Coveted dream comes true

China completed its 15-year quest to join the World Trade Organization (WTO) after a signing ceremony for its membership in the WTO took place on the third day of the trade club ministerial conference in Doha, Qatar on November 11.

Long Yongtu, Chinese vice-trade minister and chief WTO negotiator, said WTO accession was the main goal of the Chinese Government in furthering the country's reform.

"The WTO entry will benefit the interests of both China and all other WTO members," said Chinese Trade Minister Shi Guangsheng, after signing the WTO membership protocol in Doha.

China officially became the trade club's 143th member on December 11.

China's entry to the WTO came at a time when the rest of the world economy was sliding into recession. The participation of China's vigorously growing economy will surely bring a new boost to the world economy.

During its 15-year wait to join the global trade body, China shifted from a planned economy to a market one. It made great efforts to liberalize and improve its domestic market, lowered tariffs several times by big margins, reduced non-tariff measures dramatically and opened most of its service industries. The country's legislative bodies also made and revised many laws and rules concerning foreign investment and improved the investment environment.

Robust domestic growth maintained

In the past year, the Chinese economy maintained strong growth despite the world economic downturn, which developed into a recession after the September terrorists attacks in the United States dealt a serious blow to consumer confidence. Given the softened world economy, China's export growth rate was lowered from 8.8 percent in the first six months to 6.1 percent in the first 10, but its gross domestic product is still expected to grow by 7.4 percent in 2001. The stable economic development of China is mainly a result of the country's strong internal demands and the government's expansive fiscal policy which invests heavily on infrastructure. The massive inflow of foreign investment, rising by 26.85 percent year-on-year to US$55.2 billion in the first 10 months, also played an important role in fuelling China's rapid economic progress.

As China has entered the World Trade Organization, more foreign investment is expected to flow into China, and leading economists believe there is still vast potential for China's economic growth.

However, economists also argue that China's investment efficiency must be improved if the country wishes to achieve long-term economic growth. The economy must be restructured to reduce inefficiency, and farmers' incomes need to be greatly improved to increase total consumption.

Party for APEC powers

The ninth Asia-Pacific Economic Co-operation (APEC) forum, the primary informal organization among the 21 member economies around the Pacific Rim, concluded its series of meetings with a peak economic leaders' meeting in Shanghai in late October.

The forum was the first such APEC meeting held in China and was of great significance and far-reaching influence for the growth of the region's economy.

APEC leaders exchanged views on the current macroeconomic situation, human capacity building and further development of APEC. They reached a broad consensus and issued a Leaders' Declaration, Shanghai Accord and other documents.

The leaders showed determination and confidence in overcoming difficulties and achieving economic recovery following the terrorist attacks on the United States and amid the sluggishness of the high-tech sector.

The leaders stated their firm support for a multilateral trading system and opposition to trade protectionism and expressed their will to continue to actively promote the launch of a new round of multilateral trade negotiations.

As Asia-Pacific economies account for more than half of the world economy, the voice of APEC will be of great significance for the world.

The leaders attending the meeting also issued a statement strongly condemning terrorist activities and expressed determination to strengthen international co-operation in combating terrorism.

Trade barriers broken down in Asia

Amid the harsh backdrop of the world economic slowdown, a favorable approval was reached between China and the Association of Southeast Asian Nations (ASEAN) in November in Brunei to expand their economic frontiers, confirming the establishment of the world's largest free trade zone within 10 years.

The Sino-ASEAN free trade area, when realized, will create a massive market of 1.7 billion people and encompass 40 percent of the world's foreign exchange reserves and 10 percent of the world's foreign trade volume.

The idea, first proposed by Chinese Premier Zhu Rongji last year in Singapore, aims to eliminate tariffs and remove non-tariff barriers in the region.

Collaboration between China and ASEAN countries is expected to help channel in more funds, stabilize the involved economies, narrow the region's development gap and revive the region's economic momentum lost largely due to the terrorist attacks on the United States.

Stock market purge

Smash, sweep, and squeeze: that is what China's securities market watchdog has been doing in the past year. The prime goal was to build a healthy market environment ahead of the country's entry to the World Trade Organization at the year-end.

The China Securities Regulatory Commission (CSRC) used administrative weapons to deal lethal blows to companies violating market regulations and market manipulators. For the first time, company officials who falsified accounts were submitted to the hand of law enforcement departments. And the once rampant market manipulators, who have been reaping the benefits of price-rigging and insider trading, are about to extinguished after a one-year purge.

Also for the first time, three consecutively loss-making companies were delisted this year, breaking the mentality that China's stock market is a no-holds-barred playground. To top things off, the CSRC issued a delisting regulation at the end of this year to hang a sword of Damocles over all companies which have sunk deep in the red.

