China’s WTO entry is seen by most OC companies as an opportunity
Chris Cziborr
“One pillow, two dreams,” says an ancient Chinese proverb about business agreements.
The phrase describes two dreamers resting on the same pillow,though one is dreaming one thing and the other something different.
The proverb is fitting with China’s entry into the World Trade Organization earlier this month.
For Beijing, ascension to the global trade group is a diplomatic coup.
For Orange County businesses, the move promises to open Chinese markets and streamline business dealings. But, as with everything in China, change won’t come quickly.
“Tariffs will drop a lot over time, but nothing’s going to happen next week or even next month,” said Ed Ehrman, director of worldwide business planning for Fullerton medical diagnostic products maker Beckman Coulter Inc. “But, over time, our tariff level will go down 50%.”
Lower tariffs stand to be one of the easiest-to-quantify gains from China’s WTO membership.
“We’re getting a trade tariff reduction of 12% down to 6% gradually over the next few years for products we bring into China,” said Humphrey Chan, vice president of Asia-Pacific operations for Irvine-based computer security company Rain-bow Technologies Inc., which has a joint venture with Beijing-based Goldensoft Co.
So far, China is a small market for OC exports. This year, local companies are expected to ship about $400 million worth of goods to China. Other OC companies have set up plants in China in a bid to tap the country’s large consumer market or to take advantage of low-cost production.
OC companies also could benefit from the removal of non-tariff barriers as China complies with WTO rules. These can include laws or policies that restrict a product or business, or arbitrary decisions by local courts.
China’s distribution networks could be seen as a non-tariff trade barrier challengeable under WTO rules. Distribution in China is similar to that in Japan, where many people don’t buy directly from a manufacturer, according to Beckman’s Ehrman.
“For companies that haven’t dealt with that kind of business environment before it can be difficult,” he said.
Regardless of the complexities, though, Ehrman said Beckman plans to keep using Chinese dealers for distribution.
“We don’t use that many, but we use dealers because the dealer has a relationship with customers that we don’t,” he said.
Rainbow’s encryption products also have faced non-tariff barriers, according to the company’s Chan. The Chinese government has favored local companies to develop technology to safeguard e-commerce and other computer communications. That stands to change, Chan said.
Chan said WTO membership will help streamline the process for setting up businesses and manufacturing in China. Now the process for getting business license approval in China can take years, he said. But in a post-WTO China, approval time could,for preferential sectors such as technology,get pared down to a few months.
“But it’s going to be a gradual process,” Chan said. “And it’s always been quicker for companies that understand China’s application process.”
For other OC companies, China’s acceptance into the WTO is a double-edge sword.
Tustin swimwear maker Raj Manufacturing Inc. said it is watching to see if China’s WTO membership stirs up more competition in the already cutthroat apparel sector.
“Competition from China is going to be negligible in the short term, but it’s something we have to keep an eye on,” Raj spokesman Alex Bhathal said. “Likewise if China opens up to our products, then the country would become a viable market.”
Bhathal said U.S. apparel makers are under pressure from global competition, particularly plants in China with low-cost labor and overhead.
“Any time a competitor has even the slightest cost advantage then that causes us concern,” Bhathal said. “So we always have to manage our business better.”
One of Raj’s major competitors is planning to move production from local subcontractors to China, Bhathal said.
Some things won’t change under WTO, some OC officials said. Businesses still will have to do a lot of “in-the-trenches” work inside China to get things rolling there.
“The WTO hasn’t diminished the importance for companies interested in China to actually be on the ground here,” said Wai Szeto, the Shanghai-based vice president of strategic business development for Fountain Valley memory products maker Kingston Technology Co. “But the WTO will help give foreign businesses a more level playing ground in China.”
The opening of sectors such as banking and insurance should improve the viability of foreign businesses in China that require those services, Szeto said.
Kingston earlier this year set up a Shanghai-based joint venture,Kingston Technology Electronics Co.,with China Great Wall Computer Shenzhen Co., China’s largest computer maker and distributor. Szeto heads the venture, which runs a 50,000-square-foot plant in Shanghai.
Patrick Mulcahy, president of Tustin engineering firm Team China/USA Inc., said he’s already seen changes in China related to WTO. Business deals there are running more smoothly these days, he said.
“Promises (there) frequently don’t live up to expectations,” said Mulcahy, whose firm is working to build a power plant in China and also exports medical products to China through a separate venture. “But with the WTO China has gained more psychological status.”
