Harvard China Review 4th Annual Conference Summary
Summarized by Jin Chen
(Click
on the links for presentation documents)
Morning
Keynote Speech
Mr. Liqun
Jin, Vice Minister of Chinese Finance Ministry,
dismissed the view of "China threat" and
tried to give a "correct" assessment of
China. He first praised the Chinese government for
being competent and effective in the reform. It was
able to reform the government itself, both conceptually
and in practice. The Chinese government used to take
care every citizen from cradle to grave; and local
governments depended heavily on the central government
administratively and financially. By 1998 the central
government had reduced its size by 50%. This government
restructuring was also a substantive one. It redefined
the role of the government in the economy. It is not
to interfere with businesses, but to make suitable
policies, effectively implement them and closely monitor
them. It focuses on public finance system, basic infrastructure,
and environmental protection and the alike. The government
only has a limited role in SOEs as one of many shareholders.
It intends to let private sector play a more important
role in China's economic development.
Mr.
Jin then talked about two delicate balances in the
reform. One is the balance between the degree of the
reform and social stability; the other is the balance
between the speed of the reform and the quality of
the reform. On the former, the government tries to
protect the vulnerable and continues its efforts in
poverty reduction. On the latter, the government has
significantly increased resource allocation into research
and development, basic sciences, education and ecological
conservation. In short, the government tries to create
market order while preserving social order. Among
many of its efforts, it cracks down financial crimes,
enhances intellectual property rights, and trains
government officials.
Finally,
Mr. Jin commented briefly on several issues. He said
gradualist approach to reform proves more appropriate
for China. For example, postponing complete capital
account liberalization helped China avoid the Asian
Financial Crisis in 1997. On globalization, he said
it is an inevitable trend regardless one likes it
or not, but it should have a human face with it by
reducing income inequality, bridging the digital divide,
and helping the marginalized and the underprivileged.
On China's entry into the WTO, he said that China
has made consistent efforts to join this organization;
the banking sector and the SOEs are what the government
worries most; China hopes for the best, but prepares
for the worst. On sino-US relations, he said both
countries are very important to each other economically;
their strengths in trade are highly complementary;
the US should relax its controls on technology exports
to China, which will help bring trade balance between
the two countries.
Plenary
Panel: the Impact of WTO Entry on China's Economy
and Society
Professor Yasheng Huang of Harvard University, being
the moderator of the panel, expressed his own views
at the end of the panel presentations. First of all,
he highlights the importance of political development
between the US and China. Globalization is not just
about trade and economics; it requires certain political
underpinnings to function smoothly. He noticed that
over 90% of foreign direct investment (FDI) occur
among OECD countries themselves, which are culturally
and economically close to each other. So the fact
itself that China has so much FDI is an anomaly.
Professor
Huang anticipates much turbulence between the US and
China in the next four years for the following reasons.
First, the collapse of Soviet Union eliminated the
major reason for the US to treat China strategically.
Second, whereas the US China policy under Clinton
administration was economic driven, the current China
policy under Bush administration is ideological driven,
which views China as being static rather than being
highly dynamic. Bush's China policy is more of containing
China rather than trying to shape China's political
discourse through trade and other economic means as
Clinton administration did. Third, because of the
Internet revolution and the democratic culture, public
opinions are increasingly influencing this bilateral
policy. Fourth, raising nationalism in China is alarming,
and can be detrimental to this relationship. How to
manage nationalism is a very tricky task in China.
Fifth, the US trade deficit with China should not
be something to worry about, according to Professor
Huang, because much of this deficit is because China
has taken the market shares of other Asian countries,
i.e., it is a reallocation of imports to the US among
the Asian countries themselves. The fact that many
people do worry about the US trade deficit with China
worries Professor Huang. Sixth, during the process
of China's implementing its WTO commitments, Bush
administration is more likely to look at how many
commitments China has not fulfilled, rather than looking
at how much progress China has made from its original
position. Bush administration's unrealistic expectations
will almost certainly create trouble in this bilateral
relationship.
Professor Jun Fu of Qinghua University examined foreign
direct investments in China from a particular angle.
He looked at the type of investments, the geographic
area of investments and the trend of each type of
investments, in order to determine the main drivers
of these investments. His research results demonstrated
that it is institutional advantages, rather than cultural
and economic advantages, that will continue to attract
foreign direct investments into China.
