May 31st, 2001

International Conference on "China's Economic Development and its future role after accession to the WTO."

Panel Discussion: China's integration into the world economy and its future role in world trade

As a member of the European Parliament's Delegation for furthering relations with the People's Republic of China, I had the privilege last November of visiting Guizhou province and travelling up into the mountains to meet the ethnic minority Miao people. Guizhou is one of the poorest parts of China. There is a traditional saying in which the local people describe their province as a land where there are "no three days without rain, no three kilometres without a mountain and no three coins in any pocket." As I saw for myself, this is a fairly accurate description. Guizhou has the highest average rainfall in China. It also experiences a high level of poverty because more than 80% of its land is covered by untillable mountains or leached limestone soils. Nevertheless, it is a place of the most astonishing beauty, containing an exquisite grandeur, which could almost be drawn from the fantastic landscapes of a Ming scroll.

Great conical limestone mounds, thousands of feet high, are dotted across the landscape; mountains like vast camels' humps, like giant anthills or huge plum puddings jostle for space, one after the other. Miao villages perch on the bluffs - clusters of thatched roofs and ochre walls, with overhanging eaves and latticed paper windows. The higher slopes, often wrapped in mist, are thick with pine forests, golden bamboo and dark green firs, while far below, the valley bottoms are filled with bright swirls of white cloud. Chain bridges are slung across the rivers, and alongside torrents that cascade from the heights are pocket-handkerchief sized patches of cultivated land, where peasants work on fifty-degree slopes to coax a few poor vegetables from the dark red soil.

It was in an obscure farmhouse in the nearby market town of Tongdao that the Red Army leadership gathered in 1934 for a meeting that marked the beginning of Mao Zedong's rise to supreme power. And yet if Guizhou acted as a cradle for the communist revolution in China, it may yet also act as a catalyst for the next major upheaval that China will face as she seeks full integration into the world economy through WTO membership. For the poverty of the peasant population in Guizhou and the prospect that they might become even poorer under the WTO, has raised fears of a free-trade induced famine across rural China. This epitomises the scale of the challenge the leadership in Beijing faces.

When I visited Guizhou last November, our minibus bumped and rattled across rocks and potholes for hours on end as we made our way into the Miaoling Mountains. Everywhere, people were trying to scratch a living out of the poor soil. We could see Miao women carrying heavy baskets of dung on poles across their shoulders. They were walking for several kilometres then dumping the dung in neat little piles in distant fields, before making their weary way back to the farmyard for another two bucketful's. In the fields, the Miao menfolk were ploughing with single-furrow ploughs pulled by water buffalo. It was a vision of an agricultural way of life unchanged for perhaps the past two thousand years. And it was evident not only in Guizhou, but also across much of rural China where 900 million peasants eke out a forlorn existence, on an average income of less than 500 Euros a year.

China's farmers are impoverished and yet the food they grow costs far more than that being grown by foreign producers. With WTO membership, a flood of high quality, low-price produce from abroad will surge into China, de-stabilising the struggling peasant masses, driving them off the land and into the cities. The ability of the leadership in Beijing to control this massive upheaval and the way in which the rest of us can help, may be one of the greatest challenges facing the world community in the years ahead.

I remember my own childhood on our family farm in Scotland in the 1950's. At that time we employed 35 people on the farm and we had seven pairs of Clydesdale horses to do all the heavy work.

When the first Massey Ferguson tractor arrived, it immediately displaced 8 horses and 8 men. Now, only one man works on my farm and we have no horses. The same inevitable fate awaits the population of rural China. And yet Beijing is determined to keep these people on the land, fearful that a mass drift into the cities could undermine China's fragile social stability. Having agreed to lower import barriers and eliminate export subsidies as part of WTO membership criteria, Beijing is now being forced to confront the prospect of introducing the Chinese equivalent of the CAP in order to subsidise its rural population. But if the CAP in Europe devours more than half the EU budget at a staggering annual cost of 48 billion Euros, just imagine what the cost of a Chinese CAP might be? And, with current WTO rules demanding the de-coupling of farm subsidy from production, the Chinese authorities will need to look for new ways of paying the peasants to keep them on the land.

So this is the scale of the challenge. The EU is a strong supporter of China's accession to the WTO. A WTO without China is not really a universal organisation at all. We have waited five centuries for the opportunity to normalise trade relations between the EU and China. Indeed, but for an accident of history, China and the EU would have become global trading partners in the fifteenth century. Let me explain:

In 1433 the Chinese admiral Cheng Ho sailed an imperial fleet of warships right round the Indian Ocean. The westernmost point he reached was Mogadishu, now in Somalia, where he collected tribute from the local ruler in token of allegiance to his Emperor in Beijing.

This expedition formed part of an exercise in self-assertion by the newly established Ming dynasty. It had overthrown the previous line of Mongol rulers, which included the Kublai Khan whom the Venetian traveller, Marco Polo, visited at Xanadu two centuries before. Now the rule of the Chinese by the Chinese was restored. The new dynasty wished to demonstrate to its own people and to the world that the most glorious days of an Empire already 2000 years old were returning.

But having done so, most triumphantly with the expedition of Cheng Ho, the Emperor made a strange and what we may call with historical hindsight, an unfortunate decision. He decreed that no more foreigners were to be admitted to his dominions, and that no more of his own subjects would be allowed to leave them. In China perfect government was being established, so ran the decree, and contacts with alien peoples had become unnecessary.

