Former U.S. Trade Representative Charlene Barshefsky discusses the significance of the WTO for China with host Daljit Dhaliwal.

Daljit Dhaliwal: Joining me now is Ambassador Charlene Barshefsky. As U.S. Trade Representative in the Clinton Administration, she negotiated the key trade agreement between the United States and China that paved the way for China’s entry into the World Trade Organization last November. Ambassador Charlene Barshefsky, welcome to WIDE ANGLE. Can I start by asking you to connect the dots in terms of what we saw in the film and how it might impact up here in the United States?

Charlene Barshefsky: Well, at its most basic level, of course, the United States is interested in China, for its economy and the importance of trade to the United States.

The U.S. is four percent of the world’s population. Ninety-six percent of the world doesn’t live here. But we hold about 20 percent of the world’s wealth. If we want to increase living standards in the United States, let alone maintain our current standard of living, we simply have to have access to the 96 percent of consumers who don’t live here. Where do they live? A fifth of the world lives in China. So on purely economic grounds, that market is extremely important to United States economic growth and to increasing our own standards of living.

But at a more fundamental level, when we look at China, what do we see? We see the world’s most populous nation. We see a nuclear power. We see a country with the world’s largest standing army. We see China as a permanent member of the United States Security Council. We see it increasing in strength as a regional leader in Asia, as a spokesman for developing countries generally. China has long been a presence but China is now a power. And as unthinkable as it would have been for the U.S. to ignore the Soviet Union, or to ignore Germany, or to ignore Japan, it is unthinkable for the United States, in terms of our own security, not just economic, but future security, to ignore China.

Daljit Dhaliwal: Now, you were pivotal in the WTO negotiations. Why was it important for the United States to be on board right from the beginning?

Charlene Barshefsky: They’re really three reasons we pursued WTO negotiations with China. The first, of course, was economic. The United States has an extraordinary trade deficit with China. The concern is not so much Chinese imports into the U.S., it is the very little amount of U.S. exports to China. China is still a relatively closed economy; our goal was to open it up. The second reason really has to do with China’s internal development. With or without WTO, China was long on a road of economic reform and market liberalization. We wanted to be on the side of that process, strengthening the hands of economic reformers and diminishing the powers of the hard-liners in China. And third, of course, is regional security and stability. China is of a scale almost unfathomable to Americans. If you took the population of all of North America, including the United States, and the population of all of South America, and the population of all of Europe, that’s China. If you look at all of the people on our globe, one in every eight is a Chinese farmer. It is critical to global stability, to stability in Asia, that China be brought into the community of nations. That it be subject to the rules and disciplines the major powers are subject to. And we, of course, wanted to assist in that important effort.

Dajit Dhaliwal: China has spent something like 15 years knocking on the door of the WTO. What does it actually mean now that it’s been accepted into this club?

Charlene Barshefsky: Well, for China, in terms of economic reform, it means that it will continue on the path it began actually 20 years ago. What WTO accession will do for China’s reform is probably to change some of the priorities of reform, making some reforms more urgent than others. But the reform process is one that began 20 years ago. I think for China, also being in the WTO means that it has greater predictability with its trading partners, and a way of resolving disputes that is legal. And this is a very important point, because, of course, strengthening the rule of law in China is a key goal.

Daljit Dhaliwal: When you were trying out the negotiations, did you ever feel that there was something of an air of desperation about the Chinese –that they were so keen and so eager to join?

Charlene Barshefsky: I don’t think there was an air of desperation or that they were over-eager. I thought, actually, they were very tough negotiators and took relatively measured positions on most issues. But I do think for China it was important to be in the tent, not outside the tent. I think it’s important for China and the Chinese leadership to help set the global rules of trade, not merely be subject to them at the whim of individual nations. And, of course, it was in our interest that China be subject to the rules, the same rules the other 144 major trading nations are subject to. So there was a mutuality of interest, and ultimately the negotiations came together, but not really until China was ready to imbed its economic reform program in rules that were enforceable internationally.

