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China's Risk Appetite Abstract The present study examines the risk appetites that exist in China after China joined the World Trade Organization. The paper outlines the details of Chinas WTO accession, examines the consequences of the WTO regulations for Chinese businesses, and outlines Chinas policies aimed to limit market access for non-Chinese origin foods as well as foreign service providers, and offer significant government resources to increase exports and to support Chinese industries, implementing which the government strives to promote the development of China's industries and project less competitive state-owned enterprises suffering from the necessity to compete with the foreign enterprises. The paper claims that although the accession to WTO has brought additional opportunities for China and allowed to reach a completely new level in international trade, it has entailed competition for many other world countries and placed a significant strain on China. China's Risk Appetite Introduction Chinas WTO accession was a pivotal moment for China and for its multilateral trading system. Although it is quite difficult to examine all possible consequences for Chinese economy, it is quite obvious that Chinas WTO accession managed to consolidate economic reforms that took place in the country and had far-reaching consequences for the countrys legal and political structures. Chinas WTO accession also opened an opportunity for the country, as it allowed it to reach a completely new level in international trade.
At the same time, WTO accession placed a significant strain on the country and entailed competition for many other world countries. Chinas WTO Commitments In order to understand the risk appetites that exist in China after China joined WTO, it is important to understand the country's commitments. First, when the country has joined the WTO, it had to accept to abide by the multilateral agreements of the World Trade Organization. China has also agreed to provide a regular review reporting how the country manages to implement the commitments of the World Trade Organization. This review is planned to be conducted at the annual basis during the first eight years. The final review will take place ten years after China's accession to WTO.
As an important condition of accession, the country has also agreed to the provisions, according to which the countries that are current members of WTO have discretion to impose specific safeguards against the export from China (Engardio 73). This annual review and specific attempts to defend the market of the existing WTO members were quire unique to the countrys accession. Moreover, some other commitments and requirements, such as the policy of antidumping, were even more far-reaching than it was initially required by the World Trade Organization rules. It should be also taken into consideration that Chinas commitments were indeed more far-reaching, in contrast to the commitments of other developing countries. For example, it relates to the services commitments, the tariff levels, and the rules on subsidies or the acceptance of China's immediate acceptance and application of the TRIPS agreement (Magarinos, Long and Sercovich 217). However, the vast majority of the commitments and the WTO accession agreements were relatively flexible as they allowed the country to get additional time for its implementation, in order to make the process of transition smoother and easier.
In addition to the administrative and economic changes, the accession to WTO influenced Chinas adjudicative and legislative structures. For example, the country was obliged to implement the agreements of the World Trade Organization in a uniform manner throughout the country (Ho, Ash and Kueh 219). The country has also agreed to make all trade related Chinese legislation publicly available before these policies enter into force. Next, in compliance with the World Trade Organization agreements like the GATS, the GATT, and the TRIPS agreements, the country was obliged to agree to implement the requirements of an independent judiciary, due process and the possibility of judicial review of administrative decisions. (Executive Summary: China in the WTO 18 months after the accession 2) The accession to WTO also had influenced Chinas economic policies (Feinerman and Peele 56). For example, in compliance with the rules of WTO, the country agreed to provide equivalent treatment to the foreign products and services, and not to discriminate between the members of WTO (China and the long march to global trade).
The China's state owned enterprises agreed to act in full compliance with the commercial considerations and the country has also agreed to phase out its price controls. Chinas Risk Appetites After China has joined WTO, its increasingly liberalized and rapidly developing investment management sector has brought additional opportunities for the international businesses and international financial services groups. The countrys economy develops rapidly, and Chinas markets develop and mature, while Chinas citizens have build up household bank savings of over $ 1. 84 billions, representing a savings to GDP (Gross Domestic Product) ratio of 80 %) (Entering the Chinese investment management industry 3). No wonder that Chinas accession to the World Trade Organization brought the opportunities for the rapid development of foreign companies in Chinese market (WTO Entry Boosts China's Economy). The foreign entrants into the Chinese investment management sector have contributed to the development of local talent and business relationships and joint ventures (Fung, Pei and Zhang 84). The significantly greater level of freedom experienced by the Chinese economy after ther country has joined WTO takes the China's economy to a whole new level.
According to the reports, the increasing pool of savings and the rating prosperity level are opening up great opportunities for the development of the Chinese investment management sector (Entering the Chinese investment management industry 4). This development progresses proportionally to the China's ongoing pension reform. The Chinese government has awarded contracts for 9 fund management companies in order to facilitate the process of management of the investment portfolio of the National Social Security Fund (NSSF). These contracts pave the war for managing institutional funds (Entering the Chinese investment management industry 5). Before Chinas WTO accession, the fund management investment was restricted to the limited selection of Chinas domestic securities. At the same time, after China has joined WTO, the Chinese government allowed the companies to invest in overseas equities. (Brahm 148) This measure was conductive to the increase in fund differentiation, potential returns, and consumer demand.
