Why China Is a Paper Tiger.(entry into World Trade Organization)(Brief Article)

Alone among developing nations, China commands attention and awe. The country is feared for its military might. It also alarms the world, and Asia much more, because of its growing economic and trade clout.

True, the fabled "China market" has long been a holy grail for foreign investors and exporters. But China's exports are another matter. They inspire as much fear as Japan's did in the 1930s, when an explosion of cheap products like hurricane lanterns and $1 blouses provoked a slew of quantitative restrictions on Japanese exports and led to charges of a looming "yellow peril." China's size and rapid growth have deepened the sense that the People's Republic will inevitably draw market share and direct foreign investment away from its neighbors. According to this line of reasoning, the country's recent entry into the World Trade Organization will only fuel Chinese exports and compound the difficulties of its rivals.

The thing about fear, as the Russian proverb goes, is that it has big eyes. These worries are hardly justified, however, if one only looks clearly at them. There are several reasons to be more comfortable about China's rise than the doomsayers would have us believe.

First, China's WTO entry is almost exclusively a matter of improving access to China's markets, not enhancing Chinese access to other markets. True, Beijing will be better insulated against antidumping actions and the arbitrary imposition of safeguards against its exports. But China has shown no indication that its exporting muscle has ever been inhibited by the threat of such actions. There is no reason, therefore, to believe that Chinese exports will grow by greater leaps and bounds than they would otherwise just because of WTO entry. Remember also that, unless Beijing begins to pile up foreign-exchange reserves, increased exports will imply a matching increase in imports.

But what could one possibly export to such a powerhouse, a nation that can seemingly produce everything? Trade develops in numerous ways that we cannot really predict. Take just two examples. As countries move upscale they tend, in a phenomenon that economists call "ladders of comparative advantage," to make room for others below in less sophisticated products. Thus, in the 1970s Japan's economic success prompted it to withdraw from exporting labor-intensive products, which then were taken over by the four tiger economies--Hong Kong, Singapore, Taiwan and South Korea. Chinese exports, thanks to their dramatic growth in the ...