Up to that point there had been many contacts between China and the outside world. Admiral Cheng Ho was himself half-Arab, son of an immigrant merchant and a local girl in some southern Chinese port. Many travellers from the West had already crossed the Asian continent, starting with Alexander's Greeks and probably a few Roman traders. There is even a little evidence that individual Chinese had appeared in Europe.

Perhaps the most regrettable result of the Emperor's decree was that it stopped the Chinese meeting the Portuguese who, not long afterwards, would themselves arrive at Mogadishu, having rounded the Cape of Good Hope in order to open up sea-borne traffic between East and West. This can be taken as the start of the system of intercontinental trade which has brought such benefits to mankind ever since. It is a real shame that Cheng Ho did not hang on to meet Vasco da Gama.

More is the pity that for much of the five centuries since, China remained officially a closed realm - though, of course, western traders gradually succeeded in penetrating the barriers. The Chinese policy of isolation meant, however, that this commercial activity remained illegal. For that and other reasons it often turned into exploitation. Looking back, I think we all have to admit that it would have been better if Chinese and Europeans had been able to encounter each other much earlier, on open and equal terms.

So it must give us all the more pleasure today to help in bringing to an end those five centuries of separation, often marred by misunderstanding.

I am convinced that the biggest single contribution to harmonious relations in future between the Chinese and other nations is the accession of the People's Republic to the World Trade Organisation, the event which we are gathered here today to celebrate and discuss. I am sure admiral Cheng Ho would have approved as well.

Nobody should underestimate the difference, which that event is going to make, for we will in a sense be catching up on five centuries of exchanges which, through an historical accident, were missed out.

The negotiations that led to a successful outcome between China and the WTO encountered many difficulties and some hard decisions had to be taken before they could be concluded. But at today's conference we should put those problems behind us. We should instead look to the future - and it is not too soon to start counting the blessings that will flow from this opening of China to the rest of the world, and of the rest of the world to China.

I should like to focus first on why membership of the WTO will be good for China and the Chinese people. In the last 20 years, the reforms undertaken by the Government of the People's Republic have paid off to an extent undreamed of when they began. Phenomenal rates of economic growth of nearly 10 per cent a year on average have been achieved. Though China is still a developing country, it already has one of the biggest economies in the world.

The basic reason for this achievement has been the turning away from the old system of rigid central control towards free markets. Membership of the WTO will promote and deepen this process. It will encourage those Chinese who want to innovate and confound those who resist reform. It will open China to global competition and give an incentive to privatise state-owned industries. This role of the market is bound to expand in future too, not least because both Chinese and foreign businessmen will now have the right to import and export on their own accounts, and sell their products without going through official channels.

All this means that the age-old commercial genius of the Chinese people will find fresh scope. They will be better able to seek the opportunities which economic reform has brought them. But these opportunities will be more than economic. For example, the opening of China's market in telecommunications, including the services of the Internet and satellite, will mean for many millions of Chinese greater access to information, ideas and debate from the rest of the world. China will become a more mobile, prosperous and diverse nation.

The lesson from other countries that have previously freed their markets is that such developments, while of course creating problems of their own, will at the same time make overall for a more stable and progressive society. The global trading system as it is now developing cannot be equated with anarchy. On the contrary, it rests on the rule of law, obliging all governments to apply the rules mutually agreed among them - with appeal to an international body in cases of doubt.

On that basis, everyone can welcome Chinese entry into the global trading system. It advances the interests of all countries by strengthening China's involvement in international agreements and institutions, and giving the People's Republic a constructive role including a stake, along with the rest of us, in preserving peace and stability.

At the same time, let us not delude ourselves that this process of the international integration of China will be free of problems, on either side. From the point of view of the existing members of the WTO, swallowing a new member with a population of more than one billion could well be an uncomfortable experience in certain respects.

Many regions of the world and many industries of the world will feel the impact of this rising economic giant, with its vast resources, its rapid growth, its different commercial traditions and its trading acumen. In time it is likely to become a fierce competitor to the rest of us in the many goods and services which the talents of its people and the structure of its prices equip it to produce.

We must be prepared from time to time to hear complaints about Chinese competition. And, as China advances to a higher state of development, the Chinese will find out, as we in the West have been finding out, that the most important assets of a country are not in the goods it makes or in the economic system under which it makes them or in the government that runs that system. A modern economy's greatest asset is its people, in all their individual diversity. It is their ideas, their skills and their enterprise that cause an economy to work well or badly. They flourish best in freedom, and the WTO will give them the freedom to test their talents on a global scale. I am sure that the Chinese people can only emerge from this test with flying colours.

It is a big step for China, and it is bound to arouse some fears. There will be anxiety about economic change and the disruption of old patterns of working. There will be enormous upheaval in the countryside, as I mentioned earlier, as China's rural population struggles to meet the new challenges of global free trade.

But if China is bound to become more western, let also remind ourselves that membership of the WTO is an invitation to the Chinese to go out and display what they can do to the rest of the world. So as China becomes more western, we will all become more Chinese. East and West will at last meet in harmony.

Struan Stevenson is a Member of the European Parliament for Scotland. He is Conservative Front Bench UK Spokesman on Fisheries and Deputy Spokesman on Agriculture. He is a Member of the European Parliament's Delegation for Furthering Relations with the People's Republic of China.