impacts of china’s entry into wto on china’s econo - وبلاگ شخصی عیسی ذوقی خبوشان ( کارشناس ارشد مدیریت بازرگانی بین الملل )

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وبلاگ شخصی عیسی ذوقی خبوشان ( کارشناس ارشد مدیریت بازرگانی بین الملل ) (وبلاگ دسترسی به مقالات مدیریتی)

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Impacts of China’s Entry into WTO on China’s Economy ∗ نویسنده: عیسی ذوقی خبوشان - دوشنبه ٥ بهمن ۱۳۸۸

Impacts of China’s Entry into WTO on China’s Economy ∗

Zheng Bingwen Ph.D. Professor

Deputy President, Professor of the Graduate School of

The Chinese Academy of Social Sciences

China’s entry into the World Trade Organization (WTO) will bring about ten-aspect impacts on

China’s future economy: China’s entry into the WTO in the status of a developing country will

reduce negative impacts in the coming years and the entry can be regarded as the result of

“winning” for China, the United States and the WTO; it marks a new stage of China’s reforms and

opening up; it helps China participate in the process of economic globalization; it helps promote

rational resource allocation and enhance the comprehensive national strength; it helps China

absorb foreign funds and stimulate domestic demands; China’s entry into the WTO will greatly

affect the economic system; it will make the macro-economic control more difficult and there will

be greater possibility to subject China to the influence of world economic fluctuations; it will lead

to labor transfer among industries and more pressure on employment; the income gap between

farmers and urban residents will continue to be widened; a certain part of market share will be

given out due to the emphasis on intellectual property protection. In addition, China’s entry into

the WTO will greatly promote economic and trade exchanges between the two sides across the

Taiwan Straits and will help promote the great cause of China’s peaceful reunification; and it will

offer Hong Kong an opportunity for its third economic readjustments and transformation. But at

the same time, it will also bring about challenges.

The essay concludes by making an analysis on the different impacts of China’s entry into the

WTO on different industries and advantages and disadvantages.

On November 15, 1999, the Chinese and the U.S. governments signed a bilateral agreement on

China’s entry into the WTO. The signing of the agreement represents a key step for China’s

accession to the WTO. From the GATT to the WTO, the negotiations between China and the

United States has lasted for 13 years. It is not easy for the two sides to reach the agreement. It

indicates that China, the largest potential market in the world, will not only open up its market by

itself, but also open to the world conditionally and invite other countries to join in the effort. Then

what major impacts will be brought about on China’s economy?

I. Advantages and Disadvantages after China Enters WTO

1) China’s entry into the WTO will lead to winning for three sides

China’s entry into the WTO actually represents the result of winning for three sides: China, the

United States and the WTO. It is known to all that although China is a developing country, its

total economic capacity ranks seventh in the world. It also has become the 10th largest nation in

terms of trade. In the 21st century, its economy will produce more conspicuous effects on the

world economy. Without China, the WTO is incomplete and its role will be limited greatly. Thus,

China’s entry into the WTO is necessary for WTO to realize its universality. As for the United

States, China’s entry into the WTO will realize the general needs of the development pattern and

mutual interests of the Sino-U.S. bilateral trade and will help gradually solve the problem of huge

deficits in the U.S. trade with China.

As for China, through 13 years’ difficult negotiations, China finally has realized its objective

to join the WTO as a developing country. The contents of the bilateral agreement between China

and the United States fully demonstrate the fundamental principle. China’s entry into the WTO as

a developing country is of great significance, which implies China can enjoy, according to law, a

developing country’s preferential arrangements, protection of and export subsidies for infant

industries and elastic stipulations of the tariff system. For example, China will retain a 25 percent

import tax rate in its auto industry after a six-year period; in the agriculture sector, most of

markets will be franchised by the State (involving wheat, maize, rice, cotton, sugar and fertilizer)

so as to ensure the State has sufficient means in macro-economic control and to avoid harms to

* The data in this essay are cited from “Research Report on China’s Entry into WTO: China’s Industries in WTO”

compiled by Yu Yongding and Zheng Bingwen, Social Science Literature Publishing House, December 1999.

farmers’ interests; and the banking sector will gradually open according to the transitional period.

