China faces wrenching changes after winning WTO membership

BEIJING -- They've had years to prepare, but China's companies, farmers and industrial workers face wrenching changes once they enter the free-market World Trade Organization, letting loose a flood of imports and foreign competition.

Foreign companies were exultant Tuesday after a WTO panel cleared the way for China to join after 15 years of negotiations. Its membership terms require Beijing to ease barriers to imports and foreign investment in Chinese firms.

China's manufacturers fill store shelves worldwide with appliances, sporting goods and other low-cost products. But two-thirds of its 1.26 billion people live in the countryside, where the impact of cheaper farm goods from abroad could be devastating.

Millions of people working on inefficient, labor-intensive farms are expected to be thrown out of work. Beijing has kept prices paid for their crops artificially high to shift money to the countryside and reduce unrest over rural poverty.

"Even at present prices, farmers in China can hardly survive. I can't imagine how far the prices will fall" after WTO entry, said Zhou Jianming, president of the Henan Jinxiang Wheat Group, a flour processor in the central city of Zhengzhou with 400 employees.

Wheat prices plunged

After recent subsidy cuts, Zhou said, Chinese wheat prices have plunged to $135 per ton -- equal to the current price of Canadian wheat, but an all-time low for China.

Food processing companies in the farming heartland may have to close and move to the coast, closer to supplies of cheaper foreign ingredients, Zhou said.

Other big losers are expected to be state industries that are saddled with debt, pensions and old technology. They have laid off millions of employees in a struggle to make profits.

Winners should include foreign importers, Chinese entrepreneurs and high-tech companies. The outcome could be a radically different China in coming decades, with a bigger private economy and leaner, profitable state companies.

"Winners will be those industries which open themselves up to the marketplace earlier rather than later. It's already proven here in China that the industries that were opened earliest, such as hotels and consumer goods, have been most successful," said Patrick Powers, director of China operations for the U.S.-China Business Council, which represents 225 American companies.

May spur political reform

WTO membership also could increase pressure on the communist government to allow political reform, said Cao Siyuan, a Chinese business consultant and prominent advocate of freer markets.

"By joining WTO and pushing ahead with reform and opening up, the urgency of political reform will become increasingly evident," Cao said. "In the end, political reform will have to suit economic reform and catch up."

The decision by the panel in Geneva on Monday opens the way for China to be formally approved for membership at a meeting of trade ministers planned in November. The two would likely become full WTO members early next year.

Membership in WTO will give Beijing more reliable access to markets for its $200 billion a year in exports. Other WTO members would have to submit trade disputes to a referee panel instead of imposing unilateral measures.