Details of WTO-China deal remain unclear

The devil's still in the details, but you wouldn't know it by looking at the excitement that's overtaken the IT industry here.

Little has been revealed in the breakthrough agreement between China and the US for Beijing's entry into the World Trade Organisation, but the move has clearly cheered on the Internet and telecommunications sector.

"We're very positive about the agreement because we always felt that the government in China is aware that the Internet is very important for them," said Matei Mihalca, head of Merrill Lynch's Asia-Pacific Internet research. "The enthusiasm should be there, as there are great opportunities being unlocked."

Eden Woon, director of the Hong Kong General Chamber of Commerce, said the move will serve as a catalyst for companies looking to do business in China. "A lot of IT companies, especially conservative ones, have been using Hong Kong as a base," Woon said. "But now as Internet investments are opening up to foreigners, these companies will be looking northwards to include China."

"With the WTO breakthrough, I think there will be a flood of foreign investments," added Philip Leung, CEO of ITVenture. "When China gives a full-hearted embrace to this exciting new paradigm, I believe there will be a flood of technology, money, knowledge and creativity."

The Sino-U.S. bilateral agreement will allow for increased foreign investment in specific sectors of China's economy, and will lead to a cut in the country's tariffs. Foreigners will be allowed to hold a 49 per cent stake in Internet and telecom ventures, increasing to a 50 per cent maximum in two years. "Forty-nine per cent is in line with what you see in the region, such as India," said Mihalca.

This in fact is the key U.S. concession. Negotiations in April had called for foreign companies to be allowed to own up to 51 per cent - or a controlling stake -- in certain kinds of Chinese telecom companies.

Until the breakthrough agreement, Mainland officials had been issuing conflicting signals. Wu Jichuan, China's minister of information industry, recently sent negative vibes throughout the industry when he gave a thumbs-down to foreign ownership in such companies. A week later, portal giant Yahoo baffled the industry when it launched a joint-venture Web site in China, with the tacit approval of the Ministry -- Vice Minister Qu Weizhi was on stage at the launch.

The take-up rate for personal computers in China is the highest in the region. For the third quarter 1999, International Data Corp. says China accounted for 1.36 million PC shipments -- 37 per cent of the entire Asia-Pacific market excluding Japan. The third-quarter figures are also a whopping 40 per cent increase from 1998.

Meanwhile, the number of online users is expected to reach 8.1 million by the end of next year.

Such positive numbers are luring companies into the Mainland. Internet advertiser DoubleClick is keen on setting up an office in the Mainland within six months. The company's Hong Kong country manager, Felix Lai, said he's optimistic about the WTO breakthrough, but he remains cautious. "This is definitely a huge market, and we will enter it with caution. But it's too early to say" how WTO membership will work, Lai said.

IBM is also taking the position that time will reveal the significance of the deal. "It is too early to determine the effects of this agreement on our operations in China," said an IBM spokesperson in Hong Kong.

What's missing from the final picture are details of how foreign ownership will be characterised. "I think there are still a lot of questions remaining," said Stephen McKeever, an Internet analyst at Lehman Brothers Asia in Hong Kong. "The fine print and details of ownership structures need to be seen, whether the current 'grandfather' structures in place will be allowed to stand."

Still, as is the case with emerging technologies, policies will be unveiled or readjusted along the way. "Broadband, for example, is just emerging," said Merrill Lynch's Mihalca. "No one has yet figured out what the landscape will look like."

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