Mr.
Jeremy Gordon focused his presentation on the
impacts of China's joining the WTO on the pharmaceutical
industry. He said the enforcement of intellectual
property rights as a result of China's accession will
have the biggest impact on this industry. In addition,
reducing tariffs by 60% over three years, allowing
foreign manufacturers to sell directly to wholesalers
and retailers, and being more open to joint ventures
will also impact this industry positively. He identified
government administrative protection, restricted market
access and distribution limitations as current major
barriers to profitability.
Ms.
Gloria Kamph of Interliance described the role
of her company in the US and China. Interliance is
a management consulting and investment advisory company.
It has been involved in China business since 1989
and is very bullish on China. It encourages American
businesses to go into China and helps them succeed
there. It also takes on important projects commissioned
by various Chinese government agencies, introduces
Chinese officials to appropriate American organizations
on issues of Chinese concern, such as how to handle
unemployment, how to facilitate corporate mergers
and acquisitions, how to establish a well functioning
securities market, and so on.
Professor
Oliver Lembcke brought with him the European perspective
on China's WTO entry. He said the European Union (the
EU) and China have deepened their economic relationship
over the past two decades and have become important
trading partners of each other. The EU has always
supported China's WTO entry and holds the view that
the faster this process takes, the better. In his
view, the June 4th incident in 1989 and the Europeans'
linking human rights with trade are two main reasons
for the delay of China's accession. The EU later decided
to delink human rights with trade, support China's
developing country status in the WTO, adopted a flexible
approach on this issue and stress cooperation between
the two sides. He ended his presentation with questions,
not on China's preparation for the WTO, but on the
integration and solidarity of EU itself, as the EU
provides common import policies for its member countries,
but export policies are controlled by each member
country.
Panel
1: Telecommunications - Connecting China
This panel is moderated by Dr. Wei Zhang of McKinsey
& Company.
Mr. Richard Brecher of Motorola (China) Electronics,
replacing Michael Kennedy, was the first speaker of
this panel. He said that Motorola has been a long
time supporter of China's accession to the WTO, not
only because it will bring more business opportunities
and market access for Motorola but also because it
is good for China in the long run. More transparency
of policies and regulations and enhancement of rule
of law will provide a better operating environment
for businesses. These features will help promote competition,
stimulate the introduction of new technologies and
innovations, further attract foreign investments,
and enhance companies' ability to access capital.
He described Motorola's long-term commitment to China,
its operations scale, revenue distribution, and projected
growth prospects.
Dr. Kenneth
DeWoskin of PriceWaterhouseCoopers presented his
conclusions first, then gave more details to illustrate
them. He said that China's telecommunications reform
is not finished, but an on-going process. China's
joining the WTO is part of this process, not an end
by itself. Beijing needs to further define the rules
and regulations governing foreign investments in this
sector, which represent advanced technology and management
skills to China. Contrary to automobile industry and
some other industries where a major trend is to consolidate
the market and producers, the telecommunications industry
is moving towards decentralization, more competition
and more restructuring. Dr. DeWoskin praised the Ministry
of Information Industry (MII) for its serious efforts
in breaking China Telecom's monopoly position and
promoting fair competition.
Dr. Jay Li of AsiaInfo Technologies, Inc. brought
in a telecommunications vendor's perspective. He started
with the challenges of the carriers and the market
position of the venders. He thinks that the vender
must be solution focused, and provide the carrier
with not only advanced and suitable technologies but
also a consultant's knowledge, management skills and
feasible business models. In effect, a good vender
becomes an inseparable business partner of the carrier.
As China's major carriers invest tremendous amount
of money in new technologies, new management, marketing,
and logistical infrastructures, there is tremendous
amount money in these areas to be made. Dr. Li in
the end talked a little bit about his own background.
After working in Wall Street and Silicon Valley for
nine years, he decided to return to China and work
as a telecommunications vendor because that is where
actions taking place and where money is.
Hongliang Lu of UCStarcom first described his company's
successful experience in being listed in NESDAQ and
quickly became one of the Fortune 500 companies. He
then compared statistically the size of the US telecommunications
market and the Chinese market. He showed that China
has "created an US" in the past decade in
terms of the telecommunications infrastructure base,
the number of wireless subscribers (just reached 100
million) and other measurements. The growth rate in
this market is several times of that in the US. He
predicts that in the next five years, China will "create
another US", i.e., double the size of the US
market. He credits the Chinese government, particularly
the MII, for this phenomenal growth. He thinks that
China is ready for the WTO accession, which will undoubtedly
bring in more foreign capital into this market, which
in turn will mean more money to be made for companies
like his.
