By Nicholas R. Lardy

Brookings -- 244pp -- $19.95 paper

Books on China's rise as a global economic power tend to come in two forms: They are either overly boosterish or predict upheaval for Chinese society or the outside world. How refreshing to get a work such as Nicholas R. Lardy's Integrating China into the Global Economy. "Entry into the World Trade Organization is a seminal event in China's economic history and the history of the world trade system," Lardy declares. But that's as far as the hyperbole goes.

A top-notch Brookings Institution analyst of both China's byzantine politics and its economy, Lardy sifts fact from hype with fresh research and solid analysis on a host of issues. Will Beijing really honor its WTO commitments, given its lack of respect for rule of law? Will a flood of Chinese exports cost millions of jobs across the world? How will the WTO transform China's industrial model? Will an onslaught of foreign competition wipe out poor farmers, wobbly banks, and state industries?

Clues to many of these questions, Lardy argues, lie in Beijing's record thus far. In the 1990s, for example, China dropped average tariffs to just 15%, from 44%. Some 90% of retail transactions now take place at prices set by the market, not by state planners. After trying to mimic the early protectionist models of Japan and South Korea, China in the late 1990s threw key sectors such as autos and semiconductors open to foreign competition, betting that was the best way to make industry modern and globally competitive in the long run.

Now comes the big leap: By 2005, Beijing has pledged to dismantle most remaining restraints on imports and foreign investment. Information-technology products are to be duty-free in five years. Lardy lays out the domestic constraints Beijing will face in enforcing the new rules and foresees many trade and legal battles. But he believes Beijing is sincere, and he rattles off examples of where it is actually liberalizing foreign investment ahead of schedule, such as in gas stations, telecom, and retailing. In fact, by Lardy's analysis, the WTO pact in some ways is unfair to Beijing: The U.S. and other partners retain surprising leeway to curb imports using antidumping standards that apply only to China--and allow little room for appeal.

What will be the global impact of China's rise as an export power? Developing nations relying on labor-intensive sectors like garments and consumer electronics will be hardest hit. But the U.S., Europe, and most Asian neighbors should be net gainers as China sucks in food, equipment, fabrics, and upscale cars. Why? As China is freer to push industries where it is most competitive, it should ease restrictions elsewhere. Is China an industrial juggernaut? It is the world's ninth-largest exporter. But foreign-funded companies account for half of exports. Exclude them, and it's No. 15. Lardy also shows how China's growth statistics are overstated. In truth, growth is slowing sharply, a big reason Beijing hopes to use WTO entry to reengineer its economy.

With its dry, academic prose, Integrating China is not a breezy read. But whether you're a bull or an alarmist, it will set the record straight.

By Pete Engardio

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