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Mark O'Neill

As mainlanders watched their prime minister criss-cross the United States and charm bankers and barmen alike, they began to calculate the costs and benefits of entering the World Trade Organisation.

 While US President Bill Clinton was unable to sign an agreement on the issue with Zhu Rongji in Washington, the consensus in Beijing is that, barring a land war in Kosovo with hundreds of Americans dead that freezes decision-making in Washington, the deal will be signed before November, when the 133 WTO members begin discussions on a new round of trade reforms.

 The official press has started to discuss the price of admission.

 'It will have an enormous impact on state companies,' said an analysis in the China Economic Times, a newspaper published by one of Mr Zhu's top think-tanks.

 'For the last 20 years, reforms have produced great success in agriculture and the non-state sector, which now accounts for 75 per cent of industrial output.

 'But, despite all the reforms, the state sector has not basically changed and its efficiency continues to fall.

 'Under the combined pressure of foreign and domestic competition after WTO entry, losses of state firms are likely to grow and the number of bankruptcies and unemployed will increase.'  This is because the WTO will mean a cut in import tariffs, to an average of 10 per cent, by 2005, the opening up to foreign competition of sectors previously closed to foreign companies and the ending of many import quotas.

 Entry will force state firms to adapt to the market and improve their competitiveness, the Economic Times said.

 'We must not look only at the short-term costs and benefits. If we lose this opportunity to join the global economic system, we will pay an even heavier price.'  In comments in the United States, Mr Zhu made clear what he thought of the managers of state firms.

 'Most of the chief executives of these companies are not qualified for the job. We will turn the large state firms into stockholding companies and privatise the rest,' the premier said.

 Wang Shiyu, a management consultant, said WTO would merely hasten a process already under way.

 'These companies are dying anyway,' he said.

 'WTO will make it easier for foreign companies to acquire them. Other methods have failed.'  The vehicle sector is a case in point. The mainland has more than 120 vehicle plants which last year produced 1.63 million vehicles, less than that of a single big Japanese or US manufacturer. Beijing has repeatedly called for the small plants to close or be taken over for economies of scale, but provincial governments continue to subsidise them.

 Beijing has offered to cut car tariffs from 80 to 100 per cent to 25 per cent in 2005, with tariffs on parts cut to an average of 10 per cent.

 Quotas on car imports will be phased out by 2005.

 Andy Okab, vice-president of Beijing Jeep, a Chrysler joint venture, said this would mean the death of weak mainland car firms, especially those without access to foreign technology and expertise.

 'For us, it is a double-edged sword,' Mr Okab said.

 'With lower tariffs, the prices of our imported kits will come down. But it will create more competition, in price and quality. We cannot take the customer for granted and will have to compete against Toyota, Mitsubishi and Hyundai.'  The big mainland car-makers will survive but will have to get more know how and technology from their joint-venture partners, like Honda, Volkswagen and Citroen, he added.

 The impact will be greatest in sectors that have been closed or virtually closed to foreign competition, such as telecommunications services, insurance and banking, and least in others where the door has already been opened.

 Shenzhen Zhongxing Telecom said operators would suffer more amid the sweeping changes WTO entry would bring than equipment manufacturers.

 'Operators have been used to the monopoly of China Telecom,' a company spokesman said.

 'Now Zhu is supporting [China] Unicom and a third network to foster competition within China and improve the domestic industry.

 'Foreign operators will make a big impact because they are better at management, technology and service.'  Agriculture is one sector where the US has already forced open the door, signing a deal for improved access for wheat, citrus, meat and poultry exports.

 The mainland is globally competitive in meat, vegetables, fish, oilseeds and sugar beet and cane, but the prices of its grain and cotton are higher than world prices.

 But the country is well prepared, the Economic Times said.

 It has record grain reserves, falling prices and a state monopoly on imports.



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