Wen Ku of MII talked about some big-picture issues
in China's telecommunications development and prospects.
He explained the initial competition plan for the
telecommunications market in the early 1990s, and
showed the fast growth figures in this industry. He
said the growth rate of the average earnings during
this period is 28.8%, about triple of the national
GDP growth rate. He tabulated the important policies
and regulations, and major changes in the industry
landscape during the past decade. All these changes
were designed to enhance competition, increase the
operating efficiencies of the companies, augment consumer
benefits and attract foreign capital. Finally he made
projections for the industry prospect in Year 2005.
Panel
2: State Owned Enterprises (SOEs)
Professor
Dwright Perkins of Harvard University, being the moderator,
set up the stage for a discussion on the current state
and the future of Chinese SOEs by giving a brief overview
of the past. Despite of the lackluster performance
of the SOEs, China always has some other economic
engines to make up the slack of the SOEs and keep
up its high economic growth rate over the past two
decades. From 1978 to mid 1980s, the agricultural
reform was driving the economic growth, which unleashed
the land potential and motivated the farmers. From
mid 1980s to early 1990s, the township and village
enterprises (TVEs) picked up growth as the agriculture
reform reached its potential. From early 1990s to
the present, it was foreign direct investments (FDIs)
that is driving China's economic growth. He pointed
out one feature of China's reform in comparison with
some Eastern European countries, that is, China has
a functioning government to maintain law and order.
Professor
Perkins described the dynamics that gave rise to the
current SOE problems. As the state owned banks hardened
their budget constraints and cut back lending to SOEs
in the 1990s, the SOEs started to lend to each other,
which resulted in huge triangular debt. China tried
to create a share holding system to invigorate SOEs,
but they still lack of an effective corporate governing
system, such as a board responsible for strategic
directions and a responsible management team. In mid
to late 1990s, the government encouraged mergers and
acquisitions to deepen the SOE reform. Professor Perkins
interprets the fact that China has accepted almost
all US demands in its WTO accession negotiations as
a sign of China's increasing frustrations with its
SOE problems and of China's hope for WTO to impose
rigorous market disciplines to the SOEs that either
the government nor the party has been able to do.
Nicholas Lardy of Brookings Institute made the point
that China's gradualist reform approach has been carried
out far enough and deep enough, as evidenced by millions
of SOE layoffs and increasing privatization, that
some aggregate statistics have shown positive signs
for the first time in two decades. Although the total
revenue of the SOEs still increases, the share of
SOEs in the total economy has gone down. The incremental
increase of SOEs' total claim on resources, particularly
bank loans, has decreased. Return on total assets
used to be negative, reflecting a decrease in operating
efficiency. But now some industries have increasing
return on assets, decreasing inventory, and returned
to profit. The example he gave is textile industry,
which was losing billions of RMB in 1996, but reversed
the trend in Year 2000 for the first time, after losing
one third of its total work force.
Professor
Jiming Cai of Qinghua University talked about
the institutional causes for the bad assets of China's
state owned banks and countermeasures to deal with
them. He said that the four state owned banks, having
80% of total deposits of the whole economy, have about
25% of their total assets as bad debts (the official
estimate is 20%). Asset Management Companies have
been formed to manage these bad debts, leaving the
four state owned banks with essentially all good assets
to operate with. One main reason for this bad debt
problem is the incentives of the bank leaders, who
tend to have short-term behavior rather than thinking
for the long-term benefits of the banks. Under the
previous system, nobody in the bank is solely responsible
for the financial performance of the bank. These banks
need to be transformed into real corporations with
president in charge, professional bankers instead
of officials as the main staff, and a board to provide
strategic guidance and operations surveillance. This
is especially important on the eve China's WTO entry,
which will permit foreign banks to compete under national
treatment.
Mr.
Li Jikai of CITIC Corp. talked about the complications
and impacts of China's SOE reform. Like some previous
speakers, he also called for establishing effective
corporate governing system and upgrading technical
capacity of SOEs. He said that some successful SOEs,
such as Legend, have become multinational companies
and have been listed overseas. These SOEs should be
relieved from taking social responsibilities. Much
government efforts are needed for providing sufficient
social security and job training for millions of laid
off workers.
