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China and the WTO: the 15-year Itch

Speech by Mr David Eldon, Chairman, The Hongkong and Shanghai Banking Corporation Limited

Hong Kong Association of New York breakfast meeting


Mr David Eldon:

Good morning Ladies and Gentlemen,

I stand before you today with a confession to make.

It relates to something that I did recently.

Exactly one month ago, I delivered a speech to another American audience. It was a gathering of the American Chamber of Commerce in Hong Kong. I talked about Hong Kong's changing role. And about how Hong Kong can compete as it becomes increasingly easier for foreign companies to do business in China.

On that day in March, I made several suggestions. One of which was that when travelling overseas, government officials and business people from Hong Kong should spend more time selling Hong Kong to the sceptics. And less time speaking to the converted.

Consequently I am here today, in front of a decidedly Hong Kong-friendly crowd, in direct violation of my own advice. That said, I plan to redeem myself by not devoting too much time talking about Hong Kong - a topic that is well known to this audience. Rather I intend to concentrate on the less known. In particular, the implications of China's entry into the WTO. The implications for Hong Kong and the implications for foreign companies.

In doing so, I am going to focus my talk on three distinct areas of knowledge:

what we know we know;
what we know we do not know; and
what we do not know we know.

Common knowledge

First, what we know we know. We know that China means different things to different people.

To overseas manufacturing firms or trading companies it is "the land of a billion buyers of shoes, cars and computers." To foreign companies already in China it is a place that warrants expansion. In fact, a recent survey found that nine out every 10 foreign companies operating in China plan to expand their investment in the next three years. To foreign financial institutions - particularly those interested in the provision of wealth management services - China is a market with enormous potential. After all it is a country with the highest rate of savings in the world. A country where reportedly more than 80 per cent of the bank deposits are held in 20 per cent of the accounts. To my Bank it is our birthplace. To your President it is a 'strategic competitor.'

Another thing we know we know and this audience in particular knows is that China's entry into the WTO means the role of Hong Kong will inevitably change.

Hong Kong was once the only gateway to the Mainland market. A vital link between East and West. Between developed and less-developed nations. Between capitalist and reforming economies. Between China and everywhere else. Today, Hong Kong no longer holds this privileged position. The reality is that Hong Kong hasn't held it for quite some time. Long before the ink was dry on China's WTO agreement, companies were choosing to bypass Hong Kong and go directly to Beijing, Shanghai and elsewhere in the Mainland. Of course, a significant number of companies were also still coming to Hong Kong to take advantage of the city's close geographic, economic, political and cultural ties to the Mainland. And as you are aware they continue to come.

We also know that China is in the midst of two transitions at one time: from a command to a market economy and from a rural to an urban society. And we know that the country faces a number of challenges: allocating incoming capital effectively; reforming state-owned enterprises; creating more jobs; spreading wealth more evenly; reducing bureaucracy; and eliminating corruption. And now, living up to the commitments and the expectations of WTO membership can be added to this list.

Finally, we know that China has changed a great deal in a relatively short period of time. Thirty years ago US President Richard Nixon and his national security adviser Henry Kissinger made a historic journey to China. Their seven-day trip concluded with the signing of the Shanghai Communiqu¨| inside the Grand Hall of the Jinjiang Hotel in Shanghai. A couple of weeks ago, Dr Kissinger returned to the Jinjiang to deliver a speech commemorating the events of 1972.

I do not know if Dr Kissinger took the time to explore the surrounding area. If he did, he would have possibly seen the nearby theatre that regularly plays the latest offering from Hollywood. He would have probably come across the American fast food outlets or the Italian designer clothing store just down the block. Before crossing the street, he would have likely had to wait for a line of Japanese cars to pass and perhaps even the bus emblazoned with a larger-than-life Winnie the Pooh. And if he stayed out late enough, he would have undoubtedly been able to stroll back to the hotel under the colorful neon lights advertising German cellular phones. In short, he would have definitely seen a very different China today than the one he saw 30 years ago.

Existing uncertainties

The second area I want to focus on is what we know we do not know. In other words, the uncertainties related to the further opening of China's market.

Clearly, we do not know exactly how numerous industries will evolve. And it is a lack of advanced knowledge that is prompting much speculation. In the area of financial services for example, some predict that many of China's domestic banks will have a limited life span once the market is fully opened up in five years time.

Personally, I do not share this view. I think they will be very strong competitors. Partly because they are in the advantageous position of knowing the marketplace. Partly because they have national networks that are impossible - not to mention impractical - to match. And partly because they have a strong base of customers and are becoming increasingly modern. Consider the Mainland's largest bank, the Industrial and Commercial Bank of China. It recently announced that it has more than 10,000 corporates and 1.8 million individuals using its online banking services. But the main reason I think domestic banks in China will be strong competitors: they are very fast learners.

