Chinese Takeout

April 11, 2007 • Commentary
This article appeared in the National Review on April 11, 2007.

While the U.S. Congress practices protectionism, and the White House acquiesces, China continues to move toward a market‐​liberal economy. The passage of the new property law on March 16 by the National People’s Congress is another positive step in China’s transition from plan to market. China’s moves toward economic freedom are real, and Congress should respond by keeping trade doors open, not implementing punitive tariffs that hurt both sides.

Washington’s insistence on retaliating against China for undervaluing its currency, dumping cheap goods onto U.S. markets, and for subsidizing exports implies that China is an enemy to be retaliated against. But does anyone seriously believe that U.S. consumers are worse off if goods can be imported more cheaply than they can be produced at home? Imposing tariffs on China harms U.S. consumers and industrial users of imported products; it is an act of economic suicide.

Threatening to rescind normal trade relations with China by an act of Congress, as Sen. Byron Dorgan (D., N.D.) has proposed, would be a very foolish act. It would also violate WTO rules. Likewise, the U.S. Department of Commerce’s decision to reverse its long‐​standing policy and to impose countervailing duties on Chinese companies, even though the DOC still classifies China as a “non‐​market economy,” will open a Pandora’s box and fuel protectionist sentiment on Capitol Hill.

In its haste to penalize China, Congress is diverting attention away from the constructive actions that nation has taken and is taking to restructure its institutions and to move closer to economic liberalism. As Premier Wen Jiabao said in his December 2003 speech at Harvard, China’s transition from plan to market has led to the “gradual lifting of the former improper restrictions, visible and invisible, on people’s freedom in choice of occupation, mobility, enterprise, investment, information, travel … and lifestyles.”

This is demonstrated in the new property law. By giving greater security to private property rights, the law gives substance to article 13 of the PRC constitution, which the NPC amended in 2004 to proclaim: “The lawful private property of citizens is inviolable.” More important, by making property rights more transparent, the law will widen the scope for market exchange, thereby increasing freedom and prosperity.

The great 18th‐​century economist Adam Smith recognized the social benefits of ownership when he wrote, “[If] people do not feel themselves secure in the possession of their property” and “the faith of contracts is not supported by law,” then “commerce and manufacturing can seldom flourish long.” Two thousand years earlier Mencius wrote, “People can have a long‐​term life plan only if they know their private property is secure.”

Economic freedom, especially in the coastal areas, has made China the world’s third‐​largest trading nation and has helped lift millions of people out of poverty. Without the rapid growth of the non‐​state sector and a rising middle class, the political pressure to amend the constitution and promulgate a new property law would not have occurred.

In a 2005 poll covering 20 countries, GlobeScan found that China had the highest proportion of respondents (74 percent) who agree that the “free market economy is the best system on which to base the future of the world.” That outcome is remarkable given that only a short time ago Beijing embraced central planning.

President Hu Jintao’s “big idea” is to create a “harmonious and prosperous society” via “peaceful development.” To achieve that goal, however, requires institutional change—namely, a rule of law that genuinely protects persons and property. As Wu Jinglian, one of the leading reformers, recently stated, “If we don’t establish [a] fair rule of law and don’t have clear protection of property rights, then this market economy will become chaotic and corrupt and inefficient.”

The socialist ideal of harmony is fully consistent with the central idea of market liberalism: that limited government and nonintervention (wu wei), in the sense of protecting property and contract, bring about a spontaneous market order. Long before Western liberalism, Lao Tzu argued that when the ruler takes “no action,” “the people of themselves become prosperous.”

From a liberal perspective, “the principle objective and criterion of economic development,” wrote the late Peter (Lord) Bauer, is to extend “the range of choice”—that is, to expand “the range of effective alternatives open to people.” That goal is fully consistent with the aim of “building socialism with Chinese characteristics,” which, in Wen’s words, is to “emancipate and develop the productive forces, and respect and protect the freedom of the Chinese people to pursue happiness.”

In his Harvard speech, Wen attributed China’s peaceful development since 1978 to “the policy of reform and opening‐​up and, in the final analysis, to the freedom‐​inspired creativity of the Chinese people.” And, like Mencius, he argued that, “Without effective protection of the citizens’ right to property, it will be difficult to attract and accumulate valuable capital.”

If the new provisions of the property law are enforced, economic life will become less politicized, and civil society will benefit from the autonomy that private ownership creates. The present corruption does not stem from the advance of the market; it is the by‐​product of the lack of fully transferable property rights in land and other state‐​owned assets. If developers have to work through government officials who stand to benefit from the sale of land rights, bribes and other favors will flourish.

Although the new law strengthens land‐​use rights, it does not change the state ownership of land. Farmers cannot use collectively owned land for collateral. Local politicians will still make final decisions about development, and compensation to farmers and urban residents for taking property for “public use” will still be rather arbitrary. Those shortcomings, however, should not blind one to the merits of the new law and to the historic nature of China’s first significant legal measure to safeguard an important human right.

Strategic long‐​run economic engagement is a much more sensible approach to U.S.-China relations than reverting to destructive protectionism. Instead of harming U.S. consumers and businesses that benefit from free trade, Congress should recognize the progress China has made and not erect barriers to trade relations.

About the Author
James A. Dorn

Vice President for Monetary Studies, Senior Fellow, and Editor of Cato Journal