WTO: Life Support for Communist China?

By Frank J. Gaffney, Jr.
Investor’s Business Daily, 01 December 1999

The new trade round being launched in Seattle will also inaugurate a campaign featuring
news
reports, editorial columns and advertisements in favor of making communist China a member of
the World Trade Organization.

This campaign will likely reach a crescendo next spring, when Congress will be asked to
clear
the way for such membership by abandoning annual consideration of Most Favored Nation status
for the People’s Republic of China in favor of a permanent grant of Normal Trade Relations.

While many claims will be made about the benefits of such an arrangement to this country’s
economy and businesses, the ultimate success of the effort to sell the American legislature on
China’s accession to the WTO will probably turn on a different contention.

Proponents will likely argue that, by agreeing to open its economy to foreign imports and
partial
ownership according to the WTO’s rules, the PRC will begin to be transformed into a genuinely
free market and ultimately a democratic society.

What happens, though, if no such change can be assured? More to the point, what would be
the
strategic implications if it will not happen in the near to medium term, even if American and
other Western business dealings and investment might encourage political as well as economic
liberalization in China over the longer term?

Indeed, China’s communist rulers may have made just such a calculation. They appear to
have
decided – or feel they have no choice but – to take their chances on the more distant future as long
as they are able to secure the life support the regime needs to survive more immediate, and
growing, challenges to its legitimacy and control.

In fact, there are signs the hardliners are ascendant in Beijing. They’re men perfectly capable
of
making whatever promises are necessary to secure international financial assistance today, but
determined tomorrow to use violence or any other means necessary to perpetuate their power.

Unfortunately, the PRC’s entry into the WTO could greatly facilitate this sort of
bait-and-switch
scheme. For example, with American and other foreign businesses being encouraged to make
ever-larger investments there, the U.S. capital markets are likely to experience huge new
demands for China-related projects and so-called general-purpose financing.

If we are not careful, American pension funds, life insurance portfolios, mutual funds and
institutional and private stock and bond holders could unknowingly become subsidizers of
Chinese government repression and some of its more ominous global activities.

For example, as former Reagan NSC economist Roger Robinson has documented, companies
with ties to the Chinese government and its People’s Liberation Army have already raised
billions of dollars in the American financial markets.

And now, according to Robinson – a past vice president at Chase Manhattan Bank who
currently
chairs the Center for Security Policy’s William J. Casey Institute – one such company, the
Chinese National Petroleum Corporation (CNPC) is poised to launch an initial public offering in
New York that is expected to be valued at between $5 billion and $10 billion. If this transaction
materializes, it would be one of the largest IPO’s in New York Stock Exchange history.

The proceeds would be used in part to support CNPC’s global exploration and exploitation
activities. Given the ties the company its government have been forging with oil-rich states like
Sudan, Iraq and Iran, American investors would, as a practical matter, be facilitating infusions of
hard currency not only into the PRC’s coffers, but into those of some of the world’s most
dangerous nations as well.

That, in turn, would translate into additional resources with which those rogue states can
support
their domestic repression. The cash infusion could let those countries buy components for
weapons of mass destruction, ballistic missiles and other lethal capabilities from Beijing. The
effect would be to greatly compound the threats facing the U.S. and its allies.

To be sure, the U.S. has a powerful stake in seeing communist China transformed into a
peaceable, law-abiding and free-trading nation.

America’s vital interests will suffer gravely if, in the name of accomplishing such a
fundamental
transformation, it engages in undisciplined trade and financial ties with the PRC.

These ties could actually wind up perpetuating a regime in China unwilling genuinely to
open its
markets and bent on military and international activities highly inimical to U.S. security.

Frank J. Gaffney, Jr. held senior positions in the Reagan Defense Department. He is
president
of the Center for Security Policy in Washington, D.C.