Factbox: China's decade in the WTO
(Reuters) - China marks its 10th anniversary since joining the World Trade Organization on December 11. The following is a look at how China has lived up to its WTO promises in different industries.
WHAT CHINA PROMISED: Foreign banks will be allowed to conduct domestic yuan currency business with Chinese firms two years after WTO accession and with Chinese individuals after five years. Geographic restrictions will disappear after five years.
WHERE IT STANDS NOW: China on December 11, 2006 introduced rules allowing foreign banks that set up locally incorporated units to do yuan retail business -- exactly five years after its WTO accession. The first batch of foreign banks actually started setting up such units in 2007.
There are now about 40 China-incorporated units of foreign banks though only a handful, including HSBC Holdings Plc, Citigroup Inc and Standard Chartered Plc, have retail banking operations.
Foreign banks only have an estimated 2 percent market share as they struggle to compete with local players that have far-reaching networks and stronger branding. Foreign bankers say in private that slow approvals of new branches have hindered them from expanding as quickly as they would like.
- - - - SECURITIES
WHAT CHINA PROMISED: China will let minority foreign-owned joint ventures into fund management on the same terms as Chinese firms. Three years after accession, foreign firms will be allowed 49 percent stakes in joint ventures.
WHERE IT STANDS NOW: There are 11 Sino-foreign securities ventures. Global investment banks including Goldman Sachs, Morgan Stanley and UBS have all established a foothold in China.
The underwriting business has been dominated by domestic brokerages, although the JVs of foreign banks such as UBS and Deutsche Bank have pushed into initial public offering deals.
In the fund management space, 38 foreign firms including Morgan Stanley, BNP Paribas and JPMorgan have set up joint ventures in China, a market crowded with 67 players. The JVs, where foreigners are allowed to have a maximum 49 percent holding, have just under half of China's 2.3 trillion yuan mutual fund market.
- - - - INSURANCE
WHAT CHINA PROMISED: China will allow "effective management control" in life insurance joint ventures, although it will limit foreign stakes to 50 percent. Foreign firms can choose their China joint venture partners freely.
China will phase out geographical restrictions in three years, allow foreign insurers into group, health and pensions over five years and permit wholly owned non-life subsidiaries in two years. Foreign insurers were largely restricted to Shanghai and Guangzhou.
WHERE IT STANDS NOW: The 25 Sino-foreign life insurance ventures control less than 6 percent of total market share. In contrast, China's top four life insurers, including China Life, Ping An, New China Life Insurance Co and China Pacific Insurance (Group) Co, control 65 percent of the market.
Foreign life insurers are not subject to geographical restrictions in China, but the pace of expansion into new provinces is tightly controlled by the China Insurance Regulatory Commission, the industry watchdog.
Their Chinese rivals have much bigger sales forces and enjoy better relations with commercial banks -- an important sales channel for insurance products in China. Foreign life insurers also face challenges from Chinese banks, who have been rushing into the insurance industry in recent years.
In property and casualty, 20 foreign insurance companies own a combined 1 percent market share. The top Chinese player, PICC Property and Casualty Co, owns 38 percent. Foreign property and casualty firms are still barred from conducting third-party liability auto insurance in China, though they have been granted access to the commercial auto insurance market.
- - - - ENERGY/OIL
WHAT CHINA PROMISED: China agreed to open the crude and refined oil sectors to private traders gradually and cut its state monopoly on oil trading by giving up four million tonnes of oil products and 10 percent of crude imports to the private sector.
China also will open retail oil distribution three years after accession and allow foreign firms up to 30 wholly owned service stations each. More can be built through joint ventures with Chinese oil majors, industry sources said. China will open its wholesale market five years after accession.
That implied the state will give up its virtual monopoly in the oil sector, allowing private traders to import oil products and foreign firms to set up service stations.
WHERE IT STANDS NOW: China increased the amount of crude oil and fuel oil that non-state traders can import by 15 percent every year for 10 years until 2011.
In 2011, the non-state crude oil import quota reached 29.1 million tonnes, which is about 12.2 percent of China's total crude imports that year, and the fuel oil import quota for non-state traders was 16.2 million tonnes for 2011.
But these non-state traders have to sell back the crude they import to the oil duopoly Sinopec and PetroChina. Imports of other refined fuels like gasoline and diesel have not been open to private traders. In any case, most "non-state traders" are affiliated to the top two oil majors CNPC and Sinopec Group.
As for the oil retail sector, foreign majors Royal Dutch/Shell Group, BP Plc. and ExxonMobil Corp were each allowed to build or acquire, jointly with the Chinese firms, 500 gas stations on the booming east coast. The concession came as a reward for their support in Chinese state oil firms' share offerings in 2000 and 2001. Exxonmobil and BP each now run an estimated 1,000 joint venture gas stations, followed by Shell.