David
Wang
of General Electric (China) Co., Ltd. discussed the
benefits of joining the WTO to China as a whole and
to GE specifically. A main benefit to China is that
joining the WTO will lead to substantial increase
of foreign investments into China, which will give
a big push on China's economic growth. Joining the
WTO will bring a new platform for businesses operating
in China. Along with trading rights, distribution
rights, reduced tariffs and many other benefits, GE
will enjoy much greater transparency of rules and
regulations, which is critical for operations people
on the ground. Challenges for China include social
stability and reforming the mindset of Chinese business
leaders as Chinese companies learn how to compete
globally. Challenges for GE include how to adapt to
China's local environment and how to establish the
right Chinese alliances in order to gain speed on
the ground.
Lunch
Keynote Speech
Jason
Chen
of Intel Corporation discussed Intel's business development
prospect in the context of China's accession into
the WTO. Being aware of the economic slowdown in the
US, Intel continues to expand business in China by
investing millions of dollars in research and development.
Mr. Chen said that China has tremendous research and
development talents, good manufacturing infrastructure
and huge number of investment opportunities. According
to International Data Corporation (IDC), China is
the largest cell phone market, the 3rd largest PC
market and telecommunication market. China mainland
overtook Taiwan last year and became the 3rd largest
IT product producer in the world. It is expected to
overtake Japan and become the 2nd largest this year.
Mr.
Chen told Intel's success story in China. Intel has
13 offices throughout China, research and development
facilities in Beijing and Shanghai, and its manufacturing
base in Shanghai. Intel pays particular attention
to the population factor and demand generation. It
organizes and sponsors varies events to promote computer
and Internet usage and brand awareness. It partners
up with top Chinese universities and other research
labs for talent pool and facilities sharing. It also
gives substantial communities supports such as training
teachers and endow scholarships. Intel's mission is
to celebrate of the Internet economy and participate
in the worldwide IT integration.
Panel
3: Financial Services - Is China Ready?
This
panel is moderated by Professor Thomas Gottschang.
Dr.
Yunxian Chen of GF Securities gave an overview
of China's stock market development over the past
decade. China's two stock exchanges in Shanghai and
Shenzhen respectively were established in 1990. It
has about 1,100 companies listed now, 90% of which
are A shares for Chinese investors and the rest are
B shares for foreign investors. Most of Chinese investors
are private individuals; a few are institutional investors.
China established China's Securities Regulatory Commission
(CSRC) in 1992, taking over the securities regulatory
responsibilities from People's Bank of China (PBOC).
Dr.
Chen raised questions on China's stock market development.
Now most Chinese companies listed are production companies
with few financial companies. Will more financial
companies be allowed to go public in the future? Will
China's stock market include trading options, futures
and derivatives? Will China's investment companies
increase its operations scale substantially? The US
is moving towards integrating banking, securities
and insurance, will China do the same? Dr. Chen pointed
out in the end that one advantage of China's WTO accession
for foreign investment companies is that it allows
foreign investment companies to access China's huge
market through forming joint ventures with Chinese
securities companies, holding with up to 33% of their
shares.
Mr. David Liu of AON China discussed China's insurance
market size and business opportunities. He presented
panels of data on insurance penetration and insurance
density in China, implying huge untapped market. He
said China's insurance regulations are rather recent
phenomena. China's insurance laws were enacted in
1995 and brokers laws in 1998. China Insurance Regulatory
Commission (CIRC) was not established until November,
1998. This industry is growing fast. There are 8 Chinese
insurance brokers in two years. He identified in the
end business success factors in China, including patience,
commitment, flexibility and connections.
Mr.
Yujun Zhang of Shenzhen Stock Exchange presented
the achievements of China's stock market, challenges
of the stock market, China's securities industry's
approach to the WTO and preparation measures for China's
WTO accession. He explained the establishment of China's
regulatory framework, fully automated trading system
and growth of the market. He said that the market
capitalization is about 60% of China's GDP in 2000;
but compared with the US, it is still small. Currently
China has 101 securities firms, 14 fund management
companies and 151 investment companies. To prepare
for the WTO entry, China encourages Chinese companies
to expand overseas and to attract overseas talents
to work in China. Mr. Chen thinks that the development
over the past 20 years has laid a solid foundation
for sound future growth.
