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China’s Accession to the World Trade Organization. Presented. Fawn Else. Marjan Shallal. Maria Angelica Fleetwood. Pamela Hawe. October 28, 2002. Population: 1.29 billion Surface area : 9.6 million sq. km Population density (per sq. km) : 135 Annual population growth : 1.07 %
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China’s Accession to theWorld Trade Organization Presented Fawn Else Marjan Shallal Maria Angelica Fleetwood Pamela Hawe October 28, 2002
Population: 1.29 billion Surface area : 9.6 million sq. km Population density (per sq. km) : 135 Annual population growth : 1.07 % Life expectancy: Female – 70 years Male – 74 years GDP: US$ 1.1 trillion Govt Expenditure 20% Exports: US$ 232 billion Imports: US$ 197 billion GNI per capita : US$ 840 Labor force: 700 million (1998 EST.) Labor force (1998) Statistics for China General Economic
China’s Economic Development • Before 1949 Since 1949 • Great Leap Forward • Cultural Revolution • Deng Xiao-Ping's reform and open door policies: • Rural Area – household responsibility systems • Urban Industrial Enterprises – SOE autonomy • Reform in trade and investment • Cuts in tariffs • Elimination of export planning • Created economic zones • Banking – 1993 Peoples Bank of China made a federal reserve bank • Joined WTO in December 2001 – 143rd member
Why China Needs The WTO • China will be able to participate in the formulation of rules that govern international trade and investment • China will be able to facilitate increased competition in every sector of the economy • China’s economy will benefit from the expanded range of services—insurance, finance, distribution • Consumers and companies will benefit from higher degree of transparency and trade-related nondiscrimination • China will be able to attract even higher levels of foreign investments • WTO accession will help lay the foundations for political change and reform
China’s Entry into the Global Economy • Accession to WTO is an important step for the communist regime • One of the most important events into the WTO's history • Effects in bilateral trade with the US • China's economic relations with its neighbors • Likelihood that China will use its power to reshape the WTO in the future negotiations. • Big question: Why has China voluntarily agreed to comply with the WTO's many and complex rules, if it was the seventh largest trading country while operating outside the WTO?
China’s WTO Commitments • Tariff Reductions • Service Commitments • Systemic Reforms • Adherence to Existing WTO Agreements • China-Specific Trade-Liberalizing Provisions • Safeguard Special, Pre-existing Trade Agreements
Challenges for China and WTO • Internal and external pressures on the Chinese government to comply with the standards for the rule-based international trading system • How China's leaders expect to leverage the increased foreign competition created by WTO • The creation of a modern commercially oriented banking system and the access that foreign banks will gain to the Chinese domestic market • Country's ability to successfully generate new jobs (motor vehicle, banking, agriculture) • Degree in to which the terms of China's entry were more or less demanding that those imposed on other new members • The importance of maintaining open markets in the U.S. and other economies if China is to be successfully integrated
Benefits to the United States • Increase the access of US firms and farmers to the Chinese market • Increase American exports • Allow US companies to earn additional income through operations in China • Allow US consumers enjoy top Chinese imports and low prices • Reduction in tension between China and Taiwan is of strong political and economic interest to the US
U.S.-China Bilateral Relations Granting permanent normal trade relations was in the U.S national interest because: • Firms for Europe, Japan, Canada Australia would gain decisive advantage over U,S, Firms specially in the service sectors that China has agreed to open • Failure of the U.S. Congress to grant China would undermine the position of reformers in China • Failure of the U.S. Congress to grant permanent normal trade relations to China undermine the position of U.S.negotiators • Drafting of the protocol of accession and the report or the working party were the two key documents
Affect of Accession on Key Chinese Industries Steel Telecommunications Pharmaceuticals Semiconductors Financial & Legal Institutions
China’s Steel Industry PRODUCED 143.3 millions tons in 2001 (Largest producer in world, 13% increase from 2000) • Joint Ventures • Increased unemployment rate in steel industry • Promising market size • Dumping problems from Chinese steel companies are still a problem for U.S. steel industry • Demand for steel in China has increased relative to Western Europe, and the United States • If trends continue, China’s steel industry will become increasingly incapable of serving the country’s needs.
