China enters WTO with reform hopes, fears

Reuters

Beijing, December 11: China and its 1.3 billion people joined the World Trade Organisation on Tuesday, ending a 15-year quest and ushering in a new era of reform expected to bring sweeping changes to the Communist-ruled nation. The historic day came with little fanfare in China as the Foreign Trade Ministry said no special ceremonies were planned and state media stressed how much hard work lay ahead.

Foreign investors have waited eagerly for the opening of the world's largest potential market, while China hopes greater global integration will complete its shift to a market economy. "WTO entry will bring very beneficial opportunities to China's further economic development," Foreign Ministry spokeswoman Zhang Qiyue told a news conference. Ordinary Chinese greeted the news of membership with mixed feelings, worried that foreign competition could threaten their jobs but hoping for higher living standards.

Optimism was tempered by concern. Trading partners question China's ability to meet its WTO pledges and officials fear painful reforms could spark social unrest. The Communist Party mouthpiece People's Daily urged officials to abide by WTO commitments and said entry would fundamentally change the way the government handled the economy. As China entered the WTO, the government showed its commitment to reform, announcing the break up of China Telecom, the near monopoly fixed-line phone company, into competing northern and southern firms.

BANNER YEAR
Entry to the WTO marks a major victory for China in a trophy year capped by Beijing nabbing the 2008 Olympics, Shanghai hosting a Asia Pacific Economic Cooperation summit and China qualifying for soccer's World Cup finals for the first time. Still, domestic stock investors shrugged at the long-awaited news, cashing in on WTO plays -- such as property and transport firms -- that had already risen in anticipation of entry.

China opened its hermit economy to the world in 1978 and has lurched towards embracing the market by loosening the state grip on the economy and is now the world's seventh largest trader. "The importance of WTO is that it brings into play a more powerful market-based dynamic behind restructuring," said Michael Spencer, chief Asia economist for Deutsche Bank. Some argue the change spurred by WTO will extend beyond the economic arena to bring political pluralism.

The challenge for China in managing the change is enormous. Beijing must convince protected state firms, conservative local officials and workers fearful for their jobs that WTO membership will bring long-term benefits to China. "The effects will be good and bad, fast and slow," said Xiao Zhang, an 18-year-old vendor at a Beijing kiosk selling everything from chewing gum to liquor. "There are some large enterprises which will come under attack from foreign competition very fast. And some small-town entrepreneurs could end up making a bundle overnight," he said.

RESISTANCE SEEN
Foreign firms and China's private sector will be the biggest winners from WTO, while state firms and hundreds of millions of farmers will feel pain from more competition, analysts said. "We expect there will be opportunities for substantial new investment for the future," said Byron Grote, Asia managing director for global oil giant BP Plc.

Despite the risk, Beijing has little choice but to push ahead with WTO-related reforms to continue to deliver economic growth and improvements in living standards for its people. Plenty of convincing lies ahead, and resistance to change under WTO will come in many forms. Local officials who don't know or don't like the rules may throw up the biggest obstacles.

The Foreign Trade Ministry released the English version of the WTO agreement on its website, www.moftec.gov.cn. But the site was unable to handle the traffic and crashed, preventing many from getting their first glimpse of China's WTO pledges. It was not accessible until late afternoon on Tuesday. A Chinese version has yet to be released. Even the central government could beat a retreat from reform if workers protest layoffs from the ailing state sector.

Trading partners also wonder how China will use its weight within the WTO, which launched a new trade round last month giving a greater voice to developing countries. South African President Thabo Mbeki, who is visiting Beijing, said China would be an "invaluable partner" in the fight against poverty and inequality. A festering trade dispute with Japan could offer a hint of things to come. Japanese and Chinese ministers met in Beijing on Tuesday but failed to resolve a bitter row over surging Chinese exports of agricultural goods. Trade officials say such spats will only increase as China's economy grows, potentially overtaking Japan as the second largest economy later this century.