Xue Rongjiu, deputy director of the China Society of WTO Research, has been extremely busy since late October.

In the weeks leading up to the third anniversary of China's WTO (World Trade Organization) membership, he was approached daily by journalists seeking comments about the global trade bloc and what it has meant to China.

After all, Xue, China's first WTO researcher and its predecessor the General Agreement on Tariffs and Trade (GATT), is the nation's foremost expert on the global trade body.

"The most frequent question I was being asked was what has been China's greatest achievement since joining the WTO," Xue told China Business Weekly.

And what has been China's greatest accomplishment during its three-year membership in the global trade bloc?

Xue believes the significant changes -- involving trade, the economy and administration, which few people even realize -- is the nation's greatest achievement.

That, Xue said, indicates China has overcome, rather smoothly, the initial challenges in its first three years of WTO membership, while tasting the huge benefits of globalization brought about by WTO membership.

甅DNM?subhead>Fruitful

甅DNM?bodytxt>After having struggled for 15 years -- first to resume its legal status in GATT, and then to join the WTO -- China was ratified by the international trade club as its 142nd member during the Doha trade ministerial meeting on November 11, 2001.

One month later, China officially became a WTO member.

China's foreign trade has benefited directly from WTO membership. In 2002, the nation's foreign trade volume reached US$620.77 billion, up 21.8 per cent year-on-year. This year, China's foreign trade is expected to surpass US$1.1 trillion, up more than 30 per cent over last year.

China in 2002 became the world's sixth-biggest international trader and this year, analysts have predicted it will surpass Japan to rank the third. China would trail the European Union (EU) and the United States.

With their eyes on surging exports, foreign investors are clamouring to enter China. In 2001, China attracted US$46.88 billion in foreign direct investment (FDI). In 2002, the figure rose 12.51 per cent, to 52.74, enabling China to replace the United States as the world's top FDI destination.

In the first 10 months of this year, FDI in China reached US$53.78 billion. That was up 23.47 per cent over the same period of last year.

WTO membership has also benefited Chinese consumers. For example, the prices of imported cars, wine, soybean and fruit have fallen in the past three years.

For Zhang Yansheng, director of the Institute of International Economic Research under the National Development and Reform Commission (NDRC), China's WTO membership has meant more than surging exports, rising FDI and cheaper imports.

WTO membership has given China a new set of market-operation rules with which the nation can smooth out its market economy, Zhang told China Business Weekly.

Long Yongtu, secretary-general of the non-profit organization Boao Forum for Asia, and former chief negotiator of China's WTO delegation, agrees.

The WTO requires transparency and liberalization, especially in terms of trade management. That has forced China's government departments -- not only those responsible for trade-related issues -- to scrap their closed-door management practices.

Meanwhile, liberalization has helped end the monopoly of State-owned enterprises (SOEs) over foreign trade, said Long.

"The surging growth in exports is the result of trade liberalization, which allows the private sector to directly export products, which substantially lowers transaction costs," said Long.

Since joining the WTO, China's central government has either abolished or revised more than 2,000 laws, regulations and official documents in accordance with its WTO commitments.

Local levels of government across China have either abolished or revised 50,000 regulations.

Wang Baoshu, a law professor at Tsinghua University, said many of the laws and regulations that were done away with were inconsistent with a market economy and modern governance. Without WTO membership, however, it might have taken China much longer to amend those rules and regulations, he added.

The Administrative Licensing Law, which took effect in July, clearly defines the roles and responsibilities of government departments.

"The Chinese Government is positively adjusting its legal structure, by making WTO accession an opportunity," Wang told China Business Weekly.

WTO Director-General Supachai Panitchpakdi said during a forum in Beijing last month: "China has lived up to its commitments to the WTO since it joined the organization three years ago."

甅DNM?subhead>Fewer effects?

甅DNM?bodytxt>Compared with China's rocketing exports, WTO membership appears to have had little impacts on the Chinese market.

Prior to China's WTO entry, many analysts expressed concern the nation's weak agricultural sector and fledgling auto industry would be severely affected by the inflow of imports and the rapidly falling tariffs.

China agreed to slash tariffs on imported cars from 70-80 per cent in 2001 to 25 per cent, and the nation will lift the quota barrier by 2006, in line with its WTO commitments.

In terms of agriculture, China promised to reduce its average tariff rate on imported farm products from the current 22 per cent to 15 per cent before 2010, and to significantly increase quotas on low-tariff grain and cotton.

Those sectors have not been severely affected. With the exception of soybean, which the Chinese market urgently needs, most major foreign farm products have not flooded into China, and have not taken jobs from Chinese farmers.

In 2002, China exported 13.4 million tons of farm products, and last year the nation's agricultural exports rose to 19.92 million tons.

In the auto sector, accompanying rapid price cuts, the production and sales of domestically built cars surged to 3 million units in 2002, and to 4 million last year. Most of the world's leading automakers have established joint ventures to produce their best-known vehicles in China.

Meanwhile, China's retail, banking and insurance sectors have witnessed the rapid influx of foreign players -- and the fast development of domestic companies.

Major international firms have been slow-- and the effects minimal -- to enter China's transportation, tourism and logistics sectors, which the nation agreed to liberalize.

Despite the rosy picture to date, some experts suggest the effects of WTO membership might begin to bite -- beginning this month, when the threshold for foreign access into the Chinese market falls yet again.

