Sleeping Chinese dragon awakes

The United States has joined Europe in agreeing on the principles of economic reform in China that will permit China to enter the World Trade Organisation. This sets the stage for China's membership in the WTO by the end of 2000.

China's addition to the WTO will bring 1.3 billion people - more than one-fifth of the world's population - formally into the mainstream of the international economy.

For economists and historians with a long view, China's situation in the world poses a puzzle. Simply put, why is China so poor today? GNP per person averages around $3,200 (€3,419), compared with around $25,000 on average in the US and Europe. The puzzle is that, from AD 550 to 1500, Chinese civilisation once led the world in technology and probably in economic wellbeing. Turn the clock back six centuries, to the early 1400s. China could boast technological wonders - the compass, navigational abilities, the printing press, fireworks and explosives - that barely touched the rest of the world.

China's state had been unified for more than 1500 years; its statecraft was considerably sophisticated. Chinese fine arts, exemplified by its porcelains that would be craved by the world for centuries to come, were remarkable by the standards of any age.

In the 1430s, China abandoned naval expeditions, dismantling its fleet. The imperial court, under a financial squeeze and threatened by nomadic incursions from Central Asia, cancelled the naval expeditions in the 1430s, moved the capital inland to Beijing, and began isolating China for centuries to come.

China unilaterally abandoned its role in the world. By the time Adam Smith wrote The Wealth of Nations (1776), he could accurately describe China as a rich civilisation held back by archaic laws of trade isolation. He noted that the Chinese held foreign commerce "in the utmost contempt".

While China retreated into a shell, Europe exploded on the world scene. Smith described the European discoveries of the sea passage to Asia (around the southern tip of Africa) and the Americas as the two greatest events in world history.

By the time Europe and China crossed paths in the Opium Wars of 1839-42, a technologically superior Europe had vast military advantages and so forced China into a series of unilateral, humiliating concessions.

China's imperial state and society were destabilised by European incursions. The imperial dynasty collapsed in 1911, under external pressures and internal demands for change.

Change, however, did not come smoothly. The dynasty's collapse was followed by civil strife, Japan's invasion of China in the 1930s, the second World War, civil war, and 30 years of disastrous and cruel dictatorship under Mao Zedong and the Chinese Communist Party.

It wasn't until 1978, under Deng Xiaoping, that China opened up to the world. Of course, Deng was more interested in economic reform than political liberalisation, but the liberalisation of the 1980s and 1990s was extraordinary, essentially the first time in several centuries that a sovereign China willingly adopted policies of open trade with the rest of the world.

Admission of China to the WTO will consolidate the reforms started in 1978, as China formally accepts open trade and shared rules of international economic life, as a sovereign and equal member of the international community.

China is burdened by an authoritarian political system, one that has been authoritarian for two millenniums. Indeed, only an authoritarian state could have closed China by edict for several centuries and only an authoritarian state could have led China into the disasters of man-made famine, failed economic policy, and cultural destruction that marked Mao's rule.

China's turn towards openness is making deep inroads, creating a more open, free and vibrant society. China's young generation, and the ones that will follow, will want and demand political freedoms to accompany their increased economic opportunities and participation in world events.

In the coming decades China's opening to the world will also prove to be an opening to Chinese democracy, good for China and good for the rest of us as well.

Jeffrey D. Sachs is Galen L. Stone Professor of Economics, and director of the Center for International Development, Harvard University.