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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: DMaA who wrote (9448)	11/16/1999 12:35:00 PM
From: CIMA	Read Replies (2) \| Respond to of 9980

On WTO, China Concedes Much on Paper, But Little in Reality Summary: China and the United States have signed the bilateral trade agreement vaulting China over the largest hurdle to membership in the World Trade Organization (WTO). But for the West, the agreement holds less than meets the eye. Beijing will still have considerable control over how - and where - Westerners invest. China appears to be playing for short-term benefits, such as a surge in Western dollars. Indeed, before the ink was even dry, Beijing portrayed this as a sign of political strength versus the United States, not as an important economic reform. Analysis: The United States and China signed a bilateral trade agreement Nov. 15 in Beijing. Upon completion of the long-running talks, U.S. Trade Representative Charlene Barshefsky claimed that the deal will open the Chinese economy to the West, saying, "The agreement itself is absolutely comprehensive." In addition, she said the agreement will help China continue its economic reform and strengthen the rule of law. The agreement with the United States overcomes the largest obstacle in China's 13-year effort to join the WTO. China has to still strike bilateral agreements with the European Union and four others before the WTO will formally consider China's petition for membership. But it seems likely that Beijing will continue to protect its markets and find new ways to control them - whatever the paper terms of the agreement. For Beijing, signing the deal carried primarily political implications, not economic ones. The euphoria with which the Clinton administration is meeting the agreement works to China's immediate advantage, likely spurring a quick surge in investment. China's economic statistics are notoriously unreliable but even they paint a picture of an economy increasingly needing an infusion of foreign money. After direct foreign investment reached a cumulative total of $222 billion between 1979 and 1997, newly-pledged foreign investment dropped 20 to 30 percent, according to the U.S. International Trade Administration. By moving toward WTO status, China may now convince Westerners to invest - long before Beijing opens up the economy at all. Over the long term, it is unlikely that the agreement will actually force China to open key markets. Before the two sides finalized the deal, China's chief WTO negotiator, Long Yongtu, told the Guangdong-Hong Kong Information Daily that the agreement would not keep the central government from restricting foreign access to both key industries and domestic markets. Today, foreign insurance companies may not operate in China. Long said that they will be allowed in two years after WTO accession - but only if they get government-issued licenses. "If it is not necessary [for China], we will not issue licenses," Long reportedly said. In other words, no licenses, no business. Overall, China seems to have conceded a lot on paper but very little in reality. The deal's new agreement on rights to the telecommunications market may be less solid than it appears. This agreement allows foreign access to 49 percent of the domestic telecom market immediately upon accession and 50 percent two years later. But access is wholly controlled by the Information Ministry; this is the same ministry that in September upheld a ban on foreign investment in Internet services. Already Western analysts are concerned, according to Agence France Presse. Rather than compromise, China has likely committed itself only to exercising available loopholes. China clearly has the tools to safeguard fragile state industries from the sudden threat of ruthless competition. It will open slowly and controlled while taking advantage of the good publicity, backed by "proof" that China is ready to offer its markets freely. Indeed, China's state-run press is already portraying the agreement as Beijing's generous gift to an eager President Clinton. The Guangzhou Morning Post has claimed that the U.S. president saw this as his "best shot" at stabilizing U.S.-China relations during the remainder of his term. The newspaper has said that Clinton called Jiang on Oct. 16, offering to make the first move. The paper said that the initiative "indicated how desperately Clinton [was] trying to put back together the far-reaching China trade deal he walked away from in April." The official press has also downplayed the notion that this is an important victory for economic reform. Barshefsky has said that her 11th hour meeting with Prime Minister Zhu Rongji was "pivotal" in resolving the final outstanding issues. But the Chinese media has either focused attention on Shi Guangsheng, the trade minister who signed the deal, or on President Jiang Zemin. In his statement, Jiang applauded the negotiations' success positioning himself to take credit for whatever short-term economic gain the agreement produces. By shifting the focus off of Zhu the government indicates that it does not want the population to see the deal as a victory for reform - and certainly not as victory for Zhu. (c) 1999, Stratfor, Inc. 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