China is at the final stage of negotiations for membership of the World Trade Organisation (WTO). Th...
China is at the final stage of negotiations for membership of the World Trade Organisation (WTO). The final issue involves China's farm subsidies. WTO members are pressing China to reduce these in line with their capping rules, and China's recent rejection of their demands is delaying its membership.
However, other issues are urging China's entry. For example, the US trade deficit with China is ballooning, with imports from China having increased to over $100bn in 2000 from only $18.3bn the previous year. Exports to China, on the other hand, were only $16.3bn in the same year, an increase of a meagre $3.1bn. This soaring deficit is strengthening the argument for China's membership of the WTO as China's trade barriers are currently among the world's highest. Its entry to the WTO will reduce these barriers, paving the way for the US and other WTO members to increase exports to the country.
China's admission will also open up opportunities to US and European companies to invest more in China and lead to tougher competition within the country. The increased level of competition will force consolidation in certain industries.
A number of corporate deals have recently been announced in the electric power sector. Huaneng Power International is regarded as a pioneer of industry consolidation because it has made a number of acquisitions since 1997 and successfully integrated these new businesses. Its most recent deal was the acquisition of Shandong Huaneng, which was completed in January and is expected to be earnings enhancing. Other recent corporate deals within the industry include Beijing Datang Power's investment in a new coal power plant located in Yunnan province, which is outside Beijing Datang's traditional service area. Beijing Datang is expected to pursue its business expansion through acquisitions to become a national independent power producer.
In preparation for the opening of the domestic market, the Chinese government is pressing forward with privatisation. In the past few years, China has seen a number of successful equity market listings and raised over $35bn from the capital markets through privatisation of five major telecoms and oil companies, which are currently valued at $165bn in total. These included telecom operators China Unicom and China Mobile, oil company Petrochina and petrochemicals group Sinopec.
Competition for foreign investment between other Asian countries and China is also expected to intensify. This means other Asian countries such as Korea and Thailand will have to redouble their efforts to rebuild their financial sectors and institute legal frameworks in order to attract further investment. We believe this will result in a positive transformation of the region's markets and will broaden the range of investment opportunities in the Far East.
Margaret Gadow is senior investment manager at Gartmore Investment Management
Service increasingly key
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Lowest measure since index launched in 1995
Complaints into double figures
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