Daljit Dhaliwal: I just want to go back to our film a little bit. We saw some of the changes that you’ve talked about the ways in which the Chinese economy has been transformed beyond recognition over the past 20 years vis-a-vis the economic reforms that have been going on. Why do you think that suddenly the old way of doing things was no longer acceptable? Why did the Chinese leadership want to do away with the state owned industries, which had been serving them so well for so many years?

Charlene Barshefsky: Well, I think the general perception in China had been that state-owned industries were a positive force. And in their early years, perhaps so. But what we see is something very different today. We see a state-owned industry sector that produces about a third of the income of the country, but sucks in two-thirds of all the loans made in the country. Meaning that a lot of money, a lot of public finance, is going to support a state sector that isn’t producing that much for the economy, or certainly not as much as the money they’re taking out of the economy. That’s an extremely dangerous situation. It means money is frozen out of other needed priorities including creating a social security system and a social safety net. It means that productive businesses can’t get money. It means that the banking system becomes insolvent when state enterprises can’t repay the loans because they’re unproductive. So reform was absolutely critical. Critical also, if China is going to compete on a world stage. Most of the state enterprises are technology poor, management poor, don’t have the necessary expertise and sophistication to compete on a world scale. So both for financial solvency, but also for competitiveness, the Chinese have to modernize and that means, necessarily, they have to deal with a bloated and less productive state sector.

Daljit Dhaliwal: And did these changes take place across the board? Were there any areas which were unaffected by the changes?

Charlene Barshefsky: Changes have occurred, sometimes in piecemeal fashion. The area where change has been, I think, least progressive, is in the rural community. And I think your piece showed this very, very well. We see an agriculture sector in China that’s in dire straits. Why is that problematic? China has 900 million peasants. Nine hundred million people live in the rural area in China. But only 10 percent of China’s land is arable, suitable for farming. What do you do with 900 million people when only 10 percent of your land is farmable?

Daljit Dhaliwal: Indeed, what do you do with them? Was it a complete and total overhaul? Were there any sectors that were left untouched?

Charlene Barshefsky: Well, reform, for the most part, has tended to be sporadic here and there, covering certainly many sectors, although in the area of property rights and property ownership, there’s still substantial confusion. But the one area where we have seen, perhaps, less progress and less success is in the rural economy, both agricultural and industrial. China has 900 million peasants, but only 10 percent of China’s land is farmable. What do 900 million people do on that 10 percent of the landmass of the country? Plainly, they can’t all be farmers.

Daljit Dhaliwal: What is going to happen to those 900 million agricultural workers? What does the brave new world of the WTO mean for them? I mean, they were, after all, the pacesetters of the revolution.

Charlene Barshefsky: Well, you see some of that in your piece. You have a floating population from the rural centers to the urban centers. What needs to happen, of course, is that kind of transition in an orderly way. That is to say, the creation of jobs in the city for people who necessarily must leave the land, the land can’t support 900 million peasants, as well as improvement in the agricultural sector itself, movement toward labor intensive crops, not land intensive crops, rural credit, things of that nature. The China you see today looks very much on the basis of many indicators, like Korea in 1970 or Malaysia in 1980. If you look at life expectancy, infant mortality, percent of the population that’s rural rather than urban, you see Korea in 1970, Malaysia in 1980. And if you look now 30 years later at Korea, 20 years later at Malaysia, you have some sense of the potential direction of China and its reforms. And those reforms necessarily mean a movement from the rural areas and rural occupation to urban related occupation and increasingly urban areas.

Daljit Dhaliwal: But part of the problem is how do you manage the change. I mean, in an attempt to streamline the economy as a result of bringing forward the changes, what’s actually happened is that you’ve seen mass unemployment. Now, how is the Chinese leadership going to handle the huge problem partly which we have highlighted in our film, not just with the migrants who have moved into the city, but also, to some extent, with farmers as well?

