DATE=12/13/1999 TYPE=BACKGROUND REPORT TITLE=YEARENDER: CHINA ECONOMY NUMBER=5-44971 BYLINE=ROGER WILKISON DATELINE=BEIJING CONTENT= VOICED AT: INTRO: China's economy this year was slated to register a respectable seven percent growth, despite underlying problems including inefficient state enterprises, low consumer spending, banks plagued by bad loans and a rising unemployment rate. But, as V-O-A Correspondent Roger Wilkison reports, Beijing's rulers took a giant step to further open up their economy to the foreign competition they believe it needs by striking a deal with the United States that will pave the way for China to join the World Trade Organization. TEXT: Last month, Chinese Premier Zhu Rongji stood before a group of Philippine businessmen in Manila and trotted out China's economic indicators for 1999. //ZHU ACTUALITY (IN CHINESE)// ESTABLISH AND FADE Mr. Zhu painted a favorable picture: seven-point-four percent growth for the first nine months of the year, an increase in both exports and imports and a whopping 152 billion dollars in foreign exchange reserves. He also sought to dispel fears in the rest of East Asia that China might devalue its currency, saying there is simply no need for such a step. Days before Mr. Zhu's appearance in Manila, China signed a landmark deal with the United States that some economists say is Beijing's most significant economic move since its adoption of market reforms 20 years ago. Under the accord -- which clears the way for China to join the World Trade Organization -- Beijing is obligated to make market-opening moves that it was unwilling to even consider a year or two ago. But for Charlene Barshefsky -- the U-S trade representative who negotiated the deal on Washington's behalf -- the agreement's significance is that it commits China to abiding by the rule of law. //BARSHEFSKY ACTUALITY// The W-T-O is a rules-based trading regime. It encompasses almost 140 nations and the rules -- basic rules on transparency, non-discrimination, judicial review, administrative independence -- are absolutely critical to the functioning of a modern economy. //END ACTUALITY// Analyst Ken Davies -- of the Economist Intelligence Unit in Hong Kong -- says China's entry into W-T-O is also a recommitment to economic reforms within China and strengthens the hand of those in the government who are leading that process. //DAVIES ACTUALITY// They've been trying to reform the economy in the past couple of years, and they've run into some domestic obstacles. They've also been trying to speed the economy in trying to restore rapid growth. And that, again, has run into the ground. So what this does is to tackle the entrenched problem of state-owned enterprise reform and provide the possibility of faster growth in the longer term. Now that means a lot of short-term instability because of unemployment going up, but in the long term it means more rapid growth and, therefore, more jobs for young people coming on to the employment market. //END ACTUALITY// Membership in the W-T-O will be painful for some Chinese industries, especially agriculture. It has already infuriated the leaders of some ministries who see their interests threatened -- notably the Ministry of Information Industry, which oversees telecommunications and the Internet and has resisted foreign participation in both. Bureaucratic resistance to the changes -- both at the ministerial and the local level -- is expected to be widespread. But President Jiang Zemin and Premier Zhu are convinced that only through exposure to foreign competition will Chinese enterprises be able to hold their own in the global economy. The leadership is gambling that jobs lost through greater foreign competition -- estimated at 11 million over the next seven years -- will be made up through much higher levels of foreign direct investment, which has been declining over the past two years. One stumbling block in China's efforts to create new jobs is its banking sector. State-controlled banks continue to dole out money to state-owned enterprises producing goods that nobody will buy, instead of lending to private enterprises that could be expected to create new jobs. As unemployment grows, consumers afraid of losing their own jobs refuse to spend. So the government has relied on massive infrastructure spending to fuel the economy. But it knows it cannot do so forever. Political scientist Wenran Jiang of the University of Alberta in Canada says the communist government's legitimacy depends on maintaining the high economic growth that has brought prosperity to many Chinese over the past 20 years. //JIANG ACTUALITY// I think they have decided, if you do not have eight percent annual growth, you're in trouble. Just look at the number of unemployed -- the inequality between the countryside and the cities, and the gap between the rich and the poor, both within the urban areas and in the countryside. Without a good eight percent continuous, sustainable -- they always talk about sustainable development -- without this, they will be in trouble. //END ACTUALITY// Mr. Jiang says China's leaders are hoping they can muddle through the turbulent economic and social adjustments they face in the short term as they gear up to reap the benefits of full-fledged membership in the world economy that lie ahead. (signed) NEB/RW/GC/WD 13-Dec-1999 05:20 AM EDT (13-Dec-1999 1020 UTC) NNNN Source: Voice of America .