Moreover, in some sectors, markets are still not open, or the opening of market has to be approved

by the Chinese government. Only developing countries have the right to enjoy the abovementioned

buffer opportunities. In the Sino-U.S. agreement, there are no such contents that

prohibits China from adopting WTO exceptional clauses, instead, China can adopt exceptional

clauses which are exclusively applicable to developing countries. This objectively recognizes that

China enjoys the status of a developing country and means that China can adopt such exceptional

clauses such as protection of infant industry. When its domestic markets are seriously affected

and harmed by external factors, China can adopt temporary measures to compensate.

In short, China’s accession to the WTO as a developing country ensures that China’s obligations

to WTO are compatible to its current development level, thus greatly reducing the negative effects

on China’s industries resulting from its entry into the WTO.

2) China’s entry into the WTO marks a new stage for its reforms and opening up

The practice in the past two decades proves that the earlier an industry pursues reforms and

opening up, the faster it develops. Reforms and opening up is the only way for China.

Meanwhile, it should also be noted that after two decades’ reforms and opening up, China is at a

crucial moment: all difficulties that China is now encountered with, such as reforms of stateowned

enterprises, sluggish market, unemployment and social security, concern the overall

situation of social, political and economic stability. The failure in solving these key problems will

lead to retrogress. As far as the logic of reforms and opening up is concerned, China’s entry into

the WTO will further promote reforms by means of making us of foreign funds and external

impetus and break bottlenecks in the process of reforms. Therefore, in this sense, China’s success

in entry into the WTO marks a new stage for its reforms and opening up.

3) China’s entry into the WTO is helpful to its participation in the process of economic

globalization

As a developing country with huge potentials and an enormous economic system to join such

a world trade organization like GATT/WTO, China can exert its influence on the WTO’s

operational rules and take part in the formulation of the rules rather than only passively implement

the rules. This will raise China’s status in the international community, enhance the bargaining

weight of developing countries and regions, and help China integrate with the main force of world

economy as soon as possible, take part in the process of economic globalization and pursue the

link and complementarity with world economy. Meanwhile, China’s entry into the WTO will help

China break local protectionism and departmental monopoly in the country and learn from other

member countries in establishing the modern enterprise system so as to accelerate the

establishment of its socialist economic market system and legal construction.

4) China’s entry into the WTO will promote rational resource allocation and enhance

comprehensive national strength

It is predicted that in 2005 when China accomplishes its commitments on its accession to the

WTO, its GDP and social welfare income will increase by 195.5 and 159.5 billion yuan (based on

the 1995 price) respectively, accounting for 1.5 and 1.2 percent of the total GDP in the year. Such

a large sum of gains mainly comes from the raised efficiency resulting from re-allocating

resources according to comparative advantages. In addition, following China’s entry into the

WTO, some industries will have huge opportunities. For instance, the developed textile-import

countries have gradually implemented the agreement on revoking textile import quotas since

1995, but have imposed more restrictions on textile quotas on China and asked it to renew textile

quotas agreements. As a result, China’s textile exports went down. After China joins the WTO,

the textile export quotas will be phased out by 2005 in line with WTO’s stipulations and the

discriminating quotas hindering China’s textile export by the United States and other developed

countries will be revoked. Textiles, garment, shoes and hats are China’s traditional export

commodities, accounting for about 20 percent of China’s total exports.

China’s accession to WTO will also benefit some of its chemical and steel products apart from

textiles. It is also beneficial to the industries with scale production and mature technology for

such products as color TV, washing machine, electric fan, bicycle, toy, pen, stationery products,

canned food and some electric and machinery products.

5) China’s entry into the WTO will help absorb foreign investment and stimulate domestic

demands

To cope with domestic economic changes and low demands resulting from the system shift, the

Chinese government has adopted a series of active financial and monetary policies. As for

monetary policies, in the past few years, China has adopted a series of measures including

continuously lowering interests rates of savings deposits and credit loans, and base ratio of

commercial banks, and adopted showcase guidance to commercial banks so as to stimulate

domestic demands and consumption. But the policies did not work as effectively as expected. In

a long-term perspective, China’s accession to the WTO will greatly improve foreign investment

environment. The transparency of laws and realization of national treatment to foreign investors

will absorb a large sum foreign capital. It is forecast that till 2005, China will attain foreign

investment of 100 billion U.S. dollars (in the 1990s, the foreign investment to China was less than

250 billion U.S. dollars).

