After economic growth, China's new ideology - The WTO-column

Over the past year China's relationship with foreign investors has changed substantially, a change that is most likely going to dominate much of 2007 too. Drums have been sounding on the new draft labor law. Rumors on the end of the preferential tax treatment for foreign companies are as old as the rules itself, but seem now more serious than ever. New restrictions on foreign investments have delayed a great number of projects. The unionisation of Wal-Mart came for everybody as a surprise. While it is unclear what real effect each of those measures might have, they do signal a new direction, call it ideology, of the current government.

Foreign business representatives have been sounding the alarm bells for each of those measures, saying it might hurt China's economic growth. That might be an indication they are missing some important changes and sending the wrong messages. If those new directions have on thing is common, it is the abolishment of economic growth as the first and only mantra of China's economic doctrine. The central government - much less provincial and local ones - has been rather unsuccessful in pulling the brakes on its economic growth and might want to introduce some measures that would help them to fulfill that task.

China still needs its economic growth. There are still millions of jobs needed for the ongoing economic reform. Economic growth is the way for the government to keep its people happy, so, anything too drastic might be delayed and not make it as a formal proposal to the National People's Congress in March. But the time that China allowed economic growth at almost any costs might be over.

When one sentiment might overtake the eagerness to make money, at least for a short while, it is nationalism. Patriotism can be a powerful instrument, at least until the next payday. Many of China's current leaders still know from their own experience how devastating it can be when the street takes over the government, but it is unsure whether everybody will draw the same lessons from China's recent history.

Foreign companies are more vulnerable when they are being accused of ramp-sacking Chinese assets, not sticking to China's labor law or hurting Chinese dignity in general. Of course, they can complain about the lack of a level playing field in China, and that might go well with their constituencies in the US, Europe or Japan, but does not help in China.

Of course, China is going to be an international player, heading for the Olympic Games in Beijing in 2008 and the World Expo in 2010. But also here, you might see an ongoing ambivalence between nationalism and internationalism. China has been in general a winner in the globalization game, but for foreign players in China goes that they should realize the tricky position both the government and they are in. Giving the wrong signals at the wrong time might go awry when you do not hear the new tune.

Fons Tuinstra