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Last updated at: (Beijing Time) Thursday, December 12, 2002

A Year of Changes after WTO Accession: Review

Phased, historical progress often begins with profound changes. On December 11, 2001, China officially became a member of the World Trade Organization (WTO), opening a new page in the annals of China's reform and opening up. Now one year's time has passed, and the changes, expected or unexpected, are taking place noticed or unnoticed around us.


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Changes in China After Entry Into WTO
Today marks the first anniversary of China's entry into the World Trade Organization (WTO). Against a gloomy global slowdown, China has made its first year of WTO membership a splendid success, with both better-than-expected economic growth and steadfast fulfilment of its WTO commitments.

The 8 percent growth rate for gross domestic product clearly exemplifies the outstanding performance of the Chinese economy.

More exciting are the robust growth in trade and rocketing inflow of foreign direct investment. China will likely become the fifth trading country with an import-export volume worth US$600 billion and the most attractive destination for foreign direct investment with an annual inflow that has exceeded US$50 billion this year.

Commitments
The Chinese government is serious about the commitments it has made. As a large, responsible country, China has taken a series of actions after joining the WTO. During the whole year, nearly 30 departments under the State Council sorted out some 2300 related legal documents, with half of them annulled or amended. China has taken big actions in the fields of barter trade, service trade, intellectual property rights, investment and administrative "transparency", including slashing the tariff for more than 5,300 commodities, with the general tariff level cut from 15.3 percent to 12 percent. Some important service trade departments issued new regulations on the entry of foreign capital, and legislation on the protection of intellectual property rights has basically met the requirements of related WTO agreements, the government also intensified its fight against counterfeits.


A Year of Changes after Entry Into WTO
China also speeded up reforms of monopoly industries. In May China Telecom split up into two and a number of telecom operators began to compete with one another. In October the aviation industry finished regrouping with six major groups becoming enterprises engaging in "independent management". Reforms have put an end to the epoch of monopoly.

Wolf comes
"The wolf has come!"

The sentence almost became a vogue during China's WTO negotiations. Now, with the fulfillment of commitments and the opening of markets, the "wolf" has really come.

The year 2002 has seen the influx of foreign capital at an unprecedented speed, utilization of foreign capital is estimated to exceed US$50 billion, a new record in history. As estimated by the United Nations Conference on Trade and Development, China, in its first year of accession to the WTO, will possibly surpass the United States to become the country attracting the most foreign capital.


Change in China After Entry Into WTO
In fact, what is most exciting is that foreign investment was made in the service industry. There has been a steep rise in the heat of foreign investment made in this most sensitive field, a field in most urgent need for development over the past year.

Take the insurance industry for example. At the turn from spring to summer, 2002 alone, several brand-name international insurance companies vied to have a share in this sector. The China National Offshore Oil Corporation (CNOOC) set up a joint venture with the Holland-based Aegon life insurance, the world's fifth biggest listed insurance company. Munich Re, the Germany-based world biggest insurance company, was allowed to enter the Chinese market. AEC, the second biggest property insurance company of the United States, had a 22 percent share in Huatai Insurance Agency & Consultant Service Ltd. And Employers Reinsurance Corporation (ERC), the world's fourth biggest insurance company, made formal application for establishing its branch in China��

In terms of the scale and speed of the infusion of foreign capital, the banking industry has pushed forward by leaping strides. By the first half of 2002, there had been 233 foreign banking representative offices set up in China, more than 40 of them were allowed to handle the RMB business and the total RMB asset of foreign banks in China had reached 44.5 billion yuan. Besides, foreign banks also accelerated their investment in small and medium-sized commercial banks of China.

In the retailing field, world giants rushed in one after another and pegged out on the Chinese market. Wal-Mart moved its global purchase center to Shenzhen and its volume of purchase in China had reached US$10 billion. Carrefour concentrated on fighting its way into Chinese inland areas. German Metro was joyously prepared to press forward toward the western region and claimed that it would open a hundred chain stores in China. Ito-Yikado, Ikea and Marko were also busy expanding their business. And many listed commercial companies showed their intention of mergers and acquisitions.

Foreign investors are also seen engaged actively in such fields as telecom, securities, tourism, transportation, intermediary and public service.

"Wolf" threaten us?
According to a survey conducted by the State Information Center, in the first year of China's WTO entry, the inflow of foreign capital, in terms of both scale and speed, has not been able to make "a breach in the dykes as is done by flood water" due to the nation's progressive opening-up policy and the advantages of locally-based Chinese enterprises, which were thus free from sustaining enormous impact. On the contrary, the influx of foreign capital has provided a driving force for strengthening the foundation of Chinese enterprises. In the course of cooperation and competition, a batch of Chinese information technological enterprises have grown in strength, for instance, the production and sales of China-made mobile phones, such as Bird, Kejian, Panda, TCL and Capital have grown rapidly, changing the situation in which the mobile phone market was monopolized by foreign brands. The service industry raised their service level during competition with foreign companies and updated their product supply. Domestic banks tried everything possible to offer new financial services. The telecom industry tried to break the monopoly and form a few important groups. Competition among retailers has diversified the ways for the development of this industry and greatly enriched the market pattern..

