China in 'AIG compromise'


China is getting set to enter the World Trade Organization, finally, on Tuesday

SHANGHAI, China -- China has resolved a dispute over insurer American International Group's status in the country, according to a report.

AIG had been controversially grandfathered into 100 percent ownership of its China operations.

But overseas competitors, particularly in the European Union, have long complained that AIG's advantage is unfair and doesn't hold up under World Trade Organization rules.

China is expected to formally enter the WTO on Tuesday, one month after the world's largest trade body approved the country's accession.

Full ownership in four cities

According to The Wall Street Journal, AIG has also agreed to let AIG set up wholly owned insurance operations in four cities -- Beijing, Suzhou, Dongguan and Jiangmen.

But in exchange, New York-based AIG will have to run any future operations as 50-50 joint ventures with a Chinese partner, the rules other companies have to obey.

Up until now, AIG has enjoyed 100 percent ownership of its operations, a legacy of its long history investing in China.

AIG Chairman Maurice Greenberg, who has worked long and hard to develop personal relationships with Chinese officials, had said he did not want to accept less than 100 percent ownership of expansion operations.

But Greenberg and Chinese Premier Zhu Rongji hashed out the compromise in recent weeks, the Journal reports. The thorny issue originally threatened to hold up China's entry into the WTO, which aims to establish a level playing field in its member's economies.

Big head start

AIG will still have a big head start, particularly in breaking into the coveted Beijing market. Other insurers have failed to land licenses to operate there.

But AIG will now have to find a joint venture partner. It faces competition from insurers such as the Belgian-Dutch outfit Fortis NV, which recently lined up a minority stake in Chinese insurer Tai Ping Life Insurance Co.

Tai Ping claims it has a "national license" that will help Fortis' expansion.

In a separate dispute that threatens to go to the WTO, Chinese officials will meet their Japanese counterparts on Tuesday. They are trying to sort out a festering trade dispute between Asia's largest trading partners that dates to this spring.