Charlene Barshefsky: This is where economic reform becomes so critical. China has to manage this transition process, as you rightly point out. It needs money to do that, it needs sound domestic policies to do that. It means there has to be a social safety net. It means there has to be job growth in more urban centers. It means increases in housing, increases in education, all of the elements that make for increasing standards of living. And the biggest challenge facing the Chinese leadership is how to manage this transition from a largely rural and peasant society to an industrial society. This is very, very complicated. But we know at least two things. Number one, it takes money. And number two, it takes very sound policy management. If you look at Chinese policies today, you see fiscal policies that drastically favor the cities over the farms. Even though it’s the farmers who are putting in substantial funds into the overall tax structure of the country, they don’t get that money back. The money goes to the cities. That’s got to be rebalanced in an important way. So I think there are many different areas of policy that will have to change in China. But the biggest challenge will be managing this transition process so that it is not as destabilizing and occurs in a very orderly way.

Daljit Dhaliwal: But the problem is that it hasn’t occurred in a very orderly way because it hasn’t been managed especially well. And part of the problem may be that, as a result of joining the WTO unemployment was inevitable. That it was going to be a precondition of entry. What are your feelings on that?

Charlene Barshefsky: Well, unemployment was becoming a substantial problem long before the WTO. In other words, with or without the WTO, China is in a process of modernization that developing countries go through. And with or without WTO, modernization results, for some, in dislocation. In the case of China, because the country is so huge, the numbers we deal with are so huge, the potential for dislocation is equally huge. Perhaps not relative to the size of China’s population, at 1.3 billion people, but certainly in numbers to the American ear or to the European ear, the numbers are huge. They’re vast. This process, though, is inevitable. For countries attempting to modernize. Which is why the management of that modernization is so important, and you’re absolutely right, to date, the management of that process has been, perhaps, not as good as it could be.

Daljit Dhaliwal: But also, one of the other interesting things is that, when you look at the film, you see huge disparities in wealth and in lifestyle. Some clearly have a lot, and the vast majority is barely eking out a living. How do you explain that? Is that just down to sheer entrepreneurial spirit on the behalf of those who have everything? And what about the ones that don’t? What happened to them, where did they go wrong?

Charlene Barshefsky: Certainly you see increasing income inequality between the urban centers and the rural centers. Urban poverty rates in China are about two percent; rural poverty rates range from perhaps 20 to 34, 35 percent. So there are massive differences leading, of course, to substantial income inequality between the rural and urban populations. This is not unique to China. The most income unequal country in the world is certainly not China. It’s Brazil. China’s income inequality is not so drastically different from the United States. So this is not a problem unique to China. But what is unique to China is the scale of the problem, because of China’s sheer size. As well as this persistent policy of having always favored city development over rural development. And that has got to be smoothed out.

Daljit Dhaliwal: So how is the Chinese leadership, if I can just come back to this again, how are they going to try and narrow the gap?

Charlene Barshefsky: I think they are probably four or five areas of concentration for them. One is, of course, financial sector reform. Money is a finite resource. You have to put it to best use. And in the case of China, an element of best use is creating a social security system -medical care, pensions, unemployment, so on and so forth.

Daljit Dhaliwal: And to what extent has that been developed? Because there are many, many workers in China who don’t have that safety net.

Charlene Barshefsky: You see some indications of sort of a rudimentary social safety net system beginning. But this is very rudimentary, it is not countrywide. It is under-funded. It is under-administered. So this is an area of great importance. We saw during the Asian financial crisis, take Korea, a developed country, we saw that in the case of many Asian nations, there is no social security system at all because the notion was lifetime employment. Your employer was your security. But absent lifetime employment, even Korea had no unemployment insurance. It had none of the elements that Americans tend to take for granted. And so Korea had to go about and create that system. China is so far behind in that area, but it’s going to need to catch up. So certainly one area of concentration for the leadership would be financial sector reform. A second area, for the reasons we’ve already discussed, would be reform of the state enterprises. Third, of course, the rural development, agriculture reform as well as other changes in the rural environment, to make the rural economy mesh better with the urban economy so it’s not so fragmented and separate and apart. And then two other areas -corruption, which is a huge problem in China, including among the state-owned enterprises, and development of a rule of law.

