JANUARY2007

CHINA

US treasury secretary calls China "leader of the world economy"

From: Dave Chiang Date: 19/12/06 00:39

China wins and loses in the WTO

By Zhou Jiangong http://www.atimes.com/atimes/China_Business/HL19Cb02.html

SHANGHAI - Like two sides of a coin, China may have gained a lot from its accession to the World Trade Organization (WTO) over the past five years, but at the same time it has lost a great deal. The rich have become richer and the poor poorer, with Chinese farmers and laborers bearing great hardships caused by globalization.

China's economy is arguably benefiting from globalization and its five years of WTO membership. It is expected that the country's exports by value this year will triple those five years ago. Over the past five years, China's gross domestic product (GDP) has grown at an average annual rate higher than 9%, with its economy jumping from world's sixth-largest to the fourth-largest by GDP in terms of the US dollar at the current exchange rate.

Since its accession to the WTO in December 2001, China's has been the biggest recipient of foreign direct investment (FDI), with a record US$72.4 billion pouring into the country in 2005. Strong exports, largely propelled by multinational companies reallocating their manufacturing operations to the Middle Kingdom, have enabled China to become the biggest official creditor in the world, claiming more than $1 trillion in foreign reserves at the end of 2006.

Its economic influence, mainly manifested by the "China price" dominating the market, now reaches every corner of the world. "Made in China" has flattened the world, and "Bought by China" has driven up the prices of commodities such as oil and copper.

China and the United States have been responsible for half of the world's economic growth in recent years, with China alone responsible for 12% of global trade growth in 2005. The US is China's biggest export market, and Beijing has been recycling the dollars back to the US, helping to finance Washington's war in Iraq.

Henry Paulson, the US treasury secretary and President George W Bush's China policy czar, called China "the leader of the world economy", a title received a bit nervously by the country's leaders.

So one-third of Bush's cabinet ministers were sitting at a round table with their Chinese counterparts last week in Beijing for the first round of bilateral economic strategic dialogue. Both focus on such hot issues as greater flexibility of the yuan's exchange-rate regime, China's trade surplus, and the protection of intellectual property.

The timing of the meeting could not have been better: China-US strategic economic dialogue coincided with the fifth anniversary of China's accession to the WTO.

For many ordinary Chinese, WTO membership is like "dancing with wolves (foreign investors)" - a popular phrase that was coined on the eve of WTO entry to express deep concerns about possible "shocks" after the country swung open its doors. Indeed, the changes are radical: China has changed or eliminated more than 3,000 regulations to comply with WTO requirements. Gone are many protections for domestic businesses and workers.

So far, farmers and laborers have been the biggest losers. China's WTO accession has ushered in FDI and spurred regional governments to expand the industrial parks competing for FDI with more favorable terms, including offering cheap or even free land and no labor standards.

According to Chen Xiwen, vice director of the general office of the Central Leading Group of Financial and Economic Affairs, the all-powerful organ overseeing China's economic affairs, every year regional governments at all levels take away 200,000 hectares of land from farmers, with 2 million farmers becoming landless. By now more than 40 million Chinese peasants have no land to farm and another 40 million will join them before 2020.

Chinese experts say that the urbanization and industrialization stimulated by economic development will inevitably cause the separation of farmers from their farmland - globalization has greatly accelerated the process. Professor Wen Tiejun, a well-known scholar on rural issues in China, pointed out: "Rural problems stem from industrialization but become much more serious with globalization."

While China keeps reducing the number of people living in poverty, the poverty dynamic has changed. In the two years after 2001, according to a World Bank study, the real income of the poorest 10% of Chinese actually fell by about 2.5%, despite the country's rapid economic growth. More than half of these newly poor do not live in villages and about 70% of them had suffered an "income shock" such as failing crops, health problems and injuries.

Alongside the multinationals, governments have been the biggest investor in the past five years. As a result, public services such as health care and education are seriously under-financed, making China notorious for its poor public services while the economy soars.

The delicate social-security system has also been exposed to globalization. The system does not provide a safety net for the poorest, weakest and most marginalized people in China. Tian Chengping, the minister of labor and social security, said: "Globalization, alongside urbanization and aging, is posing challenges to China's social-security net." In particular, the exclusion of an army of 140 million rural migrant workers simply makes the social-security system irrelevant to China's fast-changing society.

While the government can now boast a $1 trillion foreign reserve, it also has a thick stack of unpaid bills. In addition to foreign and domestic debts, the government owes between 800 billion 1 trillion yuan ($102 billion to $127.5 billion) to more than 100 million individual pension-system accounts.