- - - - AGRICULTURE
WHAT CHINA PROMISED: China agreed to cap its future spending on farm subsidies at 8.5 percent of the value of domestic farm production. Duties on agricultural products were to fall from 22 percent to 17 percent and on U.S. priority products from an average 31 percent to 14 percent by January 2004. China agreed to cut import tariffs on agricultural products such as rape oil, butter, mandarins and wine to a range of nine to 18 percent from the previous 25 to 85 percent.
WHERE IT STANDS NOW: China reduced average farm products duties to 15.2 percent in 2010 and declared it has more than fulfilled its commitment as a member. (Its farm tax level is only one fourth of the world's average of 62 percent.) It has scrapped farm export subsidies and removed import quotas on edible oil imports. A low-tariff-rate quota system (TRQ) was implemented on imports of wheat, corn, rice, sugar and cotton.
Despite early progress, some technical barriers remain in farm trade, including restrictions on canola imports from Canada and live swine imports from the United States. Washington also worries about regulations governing imports of genetically modified organisms (GMO) products, which could potentially disrupt U.S. corn exports.
- - - - AUTOS
WHAT CHINA PROMISED: China agreed to cut import tariffs on automobiles to 25 percent by mid-2006 from the 80-100 percent prevailing before the U.S. agreement was clinched. The EU deal requires China to lift all restrictions on category, type and model of vehicles produced in Sino-EU joint-ventures within two years.
WHERE IT STANDS NOW: China did cut import tariffs on automobiles to 25 percent on June 1 2006, and abolished import quotas on automobiles on Jan 1, 2005.
The move had a limited impact overall for foreign car makers, who were already producing most of their models domestically. It did help them in the luxury car segment, though, since high-end models are still mostly imported.
China's vehicle market has exploded in the past several years, surpassing the United States as the world's largest in 2009.
The car market is now dominated by foreign brands built in China, but the foreign companies are forced to team up with local partners and may own a maximum of half of such joint ventures.
- - - - TELECOMS
WHAT CHINA PROMISED: China agreed to allow foreign operators to take a 25-percent share in mobile telecommunications firms, 35 percent after one year and 49 percent after three years.
In Internet, paging and other value-added services, foreign firms could immediately take 30-percent stakes in Chinese companies in Beijing, Shanghai and Guangzhou, rising to 50 percent in two years, without any geographical constraints.
Tariffs on many high-tech products like telecoms equipment were to be phased out by 2005. China agreed to liberalize fixed-line and long distance service but slowly, with 25-percent stakes allowed after three years and 49 percent after six years.
WHERE IT STANDS NOW: Foreign investment in the telecom market has been raised to 49 percent for basic services and 50 percent for value-added services. But foreign investors complain of continuing restrictions on joint ventures: foreign telecom service providers are only allowed to form JVs with existing state-owned telecom providers.
There have been a few deals in the sector since the WTO entry, including the purchase by Vodafone Group Plc of a minority stake in China Mobile, which it sold last year. SK Telecom of South Korea acquired a stake in China Unicom and later sold it as well. Spain's Telefonica this year increased its stake in China Unicom to 9.7 percent.
The sheer size of Chinese telecoms is a barrier to taking larger shares in them, a 10 percent stake in China Mobile, China's largest mobile carrier, would cost nearly $20 billion.
- - - - DISTRIBUTION/RETAIL
WHAT CHINA PROMISED: China agreed to phase out restrictions on distribution services for most products within three years. It agreed to lift joint venture restrictions on large department stores and virtually all chain stores. It also would scrap space restrictions on foreign-owned stores.
The change meant allowing foreign firms a controlling stake of up to 65 percent in retail stores. Foreign firms previously had to distribute products made in China through domestic companies.
WHERE IT STANDS NOW: China has made significant progress in opening the Chinese retail sectors, including opening up the Internet retail market to foreign-invested retailers. It has phased out distribution restrictions on distribution services for most products and lifted JV restrictions in most areas. Today, foreign enterprises can form joint ventures for most wholesale operations, and can apply for national wholesale licenses.
However, retailers -- other than those owned by Hong Kong and Macao investors -- operating more than 30 stores in China that sell pharmaceuticals, grains, vegetable oil, sugar, cotton, agricultural pesticide, chemical fertilizer and certain other commodities may not be more than 49 percent foreign-owned.
(Reporting by Kazunori Takada, Xu Wan, Terril Yue Jones, Fang Yan, Samuel Shen and Jason Subler; Editing by Don Durfee and Jonathan Thatcher)
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