Daljit Dhaliwal: And has the issue of corruption actually exacerbated the problems between the haves and the have-nots who are very clearly illustrated in our film, with the woman who’s a real estate developer, and people who are eking out a living, cutting logs? How are some able to achieve and others aren’t? I mean, is it still very much a situation of greasing the right palms in China?

Charlene Barshefsky: Well, yes and no. I mean, I can’t comment on any individual case. But one of the things you do see is an extraordinarily flexible population. You see highly motivated individuals. They want a better education. I was completely taken in your piece by the children learning English, by the teenager, perhaps a teenager, who wanted to be a lawyer, she wanted to go to Harvard. This is extraordinary to me, absolutely extraordinary to me. It really points to perhaps the most positive direction in China. And that is, as we see, the teaching of English. So looking toward the West, whether to Europe or the United States, but looking towards the West as, perhaps, something to be emulated. The motivation of these kids was really quite astonishing. But we do know in the rural area, poverty rates have increased. And we know that the biggest problem is wage arrears and illegal taxation, quite apart from what the state does the illegal taxation of the peasant population, often by corrupt officials. This is a huge problem. It is destabilizing to the rural population. It is what led the Ministry of State Security, about a year or two ago, to report almost 200,000 incidents of labor unrest in the rural population. This kind of illegal exaction of taxes and over taxation of the rural population is extremely dangerous for China.

Daljit Dhaliwal: But the labor unrest isn’t just a question about illegal taxation. It’s also a question about people who have expectations about what their life is going to be about, that they were going to be taken care of from cradle to grave.

Charlene Barshefsky: Yes.

Daljit Dhaliwal: Where does this leave China in terms of its stability, and what does that mean, as a consequence, for the WTO and anybody who chooses to trade with China, the United States being a perfect example?

Charlene Barshefsky: Right. It is very important for the U.S. to see stable China. A disintegrating China is nothing other than a sea of massive instability in Asia. And if you look at the last half-century, we fought three wars in Asia. So it’s very important to see stable China. And it is very important for China to get its economic house in order as a basis for that stability. In the U.S. view, in our view, the WTO accession was one element of, perhaps, a broader program of engagement with China, of trying to nudge China in the right direction on economic reform as well as other forms of reform. One of the reasons we put into the WTO agreement with China very substantial transition periods – nothing happens right away under WTO – there are long transition periods for the opening, gradually, of China’s economy, was because we didn’t want to be destabilizing in any way. Reform was occurring, sporadic, sometimes very dramatic in nature. WTO accession should actually help to even out that process somewhat and keep China moving in the right direction economically. And by right direction I mean a more open, a more fluid environment for China’s people. But not in a way to shock the system. As many previous reforms had been. So this was one of the bases on which we structured the WTO agreement, and that was to give China time and to make the transition as smooth as possible, recognizing, if we look again at Korea or Malaysia, this transition is very difficult. We see it in our own history in the United States, moving from the land and farms to urban centers and industry. This is a wrenching, wrenching transition for any country, for most countries. And for China, given its scale, all the more so.

Daljit Dhaliwal: The Chinese premier, Zhu Rongji, said an interesting thing, and I’ll just read it to you very quickly. “Everybody’s happy about entry to the WTO, but I’m not that elated, because I’m worried.” Now, could the disadvantages outweigh the advantages if the situation isn’t handled properly?

Charlene Barshefsky: Certainly I think he’s reflecting a general concern that China be able to manage the process of economic modernization well. And I think Zhu Rongji is pointing out the fact that China has not always been that successful in managing that process. He is certainly concerned about unrest in the rural community, labor unrest, unrest among farmers. He’s concerned about job creation in the cities, not only for the urban population, but for this floating population of people who come from rural areas into the cities. And he’s worried about not just keeping pace, but also of creating additional economic growth, and new jobs for new entrants into the labor market, which number in the tens of millions every year. So the task is very, very large. I think that WTO entry is one more challenge in a series of challenges that the Chinese economy faces, but even without WTO, the economy would be facing all of these extraordinary challenges.

Daljit Dhaliwal: But if the economic situation doesn’t get any better, and China has to apply the brakes to its reforms, are you worried that it could actually pull out of its WTO commitments, where would that leave everybody?

