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Tell Me Now Review, Issue 1, 2002

Welcome to the first issue of our new-style review.

Over the past three years Tell Me Now has expanded its subjects expertise and the way we research. We now conduct primary research by phone or store visits, write reports on industries and companies to your specifications as well as continuing to provide answers to specific information requests.

A key reason for taking these steps is that we are increasingly being asked to write industry and company reports that require us to either gather primary data or sort through reams of information to create customised reports. As a service to you and to demonstrate the power of our approach, we have launched a regular newsletter, Tell Me Now Review.

Tell Me Now Review looks at topics of current interest and answers commonly asked questions. We hope this will give you insights into the value our intelligent business research service can bring to your organisation. In particular, it should demonstrate how highly experienced researchers can pull together information from public and subscription-only sources to provide intelligence on topical subjects.

Anyone can search the Internet, but not everyone can access the 'invisible web' through subscription-based databases such as Factiva, Lexis Nexis and Dialog, or investigate a market by conducting interviews and speaking to industry experts. That's where Tell Me Now comes in - tell us what you need to know, and we'll find it!

For our first issue, we have provided a snapshot of some of the issues that surround China's entry into the World Trade Organisation (WTO). This is timely given the recent visits to Beijing by Prime Minister John Howard and Labor Leader Simon Crean. Both were positive steps in developing improved trade relations between Australia and China and, while many of the trade changes will evolve with the new WTO-agreed rules, there are many economic issues that are best addressed bilaterally.

The digest of information on China and the WTO below has come from a variety of sources including proprietary news services, government information, market research databases and the Internet.

Happy reading!

Cindy Tschernitz
Director
Tell Me Now




A Form Guide for the Year of the Horse

Questions:

  1. Is China finally living up to its long held promise of developing into an economic powerhouse?
  2. What effect will this new trading environment have on China's competitiveness?
  3. Are there implications for business internationally, especially in the EU, USA and Japan?
  4. What are the implications for business in Australia?

Answers:

Twenty-five years ago, when China applied to join the WTO, it accounted for over 1 per cent of world exports and the value of its exports relative to GDP was 10 per cent. Today, China's exports account for 20 per cent of GDP and over 3 per cent of world exports. The country's latest five-year plan sets an annual growth target of 7 per cent from 2001 through to 2005, while its population is expected to peak at 1.6 billion in 2050. Chinese consumer confidence levels are among the highest in Asia at 79.1 points, versus around 50 for Japan, Singapore and Taiwan.

China's winning bid for the 2008 Olympic Games is expected to inject around $US32 billion in infrastructure investment. These figures are taken as indicative of China's economic strength and potential growth. However, the accuracy of the numbers has been debated by analysts and most agree that the Chinese Government is facing a number of extraordinary challenges to turn China into a global force.

The Chinese economy has reached a stage where major reforms are needed as it becomes increasingly exposed to free market forces. The development of a market economy will mean China can participate in the increasingly globalised economy. In particular, in segments of the economy such as rural labour markets, industry, the financial system and regional development, progress will now depend on a wholistic approach to policy and development.

China's move to becoming an economic powerhouse depends greatly on the way the central Government manages local authorities with regard to the implementation of policies and regulations set by the WTO. Beijing, whilst having all the right intentions, may not be able to impose its will so easily on local authorities.


China's national economy is likely to develop rapidly as a result of the competition arising from its WTO membership. The country runs two economies in parallel - a globally competitive export economy, located in the coastal regions and backed up by a small but rapidly growing domestic private sector; and a traditional state sector with its so-called 'collectives'. It is the private economy that should benefit most from entry into the WTO. China's 'go west' campaign to encourage development in its inland provinces may also result in substantial growth.

China is seen by some observers to be undergoing a commercial and industrial renaissance with companies developing innovative, low-cost export businesses in areas such as clothing, vitamins and consumer electronics. However, WTO entry is expected to have a negative impact on Chinese jobs. As China phases in its WTO commitments over the next five years, there is likely to be growing domestic unemployment in industries subject to drastically increased imports and international competition. These include agriculture, the motor vehicle industry and financial services, especially banking.

