November 16, 1999
Shanghai, China (AP) - The breakthrough U.S.-China trade deal signed Monday creates numerous winners and losers as it pushes China's protected, state-dominated economy toward a freer market. Some of the big winners include foreign banks, insurers and service companies that get wider access to China's 1.2 billion consumers. Elite Chinese companies will get cheaper foreign technology and surer access to export markets.
The agreement, a milestone in China's 13-year-old campaign to join the World Trade Organization, is also a victory for Chinese economic reformers, who hope more foreign competition will whip money-losing state companies into shape and create new industries and jobs. In the short term, though, it will worsen the already painful toll of bankruptcies and layoffs at state firms - many of which opposed a deal.
But many foreign and private Chinese companies praised the agreement, saying it will create more evenhanded trade rules and opportunities. ''It's good for America. It means increased trade, and a highly probable decrease in the trade deficit with China,'' said Dean Ho, chairman of the American Chamber of Commerce in Shanghai and vice president of Unison Corp., an investment fund.
The deal also could provoke reform in China's telecommunications industry - still dominated by China Telecom, the giant former state monopoly. Once China joins the WTO, foreigners will be able to own up to 49% of phone ventures - rising to 50% after two years - and invest in Internet companies. They are currently banned from both fields. Other winners include China's small but fast-growing computer and high-tech firms, which will see tariffs on imported technology drop.
Casualties of the deal could include China's farms, which employ hundreds of millions of people but are technologically backward and uncompetitive. Beijing has kept prices of grain and other products artificially high to pump money into poor towns. Chairman Liu Yonghao of New Hope Group Corp., an animal feed supplier and one of China's biggest private companies with 6,800 employees and 1998 sales of $400 million, said he expects cheaper imports to force down his prices. However, New Hope also is expanding into Southeast Asia and could gain from freer international trade, Liu added. ''It is ultimately good for the country and good for local companies,'' Liu said by phone from his office in the western city of Chengdu.
Other potential losers include state-owned banks, which could find themselves beaten out by sophisticated foreign competitors who will be allowed to conduct business in local currency. Chinese lenders are buried under bad loans to failing state companies. They stay solvent thanks to a flow of deposits from a captive market of Chinese families, who save up to 40% of household incomes. ''They know that once WTO opens banking, Chinese people will want to deposit their money in foreign banks,'' said Li Kui Wai, an economist at City University of Hong Kong. Chinese factories set up by foreign investors also may suffer under the deal, as they will face competition from better-quality imports that are suddenly cheaper.
More Information on the World Trade Organization
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