Most Important Industries In China example essay topic

On November 10, 2001 the world ultimately granted China membership into coveted trade organization, the WTO. Not since Deng Xiaoping's economic reforms of 1978 has China made such a giant leap toward the creation of a market economy. The World Trade Organization (WTO) finally opened its door on Saturday to China, the world's most populous? C and one of the most robust?

C economy, sending a positive signal to the world economy loitering on the brink of a full-blown recession? (Xinhua, Financial Times) With the completion this fifteen year negotiation, China will now be forced to abide by international trade regulations so as to completely open its doors with ten years. WTO membership will provide countless economic benefits to China's burgeoning economy but the initial adjust period will certainly cause massive unemployment and possible political unrest. With economists projecting that if current growth rates continue the Chinese economy will surpass Japan, China is on the brink of dominating the Asian economy.

Although there are many circumstances that may derail this progress, the Chinese now have the tools necessary to develop the powerhouse economists have been citing for the past decade. China's entry into the WTO was particularly slow (fifteen years of negotiating) for a variety of disparities; from trade barriers to individual market reforms. During negotiations the American delegation was particularly stringent on removing China's tariff and non-tariff barriers to trade. For instance, so as to protect China's infant car industry, the government established a one hundred percent import duty on all foreign automobiles. Non-tariff barriers such as quotas and licensing also made business difficult for foreign companies. To purchase foreign appliances Chinese citizens were often forced to purchase a license to have the unit installed.

These anti-competitive devices needed to be abolished so as to comply with the spirit of fair competition that the WTO promotes and legislates. Economic discrimination on a nation basis is a serious issue that is difficult to address since this practice can be done at even the provincial level. Foreign enterprises have complained that the Chinese have allocated bank loans, human resources, and control in a discriminatory manner. All joint ventures in China insist that a Chinese firm must own fifty-one percent. If, for instance, a Japanese company wanted to establish a firm in Shanghai, the Chinese government might insist that the Chinese control sixty percent.

This same firm might also have difficulties securing bank loans and employees. Profit limitations occur when a host country dictates the percentage of earnings that a foreign company can remove from the country. There are no clear laws in China that ascribes rates for different situation so the Chinese arbitrarily manipulate the numbers so as maximize Chinese profits or to punish foreign firms. Like the Japanese, China has mandated foreign firms to use established Chinese distribution networks. These monopolistic distribution firms don't allow businesses to outsource their distribution needs to the lowest bidder. Once again this type of law can be modified and applied in a discriminatory manner that renders the free market controlled.

Opening China's weakest sectors, agriculture, financial services and distribution, was a difficult decision for the Chinese delegation. "Opinions vary among Chinese economists, not on the desirability of "opening the door", but on how wide and how quickly it should be opened? -" (Brahm 21). The west has a highly developed financial services market, advanced farming techniques, and far more effective distribution networks.

These more vulnerable Chinese sectors may face unprecedented recession once foreign competition is allowed to enter. It is predicted that Chinese banks will loose seventy percent of its deposits once foreign banks enter the market. "They [Chinese bankers] understand that they lag far behind their counterparts in terms of capitalization, global networks? -modern management systems? -" (Brahm 293). Inefficiency in Chinese agriculture is staggering. It is said that China's three hundred million farmers aren't capable of even producing half of the output America's one million five hundred thousand farmers produce.

With the farm import tariff down to seventeen percent, by 2004 the United States will be exporting twenty-one million tons of grain each year. Although this is a large amount it still only accounts for four and one half percent of China's national consumption. Throughout the streets of Chinese cities there are countless small shops selling pirated music, video, film, and computer software. In this age of technology, intellectual property rights have become a frontline issue. Foreign corporations must feel certain that their research and development costs will not be undermined by mindless copyright infringements. The United States, rightfully so, believes that fair competition is impossible if Chinese labor isn't reformed.

As it stands the Chinese labor force receives no benefits and is forbidden to organize unions. The Chinese feel that allowing the workers to organize will, as in Poland solidarity movement, threaten social stability. The Chinese agreed to allow unions to form with the intention of protecting the workers. These organizations will hopefully raise working conditions and raise wages, creating a far more equitable labor market.

