If you picked a poster child for free trade, it would be hard to do better than this centuries-old trading hub off the southern coast of...
If you picked a poster child for free trade, it would be hard to do better than this centuries-old trading hub off the southern coast of China.
Long the gateway to China, Hong Kong became wealthy trading with the world. The city looks like Manhattan on steroids. Property prices are in the stratosphere. Ferraris ply the six-lane thoroughfares that wind through the city.
But as the World Trade Organization meets here this week, it is the big brother next door — mainland China — that has bragging rights about trade.
“China is the biggest beneficiary of globalization in the WTO’s history,” said Andy Xie, a managing director at Morgan Stanley in Hong Kong.
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In part that’s because of sheer size, China’s 1.3 billion people. But China also depends more on trade than any other nation — nearly 40 percent of its $2 trillion economy is based on exports, Xie said.
Those exports have nearly tripled since China joined the WTO in 2001, to about $760 billion in 2005, he added.
To put that in perspective, China’s recent export increase is equal to Japan’s total exports.
“In four years, China has basically generated a Japan,” Xie said.
And China is selling more than toys and Nike shoes. On Tuesday, the Paris-based Organization for Economic Cooperation and Development (OECD) said China overtook the U.S. last year to become the world’s largest exporter of high-tech goods, such as computers, cameras and cellphones.
Such rapid growth opens doors for many trading partners around the world, especially Washington, the U.S.’s most trade-dependent state. China’s success shows how much developing nations have to gain from reaching a trade-liberalization deal in Hong Kong, provided the conditions for trade are right.
But it also underscores the potential competition China poses.
Washington state wheat growers, for example, may have an opportunity to sell more. China imports about 5 percent of its wheat, a figure that OECD advisers are pressing it to increase.
U.S. farmers here at the trade talks in Hong Kong are offering to cut their own subsidies to gain more access to markets like China. Similar opportunities could exist for farmed salmon from the Northwest. It’s becoming popular in China as a good source of protein, Xie said.
On the other hand, apple and cherry growers face the possibility of being squeezed out of key foreign markets as China grows more high-value fruits and vegetables destined for export, the OECD said.
Cherries grown by Japanese companies in China, for example, may well supplant Washington state cherries being sold to Japan, said Stefan Tangermann, director for food agriculture and fisheries at the OECD.
“It’s good news for your wheat guys,” Tangermann said of the impact of freer agricultural trade on the state. “It’s not so good news for your apple guys.”
China has yet to crack down on intellectual-property theft, despite agreeing to as a condition of joining WTO. It also has been slow to allow foreign companies to freely import and distribute wholesale and retail goods, according to the American Chamber of Commerce in Shanghai.
China’s factories have sapped the U.S. manufacturing sector. High-paid factory jobs have moved to cheaper workers in China, raising alarms among labor unions and workers.
But Xie and others argue that the wealth from this work has mostly accrued to U.S. companies, which typically mark up products three- or fourfold from the factory price in China. As well, retail, trucking and logistics jobs have grown in the United States to replace lost factory work.
It’s a grand bargain: China’s government wants to create jobs to curb unemployment in urban centers. To attract foreign companies, it is willing to let them keep much of the profit from these products. “The U.S. is getting the wealth, but China is getting the jobs,” Xie said.
Branded products and retailers have a huge opportunity in China, as Starbucks is finding. McDonald’s and KFC already are widespread.
“It’s hard to believe it takes an American company to teach Chinese how to eat chicken,” Xie said. “But Americans are very good at branding and managing vast logistics systems. How are you going to compete against somebody like Starbucks that has a global brand?”
Retailers, such as Nordstrom and Home Depot, and branded manufacturers, such as garment company Union Bay, which all buy products from China, will continue to enjoy low-cost goods, but Xie said he doesn’t expect prices to go much lower. The squeeze in prices that followed the surge of companies coming to China after its WTO accession has largely petered out, he said.
Western brand-name companies are aware that the potential for consumer spending in China is growing, albeit slowly. Average incomes in China’s cities are about $1,200 a year, compared with less than $400 in rural areas. The figure masks a widening range.
Even in major cities away from the prosperous coastal areas, wealthy Chinese shop for Bally, Armani and Dior. “The Chinese tourist is really going out to spend,” said Eden Woon, vice president for greater China at Starbucks.
Retailers, such as Starbucks, he said, are moving to major Chinese cities to be closer to them.
Alwyn Scott: 206-464-3329 or email@example.com