China's WTO Membership to Bring Immediate Changes to the Global Market

Strategic Insights -

China's membership in the World Trade Organization (WTO) is set to bring significant changes to the global market, with some changes happening immediately and others occurring over the next five years. With over 65 million cell phone users, China is already the world's second-largest wireless market and is expected to surpass the United States by the end of next year. As China joins the WTO, foreign companies will be able to sell a wide range of products in the country, including telecommunications equipment and insurance services. The country's economy will become more open, with tariffs on many products set to fall, and foreign companies will be allowed to operate in sectors that were previously closed to them.

Key Takeaways:

  • Tariffs on a wide range of products will fall immediately, including a 63.5 percent drop in the import duty on some automobiles, which will eventually fall to 25 percent over the next five years.
  • Foreign companies will be allowed to offer car loans, making millions of Chinese consumers eligible to buy an imported car.
  • Insurers will no longer have to wait years to hear if they are among the "anointed ones" to sell insurance in China, and will have to act on applications within a set period of time.
  • China's insurance market is expected to grow at a double-digit rate for the next decade, with incomes rising and the government expecting significant expansion.
  • Foreign law firms will be allowed to counsel clients on Chinese laws and rules related to commercial transactions, although they will not yet be allowed to argue cases before Chinese courts.
  • Foreign-owned factories will no longer be required to use local materials or components, export a certain percentage of their goods, or obtain licenses based on the level of technology they bring to China.
  • Foreign companies will be allowed to buy up to 25 percent of Chinese mobile telephone networks, and up to 49 percent within three years.

Statistics:

  • China has 65 million cell phone users, making it the world's second-largest wireless market.
  • The Chinese insurance market is still smaller than Taiwan's, but is expected to grow at a double-digit rate for the next decade.
  • China's telecommunications industry is on the verge of explosive growth, with foreign companies already jostling for position.
  • Britain's Vodafone Group paid $2.5 billion for a 2 percent stake in China's biggest mobile telephone company, China Mobile Communications.
  • Hong Kong's Hutchison Whampoa holds a 2 percent stake in China Unicom, China's second mobile telephone operator.

Sources:

  • "China's WTO Membership to Bring Significant Changes" article in The New York Times, no date given
  • Interview with Patrick Cranley, Cigna Corporation's representative in Shanghai and chairman of the American Chamber of Commerce in Shanghai
  • Interview with Patrick Norton, Shanghai-based lawyer with the American law firm O'Melveny & Myers