Speech by Director-General of Trade and Industry (Friday, November 23, 2001)
Following is the full text of the speech on "China's Accession to the WTO" delivered by Mr Joshua Law, the Director-General of Trade and Industry at the luncheon meeting of the Indian Chamber of Commerce Hong Kong today (November 23): (English only)
Chairman Sital, ladies and gentlemen,
The Indian people, like the Chinese, are born traders and businessmen. If any proof is needed, one needs only to look at the number and diversity of businesses run by Indians in Hong Kong. It is also demonstrated forcefully by the long history of the Indian Chamber of Commerce, dating back to the early 1950s, and now with a membership of over 500. So, I am deeply honoured to be invited here today to talk about China's accession to the WTO -- a subject which must be close to the heart of the Indian business community in Hong Kong.
- But first, let
me try to put the subject in a broader context. I just returned last
week from the 4th WTO Ministerial Conference in Doha. Top on the agenda
of the Doha meeting was of course the launching of a new round of multilateral
trade talks. As you may be aware, some of the issues involved were rather
complex and difficult. These included issues relating to the implementation
of the Uruguay Round agreements, agricultural export subsidies, trade
and environment, the review of WTO rules with regard to anti-dumping
and subsidies, and the so-called Singapore issues (trade and competition
policy, trade and investment, trade facilitation and transparency in
- In an effort to
reach consensus on a new round agenda acceptable to all, Ministers and
delegates worked literally non-stop since the start of the Conference
in the evening of 9 November. Intensive negotiations went on beyond
midnight of 13 November and continued round the clock into the morning
of 14 November. For individual delegates, it was a test of physical
and mental stamina. For Member economies, it was a test of political
judgement and determination. As with all negotiations, it was natural
that different parties had different priorities. Importantly, though,
there was a collective desire to reach out and to find the common ground.
As the late Mrs Indira Gandhi once said, "you cannot shake hands
with a clenched fist." The willingness to reach out was therefore
crucial. At Doha it was also due to a common objective to avoid a repetition
of the Seattle failure that Members were prepared to adjust their national
positions and to compromise for the common good of the organization
as a whole. So in the end all the hard work had borne fruit. WTO Members
managed to reach consensus on the basis of the final draft of the Ministerial
Declaration that was issued in the morning of 14 November and approved
by Ministers in the evening, literally minutes before we were due to
depart for the airport!
- The new round agenda,
or "Doha Development Agenda", that was agreed at the 4th Ministerial
Conference, is broad, balanced and forward looking, taking into account
the diverse interests of all members, including in particular those
of developing countries. As a small and export oriented economy, Hong
Kong will certainly benefit from further liberalisation of world trade.
I'm sure other developing countries will benefit too. Indeed, experience
has proved that progressive liberalisation of world trade has contributed
significantly to economic growth in developing countries. A recent study
found that since the conclusion of the Uruguay Round negotiations in
1994, exports from developing countries alone had grown by nearly US$
1 trillion. According to a recent World Bank report on prospects for
developing countries, expanding trade could increase annual GDP growth
by an additional 0.5 percent over the long run, and could lift 300 million
people out of poverty by 2015. It is therefore in the interests of both
developing and developed WTO Members to work together to achieve a satisfactory
result in the new round.
China's Accession to the WTO
- The successful
launch of a new round of multilateral negotiations was indeed a significant
achievement for the WTO. But the Doha meeting was also marked by another
historical event, i.e. the approval of China's accession to the WTO
on 10 November. It was a historic event, not only for China but also
for the world. As the WTO Director-General Mike Moore said, "with
China's membership, the WTO will take a major step towards becoming
a truly world Organization. The near-universal acceptance of its rules-based
system will serve a pivotal role in underpinning global economic cooperation."
There is no doubt in my mind that China's full integration into the
global trading system, with all its inherent rights and obligations,
will alter the global economic landscape.
