Search the Internet          Tips  Sites: Finance, Investment

FACTBOX - Impact on China sectors after WTO entry

China's 15-year quest to join the World Trade Organisation neared the end after members of the global trade body approved the terms of its entry on Saturday in Doha, Qatar.

Under WTO rules, China's formal entry will follow a month later, ushering in gradual but sweeping changes across the spectrum of the Chinese economy. Following are the sectors which will be most affected by WTO membership.

The table is based on concessions made by China in agreements reached with the United States in November 1999 and the European Union in May 2000. Under WTO rules, benefits granted by China to one trading partner are extended to all.

TELECOMS

The Deal : Upon accession, foreign operators will be permitted to take a 25 per cent share in mobile telecommunications firms, 35 per cent after one year and 49 per cent after three years.

In Internet, paging and other value-added services, foreign firms may immediately take 30 per cent stakes in Chinese companies in Beijing, Shanghai and Guangzhou, rising to 50 per cent in two years, when geographical constraints are lifted.

Tariffs on many high-tech products like telecoms equipment will be phased out and eliminated by 2005. Fixed line and long distance service will open most slowly, with 25 per cent stakes allowed after three years and 49 per cent after six years.

The Impact : State-owned telecoms giants may be hit as competition among domestic operators heats up with foreign investment beefing up their infrastructure and services.

An increase in the number of network operators could bring more business opportunities to domestic equipment manufacturers. Lower tariffs on telecoms equipment could have a limited impact as domestic makers do not count on protection from high tariffs.

AUTOMOBILES

The Deal: China will cut import tariffs on automobiles to 25 per cent by mid-2006 from the 80-100 per cent prevailing before the US agreement was clinched. The EU deal requires China to lift all restrictions on category, type and model of vehicles produced in Sino-EU joint-ventures within two years.

The Impact : China plans to cut import tariffs to 60-80 per cent in the next two years and to 25 per cent by mid-2006. The domestic auto industry is seen as one of the hardest hit, with a shake-out looming upon WTO entry.

Cheaper imports could also hurt foreign auto joint ventures with better product quality and services, such as Shanghai General Motors and Shanghai Volkswagen. Some Chinese are holding off buying cars, expecting a wave of cheaper imports.

BANKING

The Deal: Foreign banks will be allowed to conduct domestic yuan currency business with Chinese firms two years after WTO accession and with Chinese individuals after five years. Geographic restrictions go after five years.

The Impact : Foreign banks could end up with more than half the domestic market for fee-based banking services, which include trade financing, credit card transactions and cash management, Chinese bank officials say.

Five to 10 years after WTO entry, foreign banks could capture 15 per cent of the market for foreign exchange deposits, 10 per cent of yuan deposits, 20-30 per cent of foreign exchange loans and 15 per cent of yuan loans. Foreign banks would raid their Chinese counterparts for talent and could lure away 20 per cent of staff at domestic banks with college degrees.

China has pushed its creaky banking sector into a scramble to expand services, forge co-operative pacts, list stocks, shed bad debts and merge to cope with the threat of foreign competition.

SECURITIES

The Deal: China will let minority foreign-owned joint ventures into fund management on the same terms as Chinese firms. Three years after accession, foreign firms will be allowed 49 per cent stakes in joint ventures.

The Impact : Chinese securities companies are seen as weak in investment banking business. Broking fees and proprietary trading make up the bulk of revenues of domestic brokerages, which have little edge in financial consultancy or fund management.

Fledgling domestic brokerages are seeking partnerships with foreign securities houses to tap their expertise and capital strength. China International Capital Corp, a joint venture investment bank of China Construction Bank and Morgan Stanley Dean Witter, has a head start but may see more rivals.

Already, a slew of foreign fund managers are tying up with domestic firms, providing foreign know-how for running open-ended mutual funds as a first step towards setting up joint venture fund management companies in China. Hong-Kong based JP Morgan Fleming Asset Management says it will take a stake in its Chinese partner, Huaan Fund Management, as soon as authorities permit.

INSURANCE

The Deal: China will allow "effective management control" in life insurance joint ventures, although it will limit foreign stakes to 50 per cent. In the services field, the EU secured the right in June for foreign firms to choose their China joint venture partners freely.

China will phase out geographical restrictions in three years, allow foreign insurers into group, health and pensions over five years and permit wholly owned non-life subsidiaries in two years. Foreign insurers are now largely restricted to Shanghai and Guangzhou.

The Impact : Foreign insurers are expected to have an easier time getting critical licences to sell policies in China. Domestic insurers, now enjoying a 99 per cent market share, will face stiff competition from foreign firms.

AGRICULTURE

The Deal : China agreed in June to cap its future spending on farm subsidies at 8.5 per cent of the value of domestic farm production. Duties on agricultural products will fall from 22 per cent to 17 per cent and on US priority products from an average 31 per cent to 14 per cent by January 2004.

China will cut import tariffs on products such as rape oil, butter, mandarins and wine to a range of nine to 18 per cent from the present 25 to 85 per cent.

The Impact : China says the 8.5 per cent cap will give it room to pay more to help its struggling farmers after WTO entry, but analysts say China can ill afford such high subsidies.

In April 2000, China accepted the first shipments of US pork and beef to start implementing the US deal. China's producers will be major losers because tariff cuts and freer imports will mean domestic grains like corn and soybeans must compete with higher quality imports. Cheaper meat imports will threaten the domestic livestock industry.

TEXTILES

The Deal : Quotas on Chinese textile imports will formally end in 2005 as mandated under a WTO-wide accord, although a special import "safeguard" system will be in place until the end of 2008.

The Impact : China's textile and apparel sector is one of the few that should see a clear benefit from WTO entry with the lifting of import quotas abroad. Chinese textile firms focused on exports will be best positioned to capitalise on the agreement.

ENERGY/OIL

The Deal : China agreed to open the crude and refined oil sectors to private traders gradually and to cut its state monopoly on oil trading by giving up four million tonnes of oil products and 10 per cent of crude imports to the private sector.

China will also open retail oil distribution three years after accession and allow foreign firms at least 30 wholly owned service stations each. More can be built through joint ventures with Chinese oil majors, industry sources said. China will open its wholesale market five years after accession.

The Impact : The state will give up its virtual monopoly in the oil sector, allowing private traders to import oil products and foreign firms to set up petrol kiosks. But analysts say Chinese oil giants like Sinopec need not worry about their retail market share because by 2003 they would have all the best sites.

In June, a senior government researcher said China would allow oil product imports of 16.58 million tonnes upon entry, expanding 15 per cent annually until 2005, when the quota will be scrapped.

DISTRIBUTION/RETAIL

The Deal : China will phase out restrictions on distribution services for most products within three years. It agreed to lift joint venture restrictions on large department stores and virtually all chain stores. It will also scrap space restrictions on foreign-owned stores.

The Impact : It would allow foreign firms a controlling stake of up to 65 per cent in retail stores. Foreign firms must now distribute products made in China through domestic companies.

WTO entry will mean foreign firms can cut out distribution intermediaries and have the choice to set up their own networks, reducing the time taken to get their products to market. China has approved its first wholesale joint venture, with Japan's Marubeni Corp, marking the opening of the wholesale industry.

ALSO READ:
India and the WTO: News and issues