Gao Huiqing, an economist with the State Information Centre, said domestic firms will no longer be shielded from intense competition.

Competition will be much fiercer as more restrictions are lifted in accordance with China's WTO commitments.

Beginning on Saturday, the number of Chinese cities in which foreign banks are allowed to conduct corporate renminbi business will increase from 13 to 18. On December 11, 2006, all geographical restrictions will be removed and foreign banks will be allowed to conduct renminbi business with Chinese residents.

Compared with foreign banks, most Chinese ones remain inefficient and plagued by a high ratio of non-performing loans (NPLs).

Liu Mingkang, chairman of the China Banking Regulatory Commission, said the ratio of NPLs for major Chinese commercial banks had dropped 4.39 percentage points, to 13.37 per cent, by the end of September.

That figure, however, remains much higher than the internationally safe level of 5 per cent.

In addition, many analysts believe the actual NPL ratios of China's commercial banks might be higher, as many bank outlets cover their real financial situations.

Jim Dorn, an expert on China at the Washington-based Cato Institute, said while NPLs have fallen, the rapid and unsustainable increase in fixed-asset investment in 2003-2004 could lead to a sharp rise in NPLs next year, especially if inflation accelerates.

That means if 25 per cent of the high-end customers at China's commercial banks switch to foreign banks, the Chinese lenders will face a severe payment crisis, Gao told China Business Weekly.

Liu Xiaohe, a researcher with the Institute of Agricultural Economy affiliated with the Chinese Academy of Agricultural Sciences, told China Business Weekly less-than-expected imports of foreign grain in the past three years has been the result of rising international grain prices caused by natural disasters.

The average price of China's corn, cotton and wheat are commonly 30 per cent higher than international prices. But in 2002 and last year, international prices rose more than 20 per cent, while domestic prices held firm, due mainly to oversupply.

However, since late last year, China's grain and cotton prices have surged more than 30 per cent, which has boosted the growth of imports.

In the first half of this year, China's grain imports rose 180 per cent, to 4.12 million tons.

甅DNM?subhead> Potential risks

甅DNM?bodytxt>Some scholars suggest the WTO's true impact on China's agricultural sector will affect more than grain imports.

Wen Tiejun, a renowned agricultural economist, told China Business Weekly that the WTO realized the free movement of capital instead of workers. That means, over the long term, more money will flow out of China's disadvantaged agricultural areas,worsening the already harsh situation in the nation's rural communities.

In cities, sociologist Ding Yuanzhu at the NDRC's Institute of Economics said the WTO accession has helped expand the already large income gap in China by providing more opportunities and salaries to business elites, while throwing low-skilled labourers out of bankrupt factories.

Sociologist Sun Liping from Tsinghua University estimated that the factual Gini Coefficient of China was 0.48 last year, ranking the country among the world's most income polarized countries.

Following China's WTO entry, anti-dumping investigations against the country have grown steadily. According to the Beijing-based Chinese newspaper Financial Post, of 194 anti-dumping cases received by the WTO Commission so far this year, 54 were complaints against China.

Critics have said this is a result of the compromises China made for WTO entry, in which it agreed to be considered a non-market economy for up to 15 years after its WTO accession and be subject to safeguard measures for 12 years if Chinese exports grow too quickly.

The stipulations have become a major weapon for other countries to launch anti-dumping cases against Chinese goods, because without market economy status China's real production costs need not be taken into account and investigators can quote figures from a third country with higher production costs as the criteria to judge dumping.

But Long said the compromises were made to facilitate China's WTO accession. In fact, rising anti-dumping cases have not slowed the growth rate of China's exports.

Another potential danger is, following China's WTO entry, the average price of its exports has witnessed a declining trend, while its imports -- mainly raw materials and energy -- are sold more and more expensively.

In 2003, world prices of steel, ore, coal and petroleum oil rose significantly.

"If Chinese manufacturers do not improve their competitiveness and brand reputations and get higher prices, their profit margins will be further narrowed," said Xue.

Restructuring urged

What needs to improve is not only manufacturing competitiveness; the government needs to reshuffle its economic and social management if WTO challenges are to be smoothly met, Ding said.

The State Council, China's cabinet, released a plan in July to reform its role as a concrete investor and player in the market. The massive government-backed investments are ranked as major factors leading to high NPLs of Chinese banks.

But Wang Yuanjing, an economist with the Institute of Investment Research under the NDRC, said more have to be done to fuel the reform, such as encouraging more private investment into high-profit and monopolized public facility sectors, reducing taxes of investors and charity donors, and partially liberalize the pricing system of public commodities.

"The key is how to break the vested interest groups, many of which are backed by government officials," Wang told China Business Weekly.

Dorn said in order to deal with the impact of the WTO, China has to open its capital markets, privatize its financial sector and most SOEs, and allow the Chinese people capital freedom. It makes no sense for the People's Bank of China, the central bank, to continue to accumulate foreign reserves in the form of low-yielding US Treasury bills, while the private sector is starved of funds, Dorn said.

Ding argued that the government's reforms should not be limited to economic sectors. The government should change its GDP-oriented development model and focus more on public affairs. It has to redistribute social wealth by strengthening the efforts of income tax imposition.

"More independent corporate and social organizations should be sponsored by government to fend off the social impacts of WTO," Ding added.