Mr. Guoliang Wang of China Pacific Insurance talked
about China's urgent need for talents and appropriate
human resources management in China. He said that
insurance industry is both capital intensive, technology
intensive and labor intensive. The most urgent pressure
that China Pacific Insurance faces now is its severe
need for professional talents such as actuarial specialists,
computer system specialists and lawyers. He said that
they must realize that human resource is an important
factor of production and is at the core of today's
global competition. Technology and talents are commodities
in the market economy, like other goods and services,
so emphasis on professional talents must reflect in
appropriate compensation package. At the same time,
he also called for maintaining Chinese traditional
virtues such as hard working, contribution and sacrifice,
which are some of the corner stones of the Chinese
people's spirit.
Dr. Weihua Ma of China Merchants Bank expressed his
confidence in his bank's ability to compete globally.
He thinks that the system reform, Internet revolution,
transparency of the rules of the game, and relief
of tax burdens of commercial banks will greatly enhance
their ability to compete after China's WTO accession.
The Internet revolution has provided an equal platform
for all competitors. The Chinese government has established
a reserve system for bad debt problems. Currently
the commercial banks pay too much tax, 33% income
tax plus 8% operating tax, which taken together is
equivalent to 65-70% tax rate in other countries.
Under such tax regime, it is difficult to be profitable,
but his bank is among the few profitable commercial
banks. After 14 years of development, it is the 6th
largest commercial bank in China. His bank is also
trying to catch up with the trend of personalization,
zero-time operating delay and one-stop shopping.
Panel
4: Information Technology - Is There Any Success Model?
Professor
Richard Frankel of Sloan School of Management of MIT
moderated this panel.
Jason
Chen of Intel Corporation said that China's IT
industry will further attract foreign investments
and will play a more and more important role in the
world scene. He said China is not only a huge market
for IT consumption, but also a huge IT product producer.
It over took Taiwan in 2000 and became the third largest
IT producer in the world, and it is expected to over
take Japan this year to become the second largest.
China also has a huge talent pool for IT research
and development. He gave statistics and charts to
illustrate these trends.
Director Dexiu Ma of State Development Planning Commission
divided her presentation into three sections. She
first showed the high growth rates of Chinese IT industry
through numerous statistical measurements. She then
explained China's national IT development policy.
With deepening economic reform and increasing globalization,
China has made two important promises in its WTO accession
negotiations: "respect the rules of the game
and open up the market". China encourages world's
leading IT multinational companies to invest in China's
research and development and to participate in China's
SOE reform. At the same time, China encourages leading
Chinese IT companies to expand abroad to take the
advantage of market allocation of resources worldwide.
An important issue is to attract and retain talents.
We will implement human resources policies with flexibility
in order to place special talents into important positions.
In
the end Director Ma identified the three factors common
to all successful business models of foreign direct
investments in China. First, through joint venture,
foreigners collaborate with Chinese and work together.
Second, the joint venture must localize to produce
products and services suitable to Chinese customers.
Third, at the same time the foreign investors make
handsome returns, China develops its IT industry and
infrastructure, thereby contributing to China's economic
growth and having win-win results. She welcomed ambitious
people to work in China to realize their dreams.
Mr.
Jack Xu of Netease discussed the key strengths
and challenges of Netease. On the one hand, Netease,
being community-based, has large number of loyal users;
it has strong brand awareness and an impressive record
of innovations. It also has a strong management team
with international experience. On the other hand,
Netease is a young organization, trying to keep up
with rapid changes in on-line advertisement and e-commerce,
as well as policies and regulations. He thinks that
China's joining the WTO will not intensify competition
much in China because it is already very high. In
conclusion, Mr. Xu pointed out some future trends
of the IT industry in China. It will produce more
personalized products and services. It will move towards
a more interactive communication network. It will
build up scales in terms of the number of users and
customers. And Netease is expected to become a highly
profitable company in China.
Larry Zhang of China EB advised IT entrepreneurs to
have the right mentality when establishing an enterprise.
One must think about his/her core competencies and
the uniqueness of the business plan. Simply copying
American business models to China will not work. A
company must be built to last. He identified integrated
information technology, responsible and resourceful
management team, proven business model and government
endorsement as four common features of successful
IT business models.
Panel
5: Can China follow the rules?
