China's WTO Membership: A Double-Edged Sword

Strategic Insights -

As China prepares to join the World Trade Organization (WTO), the country is experiencing a mix of excitement and trepidation. The prospect of becoming a permanent member of the WTO has been met with official applause, but many Chinese worry that the country is not yet ready to face the global competition that membership will bring. The WTO's rules will force Chinese industries to become stronger in the long run, but many people fear that they will lose their jobs along the way.

Key Takeaways:

  • China's WTO membership will eliminate one of the main risks for American companies investing in the country, as they will no longer face the threat of having their products blocked from being sent home.
  • China's membership in the WTO will also enable American companies to take part in the open markets that China promises to deliver as part of the trade group.
  • Many Chinese industries, such as the auto and agricultural sectors, will face significant challenges as a result of WTO membership, including increased competition from foreign importers and the need to adapt to new regulations and rules.
  • The Chinese government has acknowledged that many local governments, industrial regulators, and state-owned enterprises are not ready for what lies ahead, and predicts that a wave of bankruptcies will sweep through the economy.
  • China's 900 million peasants will be particularly vulnerable to the impacts of WTO membership, as duties for agricultural products will fall sharply and import quotas will disappear.
  • Other areas of the economy, such as telecommunications and banking, will undergo significant changes as a result of China's promises to the WTO.
  • Western companies that have invested heavily in China may face competition from newcomers whose cost of entry to the market will be lower, and will have to compete for China's limited number of white-collar workers.
  • Foreign companies will have to adapt to China's unique regulatory environment, which can be complex and unpredictable.
  • China's W.T.O. membership will also create new opportunities for foreign investors, including the acquisition of majority stakes in strategic projects such as the proposed $2.4 billion natural gas pipeline.
  • China will remove restrictions on distribution services for most products within three years after joining the W.T.O. and will allow foreign companies to own up to a third of fund managers and up to 49 percent after three years.

Statistics:

  • China has already invested over $24 billion in the US, and more investment dollars are on their way as a result of the trade bill's approval.
  • The US Senate overwhelmingly passed the trade bill on Tuesday, and the House had already approved it.
  • China will remove tariffs on agricultural products, including corn, soybeans, pork, and chicken, from as high as 85% to 18% in some cases.
  • China's agricultural sector will face significant competition from foreign importers, including American corn and soybeans.
  • China will allow foreign banks to serve individual Chinese anywhere in the country after five years.
  • China will allow foreign companies to own up to 30% of companies providing value-added telecommunications services, including Internet content providers.
  • China will allow foreign companies to own up to a third of fund managers and up to 49% after three years.

Sources:

  • "China Preparing for WTO Membership" by The New York Times, cited in the article (no date provided)
  • "China's WTO Membership: A Double-Edged Sword" by grantusr, cited in the article (no date provided)
  • "Shanghai to open up more to foreign banks" by China Daily, dated June 1, 2001
  • "Beijing to allow foreign firms to own up to 65 percent in retail stores" by China Daily, dated June 5, 2001