Another thing we know we do not know - and this specifically relates to Hong Kong - is the indirect benefits that will flow from a more open market in China.

For example, if mainland investors are allowed to invest their foreign exchange holdings in Hong Kong, the SAR's stock market would clearly benefit. Hong Kong's position as a fund raising centre for Mainland companies would also be enhanced. We know this idea is under consideration. We also know we do not know when it may happen.

Likewise, we know that if banks in Hong Kong are permitted to accept RMB deposits, the SAR's status as an international financial centre and as the premier regional financial centre will be enhanced even further. Once again we know this idea is being considered, but we do not know when it may happen.

A third unknown - and one that has been getting considerable attention recently - is the accuracy of some of China's statistics. As you are undoubtedly aware, questions have been raised about certain numbers. Even senior Mainland officials concede that some data is flawed. For example, the head of the Central Bank recently confirmed that levels of non-performing loans at China's big state banks are in fact higher than official estimates. However, numbers only tell part of any story. Whether one agrees with official estimates of GDP growth or not, no one can deny that China is developing rapidly. At least not anyone who visits China on a regular basis.

Finally, we know that we do not know how China will change the WTO. What role will the country play in shaping future trade talks? Will China's presence prompt other members to address the concerns of developing nations more readily? And how will another large player at the table affect overall group dynamics?

One thing that is clear: the WTO is much more of a global body now than it was prior to China's entry. Simply put, no organization can rightly call itself global if it does not include the world's most populous nation.

Forgotten knowledge

The third area I want to discuss is what we do not know we know. A translation of which might be the things we already know but often overlook or outright forget.

For example, when it comes to Hong Kong, some people seem to think the SAR will be surpassed. Replaced if you will. This doomsday group seems to forget the fact that many of Hong Kong's infrastructural and institutional attributes - including its free-market philosophy, the rule of law and free flow of capital - are attributes which are impossible for any other city in China to replicate any time soon

In terms of China itself, some executives of some companies still drool over the prospects of selling their goods or services to a single market of 1.3 billion people. They seem to overlook or forget the fact that the Mainland market includes 23 provinces, five autonomous regions, four municipalities directly under the central government, five special economic zones, 14 open coastal and border cities, 15 export processing areas, 14 bonded zones, some 30 provincial-level economic and technological development zones and more than 50 new and high-technology development zones. At least at last count.

And while the preferential policies of some of these special zones will gradually disappear under WTO, the complexities of doing business in such a vast market will not. A fact which - I submit - should subdue any remaining overactive salivary glands.

Finally, there are some who seem to think that China's entry into the WTO will provide an avenue to solve all future trade disputes. They seem to forget that the WTO is often used more as a weapon for protectionism than as a shield for open markets.

Personally, I think China will work very hard to live up to its commitments and to operate within the rules of the WTO. And if they are smart - and I think they are - they will also seek ways to exploit the rules to the benefit of their own industries. In other words they will act much like every other country on the WTO membership list.

Applying one's knowledge

Against this backdrop of knowledge - both the known and the unknown - it is clear that some foreign companies are itching to get access to the Mainland market.

I recall reading the comments of one executive who said his two most important questions about China are "which month" and "which day" his company will get the necessary approvals. He went on to say: "If I get four questions, then the third question would be at which hour, and the fourth at which minute we will get our license."

And just so you know, you can all breathe easier, he was not from an American company!

The reality is that anyone focused solely on the short-term gains or anyone who is prone to impatience is destined to be disappointed. China is like any developing market. It takes time to build a business. Profits cannot be made overnight. It is not a place for foreign companies to improve next quarter's earnings.

HSBC for its part is not a typical foreign company in the Mainland. As I mentioned earlier, our roots are in China. We have had a continuous presence in the Mainland for more than 135 years. Our name is also well known. For example, one survey done in Beijing, Shanghai and Guangzhou found that we were by far the most-recognised foreign financial institution. Close to 90 per cent of the respondents said they were familiar with the name HSBC. The next closest foreign bank scored in the low 70s.

Despite this history and this recognition, we know that we will not automatically benefit from the further opening of China's financial services sector under WTO. We know that we will have to work very hard to maintain our position. And we are.

We have moved our China headquarters to Pudong in Shanghai. We have signed RMB remittance pacts with all four of the big state banks and we continue to seek ways to enhance our co-operation with domestic banks. On the people side, localisation remains a top priority. Already, nine out of every 10 of our Mainland staff are hired locally.