In 2004 alone, the degradation of the environment cost China 500 billion yuan. It has been long overdue for the government to increase the outlay for education up to 4% of GDP, the goal set in the mid-1990s. It also needs to increase its expenditure dramatically to fix the poor health-care system.

The five years of WTO membership has obviously created winners and losers. Winners are international and domestic capitalists, state monopolists, urban residents in coastal areas and, of course, government officials. The losers are farmers, unsettled rural migrant workers, laid-off employees of state-owned enterprises, and workers in non-monopolized state sectors. In short, over the past five years, the rich in China have become richer and the poor poorer.

Indeed, China's leadership has been enthusiastically embracing the WTO while failing to formulate social policies needed to cushion the shock resulting from opening the country to the outside world. The leadership apparently now wants to make up for this, with President Hu Jintao proposing the development of a "harmonious society", which could be on top of the agenda and even be included in the Communist Party constitution in the 17th Session of the National Party Congress next autumn. It may not be too late for China to solve its problems.

Zhou Jiangong is a Shanghai-based analyst on China's economic, political, and foreign affairs.(Copyright 2006 Asia Times Online Ltd.)

Energy-hungry China breaks ground in Middle East

By Alistair Lyon, Special Correspondent
http://news.yahoo.com/s/nm/20061128/lf_nm/china_mideast_dc

ZEBQIN, Lebanon (Reuters) - At the bottom of a deep pit gouged by a bulldozer, a Chinese soldier in a protective visor shovels aside earth to reveal an unexploded bomb left over from Israel's war with Hezbollah guerrillas in south Lebanon. Sweating at his perilous task in Zebqin village, 2nd Sergeant Liu Sinpshi is part of a 190-strong Chinese contingent in a U.N. peacekeeping force trying to stabilize the south.

The Chinese demining mission in Lebanon is a small sign of Beijing's rapidly expanding engagement in the Middle East, where its voracious quest for secure energy supplies in the 21st century has sharpened its interest in regional stability. Beijing has become more involved with U.N. efforts to mitigate Middle East conflicts, joining pre-war arms inspections in Iraq and this year the U.N. peacekeeping mission in Lebanon.

The Chinese have cleared thousands of cluster bombs and other ordnance -- including the bomb 2nd Sergeant Liu was tackling in Zebqin -- since the Israeli-Hezbollah war ended on August 14, winning them a degree of affection from Lebanese villagers. "The people are quite friendly because they know we're doing something for them," says liaison officer Major Xu Hongcai.

Law , Order and Traditional Values:
China is striving to build economic and political ties in a region which the International Energy Agency expects to supply 70 percent of its oil imports by 2015, but in doing so it risks antagonizing its key trading partner, the United States. For China woos U.S. allies such as Saudi Arabia with the same fervor it uses to court Iran, Syria and Sudan -- all at odds with the West and
seen by Washington as "sponsors of terrorism."  From Tehran to Rabat, few capitals seem worried by China's growing weight, at least as a trading power, in a region where it had a low profile before becoming a net oil importer in 1993.

"Hegemony, domination, imperialism are associated with the United States and Europe. China is not seen that way," said Sami Baroudi, a Lebanese political scientist. "Arabs appreciate its economic might, but don't see it as a political threat."

Ruling elites in Iran and the Arab world appreciate China's eagerness to do business without fussing about human rights and democracy. They prefer Beijing's calls for international dialogue on conflicts such as the Iran nuclear dispute to the unilateralist and militarist urges of the U.S. administration. Many also welcome China's stress on national sovereignty, one reason for its opposition in the U.N. Security Council to the Iraq war and more recently to tough trade sanctions against Iran or U.N. military intervention in Sudan's Darfur region. Baroudi argues that ordinary Middle Easterners, not just their rulers, admire China for its explosive economic growth, which many believe -- rightly or wrongly -- has occurred without sacrificing social justice, law and order or traditional values.

1. In Egypt, a recent government poll showed China as the most favorably viewed non-Arab country, with 73 percent of Egyptians seeing it as friendly and only 4 percent as hostile. "China has no colonial ambitions in the past or now and it has emerged as an economic power with an interesting experience so in Egypt there is a strong tendency to establish relations in economic cooperation and energy projects," said Abdel-Raouf el-Reedy, who chairs the Egyptian Council on Foreign Relations.

2. Syrian President Bashar al-Assad, who briefly allowed a climate of debate after he took power in 2000, soon made clear that reform of the state-dominated economy would take priority over political change in a policy that his liberal critics said was inspired by the "Chinese model."