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For years, experts spouted rosy predictions about China’s economy. Once the country joined the World Trade Organization, multinational companies from around the globe would have unfettered access to China’s booming economy and 1.3 billion people. Now that the WTO has finally admitted China, listen to the real story. During the next few years, the shock of joining the trade body will be too much for the People’s Republic of China. The country’s economy will collapse. Up to now, China has gotten rich on one-way trade with the world. But WTO membership means its days of unfair commerce are ending. Tariffs will drop; protectionism will lessen. The country will suffer from an ensuing decline in revenue. Unemployment, already a serious problem, will skyrocket. Demonstrations and protests from unemployed laborers and underemployed farmers, already a daily occurrence, will grow louder and more violent — ultimately threatening businesses in China, including the companies owned by foreigners. A number of factors will contribute to this economic implosion. The Chinese will lose critical trade disputes. The PRC will cheat on its WTO commitments — especially when economic troubles become apparent. When China breaks the rules, multinationals will take their protests to international dispute resolution, not to the PRC’s bureaucrats, as they were forced to do in the past. International companies have not fought this hard to gain access to China’s markets only to be cheated out of victory. Their wins will chip away at China’s protectionism. Meanwhile, foreign investment will not rise as dramatically as expected. Will it increase under the WTO? Yes. But the boom will be smaller and shorter than many predict. Post-Sept. 11, multinationals are not going to have as much capital to invest in creating China-based businesses. Plus, the country is suffering deflation because, except for telecommunications, there is too much capacity in every major market segment. China-made goods also will face steep competition. If you are a manager in China for a multinational company, you will want to build bigger facilities on the mainland to take advantage of newly opened markets. But executives back home will want to export products to China from idle factories around the world. Need proof? Look at a bellwether industry, automobiles. Germany’s Volkswagen AG has factories in the Asian country and controls more than 50 percent of China’s domestic car market. The auto giant says that it will not be able to compete with cars imported into China now that the PRC has joined the WTO. The scheduled reduction in tariffs (a drop from around 80 percent to 25 percent) will entice too many others to the Chinese market, and rivals’ prices will be more competitive, the company says. Volkswagen can’t afford to slash the prices on its cars — the cost of manufacturing vehicles in China is 30 percent higher than at its plants outside the country. Early signs indicate that the auto market is already more competitive. At the beginning of 2001 China reduced its tariffs on cars by a small margin. Last January the number of cars imported through Shanghai jumped almost 150 percent. During the first six months of 2001 the number of imported vehicles rose 118 percent. Deflation and a flood of cheap imports are one problem. Exports, which Beijing’s leaders hope will save China’s economy, are another. In the WTO era China will no longer be able to offer generous export subsidies to indigenous companies. Yet it’s those subsidies that have kept China’s export machine revving these past few years. Finally, China joins the WTO at a time when the world’s economy is in a downturn. With multinationals’ traditional consumers buying less, these businesses will work harder to penetrate Chinese markets to make up the shortfall. But China also will be losing consumers of its goods around the world. In the long term, increased foreign business presence in China will benefit everyone. But in the short term, it’s pretty much a zero-sum game. Gordon C. Chang, a U.S. lawyer, is the author of “The Coming Collapse of China.”

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