- Domestically, this
will result in two irrevocable changes: first, the further opening up
of the Mainland market and secondly, the progressive transformation
of China into a transparent and rule-based market economy. On the first
point, average tariff rates of industrial products will be reduced gradually
from the present 14.8% to 8.9%. Foreign companies may import most products
into any part of China three years after accession. Free market access
will no doubt generate more external trade, and external trade of a
- As for trade in
services, foreign investment restrictions on many important sectors,
like distribution services, telecommunications, financial services,
professional services, business services, audio-visual and tourism will
be relaxed. Majority foreign-owned joint ventures and wholly foreign-owned
companies will gradually be allowed, with quantitative and geographic
restrictions removed progressively in the next few years.
- The opening up
of markets will speed up the institutional reform of the Mainland economy.
The WTO system based on rules allows trade disputes among members to
be solved fairly and objectively. Operating under this framework, China
has to comprehensively improve its investment environment. I am confident
that this will happen. Indeed Chinese leaders have from time to time
stated their determination to merge into the mainstream of the world
economy and abide by the WTO rules. And I know that Mainland authorities
at all levels are making the necessary adjustments to fulfil the WTO
- China is now the
world's fifth largest trading entity. According to a World Bank estimate,
following its accession to the WTO, China's share in world exports will
almost double in five years: from 3.9% in 2000 to 6.3% by 2005. Economic
reform and liberalisation will no doubt benefit the Mainland economy
Implications for Hong Kong
- What does this
mean to Hong Kong? The anticipated surge in the Mainland's trade and
investment flows will help boost Hong Kong's external trade and intermediary
services. According to a preliminary estimate by our Government Economist,
by 2010, Hong Kong's exports involving the Mainland will be raised by
15% (averaging at 1.3% per annum), and our GDP by 5.5% (averaging at
0.5% per annum).
- Ever since China
adopted its open door policy in 1978, Hong Kong has been its prime gateway.
We will remain an important gateway to the Mainland after its accession
to the WTO. Compared with their Mainland counterparts, Hong Kong companies
have far more extensive experience of business networking with the rest
of the world. Compared with foreign businessmen, Hong Kong people have
much closer cultural and language semblances with Mainland people, and
better knowledge of the Mainland environment. Over the past years, we
have accumulated extensive experience on business dealings with the
Mainland. These hard earned advantages, together with our sound legal
system, our advanced telecommunications and other infrastructure facilities,
our small and efficient government, and our strength as an international
financial centre with a freely convertible currency, should enable Hong
Kong companies to secure a significant share of the liberalised trade
following China's WTO accession.
- Over the years,
Hong Kong has developed an effective hub-hinterland relationship with
the Mainland. With China's accession to the WTO, more overseas companies
will set up branches and representative offices in the Mainland. The
business activities of these offices often need support from Hong Kong.
Over 3,000 of these companies have already set up regional headquarters
or offices in Hong Kong. I expect this trend to continue, and indeed
stepped up. And Hong Kong will continue its role as a strategic centre
and a professional services hub for the Mainland.
- It is worth noting
that upon China's accession, competition in the Mainland market will
be on a fairer ground with the convergence of treatment for domestic
and foreign companies. Reduced tariffs and improved trading environment
will cut down on the importing costs of equipment and raw materials.
Hong Kong companies using the Mainland as a manufacturing base will
become more competitive in the export market. At the same time, current
restrictions on domestic sales will be relaxed progressively thus enabling
our manufacturers to sell their products in a huge domestic market of
1.3 billion potential consumers.
- For the nearly
300,000 small and medium enterprises (SMEs) in Hong Kong, they will
be able to take advantage of the expanded business opportunities in
the Mainland and the large market for goods and services. In particular,
they can partner with overseas companies keen to enter the China market,
as well as with Mainland companies targeting international markets.
Hong Kong companies can capitalise on their well-established business
network, flexibility and versatility, to help facilitate foreign investment
in Hong Kong and into the Mainland.