Charlene Barshefsky: I don’t think it will pull out. I can see instances where China might not comply with a given obligation or where China attempts to slow its rate of compliance with obligations, not to breach them, but to slow it down.

Daljit Dhaliwal: Are they doing it already?

Charlene Barshefsky: A little bit, in some areas. We see this a little bit in agriculture, clearly because of a concern about additional rural dislocation. So I think we’ll see some of that. But will China wholesale pull out of the WTO? I don’t see that at all.

Daljit Dhaliwal: So what is the new contract that the Chinese government has with the Chinese people, if the old one has been torn up, what has it been replaced by?

Charlene Barshefsky: I don’t think we know. And I don’t think …

Daljit Dhaliwal: That’s terrifying.

Charlene Barshefsky: Well, I don’t think the Chinese know. They believe they’re moving toward a more market-oriented economy, a more competitive economy. They believe they’re moving toward greater individual autonomy with respect to job decisions, decisions about education, with respect to where one wishes to live in the country. I think they are moving toward a basis for sustainable economic growth, and I think they are looking for a way to leapfrog development – to absorb technology at a very high rate so as to leapfrog this typically very lengthy development process. Shorten it, and make it, perhaps, less painful in the long run, if not in the short run.

Daljit Dhaliwal: Well, when you were negotiating with your Chinese counterpart, did you ever get a sense of how far they were prepared to go to achieve reform? I mean, did they realize then the sacrifices that the Chinese people would have to make, and if they had known that, would they have taken a slightly different route? Did they have any choices?

Charlene Barshefsky: I think they were well aware of the potential sacrifices. I think the leadership made a series of very difficult economic decisions much as the U.S. in the 1980s made some very difficult economic decisions which were terribly dislocating in our own country. And I think there’s something further. That is, there is, to some extent, a tradeoff – between, on the one hand, the leadership wanting to modernize and liberalize the economy and on the other hand, the state retaining iron clad control. There’s a tradeoff there, too. That ironclad control gets breached. And I think the leadership knows that as well.

Daljit Dhaliwal: Okay, so here we have China, a country that is going through sweeping and painful changes. But there’s a lucrative market out there for American business. What should they be doing to seize the opportunity?

Charlene Barshefsky: Sell. (Laughs)

Daljit Dhaliwal: Everything?

Charlene Barshefsky: American businesses operate best in a stable legal environment. That makes China tough. On the other hand, we see U.S. exports to China, even though the base is small, increasing more rapidly than our exports anywhere else in the world. Agricultural producers in the U.S. are taking advantage of a little bit more open Chinese market for agriculture.

Daljit Dhaliwal: Well, what are they exporting? I mean, are we going to be exporting everything from oranges in California to cars made in Detroit and the Chinese consumer is going to be lapping it all up?

Charlene Barshefsky: Absolutely. Before WTO entry, we sent about 20,000 kilos of oranges a year to China – largely through Hong Kong. Now we send 300,000 kilos of oranges from California – as well as wheat, soybeans, corn …

Daljit Dhaliwal: Rice?

Charlene Barshefsky: Rice is certainly allowed. I don’t know offhand if we’re exporting much rice. But certainly China will remain, even if it has bumper crops in a given year, it will remain in that agricultural importer because it has so little land, for agriculture. But for the U.S. agriculture, anything technology related, computers, cell phones, anything of that nature, those are important areas. Our services providers, our financial services providers, insurance services, architecture, construction, engineering are tremendous opportunities.

Daljit Dhaliwal: But what kind of companies are we talking about and what kind of jobs will this create in what states in the U.S.?

Charlene Barshefsky: I don’t know which states, but the way we structured the WTO agreement, we had our eye on the company that wanted to export to China from the U.S. We did not have our eye as much on companies that had the wherewithal to invest in China, because if they’re able to invest in China, they’ll do that on their own. We were more concerned about companies on shore in the United States, who would like to export to China, but couldn’t get into the market either because of Chinese middlemen, who prevented them from getting in, or because the Chinese economy was so restricted, it was too expensive to get in. And many of the barriers that had come down on WTO accession earlier on, are those that relate to export oriented industries from the United States, whether in the consumer goods sector or capital goods sector or heavy electrical equipment, things of that sort.