China’s Telecommunication Industry • Mobile phone users: • Estimated current 145 million users • 55 million new mobile users in 2002, a reduction from last year's 60 million • If the 20% estimated growth rate materializes the result will be more than 260 million subscribers by 2005 • In 2001, China surpassed US in the number of mobile phone users • Foreign companies’ will experience increased access to ownership in mobile and fixed phone companies’ after China joins WTO • Tariffs on high-tech imports will be eliminated by 2005
China’s Pharmaceuticals Industry • Imitations, patent piracy - push to develop new drugs instead of copying • Foreign pharmaceutical companies' products have higher prices, compared to local companies’ generic drugs. • Traditional medicines account for almost half of all medicines sold in the country. • Western companies will be able to enter China, but it's hard for Chinese companies to meet their requirements in western markets. • Changes in the demographic profile of the Chinese population & increased awareness of health-related issues
China’s Semiconductor Industry • Biggest semiconductor producer in the world and semiconductors will be duty free in 2005 • Sales of semiconductor equipment in China should reach US$4 billion this year and grow to US$7 billion by 2003 • There are publicly announced goals of building 14 to 18 new manufacturing facilities over the next ten years • China is the world's No. 3 I.T. hardware producer. It has overtaken Taiwan and is now challenging Japan
China’s Banking Industry • China's banking system is dominated by state-owned commercial banks • China plans to open up its banking sector to international competition over the next five years as part of its entry to the WTO • Citibank was first foreign bank to offer foreign currency services to mainland customers • Until WTO foreign banks could conduct business only with non-Chinese residents or foreign companies
Securities Industry • China's stock market is currently the second largest in Asia • China's bond market is also one of the largest in Asia, while it is overwhelmingly dominated by government bonds • China has committed on JV securities houses and fund managers in the WTO deal • The opening-up could result in: • Short-term pains for securities houses and increased volatility for stock market • Long-term benefit on the modernization of China's stock market • China's stock market is expected to nearly quadruple over the next 10 years • A collapse of China's stock market is not anticipated
Biggest Foreign Policy Challenge for U.S. • US Trade Deficit with China • The bilateral trade between China and U.S. has grown rapidly since WTO with the US accumulating an imbalance 84 billion • In 1999, the U.S. imported approximately $81 billion in goods from China and exported $13 billion – a six-to-one ratio of imports to exports that represents the most unbalanced relationship in the history of U.S. trade • It will take 50 years before the U.S. trade deficit with China stops expanding • In reality, the deficit path would lead to a financial crisis long before the deficit with China reached anything approaching $600 billion • China is committed but changing old laws is a massive job • China's protocol of accession will be a document so complex it will generate its own army of legal, accounting and policy experts to deal with it. • The commitment to WTO is clear at the central level of the Chinese Government, but there is an absolutely massive job to do in rewriting laws, regulations, and commercial structures • Cooperation of local authorities • Chinese leaders say that they pursued Word Trade Organization (WTO) membership as a means to continue China’s rapid economic growth, which would also help the Chinese Communist Party maintain its monopoly on power • The U.S. Government has a limited understanding of the perceptions held by Chinese leaders and the Chinese people of the US
Conclusions • China’s import of U.S. high-tech might explode ($970 million in 1992, $4.6 billion in 2001) • Increased anti-dumping suit disputes • Foreign auto makers will be able to sell cars anywhere • Foreign banks will be able to operate anywhere in the country by 2005 • Distribution will improve • Foreign accounting, legal, engineering, management consulting, and medical service outfits will be able to have majority ownership • Telecom companies will be able to invest directly in phone and internet services • $2-a-day labor will effect nations whose exports rely on cheap labor (Mexico, India, Indonesia etc..) • China is a big threat for high-tech manufacturer Asia countries, Beijing has set machinery and electronic products to $360 billion by 2005
Sources • GDP discussion: • http://www.pitt.edu/~tgrawski/papers2001/gdp912f.pdf • http://www.dfat.gov.au/publications/catalogue/eaaubp8.pdf • http://english.peopledaily.com.cn/200207/27/eng20020727_100429.shtml • http://www.hhs.se/personal/suzuki/a-English/China.html • http://www.wto.org • http://china.jamestown.org/pub/view/cwe_001_002_001.htm • http://www.brook.edu/views/testimony/20010509.htm • http://www.citizen.org/trade/china/index.cfm • http://special.scmp.com/chinawtobid/news • http://www.fpif.org • http://www.uscc.gov • http://www.brookings.orghttp://www.csis.org/http://www.law.georgetown.edu/iiel/