- While there are
ample opportunities, there are also challenges. We can expect intense
competition for businesses in the Mainland markets, not only from domestic
but also overseas companies. As the Mainland markets become directly
accessible to international investors, our unique gateway role will
be threatened. The key to success is to upkeep the excellent quality
of our services and products, and to seek new areas where we can contribute
uniquely to the development of the Mainland economy. All these call
for clear vision, strong drive and fierce determination: qualities that
Hong Kong businessmen are not known to be lacking.
Strategic Business Responses
- Market discipline
spares nobody. Only the best can survive. Maintaining competitiveness
requires strategic planning and swift response to market changes. To
tap into the Mainland market, our businessmen, especially the SMEs,
should develop an up-to-date understanding of the fast-evolving market
environment. Choice of location, market research and strategic business
planning are always important. Local businesses must identify specific
opportunities and challenges for their own business, and keep abreast
of changes in the market rules.
- In particular,
our SMEs have to take a long-term view in their business strategy. Although
our manufacturers have traditionally been very successful in processing
trade, more and more are now moving towards ODM (Original Design Manufacturing)
and OBM (Original Brand Manufacturing). These entrepreneurs realise
the need to upgrade their products, develop their brand names and eventually
increase the value added to goods and services to meet the ever-changing
demands of consumers. To take advantage of the large domestic market
in the Mainland, our companies should improve management of their distribution
channels, and get ready to sell direct to distributors and end users
in the Mainland. They should identify and develop strategic partnerships
and alliances with service providers that have the potential to broaden
and deepen their business activities in the Mainland.
- As the front line
department to support and facilitate our trade and industry, the Trade
and Industry Department has taken a number of measures to assist the
business community to understand the new opportunities. Earlier this
month, we published a new pamphlet and a newsletter on China's accession
to the WTO. We will continue to strengthen our liaison with our Mainland
counterparts to obtain information on the latest developments, and rules
and regulations affecting the Hong Kong businesses, and disseminate
them swiftly through our homepage and the Commercial Information Circulars.
- Following recent
approval by the Finance Committee of the Legislative Council, we will
shortly be launching four funding schemes (the Business Installations
and Equipment Loan Guarantee Scheme, the Export Marketing Fund, the
Training Fund and the Development Fund) to support the development of
SMEs. These funding schemes, with a total capital commitment of $7.5
billion, will provide immediate financial assistance to the SMEs. Apart
from helping them overcome their pressing difficulties, the funds will
also enhance their overall competitiveness, and help them seize the
vast opportunities arising from China's accession to the WTO. We expect
over 106,000 SMEs will benefit from these funding schemes.
- The Hong Kong Trade
Development Council (TDC) will also provide support through business
advisory services, trade matching, dissemination of market intelligence,
training and seminars, and trade fairs to promote our products and services.
The TDC, together with my Department, will co-organise a seminar "China's
WTO Accession: Challenges and Opportunities for SMEs" on 11 December
to help our businessmen and professionals understand more about the
new challenges ahead.
- What makes Hong Kong successful is our people. The Government fully recognises the need to invest in human capital in order to meet the new challenges ahead. The Chief Executive has announced in his Policy Address this year a number of initiatives to improve our education system at all levels to meet the human resource needs of the new economy. In particular, $5 billion will be spent on continuing education and training to encourage life-long learning in the community. Knowledge is the new currency in today's world. We need multi-skilled people who can transform new ideas into products and services. Only human talents can sustain Hong Kong's advantages in the global competition.
- China's accession to the WTO marks the beginning of a new era in the development of the multilateral trading system. The challenge now is for local businessmen and professionals to move ahead of times to make the most of the thriving business prospects in the Mainland. Hong Kong can look forward to playing a more active role in the continuous growth of China, both as a major investor, and as a partner to both overseas and Mainland companies. There are vast opportunities out there. It is up to our businessmen to seize them. I have every confidence that they will more than rise to this exciting challenge.