Q: Many people had feared that China's entry into the World Trade Organization (WTO) in 2001 would bring catastrophe to certain industries in the country. Have the past three years justified the fear? What sort of challenges will China face in the financial and agricultural sectors?

A: Before China's entry into the WTO three years ago, some Chinese people did worry that certain industries would be under severe blows. However, the adverse impact proved to be weak.

On the contrary, the increase in China's foreign trade and the sound growing momentum of most sectors of the national economy has captured people's more attention. There are four main reasons:
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First, China's opening of its market was not inaugurated by its accession to the WTO in 2001. In fact, China has adopted the open policy for more than two decades. The WTO entry just helped open the country wider to the world.

Second, China opened many industries ahead of its committed schedules. Take the retail industry as an example. In accordance with China's WTO accession commitments, the country should open this sector to foreign companies before December 11, 2004. In fact, foreign retailers had set up their businesses all over China well before the deadline.
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Third, in accession negotiations, China succeeded in seeking protection and grace period for some vulnerable industries, such as the automobile industry and service industry. Since these industries are still in the grace period, the possible impact has yet to be felt.
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Fourth, changes in international market have prevented foreign goods from flooding into China. For instance, the import of agricultural products has not increased as sharply as expected due to price hikes in the world agricultural market. Since the international telecommunications industry is still in a period of adjustment, foreign businesses vying for Chinese market are at a phase of learning related policies, studying investment strategies and conducting market analyses. Foreign investment in this sector is not in full swing. Yet as foreign companies gradually increase their investment, Chinese telecom companies are bound to feel more competition pressure.

The successful adaptation over the last three years does not mean that we could feel at ease. In fact, certain industries are still facing numerous challenges and potential risks, which we should handle prudently and properly to avoid possible disorder and crisis.

First, financial security must be guaranteed. With foreign banking giants and insurance giants entering the Chinese market in droves, geographical limitations on foreign financial institutions ending and foreign companies now being allowed to deal in Renminbi business, Chinese commercial banks and the insurance industry will face increasingly stiff competition. How to solve the problem of a relative high proportion of bad debts? How to catch up in products and services, and how to maintain key clients are all thorny problems to be solved by the Chinese financial industry. Properly handling these problems is fundamental to the smooth transition of the China's financial industry, especially the banking industry.
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Second, security of agriculture must be guaranteed. China boasts a large agricultural population—70 percent of the total population—while per capita arable land is only 0.1 hectare. Due to this situation, it is hard for Chinese farmers to compete, in the production and sales of main products, with their foreign counterparts in developed countries who enjoy heavy production and export subsidies provided by their governments. Increased imports and domestic oversupply will exert double pressure on Chinese farmers.

In order to respond to these challenges, China will further transform government functions, enhancing macro control and management and improving service. Moreover, trade frictions must be prudently handled, so as to weaken any resultant negative impacts on exports and to safeguard the lawful rights and interests of Chinese companies.