<<AIG now has eight life and property insurance licenses in China. Its revenue for 2000 reached $200,000,000 and is expected to exceed $2,000,000,000 by 2010>>
Its a mass market Bill -- get over your denial. You want to see companies grow their business tenfold? Look to Chna.
The future prospects of U.S.-China economic relations
USA Today; New York; Sep 2002; Chu-Yuan Cheng;
....... China has agreed to make substantial concessions to the U.S. after it joins the WTO. The key changes include the following items:
Telecommunications. Foreign companies can, in phases, increase their stakes in mobile phone companies. Tariffs on high-tech products will be phased out and eliminated by 2005.
Automobiles. Import tariffs on automobiles will drop to 25% by mid 2006 from the current rate of 80-100%. Restrictions will be lifted on the category, type, and model of vehicles produced in joint ventures.
Banking. Foreign banks will be permitted to conduct domestic currency business with Chinese firms and individuals in phases. All geographic restrictions on foreign banking business will be eliminated after five years.
Securities. Minority foreign-owned joint ventures will be allowed into the fund management industry. Foreign firms may have a 49% stake in joint ventures.
Insurance. Increased foreign ownership of life, property, and casualty insurance operations will be allowed. Foreign insurance companies will gradually enter group, health, and pensions businesses.
Agriculture. In the future, farm subsidies will be capped at 8.5% of the value of domestic farm production. Agricultural duties are scheduled to be reduced to 14.5-15% by 2004. Energy/oil. Crude and refined oil sectors will be gradually opened to private traders Retail oil distribution will open in three years.
Distribution/retail. Restrictions on distribution services for most products will be phased out within three years.
Of those concessions, the most-attractive one is the opening of China's telecommunications services market to foreign participation. Telecommunications has been one of the PRC's most-lucrative markets, registering 164,000,000 fixed-line subscribers and 117,-- 000,000 cellular subscribers by June, 2001. China Telecom, the gigantic combination of state-owned assets, has been a monopoly without opponents. Lacking competition, the company was poorly managed and merely provided high-cost and low-quality service to subscribers. On Feb. 4, 1999, the government decided to break the company into four independent ones and opened the market to foreign investment. When the Sino-American agreement on China's entry into the WTO was signed, the PRC promised to let foreign capital control 49% of the market, and up to 50% after two years.
Another potential lucrative market is China's fast-growing insurance industry. Due to the huge population and rising demand for insurance services, revenue in this area has risen by 30% annually in recent years. American International Group Inc. (AIG), a U.S. insurance company and one of China's earliest foreign investors, was given the right to operate 100%-owned life insurance branches a decade ago, a privilege no other foreign insurance company had been granted. AIG now has eight life and property insurance licenses in China. Its revenue for 2000 reached $200,000,000 and is expected to exceed $2,000,000,000 by 2010. Two other major American firms -Chubb and John Hancock-- have followed AIG's step, hoping to be able to reap a bigger share of the pie.
Other potential markets for U.S. products are agriculture and automotives. In the 1999 trade agreement, the most-favorable terms went to the U.S. agriculture sector, where the Chinese tariff will drop approximately to 14.5-- 15% or even lower by 2004. This will affect American agriculture products such as cotton, wheat, corn, and soybeans, which will enjoy a big surge in exports to China.
The U.S. automobile industry will be another beneficiary of the deal. As China's current high automobile tariff of 80-100% will be cut to 25% by July 1, 2006, and the auto parts tariff will be reduced to 10%, American car manufacturers and part producers such as Delphi, Lear, and Federal Mogul will gain access to a growing market.
Expansion of trade with China will generate employment in U.S. transportation, distribution, retail, and financial sectors. Current American trade with China directly supports more than 200,000 manufacturing and service sector jobs in the U.S. Increasing exports to the PRC will add more employment opportunities for U.S. labor.
From the Chinese standpoint, the entry into WTO will integrate China more fully into the global market, as well as attract additional foreign capital. Lawrence Klein, a Nobel Prize winner for economics in 1980, believes that, with the influx of foreign capital, China's economy will take a significant leap forward.
One great advantage for China's export trade is the removal of restrictions on its textile products into the American market. Textiles have been one of the Chinese major export items, but for years, the U.S. has imposed a quota on them. These restrictions will be removed, thus providing a huge market for China's textile industry. More importantly, the entry into the WTO will oblige the PRC to follow international practices, thus helping China to accelerate its political and economic reform.
Using the official exchange rate of one U.S. dollar to 8.2 yaun, China's GDP in 2001 exceeded 1.2 trillion dollars. If the purchasing power parity method is used, though, Chinese gross domestic product (GDP) would approach four trillion dollars. For the forthcoming 10 years, China's total imports have been projected to reach three trillion dollars, a large share of which may come from the U.S. The demand for airplanes, heavy machinery, automobiles, and agricultural products will greatly increase American exports to the PRC.
China's open door for foreign investment in the fields of telecommunications, financial services, and insurance will offer well-positioned American corporations a new opportunity to compete. To date, more than half of the top 500 corporations in the U.S. have made investments in China.
Free trade between China, the world's largest population, and the U.S., its greatest industrial economy, will undoubtedly benefit both nations. By 2020, China's population is expected to reach 1,600,000,000, and its GDP will approach the same level as the U.S.'s. The PRC will be the world's largest new frontier for U.S. multinational corporations as well as American small and medium-sized companies.
[Author note]
Chu-yuan Cheng, professor of economics, Ball State University, Muncie, Ind., and former president of the American Association for Chinese Studies, is the author of China's Economic Development: Growth and Structural Change. |