However, there is reason to be optimistic. The protectionism which was so characteristic of China's trading system 20 years ago has gradually been dismantled. Foreign direct investment (FDI) has this year 2002 been flowing in at a record pace as formerly closed industry sectors open to foreigners. During the past three years, there has been more than $US112.3 billion in foreign investment and another $US86 billion is expected to flow into the country over the next two years.

A key challenge for China in 2002 is to keep its Gross Domestic Product growing at a rate which will protect it from the unsettling impact of its entry into the WTO.

There is also a growing trend for Chinese companies investing in the US to enhance their competitiveness. In 2001, Chinese semiconductor and refrigerator manufacturers set up assembly, R&D, venture capital and other operations in the US. This is part of a strategy to keep competitors in check once local markets are open to the likes of ABB and Siemens.


Since the 1997 Asian economic crisis, the bulk of new manufacturing investment has poured into China, rather than South-East Asia. China has emerged as the manufacturing workshop of the world. Low-cost labour and an increasingly efficient and better educated workforce is gaining China a reputation as a reliable producer of sophisticated products.

For Japan, China's manufacturing emergence and the consequent shift in global investment flows has become known as 'Chugoku shoku', or the China shock. Even so, Japan has become a major investor in China as Japanese high-tech companies desperately try to improve profit margins.

Global companies are also developing their businesses in China. Nokia, the Finnish phone giant, has invested more than US$2 billion in China in an industrial park near Beijing.

For the European Union, China's WTO accession is expected to boost EU-China trade, as China's tariffs and non-tariff barriers will be significantly reduced. It is also expected to lead to increased European direct investment due to the opening of new sectors of the economy for foreign investment and a general improvement in the regulatory framework. China is the EU's third non-European trading partner after the US and Japan, and China's second largest export market.

The United States is in a similar position and led the negotiations to make China part of the world's global trading system. America is China's biggest export market and it will export even more to the US as its industrial production grows. Moreover, US businesses that already engage in international trade and investment activities will be keen to penetrate markets in China.


Australia strongly supports China's membership in the WTO as an important step in China's integration with the world trading system and the region.

In January, China started a significant new phase of market liberalisation that will benefit nearly all industry sectors, as agreed in the terms of its WTO accession. Industries that are expected to benefit include the wool, sugar, wheat, barley, meat, seafood, horticulture, dairy, cotton, rice, oilseeds, wine, processed food, hides and skins, chemicals, pharmaceuticals, metals, information technology and automotive sectors.

Average tariffs for agricultural products are being cut from 23 per cent to 15 per cent, and for industrial products from 17 per cent to 9 per cent. In addition, Chinese import quotas on autos and a range of other products are being eliminated. In anticipation, a number of Australian automotive firms have visited China to explore business and export opportunities. This follows a visit to Australia last year by a Chinese automotive industry delegation.

The Australian services sector will also benefit. China has agreed to make substantial market access commitments in the services sector. Australia has been assured that China sees no substantive difficulties in granting additional licences to Australian firms in the near term in the insurance and banking sectors, and for legal and accountancy practices. There should be strong prospects for professional service firms in many disciplines. Telecommunications will also be a key market.

Sustained growth in China is also good news for Australia's mining and farm exporters as it means the emergence of a major alternative market to Japan.

The Austrade site has details on the WTO rules and reform legislation China will adopt to conform to international norms and tables that detail the tariff rates for agricultural and industrial products.

The above answers were compiled by Tell Me Now from a range of sources. These are listed here for your reference. Please note that some require subscriptions. If you do not have access please contact us and we can obtain the article on your behalf. This may incur a fee.

Recent Press: For an Australian perspective on global trade and China's new status

  • China Visit A Clear Success Australian Financial Review, 24 May 2002
  • Trade isn't free, it's a dog-fight Australian Financial Review, 21 March 2002
  • China pays to ease its growth pains Australian Financial Review, 6 March 2002
  • Rubbery GDP figures stretch credibility Australian Financial Review, 2 April 2002
  • Commodities on road to recovery Australian Financial Review, 15 January 2002
  • China growing into high-tech mecca Australian Financial Review, 13 March 2002


  
 

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