The economic returns after China’s accession to the WTO mainly come from the efficiency

earnings resulting from its share of economic globalization when China takes part in international

division of work. The efficiency earnings, however, are not equally distributed among various

industrial sectors and this will inevitably lead to a comparatively large readjustment of the

economic structure. The output level of the sectors under protection and being capital intensive

such as automobile, instrument and meters, cotton and wheat will be greatly affected, but labor

intensive sectors such as textiles and garment will benefit. In a word, the accession to the WTO

will also bring about great pressure and stern challenges to China.

6) Some system impacts and conflicts might arise after China joins WTO

There is a fundamental common ground, namely market economy, between China’s market

economic structure and WTO’s basic principle. But there are also major differences between the

existing economic system in China and WTO’s basic principle. For instance, apart from the

economic field, there are many disparities in concept, culture, politics and tradition. The

disparities will inevitably produce great impacts on and conflicts in the system. While continuing

to engage in construction of the socialist market economic system with Chinese characteristics,

China will follow the “general rule” of the WTO to participate in international division of work.

A series of band-new and major theoretic and practical problems call for solutions. Just as in the

first half of this century the Chinese Communist Party applied Marxist basic principles in the light

of China’s concrete conditions to find solutions to the problems in China’s revolution, now China

has to use the general rules of world market economy in the light of its concrete conditions to

reconstruct and perfect its market economic system with Chinese characteristics. But the situation

is more complicated and stern. We would rather regard the WTO as a “double-edged sword” than

crying for “help” as if a wolf is coming. The question is how to freely use the WTO’s rules to

serve the construction of China’s market economic system with Chinese characteristics. The

immediate problems that we will come across include that some industries that will be out of

protection or large- and medium-sized State-owned enterprises will be greatly affected.

Comparing with the period before China joins the WTO, the changes will be unprecedented in

nature, time endurance, extent and scale; there will be great changes in foreign-funded enterprises

and solely foreign-funded ones in operation range, economic influence and control capacity. In

short, it will take a long time to readjust and to adapt to the disparities in the system.

7) It will be more difficult to pursue macro-economic control and it will be more possible to

subject China to the impact of world economic fluctuations

After China’s entry into the WTO, China’s products will become more dependent on the world

market and its fixed capital investment also become more dependent on international capital

market. Especially, in some years as committed, markets of banks, securities and foreign

exchanges in China will completely open to the outside world. Thus, fluctuations on

international commodity market and capital market will produce conspicuous impacts on China’s

market and so will international financial turmoil. Although the opening of financial service

market does not necessarily mean that Renminbi can realize free convertibility under capital

account, it will still produce major impacts on China’s banking sector. Once there are problems

in financial safety, the State security will be greatly affected.

8) The labor transfer among different sectors will be under major readjustment and the

employment pressure will be on the increase

The proportion of employment in China’s agricultural sector is high and the number of the

laborers in the sector account for more than 60 percent in total employed population in the

country. Due to the low level of intensive production in agriculture, China’s bulk grain products

are disadvantageous in production and their prices are in disparity with those on international

market. After China’s entry into the WTO, farm produce market in China is likely to be seriously

affected and a large number of rural laborers have to shift to industry and service trade. A

research shows that from 1999 to 2010, about 10 million rural laborers need to be transferred to

other sectors. The labor transfer among different sectors, or the readjustment of industrial

structure, will correspondingly result in readjustment cost. In addition, when China joins the

WTO, the drastic reduction of tariff and non-tariff barriers will inevitably and greatly affect the

industries that are not competitive. Some industries and products with high capital and technology

content, such as information, finance, chemical pharmacy, automobile and machinery, will be

forced to leave the market gradually, thus resulting in new pressure on employment. This year, the

number of laid-off workers from the State-owned enterprises was about seven million. The

monthly living fees for each of them was about 170 yuan. Plus social security payment, the laidoff

workers per capita could get about 253 yuan each month. The drastic increase of the number

of laid-off workers will certainly exert new pressure on the State finance under the inadequate

social security system at present in China.

9) Unfair income distribution will become more serious

After China joins the WTO, the income of rural residents may decrease due to the effects on the

agricultural sector. Although some rural laborers will be transferred to other sectors, in 2005 the

actual income of rural residents will decline about 2.1 percent from basic situation while urban

residents’ actual income will increase 4.6 percent. The widening gap between the income of rural

and urban residents will bring about potential negative impacts on social stability.