Daljit Dhaliwal: So it really was a brilliant deal for the United States, but not such an excellent deal for the Chinese?

Charlene Barshefsky: I think it’s a good deal all around. In other words, the process of economic modernization is not an easy process. And as I said earlier, when you compound that with the scale of China and the hundreds of millions of people affected, this is very, very difficult. But surely, our economic policy toward China can’t be based on the notion that China’s 900 million peasants should remain peasants. So for the United States, the growth of China, increases in stability in China, is important, and we want to be sure that that happens in a way that is sustainable for the Chinese. It’s very, very difficult, but I think the deal itself is pretty much a win-win. It helps China’s reformers cement reform in an orderly way, in a more methodical way, and hopefully a less disruptive way. It weakens the ability of hard-liners to pull China back. We don’t want to see China go backward. We certainly don’t want to see China isolate itself from the global community. If we look at China’s modern history, those are the periods of greatest repression.

Daljit Dhaliwal: How is the WTO going to deliver all of that? I mean, that is a pretty tall order.

Charlene Barshefsky: Oh, I don’t think WTO alone delivers it. But WTO is one facet of what’s a broader relationship between China and the West and between China and her neighbors. But as a win for China, WTO, I think, assists in that reform effort in an orderly way. And as a win for the United States, WTO, among other things, helps to provide to American exporters and American companies a market that had been closed and isolated.

Daljit Dhaliwal: You say it’s a win-win situation, okay, we have this vast market with over a billion Chinese consumers. But what kind of real spending power do they have? I mean, we saw in our film the huge disparities between the haves and the have-nots who are just barely eking out a living.

Charlene Barshefsky: Right.

Daljit Dhaliwal: Earning something like, what, 35 to 40 cents a day?

Charlene Barshefsky: Right.

Daljit Dhaliwal: Where is this huge market?

Charlene Barshefsky: Well, I don’t think that huge market is there yet. I think the world has waited for this huge market since Marco Polo. That’s a long time to wait. But what we do see is an emerging urban population that is very large and reasonably well off. China’s urban population, just the urban population, is the size of the United States. Add the 900 million peasants, and you get all of China. But the urban population alone is very large. You’re talking 280 or 300 million people. They have money to spend and over time, will have more money to spend. And with perhaps better income distribution over time, we will see China become increasingly a larger and larger customer. China is already a critical customer for its Asian nations, buying more goods from its Asian neighbors than Japan, which is a far wealthier country, one of the richest in the world. We see China becoming a more important market for the Europeans, as well as for the United States. We’re all able to sell there because China’s richer today than it was 10 years ago. And 10 years from now, it’ll be richer still. Is it going to be a massive market instantaneously? Absolutely not.

Daljit Dhaliwal: Do we have a time scale, do we know how long it will take?

Charlene Barshefsky: I think we’re talking generations – at least one, perhaps two. Economies don’t change that fast. Growth doesn’t happen that fast. Distribution of income on a more equitable basis doesn’t happen that fast. We have to look at China at this point as simply one stop on a continuum. Just as Korea in 1970 doesn’t look anything like the Korea of today. China is right there at that point. And it’ll continue to move. The real test of China’s reform process, of WTO, of China’s relationships with its neighbors, in Asia in particular, the real test of success will be to look back, not a year from now, not two years, but 10. And then 10 again. And then 10 again.

Daljit Dhaliwal: So what kind of advice would you give to Americans who were looking to go into China and set up businesses there? Do you think that there’s some kind of criteria that they need to fulfill?

