BUSINESS DEVELOPMENT INTERNATIONALCHINA DIVISION |
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CHINA 2000September Edition
It is still not certain that
China will become a member of the WTO by the end of this year. There may be some
slippage in the timetable. The two
major issues outstanding are China’s concerns about the impact of WTO
accession on the rural economy and the WTO’s technical requirements. The bilateral negotiations have
been completed but there is still some tough talking to do at WTO Headquarters
in Geneva as negotiations proceed to produce the document that will define the
framework within which China will implement the commitments it has undertaken.
Problems could arise because in the last round of talks China tried to
reverse some of the earlier concessions it had made on agricultural imports.
China has sacrificed the short-term interests of its agriculture to
secure concessions for its urban industry and some officials would like to
re-negotiate the agreement. The
situation facing the government is difficult as there is a serious problem in
the countryside due to the backward state of agriculture and depressed prices
for agricultural products. There
have been press reports of rural unrest and even local rioting and officials
want to re-negotiate that part of the agreement that removes agricultural
protection. They will almost certainly be unsuccessful but could delay
the accession process. The second hurdle to be overcome is the sheer volume of paperwork that the Chinese government must submit, setting out in detail how its WTO commitments will be met. If all documentation cannot be completed on time or if the WTO is not satisfied with what has been submitted (a far more likely outcome), accession could be delayed. Indeed, we would not be surprised if it were to be postponed until March 2001. A
Matter of Timing Most senior company executives
are convinced of the long-term potential of the People’s Republic of China as
a market for their products or services. On
the other hand, they are also aware that China is an emerging economy and that
the market for many products and services is underdeveloped. But China is
changing rapidly and for some companies in some sectors it may already be too
late. We recently heard some news
about a UK company for which we undertook some market research in China a couple
of years ago. One of the
conclusions that our research reached was that the Chinese manufacturers in our
client’s low-tech industry were rapidly accumulating experience, expertise and
equipment which would enable them to challenge for markets world-wide with
products that could be manufactured in China for a fraction of the cost in UK. We recommended the company to
establish a manufacturing presence in China, either a contractual or equity
joint venture. Regrettably our
client chose not to follow our advice and we have recently heard that the
company has run into serious financial problems because it has lost much of its
export and domestic market to more far-sighted competitors who are having
products manufactured in China. The
future for this company does not look bright! China is a place where it is
important to get your timing right. It can be an expensive place to operate in and companies are
understandably reluctant to invest time money and effort if the market is too
small to generate sufficient revenue. However,
it is preferable to be too early rather than too late.
If you are too early you might spend money unnecessarily, if you are too
late it could kill your company! Entertainment
to be taxed more One
of the consequences of China’s accession to the WTO is that it will have to
modify its tax system. The Chinese
government is using this opportunity for revision to broaden its tax base.
Government revenue as a proportion of GDP is low and over the past twenty years
it has declined from 28.45% to 12%, just about half the level of other emerging
market economies. Of most concern to
foreign investors is the fact that the tax privileges granted to joint ventures
and those companies, which have established themselves in the Special Economic
Zones, will be phased out. Interest
Rates to be Freed China a expects gradually
to liberalise interest rates over the next three years.
Initially interest rates on foreign currency deposits will be liberalised
so that they follow interest rate changes abroad and the market will also decide
interbank interest rates. There will be more
flexibility in lending rates in rural areas to stimulate the rural economy, to
be followed by those in urban areas. Alas for the poor Chinese saver, deposit rates will be the
last to be liberalised. |