Perhaps the most remarkable breakthrough in the China WTO accession negotiations came with China's acceptance of substantial liberalization commitments for telecommunications and financial services. In assessing these commitments, it is important to underline just how much of a sticking point this aspect of the negotiations had become. As late as 1998, Chinese negotiators were indicating that it was unrealistic to expect China to make any significant commitments respecting market access to telecommunications and financial services. Subsequently, China had shown only modest flexibility in considering some market access commitments in a strictly limited number of cities. Even later, in April 1999, when Premier Zhu Rongji visited Washington and when the contours of the ultimate November agreement had emerged, no elements of an agreement had been reached with respect to banking or securities.
Concerning financial services, and banking and securities in particular, one can understand China's reluctance. Foreign entry means a huge policy shift. Major currency reforms allowing for currency convertibility have yet to be undertaken. Policy lending, the system linking banks to the state plan, was abandoned only in 1998, and the four main state banks remain in a fragile financial position. Foreign banks are currently allowed to conduct foreign currency business only with foreign clients. The fledgling Chinese securities market still has no direct foreign participation of any kind in Chinese underwriting. Only the insurance market is in some measure open to Chinese business. But this is the case only in Shanghai and Guangzhou and only to a limited number of hand-picked foreign firms with hand-picked Chinese partners operating in a limited range of industries.
Chinese reluctance concerning telecommunications has similar elements to it. Current policy strictly forbids even indirect foreign investment in telecommunications carriers. Foreign entry is allowed only into value-added services. Currently there is no telecommunications law in place establishing anything like clear licensing conditions or a framework for regulatory oversight. And national security concerns have always lurked in the background of any discussion over telecommunications liberalization.
These sectoral concerns are conjoined with the more general argument that China