10) The enhancement of intellectual property protection has to give up a certain share on the

market

Intellectual property concerns every industry, but it does not exclusively belong to a certain

industry. When it joins the WTO, China has to completely implement its right and obligations in

the intellectual property sector, enhance intellectual property protection and especially effectively

and forcefully deal with and crack down on counterfeiting acts and piracy. As a result, those

enterprises lacking innovation and brand products, and depending on imitation will be eradicated.

A certain market share has to be given up finally. But in a long-term perspective, our enterprises

must rely on and employ intellectual property to encourage and protect themselves and raise their

capacity to master and use intellectual property if they want to survive, to develop and to compete

on international market to greater extent.

II. The Situation on the Two Sides of the Taiwan Straits and

in Hong Kong after China joins WTO

The Taiwan authorities’ “caution and patience” trade policies towards the mainland has been a

major factor that restrains the trade development between the two sides. Since the beginning of

the 1990s, Taiwan authorities have adopted a series of measures to relax restrictions for its trade

with the mainland, but the situation dominated by “non-governmental, indirect and one-way trade”

has remained unchanged on the whole. However, the reforms and opening on the mainland have

objectively promoted the further development of economic cooperation and trade relations on the

two sides across the straits. In the past 20 years, interdependent economic relations on the basis of

mutual benefits have been established between the two sides across the straits. Such relations

have brought about actual benefits to the two sides and also injected vigor into Taiwan’s island

economy. When the Chinese mainland and Taiwan join the WTO, the economic and trade

exchanges between the two sides will surely be promoted and there is a win-win possibility with

mutual benefits.

In 2005, the external trade value of the Chinese mainland will drastically rise to 600 billion U.S.

dollars from 300 billion U.S. dollars. Now the indirect trade value has exceeded 30 billion U.S.

dollars. Now Taiwan’s indirect trade volume with the mainland amounts to more than 30 billion

U.S. dollars every year. When the Chinese mainland joins the WTO, Taiwan, which will join the

WTO as an independent tariff zone, has to lift most of its policies banning direct trade with the

mainland. The mainland, already the second largest trade partner of Taiwan, will expand its trade

volume with Taiwan. For instance, in the first half of 1999, Lee Teng-hui’s “two-state” remarks

seriously dampened Taiwan businessmen’s enthusiasm in investment in and trade with the

mainland, but in the first eight months of 1999, the trade volume between the two sides still rose

to 16 billion U.S. dollars, an 8 percent growth over the same period of 1998. After the mainland

joins the WTO and lowers its tariffs, exports of Taiwan’s competitive products such as

petrochemicals, rolled steel and electronic products to the mainland will certainly be promoted.

In addition, China’s entry into the WTO will be conducive to its reunification. According to

WTO’s related stipulations, when the mainland and Taiwan become members of the WTO, Taiwan

should realize “direct mail, direct air and shipping services, and direct trade” with the mainland.

The issue will soon be put on the agenda between the two sides.

For Hong Kong, China’s entry into the WTO will provide more opportunities to it. Hong

Kong’s return to the embrace of the motherland ensures closer economic and trade ties between

Hong Kong and the inland areas. China’s entry into the WTO will surely further promote the

development of economic and trade relations between Hong Kong and the world. Making a

review of the post-World War II history, the industrial structural upgrading and economic

transformations in Hong Kong were all prompted by the factors in the inland areas. In the 1950s

and 60s, because the inland areas were beset with outside blockade and embargo, a large number

of laborers shifted to Hong Kong. On the basis of its traditional re-export trade and port industry,

Hong Kong’s manufacturing industry developed at an unprecedented rate and it turned to be one

of the major manufacturing centers in Asia. After 1978 when China adopted reform and opening

up policies, Hong Kong’s economic structure witnessed another major change. Large batches of

labor-intensive manufacturing enterprises moved northward to the inland areas and Hong Kong’s

financial services were emerging. Hong Kong has switched from a manufacturing center to a

financial service center. The facts of the past two decades proved that the more China is opening

up, the more Hong Kong benefits. China’s entry into the WTO will not weaken Hong Kong’s

status, instead, it will create the third historic opportunity for Hong Kong’s development: (1)

When China joins the WTO, the drastic increase of China’s foreign trade will stimulate the growth

of Hong Kong’s trade and re-exports. Hong Kong has the latest and most advanced shipping and

air facilities and it is playing a due role in the trade between the east and west. Although there

will be more rivals in trade comparing with the time before China’s accession to the WTO, the

number of directly export-oriented enterprises in the inland areas will increase at the same time

and Hong Kong’s high-quality service and geographic advantages will make Hong Kong’s

intermediary status irreplaceable. (2) Non of the cities in the inland areas can replace Hong

