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China's WTO entry
Feature: 3/10/2001

Next month's meeting in Qatar of the 141 member countries of the World Trade Organisation is seen as crucial to the creation of a more equitable global trading policy - and a means of evening-out the inequalities between 'have' and 'have-not' areas of the world (see director-e News, Tuesday 23 October).

Dominating the issues to be discussed will be the fact that China will become a WTO member - and some feel this could change the balance of the WTO irrevocably. In particular, China's entry is exercising the minds of governments and businesses across most of east Asia.

Some companies fear that their markets will be swamped by Chinese exports. Other firms hope for rapidly rising sales in the world's most populous country. "It will provide the region with both opportunities and challenges", said Dr Kim Hak-Su, executive secretary of the United Nation's Economic and Social Commission for Asia and the Pacific (Escap) in Bangkok.

In public, the region's governments are upbeat about their economic prospects once China has joined the WTO. Privately many government officials are much more cautious.

"All Asian countries want to see China in the WTO", said a senior Thai government official who did not want to be identified. "It will certainly strengthen Asia's voice within the international financial organisations and give Asian governments greater bargaining power.

"But it will also create a massive economic competitor that the countries of south east Asia will have to contend with".

Foreign investment

There is certainly going to be greater competition for foreign direct investment (FDI). Among the 10 countries of the Association of South East Asian Nations (Asean), a large part of their economic development during the past three decades has been based on FDI, especially from Japan.

This investment has slowed in the past four years, partly because the Asian financial crisis made some European and American investors more cautious about directing cash to south east Asia. The slowdown has also been blamed on a switch of interest, especially among multinational corporations, to China.

"It is an attractive location for Japanese and US investors because of the size of its domestic market and an abundant well-trained and cheap workforce", said Dr Jomo, professor of economics at the University of Malaya in Kuala Lumpur.

A decade ago south east Asia attracted more than four times the investment going into China. Now the trend has been reversed, with 80 percent of FDI going to China. The fear for some is that this trend will strengthen with China a member of the WTO.

Already in the first six months of this year, investment in China has risen by 20 percent. "FDI is already flowing into China rather than south east Asia", said Tommy Koh, Singapore's ambassador at large. "This will accelerate unless Asean can make itself more attractive".

For countries such as Singapore, which still rely heavily on foreign investment, this cash switch is not good news. FDI makes up around a quarter of Singapore's annual capital investment.

The investment switch also represents a problem for Thailand, where Prime Minister Thaksin Shinawatra has been anxious to attract more investment to help stimulate the economy.

More favoured

Many businesses, especially exporters to the US, fear that China will become a more favoured trading partner. "This will undoubtedly affect some industries in east Asia, but trade within Asia will increase", said Escap's Kim Hak-Su. "Already 70 percent of trade in the region is inter-regional".

And China imports twice as much from east Asia as it exports. "This is an enormous market which we must tap into", said Cambodia's commerce minister, Cham Prasidh. And most south east Asian countries are gearing up for the challenge.

Analysts argue that countries that already have a close economic relationship with China, such as Thailand, are best placed to benefit. Thai investment in China, already significant, is growing further after Mr Shinawatra's recent trip to Beijing.

One of the biggest Thai investors in China is the CP Group, which has more than 150 joint ventures in China, including agricultural products processing factories, a motorcycle factory, a brewery and a major department store.

The group's senior executive vice-president, Dr Sarasin Wirapol said: "China's entry to the WTO is good news for Thai businesses, especially exporters. China is an enormous market, and when it lifts its import quotas on agricultural products, exports of rice, sugar and rubber will increase significantly".

However, some non-governmental organisations - such as the Thai "Forum of the Poor" which represents poor farmers - pose other questions. They warn that the US and the European Union effectively subsidise domestic agricultural output, making their exports cheaper than those from Thailand.

International base

now be tempted to relocate even more of their productive capacity to China to take advantage of the cheap labour there and the fact that there are no strikes", a project manager for Procter & Gamble in Bangkok said.

Singapore is so worried about the potential economic dislocation in the region that it is seeking its own solutions - signing free trade agreements with as many major trading partners as it can. And the Singapore government is now proposing a free trade agreement between Asean countries and China.

This is an idea that so far has not been greeted warmly by other countries in south east Asia. They fear that it will simply mean that the biggest economy and market, China, will just swallow the smaller ones. "Asean will be on the losing end of the equation in this case", said Dr Walden Bello, director of "Focus on the South" at Chulalongkorn University in Bangkok.

He warned that the Asean group is going to find China overwhelming competition in any case, even without entering a bilateral free trade. "The only solution for south east Asia", he said, "is for Asean to integrate along the lines of the EU in the way that was originally envisaged - involving joint technical upgrading, a shared industrial policy and a regional import substitution programme".

So as China's official entry to the WTO approaches, most governments in the region, apart from Singapore, have no real strategic plan on how they will cope with the challenges it will pose.

Most simply take the position aptly put by Cambodia's commerce minister Cham Prasidh: "We see China as a market, not a competitor"
Author: John Gibbon
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