China and the WTO: Teaching RI some lessons

Hans W. Vriens, Contributor, Jakarta

China and the WTO, Changing China, Changing World Trade By Supachai Panitchpakdi and Mark L. Clifford John Wiley & Sons (Asia) Pte Ltd, 2002 US$21.95

Since I moved from Hong Kong to Jakarta two years ago I have been struck by the extent to which developments in China are misunderstood in Indonesia.

Even respected analysts in Jakarta regularly ventilate ill- formed opinions like, "China is much more corrupt than Indonesia" or "China's economy is a mess similar to Indonesia's. As a result Beijing will never succeed in reforming its state-owned companies", and finally, "the court-system in China is just as corrupt as in Indonesia".

I would advise all those analysts to pack their bags and spend a few months in China or, second-best, read this recently published book. Written by Dr. Supachai Panitchpakdi, the incoming director-general of the World Trade Organization (WTO) and Mark L. Clifford, the Hong Kong-based Asia Editor for BusinessWeek, it is a must read for anybody who cares about the economic future of Indonesia.

For the rest of Asia, and Indonesia in particular, China's economic rise and its accession to the WTO should be a resounding wake-up call. To put it in perspective: No country in history has burst onto the world trading stage like China. It was less than a quarter-century ago, in December 1978 to be precise, that China's leaders first adopted their initial economic reform program of what was then a state-control-led economy.

Rising powers are inevitably disruptive to the existing order. China's rise to become an economic powerhouse promises to be very disruptive for Southeast Asia and Indonesia in particular.

A bellwether event for Indonesia will be the elimination of quotas on garments and textiles (the Agreement on Textiles and Clothing) at the end of 2004. A highly productive army of Chinese will be producing even more goods, more cheaply than ever before. World Bank studies show that Chinese apparel production is expected to nearly quadruple in the coming decade. The export numbers look even more staggering.

Its share of the total world export market will surge to more than 47 percent compared with 15 percent in 1997. In others words, nearly half of all exported clothing will be made in China in 10 years time. One will find the same kind of scary statistics in other sectors such as computers and electronics. Most toys are already produced in China.

One wonders what Indonesia's strategic plan is to deal with this potential onslaught on its labor-intensive industries like apparel and footwear. One wonders.

I have seen no proof that Indonesian policymakers are acting on what looks like a ticking economic time bomb. Rather the opposite. A 39 percent rise in the minimum wage and policies that make it very difficult and expensive to lay off staff seem designed to make the labor-intensive industries throw in the towel and run for the exit.

On top of that the introduction of regional autonomy has led in some places to a premanisasi of local politics -- that is rule by mafia-style corrupt local officials.

One of the few people in Indonesia who fully comprehends the disruptive rise of China is Secretary-General of the Association of Southeast Nations (ASEAN) Rodolfo Severino Jr. He has pushed ASEAN into introduction of the Asean Free Trade Area (AFTA) by its six original members. Although a brilliant move, Southeast Asia's weakness in education, questions about the consistency of its policies and the quality of its political leadership continue to be of concern to investors.

As a result China now dominates the investments flows, while Southeast Asia receives just a trickle. Twelve years ago it was exactly the opposite.

It is clear that China's WTO entry has not been a catalyst for reform in Indonesia to meet the China-challenge. Proof to what extent this phenomenon is misunderstood, was the speech delivered by President Megawati Soekarnoputri at the opening of the AFTA 2002 Symposium in Jakarta on Jan. 31. Instead of embracing AFTA as the best way to make the Indonesian economy more competitive, the President spoke about free trade as if were a zero-sum game and why Indonesia should be able to opt out of ASEAN free trade arrangements.

The last one to try this route was Fidel Castro, not really a forward-looking leader.

To come back to misunderstandings about China that I mentioned in the beginning, yes, there is corruption in China. However, Chinese leaders understand their legitimacy depends on rooting out corruption and achieving high economic growth. Proof of this is that none of the top leaders in China is corrupt. Neither are institutions like customs and the police.

A corrupt mayor like those who operate in Indonesia would have been arrested, put on trial and executed in China. And that all in one day. The Chinese government likes setting examples. Or as the Chinese say, "Kill the chicken to scare the monkeys".

True, China's state-owned sector still has a long way to go. Ironically that is one of the reasons the Chinese premier Zhu Rongji was so eager to join the WTO. Joining this rules-based international organization will put additional pressure on China to speed up its reforms.

True, the Chinese court system is far from perfect, but it too has come a long way. Foreign investors would not hesitate to start legal proceedings against a Chinese party. Compare this to Indonesia where foreign investors by definition lose in court because they cannot and will not participate an auction.

Perhaps the ultimate irony is to what extent the economic and political crisis in Indonesia has been studied in China. The conclusion in Beijing is that an economy based on crony- capitalism has to be avoided at all costs. That is a lesson Indonesia hasn't learned yet.

The reviewer is managing director of PT APCO Indonesia, a wholly owned subsidiary of APCO Worldwide, a Washington D.C.- based global public affairs (political risk and government relations) and strategic communications (high-level PR) firm.