Kong’s status as a financial center, which is a basic fact determined by foreign exchange policies

of the inland areas. Hong Kong has ever been a haven for foreign funds, for it enjoys an adequate

banking system and a low tax system. The principle of “One Country, Two Systems” will ensure

Hong Kong a long-term stability, prosperity, fine credit, mature market and accumulation of

foreign funds. Thus, Hong Kong’s status as a financial center will remain unchanged for long and

Hong Kong will be more prosperous. (3) Hong Kong enjoys a unique trade and investment

service system. Many business cooperation, operation and arbitration between the East and the

West will still be done in Hong Kong, because lawyers, accountants and surveyors in Hong Kong

are quite familiar with laws and the accounting system in the inland areas, familiar with the

business relations between investors from inland areas and Chinese investors in Hong Kong, and

familiar with inland markets and consumption habits. Foreign investment in finance,

telecommunications and insurance and other industries in China have provided more opportunities

for Hong Kong businessmen.

Although the inland areas and Hong Kong have relations like milk mingling with water and they

share broad prospects on the basis of mutual benefits, China’s entry into the WTO brings about

not only opportunities but also challenges to Hong Kong. For example, the above-mentioned

various types of service sectors in Hong Kong that are now in the advantageous position will be

under a “pincer attack” from the inland areas and the world. On one hand, the service sectors in

the inland areas including banking, law, finance, accounting, trade and telecommunications will

rise soon. “Learning effects” will make State-own enterprises and private enterprises in the inland

areas competitors to Hong Kong businessmen. On the other hand, some corporations of

international fame will come to the inland areas in groups and they will also become competitors

to Hong Kong businessmen. In addition, a large sum of foreign funds will be directly invested in

the Chinese mainland and the Hong Kong funds will encounter acute competition.

In short, after China joins the WTO, Hong Kong will face both opportunities and challenges.

Facing multiple pressures, the related industries in Hong Kong should seize the opportunity and

make constant readjustment and improvement so as to promote Hong Kong’s third economic

readjustment and transformation.

III. The Impacts on China’s Industries

China’s entry into the WTO marks an entirely new period for its economic development. But

this has different effects on different sectors and different industries. As for the same sector and

industry, the long-term effects and short-term effects are also different. We should adopt a

positive attitude and make an in-depth study of the WTO so as to make use of advantages and

avoid disadvantages. We should take the opportunities brought about by China’s accession to the

WTO and meet with new challenges.

For a long time, China has adopted protective tariff policies towards the import of farm produce.

Although China exempts taxes on import of grain, cotton and edible oil, it sets 50 to 100 percent

high tariff rates on imports of other farm produce and adopts other non-tariff measures like

planned quotas, import permit, technology and sanitation test standard. The Sino-U.S. bilateral

agreement signed on November 15 states that China will reduce the average tariff rate on farm

produce to 17 percent and reduce the average tariff rate on the farm produce that the United States

concerns to 14.5 and 15 percent. The tariff rate reduction is to be completed before 2004. In the

next five years, the subsidies to farm produce export will be gradually abolished; all the import

quotas and quantity limits will be lifted; and private importers are to be permitted to take part in

import business. But China will set up a tariff ceiling system in the agricultural sector. After

China’s entry into the WTO, in a short term, the grain production including wheat, maize and rice

will not be greatly affected. But as import quotas on cotton and edible oil will be larger than

previous actual imports, especially the import quota on cotton has already accounted for more than

15 percent of the domestic output, the cotton production will be greatly affected in a short term.

From a medium- and long-term viewpoint, the effects on wheat and maize production call for due

attention. It is estimated that China’s annual wheat import will increase from 2 million tons now

to 5 million tons, which will bring about 5.5 billion yuan worth of losses to Chinese farmers every

year. The disparity among regions and the income gap among farmers will also be widened. The

macro control capacity of the government over agriculture, especially over grain, will be affected,

that is, it can not use traditional methods to control import quantity below the quota amount

through the monopoly position of the State-owned foreign trade departments. Apart from the

problems mentioned above, China’s agriculture also has development opportunities. It will enjoy

general favorable treatment for WTO member states, improve export environment, expand export

channels and make up the defect of deficiency of resources per capita in China. It has provided

favorable conditions for readjusting the agricultural structure and the import and export structure,

and for upgrading product quality. It is beneficial to promoting the reforms of the country’s

circulation system for farm produce and promoting industrialization of agriculture.