Moreover, the watchdog stopped sustaining the market with policy incentives this year. Although it failed to stick to its guns at the end of the year and stopped the selling of State holdings in listed companies, 95 percent of stocks are expected to see a dip in their prices by the end of the year. While asserting an iron hand on the market, the CSRC was also dedicated to setting up an effective corporate governance mechanism for every listed company.

'Gold rush' ahead

As a first move to liberalize the domestic gold market, the much-heralded national gold exchange witnessed a soft opening at the end of November in Shanghai, the financial hub of the country.

The move heralded a landmark in China for the deregulation and reform of the trading system of the precious metal that was once viewed as one of the hardest metals and strongest tools of investment in the country.

The exchange will be officially kicked off next month after the successful testing of its trading systems in the soft opening stage.

The opening of the gold exchange will further improve the integrity of China's financial system and bring it in line with the stock market, currency market, foreign exchange market and bond market, all of which have already been developed for decades.

Meanwhile, the launch of the exchange will replace the former gold trading system which was strictly controlled by the central government for decades.

And the new exchange would also likely replace the role of China's central bank of quoting the price of the gold in line with fluctuations on the world market, a major job the central bank shoulders currently to help stabilize the market.

Prior to the launch of the market, a national exchange of another precious metal - silver - was also launched in late 1999 in Shanghai.

B-share opened up

On February 19, the CSRC opened up the hard-currency B-share market, which was originally designed for foreign investors, to domestic individual investors.

This immediately created a boom in the solitary and silent B-share bourses. In the two days local investors were permitted to open B-share accounts, a total of 340,000 accounts were registered, exceeding the accumulated number in the past 10 years. A large number of B shares soared 400 percent in the three months after the liberalization. The composite indices in the two markets also jumped up on the bull run of B shares.

The move, according to experts, was designed to link up the A and B-share markets and prepare China's securities market for further liberalization to the outside world.

However, many institutional foreign investors, who had been stranded here for several years, immediately left the market through the opportunity, and the B-share market has actually become an individual investor-dominated domestic market.

The market has been losing momentum since June due to lack of a follow-up policy stimulus and liquidation.

Sino-Japanese trade row runs all year long

Following a series of complaints from Japanese farmers and manufacturers of cheap imported commodities from China, the Japanese Government decided to adopt an urgent import restrictions on three farm products mainly from China on April 23.

The import curbs on stone leeks, fresh shiitake mushrooms and tatami rushes ignited a trade war between the two countries, which would last through November and was escalated by rising nationalism on both sides. After failing to persuade Japan to withdraw the import curb, China imposed a 100 percent retaliative tariff on Japanese automobiles, air conditioners and mobile phones on June 22.

Japan's measure was believed to have appeased its farmers impacted by cheap imported agricultural products. Despite massive media coverage on the trade row, both countries would not see the dispute influencing their bilateral economic relationship. The trade volumes of the curbed farm products and three Japanese products between the two countries were US$100 million and US$300 million, sharing a tiny portion of the total trade volume between the two countries, which was US$87 billion last year. Negotiations were suspended by China after Japanese Prime Minister Junichiro Koizumi visited the Yasukuni Shrine, where Japan's war criminals are dedicated, but then resumed in November. However, the trade row still has not been resolved, and Japanese officials threatened to further extend the import curb last week.

Internet sector feels winter chill

China's Internet industry is going through a chilly winter after the hyped Internet economy bubble burst last year. Major Internet portal companies continued to receive heavy blows as their profits and revenues declined. A number of Internet companies declared bankruptcy due to a lack of cash. NASDAQ-listed Chinese dotcoms Sohu.com, Sina.com and Netease.com saw their stock prices drop to just a fraction of their initial public offering (IPO) prices.

The most talked about event, however, concerned Wang Zhidong, founder and former chief executive officer of Sina.com, the largest Chinese Internet portal. Wang was fired at a board meeting held in the United States on June 1. He told the media that he felt like he was stabbed in the back and betrayed by board members. However, Internet analysts said sacking Wang showed how desperate investors were to seek new business models to help the company survive the industry downturn.

'Dinosaur' to break up

The announcement of the split of China Telecom into two companies at the end of November marked a milestone step in the government's decade-long effort to break up the monopoly in the State-owned telecommunications industry.

One of the largest conglomerates, China Telecom will be split into a north sector and a south sector in an effort to break up the monopoly in the fixed-line business and encourage competition.

The northern segment, covering 10 provinces, will be merged with data carriers China Netcom and Jitong Communications to form a new company, while the southern part, serving 20 provinces, will become the new China Telecom, according to the Ministry of Information Industry (MII). The break-up had been under consideration for half a year. It was finally agreed to by the State Council in a recent conference. But the authorities are working on issues such as the management teams of the future two firms, asset transfers and the adjustment of the related telecoms networks.

(Business Weekly December 18, 2001)