Speeches

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.

Doha Conference

2. 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 government procurement).
   
   
3. 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!
   
   
4. 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

5. 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.
   
   
6. 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 better quality.
   
   
7. 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.
   
   
8. 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 commitments.
   
   
9. 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 profoundly.
   

Implications for Hong Kong

10. 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).
    
    
11. 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.
    
    
12. 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.
    
    
13. 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.
    
    
14. 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.
    
    
15. 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

16. 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.
    
    
17. 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.
    

Government Support

18. 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.
    
    
19. 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.
    
    
20. 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.
    
    
21. 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.

Conclusion

22. 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.

Thank you.