Textile Industry

In the bilateral agreement between the Chinese and U.S. governments, the U.S. side promises

that it will revoke import quotas on textiles in 2005. But the Chinese government allows the

United States to retain the import quota on textiles from China to the United States till 2009 so as

to avoid market chaos in the process of abolishing the quotas. There are more favorable factors

than unfavorable ones on China’s textile industry after China joins the WTO. Trade barriers will

be greatly reduced and trade liberalization among member states of the WTO will be further

raised, which will benefit the diversity of China’s textile export market and bring about steady

increase in export quantity. The disputes on textile trade can also be rationally settled in the

frame of the WTO. In addition, after China enters the WTO, the decline of tariff on import of

textile raw materials will help China’s textile enterprises lower production cost and raise their

profits and competitiveness. The improvement of international trade environment and reduction of

production cost will promote China’s textile exports. Moreover, China’s entry into the WTO sets

new demands on its textile sector in its reforms in the management mechanism, and planning and

investment systems, that is, when enterprises are geared to domestic and international markets,

major changes have to be made in planning and investment systems. The management of

industries is expected to shift to mainly exercising macro control and rendering services to

enterprises. Industrial policies will be used more to realize industrial management. Finally,

China’s entry into the WTO will promote readjustment of its textile industrial structure. By

acquiring advanced technology at the price of opening a certain part of market and enhancing the

development potential for the man-made fiber industry, China can accelerate structural

readjustment of its textile industry and raise its capacity in international competition.

Iron and Steel Industry

(1) After China’s accession to the WTO, China’s export environment will be improved. At

present, export of China’s most iron and steel products has already enjoyed preferential tariff rates

in most countries. When China joins the WTO, the existing tariff reduction of other member

States will not exert distinct favorable effects on the growth of China’s iron and steel products, but

other member States must eliminate non-tariff barriers such as quotas and permits. That will bring

about favorable effects on the exports of China’s iron and steel products. China’s advantages in

metal resources and rare earth resources will work in international competition and the exports of

iron alloy and steel cable will be promoted. (2) Pressure on investment in scientific and

technological progress and technology upgrading will be increased. After China’s accession to the

WTO, the technological development in various domestic industrial sectors will be speeded up

and demands for high-quality and high-grade new products on domestic and world markets will

gradually rise. Now China’s iron and steel enterprises lack funds in development of new products,

but the funds of international iron and steel enterprises in development of new products usually

account for 4 percent of their annual sales income. As far as China’s iron and steel enterprises are

concerned, it is difficult for them to reach the investment level. After China’s entry into the WTO,

its domestic market will be widely connected with the world market. But China’s reinvested

construction cost is relatively high, which will affect the development of its high-tech steel

products. (3) The economic returns of the iron and steel industry may decrease by large margin.

The prices of various kinds of rolled steel tend to be identical with the international market. Due

to the high cost of China’s iron and steel production, its economic returns will be greatly affected

in the near future.

Petroleum and Petrol-chemical Industry

China’s petroleum and petrol-chemical industry will be faced with great pressure. (1) The

effects of China’s accession to the WTO on sub-industries in China’s petroleum and petrolchemical

industry differ greatly. Oil production industry: Tariff on import of crude oil adopts a

fixed tariff system, with tax on one-ton oil being only 16 yuan. Tariff reduction produces little

effects on the industry. Petrol-chemical industry: At present, it is mainly protected by higher

tariff. When the average tariff level is reduced from 17 to 9 percent, the current domestic market

share of man-made fiber and chemical will drop by about 50 percent, but there will be little effects

on large-sized enterprises that have the capacity to produce a series of products. Oil refining

industry: This industry will be greatly affected, since the enterprises in the industry are small in

size and are more in number. Their cost is higher than the average international level. Sales

industry of refined oil: it will be challenged by the entry of the sales offices of large foreign oil

corporations. (2) Economic returns will be greatly affected. After Chine enters the WTO, the

implementation of tariff reduction, quota permit abolition, trade right and sales right for foreign

corporations and other market access obligations will result in import of great quantity of

petroleum and petrochemical products and decline of market prices, and will seriously affect

economic returns of China’s petroleum and petrochemical industry. (3) Market share rate will

decrease. Some products are weak in price competitiveness and development of new products is

far behind. Facing competition of foreign products, the market share rate of domestic petroleum

and petrochemical products will decline. The growth of capacity to make polyolefin will slow

down and according to calculation on current competition level, the market share rate of

polyolefin will drop by nearly 10 percentage points. (4) Making use foreign investment and

introducing technology will be more difficult. First, international super transnational groups will

gradually shift from capital monopoly to technology monopoly; second, foreign capital is more

inclined to set up solely-funded enterprises in China; third, in the case of global overproduction,

market has become a more rare resource than technology, capital and nature elements.

