China embarks on historic, difficult market transformation

In this story: Final terms to be negotiated Real estate boom anticipated Phasing in market changes China trying to alleviate concerns RELATED STORIES, SITES

From staff and wire reports

BEIJING, China (CNN) -- With the voting over in the U.S. Congress, China is set to embark on its most far-reaching economic reforms since opening its markets to the world nearly 22 years ago.

"This may be the most dramatic, most complicated and most significant economic transformation in modern history," said Robert Rubin, former U.S. Treasury Secretary and executive committee chairman of U.S. financial services giant Citigroup.

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"I would say again now that China could be the largest economy in the world within the next few decades -- though accomplishing that will be no easy task," Rubin said.

Economists and analysts said on Tuesday, after the U.S. Senate voted 83-15 to grant permanent normal trade relations, or PNTR, to China, that China's transformation to a market-driven economy within the World Trade Organization could be painful.

Some analysts have said China's entry into the WTO could lead to layoffs of millions of Chinese workers, which could subsequently lead to mass unrest. They also believe that financially troubled state firms may have to close or restructure to contend with international competition.

International business executives, however, say China's entry into WTO will make the country's business environment stronger. Many Asian consumers and entrepreneurs welcome the pending changes.

"It's good for China. The two countries (U.S. and China) want to communicate with each other and help each other. It's just like being friends," said Wu Yilian, a housewife in Hong Kong.

Deng Xiaoping, China's late leader, set his nation's economic reforms into motion in the late 1970s. The move began the transformation of China's state-planned economy to a market-driven economy.

Final terms to be negotiated

The Senate's passage of the Clinton trade legislation -- approved by the U.S. House of Representatives in May -- paved the way for China's entry into the WTO, and ensured that China opened its markets to U.S. products and investments.

The legislation resulted from an agreement between the United States and China last fall. However, China must negotiate the final terms of its WTO entry with the WTO headquarters in Geneva, Switzerland, before it can join the global trade bloc.

China currently has a $68-billion edge over the United States in trade exports, partly because China blocks access to U.S. cars, steel, grain and telecommunications and financial services.

Under the legislation, China will be required to grant Americans and others the right to set up distribution points within China, open its financial and service sectors to international competitors, and allow outside participation in the development of its Internet and telecommunications sectors.

Real estate boom anticipated

The legislation will eventually allow international car makers to distribute and retail vehicles, and offer financing to purchasers. Meanwhile, telecommunications operators will eventually be allowed to hold a 49 percent stake in mobile communications firms.

Also, international banks will be able to conduct domestic currency business -- for the yuan -- with Chinese companies and individuals.

Analysts and business managers in China expect the legislation to lead to an increased demand for goods and services, at a time when some firms are having difficulty meeting current demands.

"PNTR and China's entry to the WTO will further open up the market. With more operators coming in, the demand will be high," Bernard Choo, of Lucent Technologies, told CNN.

Meanwhile, analysts expect a boom within China's real estate sector -- especially the construction of condominium communities on farmland outside urban areas -- as the country further opens its market.

Expatriates -- many transferred by multinational firms to China -- now pay between $5,000 and $12,000 per month to rent a condominium in Beijing, China's capital.

Phasing in market changes

Meanwhile, insurance business in China has largely been closed to the world -- until now. While that is about to change, some Chinese companies hope they will receive government protection.

"A certain amount of protection is understandable because China's insurance market is so young," Chen Dongsheng, of Taikang Life, told CNN.

"We can't welcome foreign companies if they're going to destroy us," Chen said.

For that reason, the United States and some of China's other trade partners agreed to gradually phase in market changes over several years.

However, some analysts have expressed concern about Beijing's ability to implement the agreement -- and play by the rules outlined in the document -- despite pledges to do so by Chinese leaders.

"Chinese officials have all expressed their commitment to follow the rules. They're going to be hampered in several respects," said Timothy Stratford, chairman of the U.S. Chamber of Commerce in China. He is also General Motors' legal counsel in China.

"There are different industries and different interest groups that would prefer to stay protectionist," he said. "There is going to be a process of implementing things where there may be bureaucratic resistance."

China trying to alleviate concerns

Analysts have also said the large number of Chinese laws which need to be amended, and some ambiguity surrounding the requirements of the WTO itself, will hamper the transformation.

Chinese officials, however, have said they are working to alleviate those concerns.

"China is sorting out existing foreign-related economic laws and regulations and making amendments and additions to them according to the organizational rules of the WTO," Chinese Trade Minister Shi Guangsheng said recently.

Meanwhile, Chinese academics have urged WTO members not to have unrealistically high expectations, and to remember that change will be gradual and that key industries will remain protected.

"WTO members should have this basic attitude towards new members -- new members are tentatively opening their markets," said Zhang Hanlin, professor at the University of International Business and Economics.

"There has never been a country entering WTO which fully opened its markets for goods and services," Zhang said.

CNN Beijing Bureau Chief Rebecca MacKinnon, White House Correspondent Major Garrett and Reuters contributed to this report.

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