Small and medium-sized domestic trading companies are worried that they are not as well prepared as they should in meeting strong competition as more foreign-invested companies get trading rights this year to conduct import and export business according to the World Trade Organization's schedule.

Their deepening concern might delay the opening process until the end of the year.

Meanwhile, foreign companies are stepping up their efforts in preparing for the opening of the international trade sector, which was worth around US$840 billion last year.

"According to China's WTO pledges, China will begin granting foreign trade rights to companies in which foreign investors hold majority share in the third year of its WTO membership, namely in 2004,'' said a Ministry of Commerce official.

Under the move, which paves the way for fully opening the trade sector, more foreign-invested trade firms are expected to increase their investment in China, as they may show a greater interest in gaining a controlling stake in trading companies, trade experts suggested.

Overseas investors hailed the opening, believing it would help expand their business and slash costs by not having to rely on Chinese middle-men to handle their businesses.

"We have considered forming a trading venture in which we have the majority share, so that we don't have to depend entirely on our Chinese agents,'' said a manager with a foreign trading company who wished to remain anonymous.

Overseas traders also wish that China will refrain from imposing too many licensing requirements, such as capital restrictions and prior experience.

"We are waiting for the release of the policy. We may decide not to apply for the licence if the requirements are set too high,'' the manager added.

Moreover, overseas traders want China to accelerate the opening process by allowing wholly-owned foreign trading companies to operate import and export businesses earlier than committed to the world trade body.

Under the commitments, all enterprises in China, including wholly-owned subsidiaries of foreign enterprises, will have trading rights in 2005.

"We are preparing to enter the trade market,'' said Cao Weili, a spokesperson for Auchan's Shanghai Office.

France-based Auchan, one of the world's top 10 retailers, invested 10 million euros (US$12.4 million) into setting up a wholly-owned trade company in Shanghai last August.

As the world's fastest-growing economy and the fifth largest trading nation, China's trade volume enjoyed an average growth rate of more than 20 per cent in the past four years.

"So it is easy to understand why overseas traders are eager to muscle in and want China to open the sector wider,'' said Zhang Hanlin, director of the World Trade Research Institute at the University of International Business and Economics.

Despite the coming inflows of foreign capital, large State-owned trading enterprises have remained sanguine, saying the opening, although it may lead to fiercer competition, will not have a major impact on them in any immediate sense.

"I don't think the policy will make much of a dent on our company,'' said Zhang Zhenrong from China National Metals and Minerals Import and Export Corp, China's seventh biggest trader in 2002.

Sources from the China National Bluestar Corporation, one of the country's top chemicals traders, predicted a bumper year in 2004, saying it has withstood harsh rivalry since the Chinese Government lowered the threshold of its foreign trading rights for domestic companies last September.

"We are well prepared for the challenges ahead,'' sources said.

And some domestic trade firms are ready to embrace the foreign capital flows, which they believe are conducive to restructuring State-owned trading companies and to helping Chinese investors tap international markets.

Yijia Export and Import Co, based in East China's Shandong Province, has been seeking for overseas capital since 2002.

"With a view to maintaining long-term development and to penetrating overseas markets, we are taking efforts to lure overseas investors to form a joint venture,'' Xu Changjiu, director of Yijia's general office told China Daily.

Two world-renowned trade companies, which Xu declined to name, are in touch with Yijia, and they showed interest in establishing a foreign-controlled joint venture, which is not permitted to run import and export under the existing policies, Xu said.

But "when the new policy comes out, Yijia's joint venture plan is more likely to come true,'' Xu believed.

But the medium and small-scale trade companies, particularly private ones, are worried that they would face a much harsher business environment because of a combination of factors, including fiercer competition, and the reduction of export tax rebate rates, which have been reduced from an average of 15.11 per cent to 12.11 per cent at the beginning of 2004.

"Mergers and acquisitions are inevitable for these small traders after foreign capital flows in. But we cannot predict to what extend this would affect them,'' Zhang Hanlin said.

But he added it would hit heavily on small companies that only run trade business. His view was echoed by some companies of this type.

"We are keen for any policy changes related to foreign trading rights,'' said a manager of Beijing-based small trade company, which scratches a living by acting as agent for foreign clients.

The manager, preferring to be anonymous, said that he may lose some clients if more foreign competitors come to Beijing, and that his company may "perish.''

Zhang advised domestic companies to diversify their businesses to reduce this risk, and he said many Chinese companies are making efforts in this regard.

Among them are the China National Cereals, Oils & Foodstuffs Import and Export Corp and China National Metals and Minerals Import and Export Corp, which are making big inroads into the financial sector, and the China National Bluestar Corporation, which is eyeing overseas outsourcing business.

"The living space for 'pure?export and import companies is shrinking,'' said Song Weisheng, vice-general manager of Qili Group in Shandong Province. The company has tried to diversify its business into manufacturing since 1997.

"We believe this will help us to survive the hard times when trading rights are no longer rare resources,'' Song said.

In addition, analysts and sector insiders also cautioned that a brain drain is likely to take place as foreign giants begin to penetrate the once-forbidden sector.

"I can still remember it (Chinese talents pouring to foreign-funded companies) happened to some sectors in 1980s and 1990s when they were opened to foreign investors,'' said an unnamed source from China Grains, Oils and Feedstuffs Co Ltd. "This will also happen in trade sector,'' added the source.

"Some of my young colleagues showed intention to join foreign-funded trade companies. They are still watching and waiting,'' he added.

Close

Today's Top News		Top Business News
+China to use US$45b to overhaul state banks ( 2004-01-06) +WHO: China still safe after SARS case confirmed ( 2004-01-06) +China to put 10 satellites into orbit in 2004 ( 2004-01-06) +Was it `road rage' or an accident? ( 2004-01-06) +US airports now fingerprint foreigners ( 2004-01-06)		+China sets new record in shipbuilding in 2003 ( 2004-01-06) +Trade opening squeezes SMEs ( 2004-01-06) +Ping An Insurance to raise US$2 billion through HK IPO ( 2004-01-06) +China steps up efforts to forge world name brands ( 2004-01-06) +Wal-Mart makes moves to expand its stores ( 2004-01-06)