Shi Guangsheng, Minister of Foreign Trade and Economic Cooperation in Dohar, Qatar, celebrating China’s accession to the World Trade Organization.

Researchers have given business communities and Hong Kong policy planners a run-down of likely impacts from China's accession to the World Trade Organization (WTO).
    Among findings:
Increased competition from WTO membership will reward efficient and innovative companies, regardless of whether they are local or foreign, private or public. Inefficient companies and those behind in technology are likely to be weeded out.
Hong Kong companies that use China as their export platform are expected to expand, but companies that produce in China to circumvent tariff and non-tariff barriers imposed by China on its imports will experience increased pressure from import liberalisation. Some may not survive.
The opening up of service industries such as banking, insurance, securities and distribution will provide opportunities to Hong Kong companies, but the extent to which the opportunities can be turned into profit is unclear. One reason is that Hong Kong service providers will be competing in China with North American, Western European and Japanese providers with more advanced technology and superior managerial skills.
For Hong Kong companies primarily operating in the SAR producing goods and services, survival depends on having high value-added and technological elements.
Hong Kong companies involved in cargo shipment and transshipment will benefit in the short term from the expansion of China’s exports and imports but in the longer term they will face increasing pressure from China’s other container ports.
The pre-eminence of Hong Kong’s Chek Lap Kok airport is unlikely to be challenged by any Chinese Mainland airport which will preserve lasting benefits for Hong Kong companies involved in passenger and cargo air transportation.
Although Hong Kong will benefit from Mainland Chinese companies setting up subsidiaries in the SAR to conduct business in foreign countries, there will be less need for foreign companies to use Hong Kong as an intermediary. However smaller multinational companies seeking post-WTO investment in China may need help from Hong Kong’s traders and investors.
    The research was compiled by Dr Leonard Cheng from the Department of Economics at The Hong Kong University of Science and Technology (HKUST).
    Projections were drawn from the experiences of economies that have acceded to the WTO and its forerunner, GATT, over the last few decades, together with standard trade and investment theories. Results were validated against existing research and interviews with Chinese academics and government officials.
    Dr Cheng said: “This type of research can only generate predictions about the direction of changes but not the magnitude of changes.”
    According to the research, the three major economic benefits to China from accession will be: a more stable external economic relationships, a clearer direction and greater speed for economic reform, and a brighter prospect for long-term economic growth.
    WTO impact research also comes from HKUST in a publication authored by Dr David Li and Dr Changqi Wu. In the research they drew data from 48 economies that joined WTO / GATT between 1970 and 1998 and reached three groups of findings:
On average it takes five years after WTO accession for an economy’s GDP to grow significantly. “An explanation is that the accession takes a few years to impact on the overall economic institutions and structure,” said Dr Li.
Much of the GDP growth comes from a faster pace of capital accumulation after accession rather than any increase in productivity. The higher inflow of foreign direct investment illustrates the impact of so-called tariff jumping. Whereas before accession, countries receive foreign investment from companies wanting to set up production bases to avoid paying high tariffs on imported finished products, post-accession can see a surge of investment because of different reasons such as a better business environment, reduced bureaucracy, and greater transparency.
After accession the ratio between imports and GDP goes up significantly. “This is consistent with the general belief that, for developing economies, accession opens up more widely an economy’s domestic market to foreign countries rather than opening foreign markets to the accession economy,” said Dr Li.
    As a consequence, most economies resort to currency devaluation within two years of accession. “The common reason is that devaluation helps restore trade balances,” he says.
    Co-author Dr Changqi Wu said: “One of our conclusions is that an expected big jump in foreign direct investment after China's accession to WTO may not materialise.”
    He added: “Although we learned many lessons, only some of them may apply directly to China because China is different in many ways from other developing economies.”

Research Contacts
Dr Leonard Cheng: leonard@ust.hk
Dr David Li: davidli@ust.hk
Dr Changqi Wu: fnchqiwu@ust.hk