Charlene Barshefsky: I think businesses that set up anywhere abroad have to always be cautious. Look at the market, look at the requirements of the market. Look at the experience of other businesses that have set up. Look at the legal structure. Look at the political stability and political risk. There are any one of a number of factors, all of which pertain to China. What gives China a special allure for most businesses is the market size, but that alone, also for most businesses, is rarely enough, and most make these decisions on the basis of a variety of factors, and that’s exactly right. That is to say, to go in just on the basis that there’s over a billion people, but to have no system of contract, no system of law, to have no infrastructure to get your product to market, well, you haven’t made a very good deal for yourself. So it’s a question of looking at all of the factors, knowing where to locate, in what areas of China, knowing who your customer market is. Who is it that you’re trying to serve? Is that realistic? Are those people as per your last question able to buy? Do they have the money? Can the government be of assistance to you, or will they be a hindrance to your operation? All of those things have to be looked at carefully and scoped out well before one would be advised to put an investment in China.

Daljit Dhaliwal: As far as American businesses go, in the short term, which has already benefited as a result of doing business with China? We know about the example of the orange growers. Are there other examples that you can give us?

Charlene Barshefsky: Certainly among the larger companies, whether banks or insurance companies, they have already begun to benefit. If we look at our high tech sector, both large and small specialty companies have benefited because China is in such need of mid-level technology goods, PC related, net related. And there you see a real good mix of large and small companies, some who operate in China, many that operate from the United States to China. Those would be two sets of examples.

Daljit Dhaliwal: And I also wanted to develop the idea about the contract that the Chinese leadership has with the Chinese people. What are your thoughts on that? What is the new contract?

Charlene Barshefsky: I think we don’t know what the new contract is. Certainly the Chinese leadership looks on its relationship with the people as one where providing economic growth is the foundation, one where modernization is key to raised living standards. I think it looks on its contract as being complicated by, on occasion, lack of adequate funding and lack of adequate management expertise.

Daljit Dhaliwal: Do you think that the Chinese people are aware of whatever this new contract is, if there isn’t one in place?

Charlene Barshefsky: I don’t think so. I mean, one has to keep in mind …

Daljit Dhaliwal: Does that worry you?

Charlene Barshefsky: No, I think this is more an evolutionary process. I don’t think that China, which wants to move from a command and control economy toward a market economy, and it’s been trying to do that now for 20 years, and it will take many, many, many more years for that to happen. I don’t think China is in a position to necessarily call that contract by any given name, or any given type. Except that the regime knows that its legitimacy rests largely on a foundation of economic growth and economic improvement for its people. And that’s the motivating force. That will be a constant. The question is how best to achieve that growth and how can that growth be spread through the country so that China remains internally stable.

Daljit Dhaliwal: I just wanted to come back to the question of American jobs. Some of the labor unions said that American companies would shut down at home and they would just move abroad to China because it was a lot cheaper for them to operate out there. What are your feelings on that?

Charlene Barshefsky: Certainly American companies, long before WTO, could move operations to China. China’s always been quite welcoming, certainly in recent years very welcoming of foreign inward investment, and it soaks in more foreign inward investment than any other country other than the United States.

Daljit Dhaliwal: So that’s something that you would encourage?

Charlene Barshefksy: No. All I’m saying is that China has long welcomed that inward investment. So companies have always had the option to do that. I mean, labor was concerned, of course, about any attendant U.S. job loss, but it’s very difficult to know what companies would do because of WTO versus what they were, in any event, able to do, and wanted to do, given China’s size and its prominence in Asia.

Daljit Dhaliwal: Well, there were some figures that came up for job losses in the United States and the figure that I’ve managed to sort of glean has been 800,000 over the next few years. What do you make of those figures?

Charlene Barshefsky: Oh, I don’t think those figures are supportable at all. I didn’t think they were at the time of the debate. Bare in mind, WTO opens the China market. It doesn’t alter the U.S. market. It doesn’t alter conditions of trade for people in the United States vis-a-vis imports into the United States. Indeed, the WTO agreement protects the U.S. market. We were very conscious of putting in certain protections, lest Chinese exports surge into the United States. Protections for the U.S. and U.S. workers that didn’t exist before. Since 1972 when Richard Nixon went to China, we’ve been saying to China, “Open. Integrate more with the West. Move in our direction. Don’t remain isolated.” Now when China says, “Okay,” should we have turned our back and said, “No?” It’s unthinkable.

