How fitting it is that in the last days of the first treaty port, Macau, China should be able to announce that it is about to enter the World Trade Organisation. With China's interior about to be thrown completely open to investment and trade, the days of both the treaty ports and their latter-day equivalents, the special economic zones, will be phased out. That the United States should have played such a vital role is also no coincidence, as it was the Americans who, a century ago, were the first to push for an open- door policy for China to allow all foreign countries equal access to the China market. Christopher Columbus had, after all, only discovered America on a trade mission to reach China and it was a Portuguese expedition which first established a trading base in China more than 400 years ago. As the European powers scrambled to gain a foothold, the Emperor Qianlong famously rebuffed Lord Macartney's mission in 1793, saying China had no need for Britain's manufacturers nor its ingenious articles. Hong Kong's first governor, Sir Henry Pottinger, promised after the First Opium War, that he had opened up a whole new world to trade, so vast 'that all the mills of Lancashire could not make stocking-stuff sufficient for one of its provinces'. The dream is still strong although now it seems that just one of China's provinces can make enough textiles to clothe all of both England and America. Foreign powers are still too demanding that a concession given to one must apply to another. On Monday the first response of Germany's Finance Minister Hans Eichel was to immediately demand equal access with the Americans. Membership of the WTO, which is expected next year, will bring China back to where it was in the 1920s, when the interior was really opening up to international trade and the whole economy became integrated into the global trade system. The Great Depression of the 1930s, when the US and other countries raised trade tariffs, brought ruin to Chinese export industries and left five million unemployed in the cities by 1935. Shandong peasants who grew tobacco for British American Tobacco starved to death when they could not sell their crops. The General Agreement on Tariffs and Trade (Gatt) which the Kuomintang government joined in 1948 was created out of the lessons learned by disastrous policies of the 1930s. Chairman Mao Zedong believed in a world of managed trade conducted with the socialist world. After 1959, China withdrew entirely from international trade, restricting itself as in the days of the Emperor Qianlong to a trade fair in Canton and some covert business in Hong Kong and Macau. China began talks to rejoin Gatt, the precursor to the WTO, in 1986 but these were broken off in the aftermath of the Tiananmen Square crackdown. China successfully pursued bilateral trade deals playing one trading power off against another but as more and more goods and services have been opened to international trade, this has not been enough. To further its own interests, China is compelled to take part in successive negotiating rounds like that starting in Seattle soon which will further open up trade. Besides, accession to the WTO is no longer a matter of choice. Despite the best efforts of the bureaucrats who govern the country, China is no more able to close its markets than successive Qing emperors managed to do. Many of the concessions that US Trade Representative Charlene Barshefsky has won are nothing of the kind. Smuggling has become so rampant along the coast that Chinese customs may as well try to gather 25 per cent duties on cars than obtain nothing at all. The same applies to diesel, oil, steel, metals, cigarettes or American wheat and cotton for that matter. Other trade 'concessions' are equally theoretical. Under the deal China is now going to allow the US to export as much as 50 films a year instead of 10 but in reality you can already buy any number of US films on the streets of Beijing as soon as they come out. As China gets fully wired up in the next few years, the state will be powerless to stop Chinese buying any kind of digitalised information product even though it surely wants to keep the barriers high. Edicts like the one issued last week by the Ministry of Information Technology and the State Administration of Radio, Film and Television on 'Strengthening the Management of Construction of Radio, Television and Cable Networks' are doomed to be ineffective. Americans trying to block Normal Trade Relations with China cannot do any better. US Customs' best endeavours to stop illegal textile exports have not prevented about US$5 billion (HK$39 billion) worth of illegal Chinese textiles and apparel entering the US via third countries. For a political system based on absolute state control of the economy, the breakup of domestic monopolies which WTO membership entrenches will bring many consequences. For example, China must soon make its currency convertible. With trade flowing freely, there are too many ways to circumvent capital controls and already US$50 billion to US$70 billion is leaving the country illegally each year. The dangerous part of WTO entry is that it may not bring benefits for years to come. The post-1992 boom has not been used to make Chinese industry and finance more competitive, quite the contrary. Instead of using the capital raised at home or abroad to adapt, most state enterprises went on a reckless spending binge which has left them deeply in debt and with a vast overcapacity. China can produce 180 million tonnes of steel a year in over 100 enterprises but only needs 80 million tonnes. Workers employed in producing the superfluous 100 million tonnes will have to be sacked. The banks which extended the credit to finance the expansion will have to swallow the losses or live with non-performing loans. In all major industries, firms will have to undergo a huge process of closures and mergers. The foreign companies that did well selling China huge amounts of redundant steel furnaces and other machinery will not see similar profits again. In just five years China imported US$10 billion worth of textile machinery but several million textile workers are being laid off and the country is still the world's biggest textile exporter. China already accounts for 40 per cent of the world trade in shoes and there cannot be much room for further growth. The domestic investors and the state banks which funnelled the country's savings into this surplus capacity and a legacy of unsold housing and under-performing real estate projects will not see healthy returns. With state banks in such a frail state, many Chinese may wish to put their remaining savings in foreign banks, pension and insurance companies, whose expansion the WTO will ensure. Some fear that sooner or later, China will be forced into devaluation as it phases out export subsidies and seems to find markets for the surplus goods. The central government might also be forced to seek outside help because its tax base keeps shrinking. Beijing is already issuing treasury bonds to pay the interest due on existing bonds. It might have been better for China to have entered the WTO, while the expansion boom was under way, but with luck it will be able to weather short-term pain as long as outside investors are willing to support economic growth in new areas. The global trading system has long waited for China to open its doors. And soon it will. Jasper Becker is the Post's Beijing bureau chief
