U.S. and China Bond, for Better or for Worse

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Okay, hereís the bad news on China: Despite all that talk in the summer of freedom breaking out like so many flowers blooming once Beijing was admitted to the World Trade Organization, itís still a communist country. And thatís why trade deals painstakingly negotiated over years with the West will always take second place for Beijing when the political stability of their authoritarian system is at stake. President Clinton Wednesday signed legislation granting China permanent normal trading partner status, but had to send Trade Representative Charlene Barshefsky off to Beijing the same day to warn the Chinese against reneging on agreements to open their economy to outside competition. Beijing has been accused of dragging its feet on implementing measures agreed in talks with the U.S. and the European Union last year, and has even announced new restrictions on foreign investment in sectors, such as telecommunications, that it had agreed to liberalize. Beijing has also reverted to demanding the grace period for compliance with liberalization measures usually reserved for developing countries joining the WTO, despite having agreed after years of negotiation that it could only be accepted on the terms of an industrialized country.

Barshefsky, and whoever replaces her in the next administration — and probably in one or two administrations after that — will have their work cut out for them. Beijingís liberalization efforts had been headed up by Prime Minister Zhu Rongji, who had hoped to use the conditions attached to WTO membership as a lever with which to force the pace of economic reform. But the bottom line of Chinaís political system is maintaining the Communist Partyís control and what it perceives would be a descent into anarchy — the overarching concern of the leadership in Beijing is that economic liberalization threatens to plunge tens of millions of people into unemployment as decrepit state-owned industries collapse in the face of competition. China canít afford the social safety net to absorb those unemployed people, and in the context of a social upheaval on the scale of Europeís industrial revolution, theyíre perceived as a mortal threat to the very survival of the Chinese state. Itís that thinking that has driven the crackdown on the Falun Gong religious sect over the past 18 months. Despite the groupís apparently harmless blend of Buddhism, exercise and mysticism, the idea of a nationwide organizational structure to rival the Communist Partyís was intolerable to the leaders in Beijing. And concerns over the social impact of economic liberalization have seen Zhu increasingly eclipsed in Beijingís leadership by hard-liners grouped around Peopleís Assembly chairman Li Peng.

The next U.S. administration will find itself dealing with a China that remains formally committed to the path of economic reform but fearful of its social consequences. Of course, the stakes on both sides are already far too high to allow either to walk away from the relationship. But that doesnít mean the marriage will be a happy one.