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But many commentators feel that the terms of Chinese membership
are too strict. China has made unique WTO commitments: for example,
farmers access to fertiliser is to be cut back; exports of some
Chinese goods may be restricted, for reasons of 'market disruption'
even under WTO regulations. This is weaker than the Uruguay round
which the WTO replaces. In the important textile export sector,
WTO members can still place quotas on imported Chinese clothing
till end 2008. These quotas were to end in 2004. China can also
be accused of ‘dumping’ for another 15 years. The expectation
is that developed countries (US) and developing countries (Mexico
and India) will use 'dumping' as an excuse to block Chinese access.
China will also be exposed to foreign competition in her domestic
markets. This may increase unemployment and bankruptcies. Strict
WTO rules on domestic subsidies will particluarly affect the State
Owned Enterprises. China, now categorised as an advanced economy,
may no longer be able, to use developing country exceptions, which
are normally available to poorer WTO members
EFFECTS OF WTO ON THE FINANCIAL SYSTEM
Banking
Foreign banks currently only have 2% of total banking assets
in China: $41 bn, generating a profit of about 0.65%. It may
take at least 10 years for foreign banks to have any impact.
Half of all foreign companies intend to have local senior Chinese
and to phase out the employment of foreigners.
China has committed itself to full market access in five years
for U.S. banks. (by 2007). All foreign banks will be able to conduct
local currency business with Chinese enterprises starting 2 years
after accession. (2004). Foreign banks will also be able to
conduct local currency business with Chinese individuals from
5 years after accession. (2007)
Foreign banks will have the same rights (national treatment)
as Chinese banks within designated geographic areas, but only
to open one branch a year. (by way of comparison, the Agricultiural
Bank of China has 50,000 branches, ICBC 44,000; China Construction
Bank 23,000).
Foreign bankswill be limited to lending to foreign companies
for two years after accession They will not be able to take RMB
deposits until five years after accession (2007).
Regulations that took effect on February 1 2002 stipulate that
foreign bank branches must have RMB600m in operating capital to
conduct the full range of services, including foreign currency
and RMB lending to foreign and Chinese corporations and consumers.
JV and foreign locally-registered banks must have RMB1bn capital
(60% in RMB, the rest in foreign cirrency.) Non-bank financial
institutions are able to provide motor vehicle financing immediately
from accession.
Insurance
China currently restricts foreign companies to operating in
Shanghai and Guangzhou. Under the WTO agreement: foreign companies
can now provide individual insurance to Chinese and foreigners.
Health insurance, pensions and annuities will follow within three
years
China permitted foreign property and casualty firms to insure
large-scale risks nationwide immediately upon accession, and will
eliminate all geographic limitations in three years (by 2005)
China agreed to award licenses solely on the basis of prudential
criteria, with no economic needs test or quantitative limits on
the number of licenses issued.
China agreed to allow 50 percent foreign ownership for life
insurance. Life insurers may now choose their own joint venture
partners. For non-life, China allowed branching or 51% ownership
on accession and the formation of wholly owned subsidiaries will
follow in 2 years. Reinsurance is completely open since accession
(100 percent ownership with no restrictions). A separate EU agreement
on WTO was signed with the Chinese in May 2000. and effectively
gave EU insurance companies access to the Chinese market through
phased 50% owned joint ventures for seven EU companies.
Securities
China permitted minority (33%) foreign-owned joint ventures
to engage in fund management on the same terms as Chinese firms
from accession. As the scope of business expands for Chinese firms,
foreign joint venture securities companies will enjoy the same
right to expansion in their scope of business.
Within three years (2005) minority joint ventures will be allowed
to underwrite domestic securities issues (A shares) and underwrite
and trade in foreign currency denominated securities (B and H
shares and debt and equity).
Bank Of China Strategy:
In June 2002 Mr LIU Minkang, Chairman and President of the Bank
of China gave an interview in the Banker Magazine on the strategy
of the Bank of China following WTO membership. This is a summary
of his comments, which could well apply to the insurance and securities
sectors. He stated:
Participation by foreign banks may drive up competition, with
loss of key business such as foreign exchange international settlements
and credit cards. These are high yield, fee-based services. The
danger is that the Bank of China will be left with low yield
poor business. There may also be loss of key clients, and loss
of key staff.
Chinese banks lack foreign banking management techniques for
market risk and operational risk. Furthermore, Chinese banks are
not yet profit driven.
In these circumstances Bank of China strategy should be to increase
internal controls, improve foreign branch networks, increase fee-based
business, focus on competitive products and to develop cash management,
personal asset management and e-banking. It should also apply
advanced IT and aim to acquire foreign clients abroad – as well
as servicing Chinese companies. It should also target Fortune
500 multinationals in China. It should provide listing services
for Chinese companies through the Bank of China International.
The Bank of China itself should list in China by 2005
Mr Liu also stressed the need for government action to inject more capital,
to allow strategic investors and to reduce state shareholding.
The Government should also allow a nationwide network, and the
abandonment of loss-making clients and projects. SOEs should
be allowed to go bankrupt. There should also be mergers and acquisitions
in banking sector.
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