bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

moreOnThisArticles

urlAlias

commentCount

sponsorType

authorLocations

authors

paywallTypes

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

socialHeadline

headline

flag

firstTopic

glossary

flattenTypeIds

publishedDate

additionalInfoBoxes

images

image

relatedLinks

relatedNewsletters

__typename

createdDate

sponsor

factSheets

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

copyrighted

customTimezone

liveContents

SCMP Reporter

BALANCE is the key to China's success on the tightrope of international relations.

  Only three weeks ago, President Jiang Zemin, in Osaka for the Asia Pacific Economic Co-operation forum, announced China's largest trade liberalisation package since reforms began in 1979.

  Undoubtedly, the proposed tariff reduction and the elimination of import quotas have underscored China's commitment to entering the World Trade Organisation (WTO), which replaced the General Agreement on Tariffs and Trade this year.

  But the overriding concern is whether short-term costs of a speedy entry will be balanced by long-term benefits. Is China risking throwing its inefficient state sector and the closely guarded financial industry into chaos?   'Generally speaking, trade liberalisation is positive, but there will be short-term pains . . . by the state sector and financial industries,' Peregrine Brokerage economist Ma Guonan said.

  The terms of entry hold the key.

  'If China accepts the United States' condition to enter the WTO, I don't think it will be in the best interests of China,' DBS Securities Hong Kong economist Pan Ming said.

  Beijing clamoured to join the international club as a founding member in January, but Washington blocked its bid to enter as a developing economy. That would have allowed the mainland softer terms.

  China argues that it cannot afford to be admitted to the WTO as a developed nation. Even with the latest pledge of concessions, it could be costly, depending on which products are affected by the tariff cuts.

  The mainland has an ambitious goal of slashing average import duties from 35 per cent to 15 per cent in two years to put it on an equal footing with other developing countries. It has also promised to remove one-third of import quotas, allowing more foreign access to the domestic market.

  The result: more imports, increased foreign competition, and probably more unemployment.

  Liang Youcai, deputy director of the State Information Centre's economic forecasting department, told the China Daily Business Weekly that the tariff cut would slash China's trade surplus by up to US$10 billion next year.

  In a bid to fend off foreign competition, Chinese enterprises, especially the moribund state sector, need to accelerate reform. That includes upgrading technology, reshuffling management and improving the social welfare system.

  'China has to take into full account the many changes needed to be made, and the changes take a long time,' Hongkong Bank China Service research manager Benny Chiu said.

  'As a big country with vast development potential, China cannot necessarily rely on high export growth to spearhead its economic development.'   Admission to the WTO will give China unrivalled access to the global market and allow it to seek protection from anti-dumping allegations. It also wants to enter the organisation ahead of Taiwan for the sake of politics.

  However, Tsang Shu-ki, associate professor of Hong Kong Baptist University's economics department, questioned the extent of the benefits, given that China had already established extensive trade ties with many countries. The mainland has struck bilateral agreements with 90 per cent of the WTO's contracting members. Its entry will enable it to establish links with the remaining 10 per cent of the countries.

  'Even if China is not admitted to the WTO, it can still rely on existing bilateral agreements,' Professor Tsang said.

  But he said memberbship would remain China's medium-term goal in order to facilitate its economic take-off.

  'Given China's enormous demand for infrastructure and capital investment in next 10 years, the mainland has to bank on foreign capital for the funding. With the accession, it will be easier to lure foreign capital,' he said.

  China should make concessions for the entry in accordance with its economic strength, he said: 'China has to think twice, whether it is paying too high a price for the entry in the short term.'   The mainland has opened much of its retail market. It has also pledged to open 10 more cities for Sino-foreign retail joint ventures, bringing the total to 21.

  It maintains a very tight grip on the financial sector, such as banking and insurance, and pillar industries, including telecommunications and transportation, which foreign investors are eager to penetrate.

  The message from the bilateral talks in Geneva last week was that China had narrowed some differences with leading trading powers, but needed more time.

  Western countries are likely to press the mainland to liberalise further the domestic market in future negotiations.

  'The focal point of trade disputes is to push China to open key industries,' Mr Pan said.

  He expected China could enter the WTO in the second half of next year as a developing country, but it would also open some key industries gradually.

  The mainland is planning to open local currency business to foreign bankers on an experimental basis, and open the insurance sector to more overseas insurance brokers.

  It is hoped that a more liberal market will provide new impetus for China's state-owned enterprise reform, whose importance was highlighted by the annual National Economic Work Conference in Beijing last week.

  'State enterprises can benefit from more competition because they have to increase efficiency, albeit with some pains, either by increasing productivity or reducing costs,' JP Morgan economist Joan Zheng said.

  But that might also raise unemployment, she said.



WTO demands balancing act