Machinery Industry

In general, the effects on machinery industry are limited after China joins the WTO, but those

enterprises that are weak in competitiveness will face difficulties and most of machinery products

can not avoid being affected. The sectors that will be affected can be divided into two categories:

the emerging high-tech industry, high value-added industry, precision-work and deep processing

industry; low-level repetitive construction projects and small-sized industry with higher prices

than the prices on international market. After china’s entry into the WTO, the integration of

international and domestic market of machinery products will be accelerated, which is helpful to

the development of China’s machinery industry. (1) Enterprises’ operational mechanism will be

promoted from a passive pattern to an active pattern. Domestic enterprises will face greater

pressure from global competition and they are prompted to organize their production and

operation and promote technological progress in the light of international standard system, market

demands, price levels and sale promotion practice. (2) It is helpful to introducing technology,

absorbing foreign funds, and upgrading machinery products. While the industrial structure of

national economy are being readjusted and reorganized, China’s entry into the WTO will enhance

the confidence of foreign investors and prompt them to invest in technology- and capital-intensive

machinery enterprises so as to facilitate readjustment and optimization of product mix and

enterprise organizational structure. (3) China’s machinery products can automatically enjoy mostfavored-

nation treatment and national treatment of importing countries, thus improving the export

environment for machinery products and diversifying export markets.

Automobile Industry

Automobile industry is an industrial sector that enjoys highest protection from import. Now

the weighted average tariff rate of automobile products is 55 percent with 80 to 100 percent tariff

rates for sedan cars. After China’s entry into the WTO, China’s tariff rate for cars will be reduced

to 25 and 35 percent and the rate for automobile parts be reduced to 10 percent in the transition

period till 2005. The import quota value of automobile annually rises 15 percent on the base of 6

billion U.S. dollars till the quota is totally canceled. Sedan car industry is facing stern challenges.

After China joins the WTO, (1) Import of automobile products and software and hardware

technology for auto industry will increase at a large margin and the production of China’s

automobile industry is expected to decrease 11 percent. In the five-year transition period, the

price for imported cars will decline at an average annual rate of 2 to 3 percent. It is preliminarily

estimated that the market share rate of imported automobile products will rise from present 3

percent to about 10 percent. (2) Automobile industry will enhance its competing edge. As the

largest motorcycle producer, China has obvious advantages on the world market. It is also

advantageous in lorry and mini-bus production. Due to graduate reduction of tariff and quotas in

the transition period, the adverse effects on China’s automobile industry will be buffered, which

will allow optimization of the automobile product mix, growth of production and improvement of

competitiveness of automobile industry. (3) With competition becoming more acute, technology

upgrading will be more likely. The opening of domestic market will be obviously accelerated,

which has extensively and deeply enhanced competition on domestic market of automobile

products. The original “import substitute” products or technology for “secondary assembly

stations of transnational corporations” can not meet the demands of new market competition. (4)

Domestic service market will be expanded. Foreign service enterprises will further enter China’s

automobile service market to fill some blanks in Chin’s service sector, which is helpful to meeting

the demands on service from production and consumption.

Information Technology (IT) Industry

China’s current average tariff rate on import of IT technology products is 13.3 percent. After

China joins the WTO and in 2005, China’s tariff rate will be zero and China will lift the market

access restrictive measures such as demanding foreign enterprises’ technology transfer and

increase of China’s export quota. In general, China’s IT industry will have more favorable effects.