Also, before Chinas WTO accession only domestic investment companies, trusts, and securities companies were allowed to set up FMCs. As far as Chinese banks dominated distribution, they were "prevented from establishing investment management arms. (Entering the Chinese investment management industry 4). However, after China has entered WTO, the strict rules became weaker and the banks were allowed to set up their own FMCs. In addition, foreign financial services institutions were allowed to set up joint ventures FMCs since Chinas accession to WTO and significantly influenced Chinese investment management market. For example, by August 2006, Sino-foreign joint venture FMCs managed approximately thirty per cent of the total assets under management in Chinas investment management market (Entering the Chinese investment management industry 4).
Moreover, the so-called ceiling on foreign holdings has also significantly increased after China has joined WTO. Nowadays the ceiling is approximately 49 per cent, and, according to the experts, it may be eliminated, opening access to the wide choice of business partners and distribution outlets. Moreover, the rapid tempo of current development in the Chinas investment management market opens up fresh openings for the foreign companies, either through buy or build strategies. As this takes place, the country undergoes the process of tremendous transformation into the factory of the world since its accession to WTO and beginning the process of transition into a market economy. The countrys growth rates are quite strong, as the growth has averaged more than nine per cent per year over the past two decades, and due to this growth China now has become the second largest world economy on the Purchasing Power Parity (PPP) basis (Entering the Chinese investment management industry 5) By preliminary estimates, in case Chinas growth rates remain the same, Chinas GDp will have exceed that of the U. S.
s by 2050. According to the recent economic research conducted by PricewaterhouseCoopers, the economy of China is currently 76 per cent of the U. S. s economy size in Purchasing Power Parity terms, and by 2050 it will be more than 40 per cent larger than the U. S. 's PPP (Entering the Chinese investment management industry 5). This tremendous growth rate is partially explained by Chinas accession to WTO.
The liberalization of the Chinas investment management sector is also highlighted by the present go-ahead strategy for the NSSF aimed to establish Chinas first Qualified Domestic Institutional Investor (QDII) scheme. This initiative will enable the NSSF to purchase shares of the Stock Exchange of Hong Kong (SEHK), and will encourage other funds to invest overseas. Qualified Domestic Institutional Investor schemes will provide Chinese companies with better choice of investments and provide them a possibility to obtain better fund yields. In its turn, it will be conductive to attraction of the influx of the new custom for the investment management businesses in China. Moreover, the easier access to the international markets provide Chinese FMCs with an opportunity to develop derivative and offer much more efficient hedging strategies than the Chinese companies were able to use at the present moment. The Chinese government is aware of possible risks and, in order to develop the efficient strategy, recognizes the necessity to strengthen domestic and international consumer confidence.
By doing this, the government strives to bring the regulations and rules up to international standards. To a great extent this involves developing and implementing new regulations and requirements on governance, risk management and disclosure management. As it was already mentioned, WTO accession has brought China new opportunities. Thus, for example, the banks were allowed to enter the investment management market in 2005. This permission has significantly increased the choice of potential partners, as will the eventual go-ahead for insurance companies to set up their own FMCs. (Entering the Chinese investment management industry 6) The development of Chinese market also opens up wider opportunities. Four out of 29 companies granted licenses to set up EAPs in 2005, are partially owned by foreign institutions.
The other foreign businesses made partnerships with state-owned industrial corporations. The examples of such partnerships are a subsidiary FMC with the backing of Bao steel, the largest steelmaker in China, and Societe Generale, the bank that formed the Fortune Trust (Entering the Chinese investment management industry 7). As it can be noticed, after WTO accession China has started to take more risks and became friendlier in related to the foreign enterprises and foreign businesses, as the government has recognized that foreign partnership is able to offer the country a considerable capital and future return on investment. Obviously, regulation is the most important consideration. Despite the fact that Chinese government has been gradually allowing to share the investment management sector with the foreign investment since Chinas WTO accession in 2001, foreign businesses are still permitted to hold a share of maximum 49 per cent in a joint venture. At the same time, the regulatory capital requirement is a "relatively modest $ 12. 5 million, proposed Jv's must undergo stringent vetting by the China Securities Regulatory Commission (CSRC). (Entering the Chinese investment management industry 7) The decision whether to wait until the Chinese regulation will allow foreign companies to gain control over the wholly owned subsidiaries, is quite a sensitive issue, as it is based on a number of aspects, such as local opportunities, overall China's strategy as well as its risk appetite for entering emerging markets.