Talking about the way to cope with the inflow of foreign capital after entry into the WTO, chairman of Hai'er Group Zhang Ruimin said you must "turn yourself into a wolf!". Foreign investment is a wolf when you see it with the eye of the weak, but when you see it in the vision of the strong, it will at most be a competitor; and if you see it in the perspective of development, perhaps it will be your very good strategic cooperative partner, and will run in and join you in creating a win-win or all win result. (to be continued)

More advantages
Accession to the World Trade Organization (WTO) involves both advantages and disadvantages. The distribution of advantages and disadvantages in different industries is unbalanced and there is great uncertainty in the change of advantage and disadvantage in specific industries. But on the whole, advantages outweigh disadvantages, and we enjoy rights while performing our duties. The "two-way opening" brings in certain challenges but more opportunities. During the first year after WTO accession, China's foreign trade has been on high-speed growth. From January to October exports increased nearly 21 percent and imports approximately 19 percent, with an expected whole-year trade surplus reaching US$30 billion.

With lowered tariff and cut-down non-tariff measures, increase in the import of certain products, as expected, has brought impacts on domestic industries. However, as a WTO member, we have begun to enjoy due rights, for instance, the problem concerning the most favored-nation treatment in foreign trade that had been haggling for many years was already solved and the United States and Europe cancelled or reduced quota limitations to some competitive Chinese products. The nation's trade environment got improved and room expanded for bigger export.

Since the beginning of 2002, China's agricultural products have seen notable increase in trade surplus with a growth rate remaining at two digits. This is much better than expected and the agricultural sector developed steadily. As for industrial products, viewed form exports, the textile, garment, electromechanical, and telecommunication equipment manufacturing industries all received short-term benefits. Viewed from imports, the automobile industry was not hit as badly as expected, while the sharp increase in the imports of iron and steel and fertilizer exerted great pressure on domestic enterprises.

The challenges and impacts would inevitably get intensified as we open wider to the outside world, said minister of the foreign trade and economic cooperation Shi Guangsheng. Enterprises with high cost, low technological level and backward management obviously feel the pressure, and the competent economic departments of the government are also "stimulated" to different degrees in regard to the mode of thinking and management. There would be such a run-in period after joining the WTO. During this period, some difficulties are bound to emerge, and some contradictions are bound to come into being, but one must not therefore negate the positive and far-reaching influence the WTO accession exerts on China.

One year's time is too short for the WTO entry to give full expression to its impact on China's industries. . As time goes by, the degree of both the positive and negative influences exerted by WTO entry on various industries would undergo changes. Industries which received more short-term benefits might face problems from the long-term point of view, and the possibility, that the development trend emerged in the next few years is entirely contrary to what it was in the first year after WTO entry, even cannot be ruled out. Given this, one should not be panic-stricken at the sharp increase in imports by certain industries, nor should one be satisfied with the benefits just gained by certain industries from exports.

For example, in the first year after WTO accession, everything went well with the auto industry, with several major domestic car-makers gaining best profits in history and the growth rate for the China-made car consumption market reaching 40 percent. But this doesn't mean that the domestic auto-making industry, long placed under the protective umbrella, can henceforth be engrossed in playing songs of victory. If it fails to try its best to catch up and cure its lingering disease, then, after the transition period, its present comfort will disappear. In the agricultural sector, the favorable import-export situation was created by certain special factors at home and from abroad. The pressure brought about by the opening of the farm produce market will gradually be felt, the growth rate of import next year will be fairly great, so the impact is predicted to be unavoidable, so one must not be too optimistic about the export of agricultural products in the future.

Whether we can pursue the good and avoid the harm and even turn disadvantages into advantages depends on whether we can show an enterprising spirit in adopting a strategy to cope with the situation, and take the limited transitional period as an important opportunity for diversifying the international market and effectively lower the risks and costs resulted from WTO accession, said Lu Zhongyuan, director of the macro-economic department under the Development Research Center of the State Council.

First lesson
Many people who pinned high hopes on the WTO have the same feeling: after China's entry, the world, from developed to developing countries, have frequently set up trade barriers against China by the use of various non-tariff measures. Among anti-dumping and guarantee measure investigations conducted abroad, cases involving China's export volume was on the rise, and there were increasing phenomena in which many countries repeatedly put the same kind of Chinese products on file for investigations.

