateral trade deal, one of the last prior to China*s
WTO accession. On the other front, in Washington, the House of Representatives is
expected to vote on Permanent Normal Trade Relation (PNTR) status for China next week.

But in the midst of these debates over free trade, the president of China himself has
sounded a surprisingly discordant note. Speaking at a Communist Party conference in
Shanghai on May 14, President Jiang Zemin, called for the party to take on a more
powerful role within the country*s private enterprises. In his speech, Jiang * who
also serves as the party*s general secretary * called private enterprises integral to
the socialist market economy.

And the president said that party cells should be added to these enterprises in order
to guarantee the healthy development of the private sector. Party cells in private
enterprises would educate entrepreneurs, advocate party policies, ensure that
businesses are operating according to the law and protect the interests of the
employees. The president*s remarks were reported by the official Xinhua news agency.

The president*s call is part of an increasingly visible pattern toward centralization
* even as the United States and Europe debate China*s role in free market economics.
Economic reformers have been marginalized. And increasing doubts about the value of
reform itself * particularly in light of the massive social cost that it brings * have
been given the official seal of approval. On the same day that Jiang gave his speech,
one of the country*s official newspapers editorialized on the widening income gap of
the capitalist system.

In August 1999, Jiang announced that a top priority for the Communist Party would be
the revitalization of State Owned Enterprises (SOEs).  At the time Jiang*s
announcement was a subtle shift in policy * emphasizing the importance of SOEs to
China*s economic future, rather than calling for their reform and privatization.

But officials in Beijing have steadily taken larger and more dramatic steps. When
Prime Minister Zhu Rongji failed to conclude a WTO deal with the United States in the
spring of 1999, Jiang began to strip him of his economic leadership role and political
power. The country*s most well-known economic reformer * largely unnoticed in the West
* was so marginalized that by February, the National People*s Congress announced that
it will increase its own authority over national economic policies. The leader of the
NPC * and the man with increasing influence over the economy * is Li Peng, an old
guard Party member, who opposes the rapid economic opening and reform once promoted by
Zhu.

Hardliners in China are not reacting in a knee-jerk fashion; instead they are
responding to the powerful social effects of the country*s economic opening to the
West. Economic disparity is a growing concern. Beijing is scrambling to focus new
development in the impoverished western regions. In April, the National Statistics
Bureau pointed out the growing disparity between company executives and employees. The
idea that economic reform is destructive has clearly gained official approval. On May
16, the state-run People*s Daily ran an editorial discussing the country*s widening
income gap.

The country is also struggling with another impact of capitalism, Chinese style: the
corrosive effect of corruption. Smuggling, embezzlement and bribery threaten to
undermine the authority of the central government and the Communist Party.
Investigations into massive corruption scandals have led dangerously close to the top
members of the party and government.

Assuming that Beijing succeeds in its bid to enter the WTO, the government will likely
be forced by circumstance to engage in exactly the opposite of free, unfettered trade
* indeed, it must regain some measure of control merely to maintain order in China.
The very free market solutions that China is officially pursuing unofficially * but
very realistically * threaten social upheaval and worse, the collapse of the regime
itself.

China appears to be pursuing a dichotomy. Abroad, it pursues economic expansion that
brings valuable technical knowledge, trade and capital needed to support a population
of 1.2 billion people. But at home, China*s economic policy is headed in the opposite
direction. The West hopes that economic association with the world will wean the
country from its tradition of central planning; instead it appears that state
involvement will increase at the very time that China takes its place in the global
economy.









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