By Joe McDonald/AP
They’ve had years to prepare, but China’s companies, farmers and workers face wrenching changes once they enter the free-market World Trade Organization, letting loose a flood of imports and foreign competition.
Foreign companies were exultant on Sept. 18 after a WTO panel cleared the way for China to join after 15 years of negotiations. Its membership terms require Beijing to ease barriers to imports and foreign investment in Chinese firms.
China’s manufacturers compete abroad, filling store shelves worldwide with appliances, sporting goods and other low-cost products. But two-thirds of its 1.26 billion people live in the countryside, and the impact there of its promise to let in cheaper farm goods could be devastating.
Millions working on inefficient, labor-intensive farms are expected to be thrown out of work. Beijing has kept prices paid for their crops artificially high to shift money to the countryside and reduce unrest over rural poverty.
“Even at present prices, farmers in China can hardly survive. I can’t imagine how far the prices will fall” after WTO entry, said Zhou Jianming, president of the Henan Jinxiang Wheat Group, a flour processor in the central city of Zhengzhou with 400 employees.
After recent subsidy cuts, Zhou said, Chinese wheat prices have plunged to 1,100 yuan ($135) per ton — equal to the current price of Canadian wheat, but an all-time low for China.
Food processing companies in the farming heartland may have to close and move to the coast, closer to supplies of cheaper foreign ingredients, Zhou said.
Other big losers are expected to be state industries facing more competition but saddled with debt, pensions and old technology. They have laid off millions of employees in a struggle to become profitable.
Winners should include foreign importers and Chinese entrepreneurs and high-tech companies. The outcome could be a radically different China in coming decades, with a bigger private economy and leaner, profitable state companies.
“Winners will be those industries which open themselves up to the marketplace earlier rather than later. It’s already proven here in China that the industries that were opened earliest, such as hotels and consumer goods, have been most successful,” said Patrick Powers, director of China operations for the U.S.-China Business Council, which represents 225 American companies.
WTO membership also could increase pressure on the communist government to allow political reform, said Cao Siyuan, a Chinese business consultant and prominent advocate of freer markets.
“By joining WTO and pushing ahead with reform and opening up, the urgency of political reform will become increasingly evident,” Cao said. “In the end, political reform will have to suit economic reform and catch up.”
Membership in WTO, which China is expected to join early next year, will give Beijing more reliable access to markets for its $200 billion a year in exports. Other WTO members would be required to submit trade disputes to a referee panel instead of imposing unilateral measures.
In exchange, China is cutting tariffs on imports and has promised more access for foreign banks, movies and professional services.
Chinese banks are spending heavily to modernize technology and management. Beijing has forced mergers of securities firms, airlines and other companies, hoping to create competitors big and rich enough to survive.
Entrepreneurs are looking to benefit as Beijing relaxes rules that restrict its own private companies as well as foreign competitors.
Access to foreign technology and investment will ease. Over time, foreigners are to be allowed to own up to 50 percent of Internet ventures — a life-or-death issue for an industry that was built on foreign capital.
Entrepreneurs should find it easier to get loans, too, as the state-owned banking industry is forced to compete for business. Currently, less than 10 percent of lending goes to private firms, holding back the growth of the sector that produces China’s new jobs and prosperity.
Shenzhen Kingdee Software Group is one of the private firms that are already benefitting from WTO-related changes. It says sales of its business software are surging as companies prepare for more competition.
Kingdee expects sales of 380 million yuan ($46 million) this year, nearly double last year’s 200 million yuan ($24 million), said its marketing manager, Jiang Hao.
Founded in 1993, the company in the southern city of Shenzhen has grown to 1,500 employees and last year sold shares on the Hong Kong Stock Exchange.
“With China’s entry into WTO, we expect a brighter future,” Jiang said.
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