Professor
William Alford of Harvard University moderated this
panel. He said that joining the WTO will not immediately
transform China. It is not because he questions China's
sincerity to adhere to the WTO rules, but because
many adjustments required by the WTO demands are extremely
painful. These adjustments are even difficult to be
carried out in rich, democratic countries with sound
social safety net to take care of laid off employees
and with smooth channels for them to express grievances.
In China there are essentially no such social safety
net or channels for grievances, so social stability
as a result of such adjustments will be very fragile.
China's accession will also have important impacts
on its bilateral relations with the US and other countries.
It will also impose great challenges to the WTO as
an institution, as there will be an up surge of dispute
matters and strains WTO's legal mechanism and capacity.
Professor Peter Feng of Kollen House Consulting Group
contrasted the perspectives of those who write the
rules and those who follow the rules. He thinks that
many legal problems are not because of various inadequacies
on the Chinese side, but because the WTO rules themselves.
One way of thinking about law is that law is politics.
His concern is more of how to use the rules rather
than how to follow the rules, since China did not
participate in writing WTO rules. He described an
interesting legal case between ETS of Princeton University
standard test center and New Oriental of Beijing,
which has become very successful in giving preparation
classes to Chinese students for TOEFL test and GRE
test. ETS contests New Oriental for violating its
intellectual property rights and copyright law. New
Oriental defends itself by framing it as a human rights
issue and people's right to access information. Professor
Feng said that this case is not only a media war but
also a contest of legal tactics among a set of basic
rights. This case is a challenge to the WTO rules
and technology itself. As intellectual property right
is enhanced, the urge to copy also increases. As technology
advances, it makes it easier for piracy of trademarks
and branding. In this context, he mentioned his personal
interest in slogans.
Robert Herzstein, former Under-Secretary of Department
of Commerce, positioned his presentation from the
perspective of newcomers who do not have business
establishment in China now but want to do so after
China's WTO accession. He opened his talk by saying
that law is not just an instrument for government
to protect social order, but also an instrument for
private individuals and parties to protect themselves
from government's intrusion of their rights. He provided
another view of what law is - law is a set of rules
designed to set freedom. In his view, China has a
highly structured system in which the existing large
multinational companies and Chinese companies already
play their own parts comfortably. This system poses
serious barriers for new entrance of foreign businesses.
Foreign small and medium sized companies will find
frustrated with these informal barriers because they
cannot bring their cases to the WTO dispute settlement
mechanism, but through their own governments. The
complexity in this process and the anticipated acceleration
of trade disputes with China after its accession will
probably overwhelm the existing WTO dispute settlement
mechanism. He suggests thorough training of Chinese
legal professionals, interim increase of staff in
WTO dispute settlement system, and setting up regular
tri-party meetings among the WTO staff, Chinese officials
and business leaders.
Thomas
Huang of Holland & Knight LLP explained many
legalities of the WTO rules and pointed out China's
inadequacies on the legal front. He talked about substantive
obligations, procedural obligations, and advanced
regulatory compliance techniques that China has to
fulfill or follow after its accession into the WTO.
He thinks China has several problems in compliance,
including Chinese lawyers' unfamiliarity with WTO
trade rules, inadequate legislation, lack of financial
and legal resources, and China's bureaucratic culture
that admires power rather than rule of law.
Tim
Stratford of AMCHAM presented the views of American
businesses in China. He named numerous benefits and
challenges of China's WTO accession. He believes that
Chinese senior leaders are making serious commitments
and want to join the WTO in good faith. He said the
Chinese negotiation team pays particular attention
to the precise wording of the WTO. He thinks that
exploiting legitimate loopholes in the WTO rules and
ambiguity in language are normal practice in trade
disputes. He suggests closely working with Chinese
officials and Chinese business partners as a much
better way to cooperate and move things forward rather
than pointing fingers at who did wrong for what.
Panel
6: Automobile - Ahead of the Curve
Professor
Eric Thun of Princeton University, being the moderator,
gave an overview on why automobile industry is an
important industry to discuss. The Chinese automobile
industry has been a pillar industry to acquire advanced
technical and management skills through foreign investments
and joint ventures. In the mid 1980s, there was a
high local content requirement, so the quality of
the automobiles was low and the price was high. In
the mid-1990s, the quality became high, but the price
was still high. He raised the question, "can
Chinese automobile industry become competitive globally?"
