The U.S.-China deal paving the way for China's entry into the World Trade Organization is an agreement of historic proportions. But it is the beginning of a long process, not the end of one. No communist nation has successfully managed an economic transformation of the magnitude China is now attempting without triggering massive political upheaval. And no free trade system in history has absorbed such a giant country without undergoing enormous strains.
Yet the benefits from China's entry into the WTO far outweigh the losses. Beijing will now be enmeshed in a multilateral trade organization that operates by rule of law. Economic reformers inside China will be able to use this to battle endemic corruption and cronyism. If they can follow through on reforms, a very big if, China can make a final push toward modernizing its economy. After 20 years of halting progress and backtracking on dismantling state-run enterprises, the WTO gives China the incentives to make the great leap to a full market economy.
Expect no miracles, however. Weak Chinese companies will use any means possible to survive against the new foreign competition in telecommunications, finance, and distribution. Chinese banks will have to stop lending to state dinosaurs if they are to have a prayer of a chance competing with the likes of Citibank or HSBC.
With 100 million migrant workers roaming its cities, China is gambling that it can attract enough foreign investment to generate jobs for its people. But it must find the political strength to follow through. The stakes are high: Flaunting WTO rules can wreak havoc on the world trade system and undermine China's own efforts to become a modern country.