Lu Mai

China Development Forum, organized by the Development Research Center of the State Council, was held in Beijing on March 27-28, more than 150 people, including chairmen and chief executive officers of big foreign transnational corporations, representatives from international organizations, renowned professors, Chinese government officials, entrepreneurs, specialists and scholars, attended the forum. Vice-Premier Wen Jiabao attended and made a speech at the opening ceremony, Premier Zhu Rongji met with the participants and answered their questions. The topic of this forum was “China 2010: Goals, Policies and Perspective”.

Foreign entrepreneurs and scholars positively commended the forum. They said this forum helped them better understand China's policies and they were pleased with the fact that the Chinese participants earnestly listened to and solicited their opinions and suggestions, and concluded that China already has a satisfactory environment for debates and discussion. Chairman of Morgan Stanley Asia Ltd, after attending the forum, wrote letters to US congressmen, lobbying them to grant permanent normal trade relations to China.

The following are the questions and suggestions raised by the forum participants, and are reported for reference by leaders.

I. Facing the challenges posed by the accession to the World Trade Organization, what will China do to cope with them?

Shi Guangsheng, minister of Foreign Trade and Economic Cooperation, made a speech on the issues relating to China's entry into the WTO and expounded the basic stance of the Chinese Government. Foreign representatives at the forum expressed their opinions from two aspects.

Some foreign representatives expressed their worries that the fast pace of reforms in China would cause instability in the macro economy. Professor Mackinnon from Stanford University said that the entry into the WTO is an important step in marketizing the Chinese economy and further improving the efficiency of the Chinese economy. However, China should learn from the lesson of Russia, and the liberalization of the capital market should be the last thing to be achieved in the whole process of opening up. If foreign banks move into China too fast, if they operate freely without any restriction, they will be able to compete with the Chinese banks by offering higher interest rates, consequently, the Chinese Government will lose the means of policy loans granted by the Chinese banks and the financing through bonds. Furthermore, the government will also find it difficult to keep its control over the capital account, and it is likely to repeat the episode of Russia in which capital flew out of the country. Therefore, articles of the agreements must be carefully studied, and the opening of capital account and free access for foreign banks must be carried out in an earnest and prudent way. Control in the name of government supervision may be an option. Exchange control over the capital account by the government has a price to pay, that is, it is impossible to realize the real floating of exchange rate.

The majority of foreign entrepreneurs and scholars disagreed with Professor Mackinnon’s opinion of slowing down the opening of the banking sector or adopting control measures. They did not debate the cost or gain of the means of macro economic policy, instead, they discussed the opening of the banking sector from the perspective of survival capability of the Chinese banking sector. Professor Lawrence Liu from Stanford University opted for “a short pain rather than a long pain”, saying the banking sector is completely open in Hong Kong, savings deposited with foreign banks there accounts for merely a 20%. As China is such a vast country, it is impossible for foreign banks to account for a 20-percent share even if they are allowed a complete access. Foreign representatives from the financial sector strongly contested the “slow-down” suggestion, believing that in order to prepare for competition with foreign banks after the transition period, Chinese banks should in an early date seek to form joint ventures or merge with foreign banks, and to introduce advanced management expertise and technology to improve their own efficiency.

Another group of people expressed their worries of whether the Chinese Government has the capability and determination to fulfil its commitments in the Sino-US agreement. Professor Cooper from Stanford University said: The United States and China reached the agreement on China’s accession into the WTO, China will reduce by a large margin the import tariffs on industrial and agricultural products, open the telecommunications, insurance and distribution sectors, the state-owned enterprises will operate in the truly commercial sense, and this also means a fundamental change in the methods through which the government manages the economy. The European Union spent 15 years to build its common market, it also took 15 years for the United States, Canada and Mexico to form the North America Free Trade Area. It is really an ambitious plan to fulfil all its commitments within five years. China will no longer be able to adopt the same approach in its reform, that is, “crossing the river by feeling the rock”, because it means to accept a detailed timetable once it accepts relevant market opening agreements. This means a big risk for the Chinese Government. We may make such a prediction: after the end of the five-year transition period, if foreign governments find that China fails to accomplish completely its commitments, they will then enter into negotiations with the Chinese Government according to the agreements. The Chinese Government will often find itself in a position of mediator, on the one hand, it has to deal with foreigners, on the other hand, it also has to deal with the local governments, enterprises and workers of China. The Chinese Government has chosen the wise and correct road, but it should not have the illusion that its economy and society will remain completely stable during the transition period and no trouble will happen.

Many of the foreign representatives expressed their support to the view of Professor Cooper in their speeches. They said that after China joins the WTO, factors of disadvantages in competition and increasing of unemployment in the state-owned enterprises are likely to cause the worsening of social conflicts, and the Chinese Government is likely to be forced not to completely perform their obligations. Some others consider that the grassroots officials of China may create obstacles to the implementation of the agreements and the progress of reforms. Minister Shi Guangsheng stated clearly in his speech: “China will abide by the basic rules of the WTO and modify relevant laws and regulations,” and China will “assume corresponding obligations while enjoying due rights.” Chinese experts said confidently that the Chinese Government will earnestly carry out the reforms and abide by and honor its commitments. However, some foreign representatives still expressed their doubts.

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