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China's ascension into the World Trade Organization creates a formidable new market and a formidable new competitor, but also raises uncertainties for the social and political outlook of China itself.
Representatives from the Chinese government and business leaders, both inside the country and out, delved into the implications of the opening up of the world's largest potential market at the Asia Business Conference 2002, held February 2 at Harvard Business School.
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| This is as great an opportunity as there ever has been. |
| — Jeffrey Shafer, Salomon Smith Barney International |
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The stakes are enormous, if only for this reason: China's gross domestic product growth continues at better than 7 percent even as other leading nations flop in a worldwide recession. The import market into China could soon hit $150 billion a year, said Jeffrey Shafer, Managing Director of Salomon Smith Barney International, in a speech earlier in the day. "This is as great an opportunity as there ever has been," Shafer said.
Far-reaching impacts
The impacts that China's move to the WTO will have far-reaching impacts on the United States, other Asian countries, and China itself, the panelists agreed.
For the United States, which is already the largest foreign investor in China, new markets will open up in a wide range of industries from agriculture to financial services.
Rudolph Schlais Jr., CEO of General Motors Asia Pacific, said the elimination of licensing quotas and reduction of import tariffs from near 100 percent in some cases to 25 percent by 2006, will result in rapid price drops benefiting Chinese consumers. Also, GM plans to take advantage of the newly opened markets to sell parts and services. Already, GM's financing arm, GMAC, is preparing to begin operations in China later this year.
Impacts on other Asian countries such as Korea is not quite as clear, and perhaps not as positive, several speakers said.
For example, while opening the China market will attract investment and business opportunities for Asia as a whole, Korea specifically could be hurt, said Dr. Dong-Sung Cho, Dean, College of Business Administration, Seoul National University. Chinese exports in textiles, white goods, furniture, and toys will lead to price-cutting and pose a competitive threat to Korea in global markets, he said. But at the same time, China will be an attractive market for Korea's mid- to high-technologies, and Korea's "trendy culture" appeals to many Chinese, providing business opportunities.
Domestic unrest?
The impact on China itself will even more far-reaching. Certainly over time, the country as a whole is likely to benefit by attracting more foreign investment, creating a modern infrastructure, strengthening the rule of law, and fostering an economic expansion that could be the envy of the world. Chinese consumers will see much lower prices and a wide variety of new services.
Also, as China grows in its economic power, the country is likely to take on a larger political role as a powerful voice in support of the interests of other developing countries.
But the more cloudy issues, some panelists suggested, are the hardships and dislocations in the short term that could pressure the government to resist some WTO reforms it has pledged to make.
An immediate casualty of opening agricultural markets to foreign producers is likely to be domestic soybean production—which is mostly handled by small, family run farms in the country's interior. The U.S. will be able to deliver soybeans and related oil products to Chinese consumers that are half the price of domestic products.
"Lots of soybean producers in China will have no job to do, they will be unemployed," said Ya-Fei He, Minister and Deputy Chief of Mission, PRC embassy to the United States. And such social problems will be a challenge for the government to address.
In addition to automotive and agriculture markets, other domestic markets in China likely to come under intense competitive pressures and consolidation include banking, insurance, and telecommunications, said Myoung-Ho Shin, Vice President of Asian Development Bank.
But Minister He, while admitting that the short term could be difficult for many in China, disputed views questioning China's willingness to complete the WTO-inspired reforms. He said China has been preparing for this moment for the last twenty years. Thousands of restrictive laws have been amended or repealed, the government is conducting an education campaign among the populace, and domestic industries threatened by new competitors are undergoing reform.
The government, he said, is very much determined to continue its dramatic changes, "even if we have to pay some short-term prices."
GM's Schlais said that if China does not adhere to the letter and spirit of its reforms—if there is any backtracking—the result could be "chaos."
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