Saturday, April 14, 2007

A Chat with China's Top Trade Official

Will China enact the economic reforms necessary to enter the World Trade Organization? Yes, says Chinese Minister of Foreign Trade & Economic Cooperation Shi Guangsheng, who sat down recently with BusinessWeek Editor-in-Chief Steve Shepard, Asia Regional Editor Mark Clifford, and Beijing Bureau Chief Dexter Roberts. But Shi declined to set a timetable, and emphasized that China wants to be identified under WTO rules as a developing country on agricultural issues. The interview took place four days after China's chief WTO negotiator, Trade Vice-Minister Long Yongtu, and U.S. Trade Representative Robert B. Zoellick met in Washington, but five days before the spy-plane incident.

Asked when he would like to see China's entry into the WTO, Shi joked, "Today." Although concerned about slowing trade, especially with the U.S. and Japan, Shi said that China's fiscal stimulus would generate enough growth for the country to hit its 7% GDP growth target this year. And he added that he thinks the Bush Administration wants closer economic ties to China, despite President Bush's admonitions that China is now a "strategic competitor" with the U.S. rather than a "strategic partner." Here are edited excerpts from the conversation:

Q: What's the outlook for China's trade and economy this year?
The U.S. economy has been slowing down since the end of last year. Recent signs have indicated a much faster slump of the U.S. economy. Adding to the complications is our neighbor, Japan. The Japanese economy is in much worse shape [than expected]. As Minister of Foreign Trade & Economic Cooperation, I am concerned. Our exports to both the U.S. and Japan dropped sharply [in the first two months of the year]. China's IT [information-technology] exports to the U.S. dropped about 20%.

There will be a substantial reduction in the growth rate of China's exports to the United States [this year]. China's exports to the entire world will grow, but more slowly [than in 2000]. Last year, we had a total [export] increase of nearly 30%. It is impossible for us to achieve that growth rate this year. Our target this year [for export growth] is 8%. Our trade with the U.S. and Japan will suffer a [lower] growth margin.

[The slower growth] may not have as big an influence on our entire national economy as on the trade sector. We are mainly relying on expansion of domestic demand....What we are doing now is very much like what we did in response to the Asian financial crisis in 1997 and 1998.

First, we will issue another 150 billion renminbi of national bonds for infrastructure development. Second, we intend to encourage domestic consumption. We will further increase the salaries for civil servants and those engaged in the education sector, so that their purchasing power will be increased and they will spend more.

Third, we will launch the strategy of developing China's West. Fourth, we will be implementing the strategy of going global. We will encourage strong Chinese enterprises meeting certain conditions to go abroad and make investments. We are confident the objective [of 7% GDP growth] can be attained.

Q: When will China enter the WTO, and what obstacles still remain to membership?
What are remaining are the important issues, [like] agriculture and the insurance industry. There are other issues where full settlement has not been reached. But on the other issues, the differences are rather close.

The opening up of the insurance sector is a bilateral market issue rather than one that needs to be addressed as a multilateral issue. This was resolved when the two parties signed the bilateral issue. This issue should not be reopened again at the multilateral level.

[Agriculture] needs to be addressed at the multilateral level. The differences are as follows: China is a developing country. The WTO affords different rights to developing countries. China is seeking to implement this WTO agreement as a developing country. The members have disagreement on this point.

I cannot overstate the importance of this point to China. Bear in mind the fact that 900 million of China's 1.2 billion people are farmers. This is rather different form the case of the U.S., where your farming population accounts for [a small fraction] of your population.

Second, if you look at the way China's agricultural sector operates and the way farming is done, you will find that China's agriculture cannot be compared to the developed countries, much less the U.S. Basically, China's agricultural sector still relies heavily on natural conditions. We do not have the conditions to compete with the U.S. What we are concerned [about] right now is whether we can provide adequate food for 900 million farmers and whether we will have the capacity to improve their living standards. It is only natural that China should seek the rights and obligations of a developing country.

[WTO membership] will bring both advantages and disadvantages to the country, [but China's leadership] has come to the conclusion that membership in the WTO will be conducive for further economic reform. There is no reason for China not to be active in the process. We have been making many positive [moves]. Since the negotiations are still under way, nobody can give a very specific prediction as to the exact timetable for China's accession. Nor is it possible for any U.S. representative to do that.

Q: What is your assessment of the meeting between U.S. Trade Representative Robert Zoellick and China's Trade Vice-Minister Long Yongtu last month?
I believe the bilateral consultation this time was very constructive. Both sides communicated on specific details. This is the first such consultation after the new [U.S. Trade Representative] took office and the formation of the new U.S. Administration. Both sides also came to the suggestion to open the 17th meeting of the WTO working committee on China in late April in Geneva. Both sides also plan to have another round of bilateral talks shortly before the convening of the working committee meeting. There will be Sino-American consultations, and there will also be Sino-European consultations.

Developing Sino-American trade relations is important for the two countries. I have full confidence on this point. Therefore, I trust the vast number of players in the American business community will support both NTR [Normalized Trading Relations] and PNTR [Permanent Normalized Trading Relations] for China. The United States today is China's second-largest trading partner, and China is America's fourth-largest trading partner. If the NTR problem pressures Sino-American economic and trade relationships, it would constitute a huge loss for the United States, especially against the backdrop of the slowing American market. The situation would turn for the worse if the U.S. loses the huge market of China. I believe the members of Congress who [support] the economic interests of the U.S. and China [will] vote for [NTR and PNTR for] China.

In my view, and in general, I believe the attitudes of both the Bush and Clinton Administrations on developing economic and trade relations with China are both very positive. It is my personal view that the Bush Administration is more [supportive of] trade and investment development and liberalization. The Bush Administration is willing to make further efforts to develop trade and economic development.

Edited by Douglas Harbrecht