U.S. firms' China hopes too high, analysts warn
By Haitham Haddadin
NEW YORK, May 22 (Reuters) - U.S. business leaders are keenly awaiting a landmark vote in Congress this week on China trade legislation, hoping that passage will create more opportunities for them in the world's largest market.
But analysts warn that dreams of commercial conquest may be premature, even if the House of Representatives grants permanent normal trade relations to China when it votes on the issue on Wednesday.
So-called PNTR, strongly backed by President Bill Clinton's administration and expected to face little opposition in the Senate, does away with annual legislative reviews of China's trade status and will ensure that U.S. companies benefit from a market-opening trade pact that Washington and Beijing signed in November.
Under that deal, China has promised to reduce tariffs and open markets for goods and services from agriculture to telecommunications once it joins the World Trade Organisation, the body that sets the rules of global trade.
``China is a tremendous market for us,'' said Norm Sandler, spokesman for Illinois-based mobile phone giant Motorola Inc. (NYSE:MOT - news), the biggest U.S. investor in China, with about $1.5 billion already poured into the populous Asian nation.
``We've done whatever we can to add our voice to those who are citing the benefits of PNTR approval and the downside risks of any kind of congressional rejection,'' Sandler told Reuters.
SODALITY AMONG SOFT-DRINK RIVALS
Other companies have lobbied for approval, including beverage giants Coca Cola Co. (NYSE:KO - news) and PepsiCo (NYSE:PEP - news). The companies say passage of PNTR is especially urgent since China and the European Union reached a similar deal late last week.
Investment house Lehman Brothers said in a report that it expected Congress to endorse Clinton's recommendation to grant China PNTR, adding that U.S. trade ties with its major partners were currently all mutually beneficial, except for those with China.
``That country enjoys access to our markets, but the relationship is not reciprocal. PNTR changes this policy and economic imbalance with one seismic vote,'' Lehman said.
Aerospace giant Boeing Co. (NYSE:BA - news), which sees China as the single largest market outside the U.S. for commercial jets in the next 20 years, says its market share there has been hit by competition from European rivals and uncertainty over deals with Chinese customers because of the annual U.S. reviews.
Analysts see particular benefits for telecommunications companies like Motorola and Qualcomm Inc. (NasdaqNM:QCOM - news), since they believe Beijing's entry into WTO will facilitate the deployment in China of code division multiple access technology, developed by U.S. firms and key for cell phones and other wireless devices.
They say China is set to be one of the largest markets for cell phones by the end of this year, with 55 million subscribers. It is also expected to become the third-largest market for semiconductors by 2001, which bodes well for computer component makers like Intel Corp. (NasdaqNM:INTC - news).
COMPUTER AND CHIP TARIFFS
Software mammoth Microsoft Corp. (NasdaqNM:MSFT - news) and Cisco Systems (NasdaqNM:CSCO - news), the top maker of data networking equipment, say PNTR will eliminate tariffs of 6 percent to 10 percent on semiconductors and 9 percent on personal computers sold to China by 2002 and open up U.S. investment in Chinese telecommunications and Internet companies.
PNTR would also be an important step in lowering Chinese tariffs on software -- now as high as 30 percent -- and fighting rampant piracy, which accounts for as much as 95 percent of China's software market, Microsoft says.
Analysts say that although stock markets rather expect PNTR to get the green light and have factored that in since the November deal, a modest positive impact on telecom stocks is still likely in the immediate wake of congressional approval.
Among agribusinesses, top grain processor Archer Daniels Midland (NYSE:ADM - news) said that under the U.S.-China pact, Beijing agreed to buy 4.7 million tonnes of U.S. corn in the deal's first year, against last year's paltry 70,000 tonnes.
U.S. officials see an extra $2 billion in U.S. exports of farm products in the next five years as a result of the deal.
Credit Suisse analyst David Nelson said short-term benefits were limited, given that China has a surplus of corn. But he noted that over the long term, China would not be able to be self-sufficient in food, with 22 percent of the world's population and only 7 percent of its farmland. |
