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WTO won't be a bed of roses for China's coddled firms

Tourists walk past a Starbucks Coffeee outlet in Beijing's Forbidden City yesterday. Foreign companies expect greater access to China's markets after it becomes an active WTO member next year. PHOTO: AP

The champagne may have been flowing in Geneva after formal agreement on China's entry to the WTO, but for many Chinese firms it is just the beginning of a struggle for survival, analysts said yesterday.

"Agriculture, banking, insurance, steel and the auto industry will have a hard time and will suffer because they have been hiding behind a tariff wall, and also non-tariff trade barriers," said Chi Lo, head of regional treasury research at Hong Kong's Standard Chartered Bank.

China and its major trading partners reached formal agreement in Geneva on Monday on the terms of the Asian giant's WTO membership, the end of a process which first began in 1986.

"After 15 years of often arduous negotiations, the working party and its member governments have approved the necessary documents paving the way for China accessing to WTO," said WTO spokesman Keith Rockwell.

Overseas, China's WTO membership was hailed as a chance to breathe new life into the global trading system, but for many cosseted Chinese firms, plummeting tariff barriers over the next five years will spell big trouble.

"After China's entrance to WTO, listed firms will face more fierce competition not only from domestic competitors but also from overseas competitors," said China Eagle Securities analyst Ma Jian.

Up to now, firms in sectors from automobiles to agriculture often trade in regional markets in China and fight to keep firms even from other parts of the country off their turf.

For instance, buying a car made in the northern cities of Beijing or Tianjin is difficult in southeastern China's Shanghai because of strict licensing requirements that favor local car makers.

But soon, the WTO-led knocking down of trade barriers and the arrival of well-run foreign firms into the arena will mean sink or swim for many Chinese operators.

"After the WTO access, local protectionism cannot play a role in intervening in normal market competition. Some firms with inefficient management will be cleared out of the market while good companies will gain more room to expand their business," said Great Eagle's Ma.

Foreign firms are eagerly anticipating more open markets. General Motors "will benefit from greater access to the vehicle market in China, including the right to control distribution and provide customer financing," said GM chief executive Phil Martaugh.

China's 800 million farmers will also be hit hard by a rise in agricultural imports from countries such as the US, which can produce cheaper and better farm produce than impoverished Chinese smallholders.

The impact will most likely be felt even in areas which will still enjoy some protection, such as the securities industry, where joining the WTO will probably spark a consolidation, said Ma.

"There are around 90 brokerages on mainland stock markets and a reshuffle between them is unavoidable after China joins the global trade body," he added.

However, analysts said an overnight shift in the way business is conducted across China is not on the cards.

"We can't expect a sharp turnaround on the way things are done in China. We are talking about a change in business practice for the Chinese whose mindset is not close to the international norm yet," said Chi Lo.
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