WTO-CANCUN: All Eyes on China’s Stance at Trade Talks

By IPS Correspondents Reprint | | Print |

Antoaneta Bezlova

BEIJING, Sep 11 2003 (IPS) - While the World Trade Organisation (WTO) members are meeting in talks aimed at reaching agreement on contentious issues like reducing subsidies and tariffs, eyes are on China’s stance as a new fully-fledged member of the trade club.

In Cancun, Mexico, China is attending its first WTO ministerial talks since it was admitted to the organisation in January 2002.

Little has been said in the Chinese state press about the battle of trade interests unfolding at Cancun summit. But a widely talked about clash of trade interests – which took place last week in Beijing when U.S. Secretary of Treasury John Show demanded that China liberalise its currency – has thrown light on what China’s stance as a WTO member would be.

China will not let the market play the decisive role in determining its exchange rate until the economic impact of China’s joining the WTO has settled down, Central Bank Governor Zhou Xiaochuan told Snow.

What worried Beijing most was the reform of Chinese state banks and the opening up of the trade sector, the media reported Zhou as saying.

China’s currency peg to the dollar has galvanised businesses and governments around the world. Manufacturers around the world have blamed competition from Chinese exports for the closure of many plants in the United States and elsewhere, and critics say an undervalued yuan pegged at 8.28 to the dollar is keeping the price of these goods artificially low.

However, Beijing asserts, the time is not ripe economically as politically for China to adopt a floating exchange rate regime.

”The critics that believe that China manipulates the yuan’s value assume that every currency in the world should be floated in the market,” said a signed commentary in the English-language ‘China Daily’ last week. ” This assumption is porous.”

It added: ” Should China now give it to pressure only to face dire consequences later? No way.” After pledging to allow greater exchange-rate flexibility in the longer term without giving a timetable, Beijing concluded that a stable yuan was in both the United States’ and China’s interests.

Beijing fears that capital account liberalisation in a weak domestic financial sector could trigger financial and economic crisis.

China’s state-owned banks are loaded with bad loans: the ratios of non-performing loans of the four major banking institutions that dominate the sector officially averaged 24 percent in the first quarter of 2003. Experts say the figure could be much higher.

Then there is the political challenge to the rule of Chinese Communist Party given that the continued opening of the economy since the 1970s, sealed by the entrance to the WTO, has tossed millions of workers and peasants out of work.

”Some 70 percent of China’s population are farmers,” Sun Zhenyu, China’s ambassador to the WTO said in an interview with the ‘Beijing Youth Daily’ Thursday. ”On one hand, we have to guarantee their employment, on the other hand we have to raise their living standards. If the market liberalisation goes too fast, the livelihood of many people would be in danger.”

How China handles the currency issue would be an indication to the country’s future role in the global economy.

While committed to further opening of trade and services, Chinese leaders would proceed with caution and bide their time while the painful transition from a centrally planned economy to a market-based one settles in.

At the same time, calls from U.S. businessmen and Japanese politicians for a revaluation of the yuan are unlikely to remain unheeded.

One of the most important reasons for China’s joining the WTO was that it wanted guaranteed access to developed country markets. To sustain its spectacular economic growth over the past decade, China has relied on surging foreign investment – and it is unlikely to do anything that could jeopardise its flow in the country.

Rebuking the argument for appreciation of the yuan, Chinese economists often point to the role of foreign investors in driving China’s export growth. Increased overseas sales by foreign-invested enterprises generated two-thirds of the 143 billion U.S. dollar rise in China’s total exports recorded in 1997-2002.

”There is no doubt that they want to be seen as the economic leader for the developing countries at the (Cancun) talks,”’ a Beijing-based diplomat from the developing world said in an interview.

”But if the rift between rich and poor at Cancun becomes too big, China might jump off the boat at the last moment because they don t want to jeopardise trade with their biggest trade partners,” the diplomat added.

But Beijing’s official line so far has been to pledge support on the side of the developing nations.

”For more consensus in the new round of negotiations, it is necessary for the rich economies to listen to the opinions and proposals of the developing ones,” Chinese Minster of Commerce Lu Fuyuan said Wednesday.

Added an editorial in ‘China Daily’: ”For the moment, it is important that developing countries interests find representation and are protected in and beyond the Cancun talks.”