Three years of membership of the World Trade Organization (WTO) have initially prepared China for intense foreign competition, although there are still tougher challenges ahead.

China joined the global trade body at the end of 2001 amid worries over the potential impact on some domestic sectors.

But vast and far-reaching changes in the home market over the past three years have surprised the nation more than expected.

The doubling of the country's trade volume in just three years might best illustrate the magnitude of changes its WTO membership has brought about.

A recent report by the Ministry of Commerce predicted that China's total foreign trade this year would jump by 30 percent year-on-year to US$1.1 trillion, making the country the world's third-largest trading power. In 2001, China's trade volume stood at about US$510 billion.

Clearly, wider access to overseas markets as well as the country's unremitting efforts to slash tariffs in line with its WTO commitments have substantially boosted its imports and exports.

As the most populous developing country, China enjoys decisive comparative advantages in labour-intensive industries. Further integration into the world economy has allowed it to tap its strength better as an emerging world manufacturing power house.

Eyeing the country's huge manufacturing prowess, foreign investors have also rushed in to share in the expanding Chinese market.

Since 2002, China has absorbed actual foreign direct investment (FDI) worth more than US$50 billion a year.

Statistics indicate that the amount of FDI China attracted in the first 10 months this year reached US$53.78 billion, already exceeding that for the whole of 2003.

But apart from the generally rosy picture of the Chinese economy, dramatic changes in specific sectors are thought-provoking in other ways.

Agriculture has long topped the Chinese Government's list of priorities.

Three years ago, it was agricultural concerns that sparked widespread suspicion if WTO membership came at the expense of domestic farmers' interests.

Falling domestic grain prices and uncertainties about imports of foreign agricultural produce justified that sort of skepticism at the time.

But as domestic grain prices bottomed out more than a year ago, these fears have gradually subsided. Agricultural imports have largely increased domestic consumers' choice of purchase but not undermined the dominance of domestic agricultural produce.

Agriculture is often heavily subsidized in developed countries. But with a rural population of 768 million, it is impossible for China to aid its agricultural sector as they do.

One important lesson over the past three years is that, above all, the government should allow the market to assume its role in directing agricultural production.

Reducing agricultural taxes can help encourage production by removing unfair financial burdens on farmers. But the main driving force behind farmers' renewed enthusiasm in agricultural production is the soaring prices that signal the market supply-demand situation.

Out of fears that domestic grain output might have dropped too low to meet the country's basic food demands, Chinese policy-makers have gone all out to persuade farmers to return to their fields while keeping administrative hands from intervening in climbing grain prices.

So far, the country's prices have soared by about 30 percent over last year with a bumper harvest in sight to reverse the declining output of several years.

For the first time in more than a decade, the growth rate of farmers' incomes might even exceed urban residents' this year. This would be an invaluable step in trying to bridge the development gap between rural and urban areas.

One result of the country's WTO entry is the sweeping price cuts in the home automobile market.

As one of the most heavily-protected sectors, the fate of this domestic industry was once a worrying issue.

But domestic auto makers have been able to capitalize on foreign auto giants' eagerness to secure a foothold in the Chinese market and have instead enjoyed an unprecedented pent-up car consumption by Chinese individuals.

Sales of sedan cars alone have rocketed by 55 percent and 75 percent year-on-year in 2002 and 2003.

But it couldn't last - as the average price of cars dropped by 10 percent a year, domestic potential car-purchasers have gradually been tightening their purse strings expecting more competitive prices.

In fact the growth of car sales turned negative in the middle of the year. Sooner or later, domestic automobile companies will have to stand the test of international competition.

Nevertheless, the toughest challenges yet to come are in the financial sector.

At the end of this year, foreign banks will be allowed to provide local currency services to foreign clients and Chinese enterprises in 16 cities including Beijing as one of the first three.

Under the terms of the WTO, China promised to remove all client and geographical limitations on all banking services by foreign banks by the end of 2006.

The timetable is very tight given that none of the country's four major State-owned banks has really finished its transformation into commercial banks yet.

But such a tight schedule is needed, for any delay in banking reforms will come at the cost of overall efficiency in the national economy.

The domestic banking sector has a five-year grace period, far less time for restructuring than it has so far spent.

The major State-owned banks have focused their efforts on drastically reducing non-performing loans to meet the requirements to list on overseas or domestic stock markets.

The work is a prerequisite, but how to improve their management and efficiency should be the real concern when policy-makers review the country's three-year-old WTO membership.

(China Daily November 14, 2004)