Search the Internet          Tips  Sites: Finance, Investment

China's WTO entry no threat to Asia: Salomon

China's entry into the World Trade Organisation is no threat to the rest of Asia and instead provides opportunities for other countries in the region, Salomon Smith Barney said on Monday.

Yiping Huang, vice president for Economic and Market Analysis for Asia Pacific, said that accommodating an emerging China should be no more difficult proportionately than accommodating a booming Japan or the newly industrialised Asian nations in past years.

Indeed, as Japan falls into recession, China has the potential to become a new powerhouse for Asian growth.

Salomon expects China to grow 7.4 per cent in 2001. Growth would moderate to 7.0 per cent in 2002 as the global slowdown hurts exports but would perk up to 8.0 per cent in 2003 as the world recovery starts to gather steam.

Asian leaders and analysts have been mostly positive about China's entry into the WTO. But some have expressed fears China's low-cost labour supply would help it undercut competitors.

But Huang told reporters that view ignored the laws of comparative advantage.

He said that while China would develop comparative advantages in a number of industries, particularly those that were labour intensive, it would not be able to produce everything by itself.

"It will probably export more but also import more," Huang said. He said that typically when a country joins the WTO, imports grow faster in the first two years.

Moreover, it was wrong to believe China had a virtually unlimited supply of low-cost unskilled labour. Because of the government's one-child policy, China's population was rapidly aging and by 2010 the proportion of people in their most productive work years would be much smaller.

In contrast, demographics favoured other Asian nations.

"China will probably lose out to India and Indonesia in labour-intensive industries," Huang said.

Huang also noted that although China was a vast country of 1.3 billion people, its economy was segregated into numerous regional economies with different income levels and advantages.

Therefore, the direct competition that other East Asian economies faced was not from China as a whole but from individual provinces with similar levels of income.

"With WTO, there is a possibility that all regions in China will become more competitive. But most Asian countries already are open, so they are starting from a higher base," Huang said.

In the area of foreign direct investment, Huang said that while it was true China was attracting large flows of FDI, much of the investment in China was complementary with, rather than substitutable for, FDI into other Asian nations.

Huang did not deny that Asian nations would face challenges. But the adjustments would be beneficial, as well as inevitable, in the long run, by forcing Asian economies to hone their own comparative advantages.

"China will emerge in some areas, so some producers will need to adjust. But everyone now needs to adjust because the global economy is in recession," he said.

"The key challenge for Asian economies is to find new market niches through domestic market reforms."

ALSO READ:
India and the WTO: News and issues