China in the WTO: The New Powerhouse of the World Economy Makes Steady Progress toward WTO Compliance. (International Section)

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General Electric announced in March that it has signed new contracts worth $900 million with Chinese power producers. GE already operates 25 branch offices and 30 joint ventures in China, with 9,000 employees and a total investment of more than $1.5 billion. With China's economic growth forecast to hit close to 8 percent this year, GE, like many companies, has made China its "global priority".

Companies that have been waiting for first-year results from China's entry into the World Trade Organization before making commitments to increased investment or trade can now move forward with more confidence. Although some difficulties remain, China has made a solid effort to comply with many WTO requirements, and new business opportunities are emerging.

Against a backdrop of declining foreign direct investment (FDI) in the rest of the world and a dramatic decline in foreign investment in the United States, the United Nations' Conference on Trade and Development (UNCTAD) predicts that China will for the first time overtake the United States as the largest FDI host country for 2003. In addition, in the context of the global slowdown in trade, China has emerged as the world's fourth largest trader, following the U.S., the European Union and Japan. Chinese exports now dominate a number of important markets.

China's accession to the WTO, which coincided with economic decline in most other countries, has fueled substantial growth and eased the path for companies that see China as one of the few bright spots in the stagnant global market. Reports on China's WTO compliance indicate that business conditions will continue to improve as China completes required changes and economic growth remains strong.

Foreign Investment

An estimated $50 billion in foreign direct investment flowed into China in 2002. (See Figure 1.) Driven by the broad liberalization process and industrial restructuring, and further accelerated by the country's accession to the WTO, FDI in China is fueling growth in medium and high-tech manufacturing industries and services.

China's FDI experience now stands in sharp contrast with world foreign direct investment inflows, which declined by 27 percent last year, to $534 billion, according to preliminary estimates by the UNCTAD. FDI flows into developing Asia declined by 12 percent, following a 24 percent reduction in 2001. Inflows in

developing Asia for 2002 are estimated at $90 billion, down from $102 billion 2001. The slide is largely the result of slowing FDI flows from Europe and the United States, despite the strong economic growth of the region's leading economies. A sharp decline in inflows hit Hong Kong, South Korea, Thailand and Taiwan, leaving China to dominate the region as the heavily favored host country for foreign investors.

Trade Boom

The same forces that have spurred FDI growth in China have also boosted trade despite lower trade growth in the rest of the world. Although China continues to import a wide variety of both industrial and consumer goods and is an increasingly important market for many companies, export growth will dominate the trade picture for years to come. Personal consumption is still constrained by low per capita income and high savings rates. U.S. exports to China consist primarily of industrial goods, which account for two-thirds of the $22 billion in 2002 exports. (See Figures 2 and 3.)

Almost half of China's exports still consist of textiles, clothing and other light manufacturing goods, but the greatest growth in its exports now lies in higher-end goods such as scientific equipment, office machines, appliances, road vehicles, power generators and telecom equipment. (See Figures 4 and 5.) Electronics exports have more than doubled their share of total exports since 2000. In the foreseeable future, China's exports may put a serious dent in U.S. semiconductor production.

China has also emerged as a major player in the world's metal markets. …