China's WTO Membership: A New Era of Global Trade

As the final round of talks on China's bid for membership of the World Trade Organisation (WTO) conclude in Geneva, economists in Hong Kong are warning that the opening up of China's domestic markets and easing of export quotas may spell disaster for much of Asia. The trend is already evident, with 90% of Hong Kong's manufacturing capacity having relocated to southern China to take advantage of low labor and land costs. This move is expected to accelerate as foreign companies gain access to China's domestic markets under WTO concessions, driving down unit production costs and attracting more overseas investment.

Key Takeaways:

• China's WTO membership will lead to the expansion of manufacturing capacity to serve China's internal demand, driving down unit production costs and further eroding the competitive advantage of Asian rivals.
• The relocation of manufacturing capacity from neighboring countries such as the Philippines, Thailand, and Indonesia is expected to accelerate, threatening the stability of these economies.
• Economists in Hong Kong predict that the trend will not only affect South-East Asia but also have a significant impact on the Australian resources sector, which may lose traditional markets as China seeks to develop its mineral resources.
• Australia may also gain opportunities in the Chinese market, particularly in the areas of communications, transport, distribution, financial services, and agriculture.
• The involvement of Australian companies in major projects in China, such as the $4 billion petrochemical complex in Guangdong, points to a strong potential for cooperation between the two nations.
• The entry of China into the WTO will accelerate financial, legal, and accounting reforms, providing greater transparency and certainty for overseas business and reducing risk.
• Companies are already lining up to take advantage of the opportunities that WTO membership will bring, with economists predicting that capital inflows will expand rapidly as WTO membership leads to improvements within the Chinese economic system.
• Despite concerns that Hong Kong's middleman role may weakening, the territory's share of Chinese exports has declined from 50% to 30%, but experts believe it will remain a significant export hub for the next five to 10 years.

Statistics:

• 90% of Hong Kong's manufacturing capacity has relocated to southern China (Source: Economists in Hong Kong)
• Economic growth in China is running at 7.5 to 8% (Source: ING Barings chief economist Tim Condon)
• Australian exports to Hong Kong rose by 20% to almost $800 million in the June quarter (Source: Australia's Trade Commissioner in Hong Kong, Duncan Cole)
• Hong Kong's share of Chinese exports has fallen from 50% to about 30% (Source: National Australia Bank local economist Kevin Lai)
• China's population is approximately 1.2 billion people (Source: Deutsche Bank's senior economist in Hong Kong, Chris Tinker)

Sources:

• Economists in Hong Kong
• ING Barings chief economist Tim Condon
• Deutsche Bank's senior economist in Hong Kong, Chris Tinker
• Australia's Trade Commissioner in Hong Kong, Duncan Cole
• National Australia Bank local economist Kevin Lai
• Hong Kong's deputy secretary for trade and industry, Yvonne Choi