He pointed out that local protectionism in China has
resulted in fragmented markets. China has over 100
car producers, whereas the US has three. He also said
that the development of Chinese auto industry will
also have significant impact on environment.
Ms.
Gina Capalbo of Ford Motor Company focused her
presentation on the automobile section of the US-China
trade agreement signed in November of 1999. She said
the agreement is very comprehensive for the auto sector,
from tariff reduction, to non-tariff barriers, to
auto services, and to auto financing. The European
Union even negotiated in July 2000 some WTO-plus issues
such as investment. She tabulated the drastic tariff
reduction rates against very short time table and
the additional rights of foreign companies under this
agreement. She says that 25% tariff rate on passenger
cars and 8-10% on auto components are globally competitive
rates, i.e., very few countries have such low tariff
rates. She predicts a 10-fold increase in auto imports
in the next five or six years from today's 30,000
to 300,000 units as a result of tariff reduction and
quota elimination. She also said China is lacking
solid automobile safety standards and regulations,
which are particularly important in anticipation of
dramatic volume increase of automobiles and almost
half of which will be from private purchases.
Dr.
Elisabeth Drake of MIT approached the issue of
China's modernization through the angle of automobile
industry. She first discussed the attributes of mobility,
including income per capita, energy use, petroleum
use in particular, and highway system. She then talked
about the triangular relationship among social sustainability,
economic development, and environmental/ecological
sustainability. Finally she identified some key issues
related to China. China needs to further develop its
transportation infrastructure, and learn lessons from
the development experiences of the OECD countries,
trying to leapfrog unnecessary steps. Technical improvements
alone is not enough to enhance people's mobility;
international community should support China's development
through a variety of ways, in particular through joint
venture.
Frank Rittner of GEF-UNEP was concerned with the question
of how to facilitate growth of global mobility market
without degrading natural resources. He gave some
statistical comparisons on China and US emissions
and energy consumption, and pointed out the need for
China to find better ways to develop the mobility
market in favor of clean environment. He acknowledged
that China has made substantial efforts to protect
its environment during the past decade. "Sustainable
development" was formally included in its 9th
five-year plan in 1996 as one of its most important
national objectives, signifying a radical departure
from its traditional development strategies. China
has spent millions of dollars on environment protection.
However, China is a huge country, and tremendous work
remains to be done.
On
the issue of energy efficiency alone, Mr. Rittner
identified the following challenges in China: insufficient
institutional capacity to support market-based energy
efficiency initiatives; lack of effective mechanisms
to improve the technologies of China's many small
industrial enterprises; and difficulties in arranging
financing because banks are unfamiliar with the financial
aspects of energy efficiency investments. Finally
Mr. Rittner talked about the current strategic joint
venture between the GEF and the UNEP, called Sustainable
Alternatives Network, designed to bridge these gaps
and make up the deficiencies using the latest Internet
technology. He called for interested people to support
this initiative.
Shirley Young of General Motors China brought her
industry experience to this Panel. She first explained
why GM welcomes China's joining the WTO even though
it will intensify the competition of Chinese automobile
market. GM geared itself up for global competition
as soon as it went into China in the mid 1980s by
bringing the most up-to-date assembly and manufacturing
facilities to China, more advanced than many American
companies. It decided to take the advantage of China's
clean slate in automobiles and to prepare itself for
global competition. She said that GM produces very
high quality cars in China, but they are about twice
as expensive as they are in the US. She predicts that
the price will be lower once China joins the WTO,
which will bring down the prices for auto parts. She
praised GM's joint venture partner Shanghai Automobiles
for being receptive to new ideas and for building
a good band name in China. She stressed in the end
the importance of the people. GM is fortunate that
it hired lots of bright young Chinese graduates to
work for GM.
Closing
Remarks
Daniel Mao of Sina.com gave his assessments on the
opportunities ahead. His conclusion is that the new
economy never dies and Year 2001 is the year good
for establishing new start up companies and investing
in existing IT companies. He gave examples of large
brick companies going to online click and online click
companies going to brick through mergers and acquisitions
and other means of expansion. He thinks that there
are tremendous opportunities in telecommunication
infrastructure, online advertising, Internet appliances,
and payment logistics. He anticipates more landscape
changes in this industry. He identifies multiple revenue
stream and a combination of online and offline activities
as important parts of the winning business strategy.
