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Another article, this one focusing on China's economy. Note the indication that China's accession to the WTO is expected next year:

Persuading the reluctant spenders
Aug 23rd 2001 / BEIJING
From The Economist print edition

http://www.economist.com/World/asia/displayStory.cfm?Story_ID=749019

As its exports fall, China is trying to boost its domestic economy

Reuters

THE figures appear impressive. Officials proclaim that China really has turned the corner after several years of declining growth. Growth is widely predicted to reach 7.5-8% this year. That may be down a fraction from last year's 8%, but it would still be remarkably healthy for a country suffering from a sharp contraction in its export growth as a result of the global slowdown. Indeed, some Chinese economists are predicting that, for the next two or three years, the country will enjoy an unusually stable period of sustained high growth coupled with low inflation.

There is more good news. China's accession to the World Trade Organisation (WTO), likely to happen next year, may bring in another surge of foreign investment, which already is greater than in any other developing country. In the first half of this year, contracted foreign investment soared by nearly 40% compared with the same period a year ago. Officials say China's successful bid to stage the Olympic Games in 2008 will stimulate industries ranging from tourism to construction, adding as much as 0.3 percentage points to China's annual GDP growth.

Government statistics based on surveys of residents in big Chinese cities suggest that consumers are gradually becoming more confident. China desperately needs such confidence. As export growth slows (exports are likely to grow by a mere 5-8% this year, down from nearly 28% last year), domestic demand is becoming all the more crucial. But if there is a “feel good” factor at work, its effects are patchy. On the positive side, retail sales of consumer goods rose by 10.3% in the first six months of this year, slightly higher than the 9.7% growth of last year. But this is only a moderate spending spree by Chinese standards. Nor is China completely out of the deflationary woods. Consumer prices rose by 1.5% in July compared with 0.3% in the whole of last year. But prices of clothing, household appliances, transport and communication continued to drop.

The sell-off of state-owned housing in recent years and large-scale construction of new apartments has encouraged some affluent Chinese to buy homes and spend money on furnishing and decorating. But consumers generally remain cautious about purchases, big or small. Some 70% of urban workers are employed by the state. At a time of civil-service cuts and closures of state enterprises, these people are not eager to spend with abandon.

China's GDP growth figures may look strong, but they are not matched by a corresponding sense of well-being and security among ordinary citizens. A favourite, and reasonable, complaint of urban residents is that an increasingly disproportionate amount of the country's new wealth is lining the pockets of a privileged few. Many are afraid that WTO membership will throw more out of work, particularly in the inefficient state sector.

Even growth of 7-8% is not enough to cope with China's fast-rising unemployment. The urban rate is officially put at about 3%, but most experts agree it is at least 8%. Rural underemployment is around 30%. This week, the prime minister, Zhu Rongji, said the economy, though still expanding, was in need of a boost. He did not say what the government had in mind, but those close to him indicated that civil servants might be in for a pay rise, there would be easier credit and more incentives for exporters.

In reality, China's growth, though definitely positive, may well be lower than the official figure, given the propensity of local authorities to exaggerate. Moreover, despite GDP growth in the first six months of 7.9%, the increase in the value of industrial production slowed month after month between February and July, from 19% to just over 8% compared with the same months a year ago. Slackening external demand is at least partly to blame.

For the past three or four years, the government has been stimulating domestic demand through massive spending on housing construction and other infrastructure. But this cannot go on forever without incurring unsustainably high debt. Some Chinese economists argue that spending levels will have to be scaled down within a couple of years. The budget deficit is already ballooning. In addition, the government is struggling with the hidden costs of propping up a banking system plagued by bad debts incurred by politically inspired loans to bankrupt state firms.

What then of rural China as an engine of growth? This is where some 70% of Chinese live. Chinese officials realise that maintaining high levels of growth over the long term will depend on the rural market. But in the countryside, the prospects are far from rosy. The average cash incomes of rural households are about the same as they were five years ago, while taxes have been soaring. Membership of the WTO will be a further blow to the farmers as China opens its doors wider to agricultural imports. In the villages, retail sales in the first half of this year rose 7.4%, compared with 11.6% in the cities.

China needs to generate and distribute wealth more effectively, and to keep its labour costs low by letting its rural population find work freely in urban areas. But it remains fearful of what might happen if it scraps Mao-era restrictions on internal migration. Its cities do not have the infrastructure and services to cope with a massive influx of job seekers. The tens of millions of rural dwellers who have found (or are looking for) work in towns and cities are already a huge burden. China is fortunate to enjoy high growth. Even a moderate downturn could cause an employment crisis with far-reaching social and political consequences.