China's World Trade Organization (
WTO) entry in November 2001 is
beginning to reveal its impact. Five major sectors of industry have
been affected in different ways. So who are the winners so far?
No Shocks in Farm Products Market
The market in farm products was expected to be the one most
challenged by foreign imports following WTO entry. But the 2002
figures are turning out to be more favorable than estimated.
The customs service reports imports of wheat and rice down on the
corresponding period last year. Although imports of palm oil, sugar
and wool have seen increases they are actually struggling to reach
their quotas.
Sufficiency of local supplies has combined with level prices to
cushion the domestic market from any real shock to the system
brought on by an influx of foreign produce.
The release of import quotas for 2002 saw a narrowing of price
differentials between domestic and imported produce. Imports were
of course further inhibited where domestic production was actually
cheaper than the foreign competition.
Meanwhile substantial technological advances in domestic
agriculture continue to make their mark. High quality wheat now
grows in a full 25 percent of China's cornfields, so damping down
imports.
All in all the position is one of only modest increases in
agricultural imports.
Growth in Heavy Manufacturing
Increased imports of iron and steel have followed China's
commitment to reduce both tariff and non-tariff barriers. Thanks to
robust demand, these increases do not appear to be causing any real
difficulties for domestic producers who have actually shown
substantial growth in output.
However China's tariff reductions and easing of non-tariff barriers
may well turn out to have a negative effect on the restructuring of
the domestic iron and steel industry.
The most notable tariff reductions impact on two broad areas. One
is in hi-tech and high value-added goods such as cold-rolled
plates, hot-rolled plates, stainless steel plates, cold-rolled
magnetic silicon steel and the special seamless pipeline required
by the petroleum industry. The other is in high volume steel
products like deformed steel bar and wire rod. In the immediate
future domestic manufacturers will not find it easy to compete with
the imports on either quality or cost. China will act here to
nurture the fledgling domestic industries through temporary
protectionist measures to limit imports of certain iron and steel
products.
Auto imports have surged by no less than 55 percent between January
and September 2002. Within this overall figure, imports of sedan
cars are up 37 percent. The corresponding increases for 4-wheel
drive light cross-country vehicles, minibuses and trucks are some
146, 130 and 108 percent respectively. However the influence of
strict import quotas has mitigated any serious adverse impact on
the domestic auto industry as only part of the US$8 billion quota
is earmarked for the import of completed vehicles.
As
lowered tariffs stimulate demand they will also drive domestic auto
manufacturers down the road of price reductions to be achieved
through increased productivity. Up to now auto imports have won a
mere 3 percent share of the market and the domestic industry could
hardly fail to thrive in such a favorable trading environment. But
the halcyon days cannot last forever.
China's WTO entry brought with it a commitment to increase import
quotas by 15 percent each year. The total value of auto imports is
set to exceed US$9 billion in 2003. The bulk of this figure is
earmarked for the import of sedans and these increasingly
competitively-priced incomers are expected to have quite an impact
on the market for medium and high-grade sedans next year.
A
substantial number of surplus imported sedans are now waiting,
poised in bonded areas. Once released onto the market they will
soon make their presence felt.
Light Industries Benefit Most
The textile and garment manufacture sectors are thought likely to
benefit most from WTO entry. They have a competitive edge and a
strong share of both the medium and the low-end of the market.
With tariffs now set aside or at least lowered, foreign markets are
opening up to Chinese exports. Of course it is a two way process
and China has also had to lower its tariffs on imports. Here the
small trickle of imports poses little threat in China's domestic
market with its huge demand.
There may have been a little impact at the top end of the
ready-made clothes market, but the market is still unaffected in
the mainstream, middle and low-end. Robust growth in exports
coupled with a lack of impact from imports has made this a very
good year for the textile sector.
Analysts however are still skeptical as to whether the textiles can
maintain the momentum. They point to the developed countries
failing to live up to spirit of the Agreement on Textiles and
Clothing. Though they should have abolished their quota
restrictions on 33 percent of products, only a small percentage has
actually been freed up.
Thus though China's textile and clothing manufacturers may well see
their exports increasing, this is taking place in the shadow of a
continuing tariff ceiling which will impose a cap on the present
growth.
Enterprises engaged in the manufacture of household electrical
appliances have made good use of the business opportunity brought
by WTO membership and have been expanding into international
markets. This is particularly important for them due to current
oversupply affecting the domestic market.
Improvements in product mix, technical improvements and enhanced
core competitiveness have all combined to produce strong sales of
Chinese products in international markets.
Thus WTO membership has started a trend for China's manufacturers
of household electrical appliances to branch out from the
constraints of price competition in their home market and onto the
more profitable, international-standard world stage.
IT Production Moves to China
In
recent years more and more international IT companies have been
choosing to locate their production base in China. More stable
trading conditions and an improved environment for capital
investment have accompanied China's WTO entry and confidence has
soared among foreign investors.
Joint ventures in China now have well-developed, mass-production
capacity for many IT products. China is already the world leader in
the production of desktop PCs, mobile and fixed telephones,
CD-ROMs, computer monitors, printers and the like.
Integrated circuit (IC), core product of electronic and information
technology, is developing rapidly as some of the world giants in
the field set up manufacturing facilities in China.
China has become both an internationally important production and
distribution base for IT products. Overall WTO entry has brought
more benefits than challenges to the domestic IT sector.
Some products are subject to tariffs in international markets or
are made under license. Typically these would include monitors,
displays and some of the newer products in the digital and
electronic components fields. Inevitably they will be challenged by
imports.
Most domestic medium and low-end products have long faced fierce
competition from the international giants. Through a mix of
cooperation and competition, domestic IT manufacturers have shown
themselves ready to rise to the challenge and have seized the
opportunities as they came along. In the mobile phone market,
domestic brands like Bird, Kejian, Panda, TCL, Capital have
achieved rapid growth in production and sales in recent years. This
is a market no longer monopolized by foreign brands.
Financial and Retail Services
Foreign investors are showing increasing interest in entering the
retail market. Though the overall volume of inward investment in
retail is much the same as in the corresponding period in 2001,
some of this year's trends are worthy of attention.
Foreign investors are taking larger and larger stakes in local
retail joint ventures. This is especially the case with some of the
large profitable supermarket operations. They have set an excellent
example in the pace of opening-up. French retailing giant Carrefour
has a full 100 percent stake in its Shenyang Carrefour and Dalian
Carrefour supermarkets.
Domestic retailers are responding with homegrown alliances and
other measures aimed at enhancing their competitive edge to contend
with their new foreign rivals.
And now foreign banks have been allowed to engage in foreign
currency business across China as a whole and in Renminbi business
in some big cities like Shanghai, Shenzhen, Tianjin and Dalian.
A
trade war has broken out between the foreign and domestic banks as
they compete to attract clients.
The domestic banks are not unprepared. In particular those that are
listed on the stock exchange have achieved the most far-reaching,
systemic reforms and the greatest flexibility in their business
operations.
The banks that have proven their worth through successful public
share issues are thought most likely to become the major players in
the growing competition with the foreign financial giants.
(china.org.cn December 11, 2002)