China’s entry into the WTO will help improve China’s export environment and increase China’s

IT products’ share on the world market; it will help domestic enterprises reduce procurement cost

for raw materials; it will facilitate China’s enterprises to open up the world market for

development; and the opening and development of telecommunications services will promote

growth of production of telecommunications terminal equipment. High technology focusing on IT

is the commanding elevation for world countries to pursue. To occupy China’s IT product market,

developed countries will pursue more tight blockade and control on technology to China. When

the restrictive measures of “technology for market” and “market for market” are lifted, it will be

more difficult for China to acquire foreign advanced technology. With the demands on China’s IT

product market increasing, imports of overseas products will be greatly increased and the

approaches of market competition will be diversified. On the other hand, since lots of core

technology of IT industry and high technology are owned by developed countries, China’s IT

industry will be in disadvantageous position in competition.

Telecommunications Service Industry

In the Sino-U.S. bilateral agreement, the Chinese government promised to allow foreign

capital to have 49 percent of the total shares of the Sino-foreign funded telecommunications

service enterprises. After one year operation, foreign capital’s share can rise to 50 percent;

Foreign Internet Service Providers (ISP) are permitted to invest in China; foreign corporations can

participate in China’s satellite telecommunications business. China’s entry into the WTO will first

bring about disadvantages and then benefits to the country’s telecommunications service industry.

(1) China’s telecommunications service industry is facing stern challenges. The opening fields

and extent involved in the Sino-U.S. agreement are very broad and thus, the opening up and

reforms of China’s telecommunications industry are facing stern challenges. Foreign

telecommunications capita will make use of China’s existing telecommunications network

resources to compete with State-owned enterprises in the added-value business and mobile

telecommunications business with highest economic returns. The sate-owned enterprises,

however, are disadvantageous not only in value-added technology and experiences but also in

fixed telecommunications facilities construction and “universal service” and other quasigovernment

functions. (2) The reform and reorganization of China’s telecommunications industry

will be promoted. In a perspective of long-term interests, the opening of China’s market to foreign

investors will enhance the mobility of China’s telecommunications market. Any price reduction

resulting from market opening up will benefit consumers, which will greatly stimulate demands to

spur capital reorganization in the telecommunications industry. Finally, the telecommunications

industry on the whole will benefit.

Finance and Insurance Service Sector

The bilateral agreement between the Chinese and U.S. governments has made substantial

stipulations on the market access conditions of China’s financial service trade: Foreign banks can

engage in Renminbi business two years after China joins the WTO and in 2005, they can open

retail banking business; foreign banks can set up branches in China; a small number of Sinoforeign

jointly funded securities corporations can engage in fund management, securities issue

business and foreign-currency based securities business; at the early period when the Sino-foreign

jointly invested fund management corporations are set up, the foreign side can own 33 percent of

the total shares. Three years later, their shares can increase to 49 percent; those corporations

engaged in underwriting securities can have 33 percent of shares. After China’s entry into the

WTO, China’s financial sector will be affected to some extent, but in general, it will benefit: (1)

China’s financial institutions are facing challenges. In 2005 when China completely opens its

Renminbi market, the operation of domestic banks will be greatly affected. In the early period

after China joins the WTO, China’s financial sector will be opened step by step and the effects of

the market access on it are small. But if China’s commercial banks fail to promptly improve

management and service quality, and to reduce risks and bad loans, the entry of foreign banks will

exert great pressure and impacts on China’s financial industry in competition. (2) It is favorable to

the reforms of the financial system and development of State-owned financial enterprises. After

China opens its financial service market, the entry of foreign financial capital in China will prompt

domestic financial institutions to conduct reforms of the management system, supervision system,

management and service standard in line with international standards or norms. The competition

mechanism will be introduced into the finance sector; the fine management of foreign financial

institutions will provide an example for domestic counterparts and by learning of advanced

management methods, the management of domestic financial institutions will be improved. (3)

Domestic financial institutions will continue to maintain its competitive edge. Through many

years of development, domestic financial institutions have set up a relative complete service

network and have strong capability to cope with the situation. In their relations with customers

and domestic business experiences, they enjoy irreplaceable advantages. The first choice of

competition fields for foreign financial institutions is intermediary business like international

settlement with less risk, low cost, and high profits. They are weak in competition in the

traditional sector for the time being. (4) As for the insurance sector, their opening process will be

tighter in procedures and system after China joins the WTO. At present, the traditional

management and supervision over the insurance market in China is to conduct dual management

and supervision over indemnity rate and payment capability. All insurance activities are under

complete supervision of insurance supervision departments. After China’s entry into the WTO, a

large number of foreign insurance companies will enter China’s insurance market, which will

prompt a complete reform of China’s insurance supervision and management system.

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