In-DepthMORGANSTANLEYDEANWITTERPleaserefertoimportantdisclosuresattheendofthisreport.Page1EconomicsEquityResearchGlobalInternationalIssuesMarch21,2000JosephP.Quinlan(Joseph.Quinlan@msdw.com)(212)761-4361AndreaL.Prochniak(Andrea.Prochniak@msdw.com)(212)761-7150ChinaandtheWTO—ATestforUS-SinoRelations•China’sbidtoentertheWorldTradeOrganizationwillseverelytestUS-Sinorelations.The20-yeareffortbybothpartiestoforgegreatertradeandinvestmentlinkagesisatrisk.AWTOdealwillcementthisrelationship;failuretoreachadealwillcreatedeepdistrust.•USrelationswithChinahavebecomeincreasinglycomplex.ChinaismuchmoredependentontheUSmarketthantheUSisonChina.However,USforeigninvestmentinChinahassoaredoverthepastfewyears.•ManyUSfirmscouldseeadisruptionintradewithChina.USretailersarenotablyvulnerable,asareUSapparelandfootwearfirms.China’sentryintotheWTOwouldbebullishformanyUSservicefirms.InternationalEconomicsMORGANSTANLEYDEANWITTERInternationalEconomics–March21,2000Pleaserefertoimportantdisclosuresattheendofthisreport.Page2ChinaandtheWTO—ATestforUS-SinoRelationsSummaryNowthatPresidentBillClintonhassenthismuch-anticipatedChina-tradelegislationtoCongress,weexpectmuchrhetoricandposturingfrombothWashingtonandBeijingoverwhetherChinawillbegrantedpermanentNormalTradeRelationsstatus,akeyfactorinChina’saccessionintotheWorldTradeOrganization.Thedebateislikelytobecomeratherheated,andasitdoes,werecommendthatreadersnotforgetsomeofthemoreimportantaspectsofthisbilateralrelationship,asdetailedbelow.ChinaNeedstheUSMorethantheUSNeedsChinaAtthemacrolevel,theUnitedStateshaseverythingtogainandnotmuchtolosewhenitcomestonegotiatingwithChina.Conversely,thereisagreatdealatstakeforthemainland.Exhibit1showseachparty’sexportstotheotherasapercentageoftotalexports.WhileUSexportstoChinanearlytripledbetween1990and1999,risingfrom$4.8billionto$13.1billion,Chinanonethelessaccountedforonly1.9%oftotalUSexportslastyear,downfromahighof2.1%in1998.Putanotherway,USexportstooneofthelargestandmostdynamiceconomiesintheworldin1999wereonlyslightlylargerthantotalUSexportstoBelgium.Exhibit1BilateralExportsasaPercentageofTotalExports:UStoChinavs.ChinatoUS,1990–990.05.010.015.020.025.030.01990199119921993199419951996199719981999U.S.ExportstoChinaChina’sExportstotheU.S.Sources:U.S.CommerceDepartment,InternationalMonetaryFundGoingintheotherdirection,China’sexportstotheUnitedStatessurgednearlytenfoldbetween1990and1999,growingmorethan32%year-over-yearin1999alone.China’sexportstotheUStotaled$50billionlastyear,withtheU.S.marketaccountingfornearly27%oftotalChineseexports.Thatcompareswithaglobalshareof16.6%in1995and8.5%atthestartofthe1990s.RobustdemandfromtheUnitedStates,juxtaposedagainstweakgrowthacrosstherestofAsia,actedtodramaticallyincreaseChina’sexportdependenceontheUnitedStateslastyear.(Animportantfootnote:US-Chinatradestatisticsaresubjecttoagreatdealofdebate.DoublecountingislikelyduetothevolumeofmerchandisetradethatpassesthroughHongKong.However,statisticaldiscrepanciesnotwithstanding,thereislittledebateoverwhichcountryenjoysthetradeadvantage.)GoodsImportedfromChinaSubstituteforOtherImports,NotUS-MadeProductsChina’stopexportstotheUnitedStatesaremainlyhigh-volume,low-techgoodsthattheUSgaveupproducinglongago.Accordingly,China’sexportsuccessintheUnitedStateshasnotcomeattheexpenseofUSproducers,butratherattheexpenseoftheKoreans,Thais,andInd...