Recently we along with a few other foreign banks were given permission to offer foreign currency services to mainland Chinese citizens and corporations in select cities. In HSBC's case, we are allowed to offer such services in three cities: Beijing, Shanghai and Guangzhou.

Last December we also purchased an 8 per cent equity stake in the Bank of Shanghai. In addition to becoming the first foreign commercial bank to be allowed to invest in a domestic Chinese bank, we also became - in effect - partners with the Shanghai Municipal Government, the major shareholder in the bank. For us, it was a high and historic note on which to end the year 2001.

Just as an aside, not everyone seems to agree that our purchase of a strategic stake in the Bank of Shanghai was all that momentous.

For example, in subsequent articles heralding the precedent-setting deal, one foreign banker was quoted as saying: "Most of the banks have been offering 15 per cent to the market. If you get 15 per cent you don't get anything." Another foreign banker said that our purchase was "only symbolic" and "without any actual benefits." He also said that his bank had no interest in acquiring a minority stake in any Mainland financial institution

I will not tell you who made these rather pessimistic comments, if for no other reason than to help both individuals 'save face' should their banks later decide to reconsider. What I will say is that both work for our so-called 'strategic competitors'. Consequently, I am inclined to think they were suffering from a touch of fermented fruit syndrome. Otherwise known as a case of sour grapes!


I have spent much of my time this morning talking about the implications of an agreement which became official on the 11th of December 2001. I also briefly mentioned another history-making agreement that was signed on the 28th of February 1972.

In fact, there are a number of striking similarities between China's entry into the WTO and the signing of the Shanghai Communiqu¨|.

Both agreements changed the world significantly. Both agreements set the stage for increased contact . . . economic and otherwise. And both agreements also came after some considerable negotiation.

At the outset of the 1972 talks, Dr Kissinger reportedly told his Chinese hosts: "The good thing about our relationship is that we want nothing from each other."

Chairman Mao is said to have promptly disagreed, noting: "If I had wanted nothing from you, I wouldn't have invited you. And if you wanted nothing from me, you shouldn't have come."

Similar sentiments apply to the WTO agreement. If China did not have something to gain, it would not have joined the WTO. Nor would it have made, as some observers suggest, commitments that are far more reaching than any previous membership applicant has. Likewise, foreign companies would not be flocking to and expanding their operations in China if they thought there was nothing to gain. Nor if they thought there were no profits to be made.

In closing, let me make one final observation about Hong Kong and the impact of China's entry into the WTO.

I know and I think all of you would agree that Hong Kong is well positioned to play a significant role in the post-entry period. And I know that I know the people of Hong Kong have the capacity and the capability to respond to new challenges. Simply put, I know that if New York is the city that never sleeps, then Hong Kong is the city that never stagnates.

Thank you.





一个月前,我向另一些美国听众发表了讲话。那是在香港的美国商会的一次聚会上。我谈到香港的角色正在发生变化。现在外国公司在中国开展业务越来越容易, 所以我也谈到了在这种情况下香港怎样进行竞争。


所以我今天会站在这里,站在一群对香港极为友好的人面前,直截了当地违背自己提出的建议。既然这么说,我打算对自己说过的话作出补偿,不用太多的时间谈论香港 - 这个话题对于今天的听众来说已经非常熟悉了。我想多谈一些大家不太熟悉的东西。尤其是中国加入WTO所产生的影响,对香港的影响,还有对外国公司的影响。


我们知道自己还没有了解的事; 还有



对于海外的制造商和贸易公司来说,中国是"有着十多亿购买鞋子、汽车和电脑的消费者的国家"。 对于已经在中国的外国公司来说,在这里扩展业务是理所当然的。事实上,最近的一项调查表明,在中国运作的每十家外国公司中有九家计划在未来三年里扩大投资。对于外资的金融机构来说 - 尤其是那些对提供财富管理服务感兴趣的外资金融机构来说 - 中国是一个有着巨大潜力的市场。毕竟这是一个有着全世界最高存款率的国家。根据报道,在中国超过80%的银行存款存在20%的账户之中。对于我的银行 - 汇丰银行 - 来说,中国是我们的诞生地。对于各位的总统来说,中国是 '战略性的竞争对手'。









