5. What adverse effects are anticipated with China's recent accession to the WTO?
China's rapid economic expansion has not come cost free as it has brought to the forefront some structural weaknesses in China's economic system. The dilemma for China has been and will continue to be, how to best continue the dual momentum of economic growth and structural reform.
It is likely that the short-term costs to China will include a rise in unemployment as State Owned Enterprises (SOE) rapidly restructure in the face of international competition. WTO membership is expected to have a large impact on SOE as the majority will quickly go bankrupt or become inefficient. Another major concern is maintaining social stability, especially with regard to labor issues where the possible laying-off of SOE employees could cause unrest. As more SOE go out of business, banks will also need to write off non-performing loans and then recapitalize in order to maintain depositor confidence.
Other disadvantages concern the agricultural sector where increased imports will lead to lower prices of agricultural goods and thus lower incomes for rural China. This in turn will cause mass migration to urban centers. Where previously protected agricultural products cannot compete with cheaper liberalized imports, rural areas may find themselves facing the downside to life in a free market. Although acceptance into the WTO has been a long time coming, the timetable for removing many of the local protections are rapid and may not be welcomed by all, despite the promises of long-term prosperity.
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Last updated on August 27, 2005
