China has not yet prepared itself for the challenges of economic globalization expected after its entry into WTO, a senior government adviser warned.

“Solid and down-to-earth preparatory work is lacking, although officials and entrepreneurs have long been crying wolf,” said Lu Zhiqiang, deputy director of the Development Research Center under the State Council.

In an exclusive interview with China Daily, Lu said central government departments have a clear understanding about the upcoming impact of economic globalization, which is fast approaching.

Urgent issues for China include security for its economy and management of its industries, not by central planning, but by market economic rules.

Government meddling in business, which is apparently retarding the economy’s efforts in gaining a competitive edge, is another problem for policy-makers to diminish, Lu said.

Substantial and specific preparations by local governments, industrial administrations and enterprises are inadequate, said the deputy director of the central government’s top think tank.

“As far as I know, few serious studies have ever been conducted about relevant laws on foreign trade, overseas investment and rules and regulations of WTO, so that Chinese firms can meet challenges while undertaking their obligations,” said Lu.

He blamed the lag in action from domestic firms partly on their dependence on the government. Factories and institutions accustomed to merely carrying out central government directives.

The lack of face-to-face competition from powerful foreign counterparts has contributed to Chinese firms’ failure to sense the urgency of finding ways to tackle the growing trend of economic globalization, Lu said.

He said domestic firms with poor experience in a market economy have little to learn about how to make the best of advantages of economic globalization.

Lu expressed his worry that some firms will face bankruptcy due to backward technology and outdated management, even without competition from foreign firms.

The warning is coupled with those expressed by top Chinese leaders, including President Jiang Zemin and Premier Zhu Rongji, who have repeatedly urged domestic firms to adapt to the international environment of the economic globalization.

The leaders pinpointed economic security due to the fear that extensive and close links of the world’s economies will increase the vulnerability of China’s economy to fluctuation during the country’s integration into global community.

Lu said the Chinese government and industrial administrations need to hammer out policies along with efforts to press forward readjustment and upgrading of industrial structures in a bid to safeguard China’s economic security.

He stressed, however, that not all industries should be put under the shield, adding that only key lifeline industries that are fundamental to the maintenance of national interests and economic sovereignty should be protected .

Pillar industries with comparative advantages that enable the country to position itself in the international division of labor and participate in global competition should also be given support, according to Lu.

The researcher warned against risks brought by an influx of multinational companies into the country, despite the huge contribution to China’s modernization drive and

economic development they have made with their capital, technology, resources, and advanced management skills.

He added that limitations should be placed on multinational companies’ access to some vital industrial sectors.

Statistics show more than 400 of the world’s top 500 firms have invested in China.

Lu said those powerful economic giants, in the absence of efficient binding forces to regulate them, are likely to add to the danger of causing the market to go out of control.

Lu also urged domestic firms to sharpen their competitive edge in tapping overseas markets.

“The opening-up in the past two decades is basically unilateral, but now it is high time our domestic firms go abroad," said Lu.

The World Bank estimated China’s investment overseas at up to US$40 billion. Statistics from the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), however, put the amount at only US$6.9 billion.

That means many investment projects have either circumvented the regime that requires government approval or been launched in MOFTEC's ignorance, Lu said.

The researcher forecast more challenges for Hong Kong with the wider opening of the Chinese mainland to the rest of the world during the globalization process.

“It’s almost inevitable that Hong Kong’s role as an important intermediary will be eroded in the long term,” he said.

“Hong Kong has to seek its new advantages through channeling its future development to a new growth mode which should focus on the high-tech and information technology sectors.”

“But on the other hand, Hong Kong’s well-established role as a fund of professional expertise and a source and channel of investment will be expanded and deepened."

Lu stressed what the special administrative region will gain from the mainland’s impending entry into the WTO outweighs what it will lose.

The HKSAR government estimates the likely boost to re-exports spurred by the mainland’s WTO entry will raise Hong Kong’s economic growth by between as much as 1 percent.

(China Daily 09/18/2000)