我个人不同意这种看法。我认为这些中资银行将会是非常强劲的竞争对手。这一部分是因为这些银行了解市场,处于有利地位。另一部分原因是它们有遍布全国的网络, 这一点是根本无法匹敌的,更不用说赶上它们是不切实际的了。还有一部分原因是它们拥有强大的客户基础,并且正在逐步走向现代化。比如中国内地最大的银行 - 中国工商银行,最近这家银行宣布有超过10,000家企业和一百八十万的个人在使用其网上银行的服务。但是我认为中资银行将成为强劲竞争对手的主要原因是:它们学习的速度非常快。




第三件我们不知道的事 - 这在最近也引起了相当多的关注 - 就是某些关于中国的统计数字的准确性。大家一定也知道,人们对某些数字提出了问题。甚至内地的高级官员也承认有一些数据存在错误。比如,中国人民银行行长最近证实,中国较大的国有银行的不良贷款的程度事实上比官方估测的更高。但是,数字仅仅说明了问题的一部分。无论人们是否赞同官方对国民生产总值增长的估测,没有人可以否认中国正在飞速发展。至少没有一个经常去中国的人会否认这一点。

最后,我们知道我们不了解中国会怎样改变WTO。对于形成未来的贸易对话,中国会扮演什么样的角色? 中国的加入是否会使其他成员国更愿意关注发展中国家的问题?桌边又一个大玩家会对全组的动力产生什么样的影响?

有一点是非常清楚的:现在WTO比在中国加入之前更成为一个全球性的组织。 简单地说,如果不包括这个全世界具有最多人口的国家,没有一个组织可以问心无愧地说自己是全球性的组织。



比如,当提到香港时,有些人似乎认为香港特别行政区会被超越。如果你愿意,也可以说是替代。这些认为到了世界末日的人似乎忘记了这一事实,许多香港的基础结构和机构的特质 - 包括它的自由市场的思想,法治和资本的自由流动 - 是中国的任何其它城市在短时间内都无法效仿的。

对于中国本身,某些公司的高级官员还是满怀信心,希望可以把自己的商品或服务销售给一个拥有13亿消费者的市场。 他们似乎忽略或者忘记了这一事实,中国内地的市场包括23个省,5个自治区,4个直辖市,5个经济特区,14个沿海和沿边开放城市,15个出口加工区,14个保税区,大约30个省级经济和科技发展区, 还有超过50个新兴的高科技发展区。至少最近的一次统计是这样。

尽管在中国加入WTO 以后某些区域的优惠政策会逐步取消,在这样一个巨大的市场里开展业务的复杂性并不会消失。我承认,这一事实会打消任何对这个市场过度乐观的念头。

最后,有一些人似乎认为中国加入WTO 会为未来所有的贸易争端提供解决的方法。 他们似乎忘记了WTO经常更多地被用作保护贸易主义的武器,而不是用作开放市场的盾牌。

我个人认为,中国将会非常努力地争取完成它的承诺,并且遵守WTO的规则运作。 如果中国人够聪明 - 我认为他们确实如此 - 他们也会为了本国行业的利益而寻找可以利用这些规则的方法。换句话说,他们的行动会和WTO 成员国名单上的其它国家一样。


在这种认知的基础上 - 包括已知的和未知的 - 很明显某些外国公司正渴望进入中国内地市场。

我记得读到过一位高级官员的评论,他说他对于中国的两个最重要的问题是"哪个月" 和"哪一天"他的公司可以得到必须的批准。他又说:"如果我有四个问题,那么第三个问题就是在哪一个小时,第四个问题则是哪一分钟我们可以得到许可。"







去年12月我们购入了上海银行8%的股权。除了成为第一家获准投资中资银行的外资商业银行之外,我们也成为 - 事实上是如此 - 上海市政府的合作伙伴,因为它是上海银行的主要股东。对于我们来说,这是为2001年的末尾添上的圆满的一笔,具有很大的历史意义。


今天早上我已经花了很多时间谈论从2001年12月11日开始正式生效的WTO协议所带来的影响。 我也简单提到了另一个在1972年2月28日签订的具有历史意义的协议。

事实上,在中国加入WTO 和中美上海公报的签订这两者之间有许多相似的地方。

这两个协议都显著地改变了整个世界。两个协议都标志着逐步增加接触的开始 . . . 包括经济的,还有其它方面的。并且两个协议也都是在多次谈判之后才达成。



同样的感觉也适用于WTO 协议。如果中国不想获得什么,就不会加入WTO。正如一些观察家所指出的,它也就不会作出比任何以往的成员申请国影响更深远的承诺。同样地,如果外国公司认为什么都得不到,也就不会蜂拥到中国来扩展他们的业务。如果他们认为无利可图,也不会这样做。

在结束之前,我想最后再评述一下关于香港的情况和中国加入WTO 的影响。