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Rest of Asia Seen Gaining, Losing

Trade: China looks to foreign capital, technology to spur economic growth. Countries in region expect heightened competition but welcome stabilizing effects.


TOKYO — China is neither the gullible patsy nor the ominous predator it's been made out to be by supporters and critics of the China trade normalization measure adopted Wednesday by the U.S. House, say Asia-based economists and financial analysts.

In fact, as Beijing prepares to hand over more power to "foreign devils" than at any time since colonialism, its position is far more complex and its interests more varied and even contradictory than the Washington debate suggests.

These events are a milestone in the evolution of modern China and promise change--good and bad--for the rest of Asia as well.

The House action, now expected to be duplicated by the Senate, paves the way for a trade agreement with the United States that appears to favor Uncle Sam. It will be followed by China's admission to the World Trade Organization, which will also tend to undermine Beijing's control.

Why would China's leadership head down this path? Because China has run out of alternatives, analysts say, as it surveys the success of its global competitors, the failure of its past policies and a growing list of domestic problems. Essentially, the regime is making a high-stakes bet that it can remain in power by giving away power.

Decades spent trying to prop up the state sector have failed, weakening the banking system and undercutting economic growth even as the number of angry, frustrated workers without a job continues to grow.

Mounting party corruption and a jaundiced view of communist ideology these days has left President Jiang Zemin and Premier and economic czar Zhu Rongji convinced that more foreign capital and technology feeding an increasingly vibrant private sector is the only way to mop up the unemployed, raise living standards and prolong their legitimacy.

"If they continued their traditional approach, they could see growth deteriorate faster, jeopardizing their power base," said Thomas Chan, head of the China Business Center at Hong Kong Polytechnic University.

"Moving to a WTO system breaks down vested interests in China, creating enormous strain. You're bringing in the devils to tell you where the problems are," says Andy Xie, Hong Kong-based economist with Morgan Stanley Dean Witter. "This sort of change has never happened in China before without a revolution."

Beijing Agrees to Telecom Curbs

The regime's decision to follow this course has not been easy and comes with a high economic price tag. In a key concession during negotiations with Washington and Brussels, for instance, Beijing agreed to ease ownership and operating restrictions in the telecommunications, Internet and communication sectors. These are critical tools in controlling public opinion.

"This will erode their ability to exercise effective censorship," Chan said. "But they had to accept it as part of WTO accession."

China also agreed to let in more food imports. By some calculations this move could put 10 million Chinese farmers in already depressed rural areas out of work as efficient North American and Australian grain, meat and other producers gain market share.

And by agreeing to join a rule-based system, Beijing is willingly eroding the Communist Party's power as a force above the law. The global trading system's sanctions, reciprocal rules and rights promise to chip away over time at arbitrary authority, as principle replaces crude power in the making of key economic decisions.

"Even if the party is above China's legal system, it's not above the WTO," said Robert Broadfoot, managing director of Hong Kong-based Political and Economic Risk Consultancy.

Finally, China opens itself to competition in a host of sectors, from autos to tobacco to wristwatches, as other nations in the 134-member WTO have wrung their own concessions from Beijing in return for blessing its admission to the trade organization. And by liberalizing the insurance and financial sectors, it ensures that domestic players will no longer rely as heavily on the government for resources to grow, weakening its authority.

Still, with or without WTO membership, many of these changes are already happening, albeit more gradually, and the agreement will give Beijing some control over the pace and direction of reforms. That follows because Beijing will have several years to phase in promised changes.

Power Realignment Gains Impetus

Membership also gives Beijing greater access to important foreign markets in such areas as textiles and manufactured goods, and provides some guarantee that Washington cannot suddenly slam shut its borders after some political or human rights crisis.

For the rest of Asia, China's full membership in the global trading system furthers a realignment of power across the region as the Chinese economy begins to rival Japan's in size.

But by and large, China's Asian neighbors are greeting these developments with relief.

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