The Chinese government also understands that after WTO accession the state-owned or government operated companies in China need to compete with foreign companies and undertakes measures in order to address potential distortion of Chinas economy (Progress or Procrastination: Chinas First Year in the WTO), taking into consideration the following important issues, such as price stabilization, increase in government revenue, or decrease in government spending, income support for domestic producers (China and the WTO), rationalization and control of foreign trade operations, expansion of domestic output and continuity in Chinese domestic output, management of important domestic resources, protection of public health and strategic control, and fulfillment of international commitments on quantity and / or price (Xuejun). China also continues to pursue its industrial policies aimed to limit market access for non-Chinese origin foods as well as foreign service providers, and offer significant government resources to increase exports and to support Chinese industries. Chinese government strives to promote the development of China's industries and project less competitive state-owned enterprises suffering from the necessity to compete with the foreign enterprises. For example, the country continues to apply its auto parts regulations aimed to prolong prohibited local content requirements for motor vehicles, and makes increasingly restrictive use of export quotas on raw materials. Through these restrictions the country tries to protect its local enterprises and provides advantages to Chinas downstream producers when they compete against foreign downstream producers both in Chinas domestic market and worldwide.
Yet, the major commitments already fulfilled by China, are as follows. The country allowed whole foreign owned enterprises in its advertising services (the Regulation on Management of Foreign-Invested Advertising Companies), met its banking commitments when he China Banking Regulatory Commission finally announced that China allows foreign banks to expand their local current businesses in a number of cities (Ningbo, Zhejiang; and Shantou, Guangdong, and others). China also allowed whole foreign owned enterprises in freight forwarding agency services, and applied Chinese national treatment to capitalization requirements for foreign-invested freight forwarders. China also met its commitment in relation to foreign-invested insurers and lowered the minimum required total asset level for an insurance brokerage license from $ 300 million to $ 200 million (Overmyer). Conclusion In conclusion it may be said that Chinas accession to WTO has both positive and negative impact on the countrys economy. Overall, Chinas WTO accession was a pivotal event for the country and its multilateral trading system, and boosted Chinas economic growth.
It managed to consolidate economic reforms that took place in the country, advanced governmental reforms and had far-reaching consequences for the countrys legal and political structures. Macroeconomic situation has also improved drastically, and Chinas GDP (Gross Domestic Product) increased in the first years after the country has entered WTO. The accession to WTO has brought additional opportunities for China and allowed to reach a completely new level in international trade. At the same time, the accession has entailed competition for many other world countries and placed a significant strain on China. Works Cited 2007 REPORT TO CONGRESS ON CHINAS WTO COMPLIANCE. 11 December 2007. 28 March 2008 < web >. Brahm, Laurence J.
China after WTO. Beijing: China Intercontinental Press, 2002. China and the long march to global trade: the accession of China to the World Trade Organization London. London; New York: Routledge Curzon, 2003. China and the WTO. 22 October 2001. 29 March 2008 < web >. Engardio, Pete.
China: how China and India are revolutionizing global business. New York: McGraw-Hill, 2007. Entering the Chinese investment management industry. 2006. 29 March 2008 < web >. "Executive Summary: China in the WTO 18 months after the accession. " 2003 - 06 - 12. 2002. Feinerman, James Vincent and B. Thomas Peele. China after the WTO: what you need to know now.
New York: Practising Law Institute, 2001. Fung, Hung-gay, Changing Pei and Kevin H. Zhang. China and the challenge of economic globalization: the impact of WTO membership.
Armonk, N. Y. : M. E. Sharpe, , 2006. Ho, Lok-sang, Robert F.
Ash and Y. Y. Kueh. China, Hong Kong and the world economy: studies on globalization. New York: Palgrave Macmillan, 2006. Magarinos, Carlos A. , Yongtu Long and Francisco C.
Sercovich. China in the WTO: the birth of a new catching-up strategy. New York: Palgrave Macmillan, 2002. Overmyer, M. With China's WTO entry requirements winding down, will 2006 become China's "Year of the Bank"? 28 March 2008 < web >.
Progress or Procrastination: Chinas First Year in the WTO. 2 October 2002. 29 March 2008 < web >. WTO Entry Boosts China's Economy. 29 March 2008 < web >. Xuejun, XIE. WTO Rules on State-Owned Enterprises and Implications for Chinese SOE Reforms (Perspectives, Vol. 3, No. 6). 28 March 2008 < web >.
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