For years China's state owned enterprises (SOE) have insolvent, over staffed, inefficient, and plagued with immense idle capacity. Unfortunately these SOE's also represent the most important industries in China such as heavy industry and transportation. The immense debts of these government-subsidized companies not only drain the government but also attack the stability of the Chinese banking industry. SOE debt is transferred to other SOEs' known as Asset Management firms, which is then transferred to banks. Since these SOEs are critical to China's existence they need to be maintained but WTO regulations stipulate that government-subsidized entities are monopolistic and illegal.

The WTO provides countries in different stages of development with modified rules so as to facilitate further growth. Throughout the negotiations China insisted that it is "the largest developing country". China is in fact still a poor country so a compromised was reached which stipulated that status would be judged on a sector to sector basis. For instance, the Chinese textile industry is simply a behemoth. The United States imports the majority of their textiles from China and many American clothing companies have production facilities in China.

This situation renders the market as developed and thus removes special protections. Banking and financial services however are meager in China and need some form of protection. Once these types of market are labeled as "developing", the market is allowed some forms of protections and exceptions. Printed laws and transparency of the legal system is what ties all of these problems together. An agreement was reached on every contentious issue but for these agreements to be honored a clearly defined legal system is imperative.

Amway Greater China's CEO said, "I genuinely believe that China will commit to the rules. For the first time, we will be able to see transparent laws and regulations" (Landler). Currently, Chinese business law is very secretive and is usually communicated through confidential memorandums, etc. Especially now with the augmented complications of the WTO laws, foreign firms find it very dangerous to operate in China without legal protection.

"In addition to accepting substantially lower tariffs and quotas, China has agreed to set up an internationally acceptable legal system to resolve commercial disputes. That will reduce the danger for foreign companies of being blindsided by arbitrary government rulings or policy reversals" (Landler). Justices need to be trained so as to adjudicate trade disputes in an effective and impartial manner. Thousands of Lawyers will be needed to provide representation and also serve as consultants in understanding the nine hundred-page WTO agreements. With the implementation of a modern legal system, corporations will feel safe investing in China and all of the potential benefits of WTO may be realized. Massive unemployment will be an immediate result of China accession.

With the opening of China's agricultural market potentially one hundred million peasants, one-third of the farmers, may loose their jobs posing a serious threat to political stability. "In June, the party's Central Committee set off its own alarm, publishing a warning that the growing pattern of large-scale protests by farmers, workers? -shows that entry into the World Trade Organization may bring growing dangers and pressures that can severely harm social stability and hinder the smooth implementation of reform" (Tyler). It is however, believed that the WTO will cause unemployment in some fields but create more employment in other sectors of the economy resulting in a net gain. This has proven true in many countries but China faces two particularly difficult problems, education and residence restriction. Once the peasants loose their jobs they will have no skills pertinent to other industries. These people will be useless without training and education.

The second issue is that the majority of these peasants will look for jobs in the cities which, under current law, is illegal due to residence control. Chinese cities have no immediate way of accommodating millions of unskilled laborers with shelter and work. This lack of direction among a major portion of the population can lead to increased crime and augments the possibility for a political revolution. In order to combat the initial unemployment China must have social services ready to help those who are unable to help themselves. A free flow of human resources along with equal treatment of rural people will keep China's economic drive moving with greater vigor.

With those issues aside the government still decided to continue its bid for membership. The decision to join is based upon the balance between the negative and positive effects. "To China, most agree that accession will present both opportunities and challenges, with the opportunities over-weighing the challenges. The immediate and most important benefit for China? -will be a drastic increase in the inflow of FDI? - It is predicted that in the first five years of WTO membership, China will attract more the $100 billion USD in foreign direct investment". (Brahm 140).

This great amount of investment although dependent upon political stability as well, gives China virtually forces China to join. The modern world has proved that the WTO does create net gains, not looses. For China to become apart of this "global village" there are simply no other options. WTO is certainly not this "Garden of Eden" but it has proved to be the better of two evils. The streets of Beijing wont be paved with gold by next year and some of the old problems will still be around. That being said, "China has made international commitments that are legally binding.

Failure to comply with them will? -stall the domestic reform process" (Brahm 141). The WTO is real and the effects China will realize are equally such. It is hard to even contemplate that just thirty-five years ago China was in the heart of the Cultural Revolution and yet today it is now reasonable to predict that China may, in time, become one of the largest and most powerful economies of the world.