The increase in cases of trade disputes between China and other countries over certain specific products is, fundamentally speaking, the result of re-emergence of trade protectionism and deterioration of trade policy environments under the circumstance of world economic depression, not the result of China's WTO entry. In 2001 altogether 428 anti-dumping, countervailing and safeguard measure investigations were lodged among WTO members, a rise of 46 percent over the previous year. With a continuously enlarged scale, China's foreign trade has leapt to world sixth place, and its products, after WTO entry, would get more market access opportunities and therefore have certain pressure on related foreign enterprises. So we must get prepared to deal with the phenomenon of increased trade volume and trade frictions.

We should say one of the most pleasing changes during the year is that domestic industries and enterprises, when faced with trade barriers, have begun to use WTO rules as weapon against trade protectionism, instead of passively tolerating or waiting. In the CR case, Wenzhou's lighter producers responded to the lawsuit with unprecedented enthusiasm and in the case of US 201 articles on iron and steel, the Chinese side for the first time responded by adopting the WTO dispute-solving mechanism��

During the first 10 months of this year, the number of cases put on file for investigations by foreign countries against Chinese products and the amount involved dropped 20 percent and 10 percent respectively from the year before, and the rate of enterprise response raised to 70 percent. China has achieved good results this year in final adjudication of anti-dumping, safeguard measures investigations posed by the United States, Europe and Australia. Also great achievement was gained in disputes with the Europe Union over animal products and DVD intellectual property rights.

To create a fair trade environment, we must take the initiative and learn to say "No" to unfair competitions and defend our own interests. During the year China lodged nine anti-dumping investigations, one re-check case, on products of chemical industry, light industry, and iron and steel. There was a fairly big increase in both the number of investigation posed and amount of money involved over the previous year.

Generally speaking, China has done a remarkable job during its first year as WTO member, but we must carefully study and ponder over the changes before us. The road ahead is none too smooth and real, severe tests are still to come.

By PD Online Staff Li Heng



China's Key Commitment to WTO
Banking: Immediately after WTO accession, the country removed restrictions on foreign exchange clients of foreign banks and allowed them to conduct renminbi business in Shanghai, Shenzhen, Tianjin and Dalian.

The People's Bank of China - the central bank - allowed foreign banks to conduct renminbi business from December 1 in five more cities including Nanjing in Jiangsu Province, Guangzhou and Zhuhai in Guangdong Province, Qingdao in Shandong Province and Wuhan in Hubei Province.

Insurance : Upon accession, China allowed foreign insurers to set up joint ventures. Life and non-life insurers can take at most a 50 and 51 per cent stake respectively.

For brokerage for insurance of large scale commercial risks, brokerage for reinsurance and brokerage for international marine, aviation, and transport insurance and reinsurance: upon accession, joint ventures with foreign equity of no more than 50 per cent are permitted; For other brokerage services: Unbound.

Foreign life and non-life insurers, and insurance brokers were permitted to provide services in Shanghai, Guangzhou, Dalian, Shenzhen and Foshan immediately after China joined WTO.

Upon accession, foreign non-life insurers are permitted to provide "master policy" insurance of large scale commercial risks, which has no geographic restrictions.

Foreign non-life insurers are permitted to provide insurance of enterprises abroad as well as property insurance, related liability insurance and credit insurance of foreign-invested enterprises in China upon accession.

Retailing Services (excluding tobacco) :Foreign service suppliers can supply services only in the form of joint ventures in five special economic zones (Shenzhen, Zhuhai, Shantou, Xiamen and Hainan) and six cities (Beijing, Shanghai, Tianjin, Guangzhou, Dalian and Qingdao).

In Beijing and Shanghai, a total of no more than four joint venture retailing enterprises are permitted respectively. In each of the other cities, no more than two joint venture retailing enterprises are permitted. Two joint venture retailing enterprises among the four to be established in Beijing may set up their branches in the same city.

Upon China's accession to the WTO, Zhengzhou and Wuhan are immediately open to joint venture retailing enterprise.

Distribution Services :Within one year of China's accession to the WTO, foreign service suppliers are allowed to establish joint ventures to engage in the commission agents' business and wholesale business of all imported and domestically produced products, except the distribution of books, newspapers, magazines, pharmaceutical products, pesticides and mulching filmschemical fertilizers, processed oil and crude oil.

Legal Services :Foreign law firms can provide legal services only in the form of representative offices in Beijing, Shanghai, Guangzhou, Shenzhen, Haikou, Dalian, Qingdao, Ningbo, Yantai, Tianjin, Suzhou, Xiamen, Zhuhai, Hangzhou, Fuzhou, Wuhan, Chengdu, Shenyang and Kunming only.

Non-tariff Measures:Import licences and import quotas are eliminated in many key products such as wool, grain, cotton and chemical fertilizers.

Tariff: The averaged tariff rate has dropped from 15.3 per cent to 12 percent.





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