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China enters WTO with high hopes for reform

China and its 1.3 billion people joined the World Trade Organisation on Tuesday, ending a 15-year quest and ushering in a new era of reform expected to bring sweeping changes to the Communist-ruled nation.

But optimism was tempered by concern, as trading partners question China's ability to meet its WTO pledges and officials fear painful reforms could spark social unrest.

Ordinary Chinese greeted the news of membership with mixed feelings, worried that foreign competition could threaten their jobs but hoping for lower prices.

Foreign investors have waited expectantly for the opening of the world's largest potential market, while China hopes greater global integration will complete its transition to a market economy.

The Communist Party mouthpiece People's Daily called on the government to carry out its WTO pledges and warned state firms to prepare for foreign competition.

"There should be a rapid shift in the government's style of managing the economy, stepping up integration and transparency of policies and enhancing the ability to do business in line with international norms," it said in a front page editorial.

"Enterprises should increase their sense of urgency and awareness to compete," it warned.

But there was little fanfare. The trade ministry planned no formal celebration and the stock markets reacted little to a formality they had already factored in.

GOOD YEAR

Entry to the WTO marks a major victory for China in a trophy year capped by Beijing nabbing the 2008 Olympics and Shanghai hosting a successful Asia Pacific Economic Co-operation summit.

China opened its hermit economy to the world in 1978 and, in fits and starts, has lurched to embrace the market by loosening the state's grip over economic matters. It has already become the seventh largest trading power.

"The importance of WTO is that it brings into play a more powerful market-based dynamic behind restructuring," said Michael Spencer, chief Asia economist for Deutsche Bank.

"Essentially what we have had for the last 15 or 20 years is restructuring by fiat. It's difficult to continue along that road and make any progress on other forms of deregulation in society and political freedoms, which are a pressing need in China."

Some argue the change spurred by WTO will extend beyond the economic arena to bring political pluralism.

The challenge for China in managing the change is enormous.

Beijing must convince protected state firms, conservative local officials and workers fearful for their jobs that entry to the WTO will bring benefits.

Premier Zhu Rongji made a personal effort to sell the deal to the Chinese people on the eve of entry.

"This is an important symbol of entering a new stage of China's opening to the outside world. It meets the fundamental, long-term interests of China," Zhu said.

RESISTANCE

Plenty of convincing lies ahead, and resistance to change under WTO will come in many forms. Local officials who don't know or don't like the rules may throw up the biggest obstacles.

Even the central government could beat a retreat if workers take to the street to protest mass layoffs expected from streamlining the ailing state sector.

China's trading partners wonder how the emerging economic power will use its weight within the WTO, which launched a new trade round last month that will give a greater voice to developing countries.

A festering trade dispute with Japan could offer a hint of things to come. Ministers from Japan and China began talks in Beijing on Tuesday to try to resolve a bitter row over surging Chinese exports of agricultural goods.

Trade officials say such spats will only increase as China's economy grows, potentially overtaking Japan as the second largest economy later this century.

Foreign companies are undeterred by the possibility of more trade conflicts as they contemplate the Chinese market.

"We expect there will be opportunities for substantial new investment for the future," said Byron Grote, Asia managing director for global oil giant BP Plc.

Analysts say foreign firms and China's private sector will be the biggest winners from WTO, while state firms and hundreds of millions of farmers will feel the pain from more competition.

Despite the risk, Beijing has little choice but to push ahead with WTO-related reforms to continue to deliver economic growth and improvements in living standards for its people, they said.

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