Daljit Dhaliwal: Well, one of the problems with that, perhaps, is that we know that China has an appalling human rights record. I know that you’re very much in favor of engaging China. Is that just economically, or did the aspect of the political engagement come up as well?

Charlene Barshefsky: Well, my job was economic in nature. But one of the reasons I said that WTO was only one facet of a larger picture and a larger means of nudging China in the right direction is that programs, with respect to human rights, religious freedom, worker freedoms, are terribly important. The United States must stand firm on the importance of improvements in all of those areas. This has to be a critical feature of our engagement with China.

Daljit Dhaliwal: There are no guarantees that economic changes are going to bring about democracy in China and that China is going to release its dissidents. I mean, that is speculation.

Charlene Barshefsky: No that is absolutely speculation. I’ve always been cautious about claims that economic opening leads to democracy. But I’ll tell you this, if there is a means of moving China, maybe not to democracy, but to greater political pluralism, if there is a means, it will be economic in nature. It won’t come from the political side it will come from engagement, economic engagement with the West. The beginning of Western values in China -the net, and telecom market opening from WTO, where the average Chinese person can get online and get information from anywhere in the world.

Daljit Dhaliwal: But the Chinese government is actually trying to suppress that in some respects.

Charlene Barshefsky: Oh, good luck, good luck. The technology will win on that one. My only point is, if we’re to have a hope of not sameness for China with the West, but greater compatibility in economic and political system with the West, it’ll come first through economic engagement because that’s the form of engagement most dear to the hearts of the average Chinese. They want better lives. And it is the form of engagement most important to the Chinese regime because its legitimacy derives from economic success. And once that economic door’s open, and once that information flow, particularly through modern telecom, comes in, and there’s exchange then you may have, and no one knows, but you may have the basis for a further opening of the political system.

Daljit Dhaliwal: It sounds like you’re almost predicting the death knoll of communism there.

Charlene Barshefsky: No, I would never I would never suppose I know the outcome. Jonathan Spence, who’s probably the leading U.S. historian on China, has a wonderful book where he talks about everyone’s intentions for China, everyone’s designs. And he talks about the Jesuit missionaries. And he talks about the Common Turn agents. And he talks about all of the people, Europe as well, all of the people who thought that they could direct change in China.

Daljit Dhaliwal: But that must be a wonderful American ideal, isn’t it?

Charlene Barshefksy: Ah, but they all found that, while they might be able to set certain events in motion, they could never predict the outcome.

Daljit Dhaliwal: That’s up to the Chinese people.

Charlene Barshefsky: It’s up to the Chinese people. I think former President Clinton used to say it exactly right, that is, we can’t make choices for the Chinese people, but what we can do is to try and increase the number of options available from which to choose. That’s the role of the United States in this process with China. If we can help to expand the number of options available to people, the number of choices, they will choose whatever it is they decide to choose. But I think we will have contributed to a further opening of this vast country.

Daljit Dhaliwal: How much of a threat could an unstable China pose to its neighbors, and also to the international community?

Charlene Barshefsky: A disintegrating China would clearly be of substantial concern to the international community and to the regional community. Economically, of course, for the region, China has become a major importer of goods. If it’s unstable internally, that may lead to economic decline in the region. If we look broader, we see China, the world’s largest standing army, a nuclear power. Look at who its neighbors are – India, a nuclear power, Pakistan, a nuclear power and its third neighbor, Russia, a nuclear power. We don’t want to see instability in that region let alone instability in the world’s most populous country in that region. It’s extremely dangerous for the United States and for the world at large.

Daljit Dhaliwal: And also the ongoing situation in Taiwan, as well, would be of tremendous concern to the United States.

Charlene Barshefsky: Absolutely, which is why the United States has always insisted on a peaceful resolution of the discussions between Taiwan and China with respect to Taiwan’s position and the One China policy. Peaceful resolution is critical because, again, any additional instability in that region, particularly involving China, can have horrific global consequence.

Daljit Dhaliwal: Ambassador Charlene Barshefsky, thank you very much for joining us here on “Wide Angle.”

Charlene Barshefsky: It’s been my pleasure.