China bill passage welcomed by U.S. business chiefs
By Haitham Haddadin
NEW YORK, May 24 (Reuters) - U.S. corporations hailed Congress' approval of a landmark China trade bill on Wednesday as a major boost to their chances of getting a bigger slice of the world's most populous market, but analysts warned that making big money there could be years away for some.
A divided House of Representatives voted 237 to 197 to grant permanent normal trade relations (PNTR) to China, a step that permanently guarantees Chinese goods get the same low-tariff access to U.S. markets as other nations' products.
In return, China will open a wide range of markets, from agriculture to telecommunications, to U.S. firms under a trade deal signed by Washington and Beijing in November ushering China into the World Trade Organisation (WTO).
The positive vote, although somewhat expected by share markets, boosted China-related issues in after-hours trade. The companies said they now await PNTR's approval by the Senate -- where the bill is expected to meet little resistance.
``Today's vote is major step to keep America competitive in an increasingly competitive global economy,'' said Christopher Galvin, Chairman and Chief Executive of mobile phone giant Motorola Inc.(NYSE:MOT - news), the largest U.S. investor in China.
``Simply stated, more exports to China mean more opportunities for American companies and more jobs for American workers,'' Galvin added in a statement.
The balance of trade between the United States and China is heavily tipped towards Beijing. The U.S. Department of Commerce puts 1999 imports from China at about $82 billion, mostly in cheap products churned out by Chinese plants, against exports to the Asian nation of less than $13 billion, mostly in aircraft, fertilisers and electrical and telecoms equipment.
Top automotive firm General Motors Corp. (NYSE:GM - news) said PNTR will remove ``long-standing trade barriers in China, creating new business opportunities for U.S. companies, generating sufficient U.S. exports and supporting jobs in the U.S.''
The company builds Buicks at a $1.5 billion joint venture plant in Shanghai. It said the legislation offers wider access to China's auto market by cutting import license requirements and dramatically reducing tariffs of 80 to 100 percent.
GM, which sees China's new vehicle market reaching 4.6 million vehicles by 2010 from 1.8 million last year, said the deal will also allow foreign companies to import, distribute, service, retail and finance vehicles and will eliminate other restrictive measures like local content and export targets.
NEWS LIFTED CHINA-RELATED FIRMS
Cell phone maker, Qualcomm Inc. (NasdaqNM:QCOM - news) is another firm that analysts expect to get a boost due to expectations PNTR will lead to the deployment in China of its Code Division Multiple Access technology which is key to cell phones. It has has licensed that technology to other firms like Motorola.
The news of the PNTR's approval, hitting screens after the close of regular trade, gave fuel to these companies' shares. Motorola rose 2 to 95 in after-hours trade, atop an earlier gain of 4-1/4, while General Motors rose 9/16 to 75-1/2.
Qualcomm was hammered earlier, closing 2-5/8 down at 76-3/4 amid a continuing sell-off on high-tech issues, but it rose a hefty 5-1/2 in the after-hours market to 82-13/16.
``(PNTR passage) will be viewed positively. CDMA deployment in China is being held up, but we expect it to be deployed there,'' analyst Brian Modoff of Deutsche Banc said this week.
Other gainers included 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 and expects demand for 1,600 jets in that time frame at a value of $120 billion.
``PNTR will..help pave the way for China to join the World Trade Organisation, and in so doing, will strengthen the rules-based global trading system so essential to the future of all of us,'' said Boeing Chairman and CEO Phil Condit.
Motorola, which wants a bigger share of what it says will be the second largest cell phone market by year's end, said it be watching to see what happens with China's commitments on tariff cuts, trade and distribution rights, and transparency .
China is also set to become the third largest market for semiconductors by next year, and PNTR should eliminate by 2002 tariffs of about 6 to 10 percent applied to semiconductors sold to China and 9 percent on personal computers.
High-tech U.S. firms said legislation will also allow them to invest in Chinese telecom and Internet companies, and would help cut Chinese tariffs on software of up to 30 percent.
Chinese duties for agricultural products are also set to fall. Although Beijing is a net exporter of corn, Ill.-based Archer Daniels Midland Co. (NYSE:ADM - news), a leading grain processor, says it was looking at increased sales to China, citing official estimates PNTR will lead to additional exports of U.S. farm products of $2 billion in the next five years.
PNTR IMPACT SEEN LIMITED ON SOME SECTORS
But analysts see no quick boon to sectors where revenues from China are small or of a long-term, speculative nature.
Pharmaceuticals firms, for example, are not seen raising sales in China dramatically unless Beijing addresses issues like price controls, intellectual property rights protection and drug counterfeiting.
Auto analyst David Healy of Burnham Securities said PNTR's impact could be limited by ``old guard'' Chinese opponents of opening up the nation's markets trying to thwart reform.
Automotive giants like German-American DaimlerChrysler AG , he said, walked away from deals in China because of continuing demands by the Chinese for technology sharing.
``American automobile companies with investments in China have found it to be a black hole for money. I can't see any change in that despite all the nice stuff on paper,'' he said.
(NY Equity News, 212 858 1737, haitham.haddadin@reuters.com)
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Qualcomm Inc (NasdaqNM:QCOM - news)
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