WASHINGTON - U.S. electronics companies apparently will not be thwarted any longer by the Great Trade Wall of China, after the House of Representatives Wednesday approved Permanent Normal Trade Relations (PNTR) for that country.
The Senate is expected within the next several weeks to also approve PNTR status for China, ensuring that U.S. high-tech companies will gain the same Chinese trade concessions as their global competitors. Had the House rejected PNTR status, China almost certainly would have refused market-opening measures to U.S. companies when it joins the World Trade Organization, probably this summer.
At stake is China's $50 billion high-tech market, as calculated by the Information Technology Association of America, Arlington, Va. That market is growing at a compound annual rate of 30%, and is expected to continue at that pace for some time, the group said.
The House vote promises to have a staggering impact on the U.S. role in China's electronics supply chain. Christopher Galvin, chairman and chief executive of Motorola Inc., Schaumburg, Ill., said the House vote "is a major step to keep America competitive in a global economy by increasing exports to China."
Michael Maibach, vice president of Intel Corp.'s government affairs, said U.S. OEMs and suppliers will benefit from the most radical trade reforms ever offered by the People's Republic of China.
Within three years, foreign vendors will be able to contact Chinese customers directly, instead of using Chinese middlemen. OEMs and distributors believe direct contact will increase sales dramatically and make the supply channel to China much faster and more efficient.
U.S. companies operating in China will no longer be forced to export a huge share of their products. Maibach said companies such as Intel that operate solely owned plants in China are now required to export 100% of their products. Companies with a 50% share in a Chinese joint venture must export half that operation's output.
"Companies with plants in China want to sell to the domestic market. They located in China in the first place to be close to the market," Maibach said. China originally imposed the high export quotas to increase trade income and get more foreign hard currency.
The export-quota mandate caused a number of anomalies, such as foreign chip manufacturers having to export products to Hong Kong and then turn around and reimport the same goods into China, paying both a 17% value-added tax and 6% to 10% import tariffs.
China has promised to eliminate all tariffs levied on semiconductors, telecommunication products, computer equipment, and other IT goods within five years. Lifting duties on IT products will greatly increase exports to China, according to George Scalise, president of the Semiconductor Industry Association headquartered in San Jose.
China's semiconductor market, now estimated at $8 billion a year, will become the world's third largest by 2001 and the second largest by 2010, the SIA predicts. China's PC market in 1999, according to the U.S. High-Tech Industry Coalition on China, was $7 billion and will grow to $17 billion in 2003. China is expected to be the second-largest PC market in the world next year.
Foreign suppliers are slated to have the same access as domestic vendors to procurement by the Chinese government and state-owned companies. Under the trade reforms, mandates that Chinese companies purchase domestic products will be removed.
Once again China is promising greater protection of intellectual-property rights, especially on software and content. The United States already has several agreements with China for safeguarding IP software and content, but the record of enforcement has been essentially poor. The Software and Information Industry Association claims that more than 90% of software on the Chinese market last year was pirated.
China will open its exploding cell-phone carrier market to allow up to 49% foreign ownership of networks within five years. This is expected to benefit the main foreign wireless-phone manufacturers, which already have burgeoning operations in China. With more than 40 million cell-phone subscribers, China is close to becoming the second-largest cellular market in the world.
Despite China's trade concessions in its bid for WTO membership, the gains may not be spread across the entire wireless spectrum. Qualcomm Inc., San Diego, and a bevy of equipment makers had counted on their current CDMA digital system being installed by China Unicom, a rival to the government-owned China Telecom. But Unicom this spring abruptly put the CDMA installation on hold, while continuing to concentrate on its GSM cellular network.
Intel's Maibach summed up for most electronics companies the meaning of the House's PNTR vote and the expected Senate approval: "The road ahead won't be completely smooth; it'll have some bumps in it. But at least we're getting wheels on the [trade] vehicle so that we can gain momentum now."