The Wager of Engagement — Reform and Opening and the WTO

Beyond the door that Nixon’s handshake had opened, America saw one enormous question. How should it welcome this sleeping great power into the world economy? And once welcomed in, how would China change? What America eventually chose was a grand wager: the expectation that if it made China rich and wove it deeply into the workings of the world, prosperity would in time soften its politics as well and bring it closer to a freer, more open nation.

Yet for that wager to hold, China itself first had to open its door from within. And indeed, one small-statured leader turned a poor, closed-off nation to face the world. His name was Deng Xiaoping. The story of ‘the man who changed China’ begins here.

Black Cat or White Cat

In 1976, the father of the nation, Mao Zedong, passed from the world. In Mao’s era, China had been buffeted by repeated political movements, and its economy was utterly exhausted. The one who brought that chaos under control and seized real power as the new paramount leader was Deng Xiaoping.

In December 1978, at an important meeting of the Chinese Communist Party, Deng Xiaoping set forth a historic change of course. That was reform and opening. At home, market mechanisms would be taken in little by little; abroad, foreign capital and technology would be drawn in. Casting off the rigid ideology-first stance of the Mao era and placing the development of the economy above all else — it was a bold turn of the helm toward realism.

What symbolizes Deng Xiaoping’s philosophy is a well-known saying: whether it is a black cat or a white cat, the one that catches mice is a good cat. More than the argument over whether it was capitalism or socialism, what mattered was whether people could be made prosperous — a hard-headed resolve. To those who had lived through the long era of single-minded ideology, this realism was a fresh surprise.

He first set up special economic zones along the coast, neighboring Hong Kong, and invited in foreign enterprises. Seeking cheap labor and tax breaks, capital from Hong Kong and Taiwan, and eventually from all over the world, came flowing in. Special zones such as Shenzhen, lands that had originally been no more than small fishing and farming villages, transformed before one’s eyes into vast cities bristling with high-rises. That striking metamorphosis showed, in a form plain to every eye, the power of the wealth that reform and opening brought. The special zones were the detonator of China’s economy, and the laboratory in which a closed nation opened itself to the world.

The Train Heading South

But the road of reform was not level. In 1989, voices demanding democratization filled Tiananmen Square, and when they were suppressed by force, the world turned a stern gaze upon China. At home, too, the voices of conservatives grew louder — was the market economy not a return to capitalism? — and reform and opening fell, for a time, into a state of marking time.

At this point the eighty-seven-year-old Deng Xiaoping moved. At the start of 1992, he toured southern cities such as Shenzhen and Shanghai, powerfully calling for reform to continue. This was the famous Southern Tour. Development is the unshakable truth — these words of the old leader rekindled the reform that had begun to stall. China raised the distinctive banner of a ‘socialist market economy’ and stamped the accelerator of marketization all the way down.

The Workshop of the World, Joining the World

The crowning touch of reform and opening was accession to the World Trade Organization. The WTO is the mainstream of international society that sets the rules of trade. To join it meant that China would become a full member of the world economy.

After long and arduous negotiations, the greatest barrier was, as ever, the consent of America. In 2000, the US Congress passed a bill granting Permanent Normal Trade Relations (PNTR) with China. By this, the review of trade conditions with China that had been repeated almost every year was made permanent, and the door to China’s WTO accession was thrown wide open. And on December 11, 2001, China formally acceded to the WTO. It was the moment a nation holding a population of 1.3 billion was formally woven into the rules of world trade.

The momentum this accession brought to China’s economy was tremendous. With cheap and abundant labor as its weapon, China became the workshop of the world, assembling products for the whole globe. Enterprises from every nation vied to move their factories to China, and exports grew explosively. Eventually, around 2010, the scale of China’s economy overtook Japan’s and surged up to the world’s second seat, behind only America.

The Ideal of the Wager, and the Doubt That Took Root

Behind America’s backing of this whole flow lay a firm ideal. That was the engagement policy. Rather than isolating China and making it an enemy, welcome it as a companion in the world economy. If economic interdependence deepened, violent means such as war would no longer pay. And if a prosperous middle class grew, they would in time come to demand freedom and the rule of law — such expectations were the premise running through several American administrations.

The China that grew prosperous did, to be sure, raise the lives of its people. Yet one-party rule by the Communist Party, far from wavering, rather honed the techniques of governance. The scenario America believed in — that economic freedom would summon political freedom — did not proceed as had been reckoned. Whether the premise that ‘engage with China and it will change’ had truly been correct — that question would, in later years, provoke fierce debate within America.

And there was one more change that everyone had overlooked. The China that became the workshop of the world had not merely grown rich. Its vast productive power and economic scale were transforming into power itself in international society. In exchange for cheap goods, America’s manufacturing industry was hollowed out from its foundations, and the two economies grew so deeply entangled that they could no longer be pulled apart. Behind the honeymoon of sharing prosperity, the balance of power had begun, quietly but surely, to move.