Chinese elites realize the costs of WTO membership. Bureaucratic fiat must give way to a transparent legal system, which is consistently applied and does not discriminate against foreigners. With the reduction or elimination of tariffs, non-tariff barriers, and other protectionist measures, China's industrial, agricultural, financial, and service sectors will be thrust into a highly competitive global marketplace. Its Darwinian effects will force the closure of many state-owned enterprises (SOEs), thus ruining the livelihood of millions of workers and intensifying social unrest.
Yet it is precisely these dangerous' transaction costs' that are perhaps most valued by elites promoting a long-term modernization agenda. Stymied by conservative elites, bureaucracies, and regional interest groups over the past several years, reformist leaders such as Premier Zhu Rongji hope to use the economic crisis created by international competition to merge, privatize, or close China’s 75,000 state-owned enterprises. While retaining control over enterprises related to national security and the state’s ability to guide development, China’s reformist elites aim to marketize the economy fully. In essence, international competition will enable changes that the current leadership is unable to realize.
