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China WTO Entry To Bring FDI Flood, Says Goldman Sachs
BEIJING, Apr 17, 2000 -- (Reuters) China's accession to the World Trade Organization will bring a flood tide of foreign investment and boost economic growth, a senior Goldman Sachs economist said on Monday.
Fred Hu, Goldman Sachs executive director for Asian economic research, told the World Economic Forum's China business summit Beijing's WTO entry would raise annual foreign direct investment inflows to $100 billion by 2005 and add half a percentage point to annual GDP growth rate.
China took in $40.4 billion in FDI last year and a record $45.6 billion in 1998. The economy grew by an annual 7.1 percent last year and by 8.1 percent in the first quarter of this year.
Hu also said China was likely to contemplate relaxing rigid exchange rate controls on its yuan currency after gaining accession to the world trade body.
"Now that WTO accession is imminent, I'm more convinced that China will introduce greater exchange rate flexibility," he said.
China adopted a managed float rate in 1994, but the yuan's exchange rate had been tightly controlled in recent years by a 0.3 percent limit-up or limit-down against the U.S. dollar.
Chinese officials say the central bank is contemplating widening that trading band.
The yuan, now at around 8.28 to a dollar on the Shanghai-based national foreign exchange market, is convertible on the current account but under tight restrictions on the capital account.
Hu said Chinese firms faced becoming dinosaurs unless they seized the market-opening phase-in period allowed under last November's China-U.S WTO agreement to "restructure, restructure, restructure".
"China has a window of opportunity of perhaps three to five years," for its firms to upgrade management practices, raise efficiency and improve corporate governance, Hu said.
Failure to win WTO entry would have "very grave consequences" for China, dealing a blow to Beijing's economic reforms and generating a "backlash against reforms", he said.
China has cleared most hurdles to entry in the 135-member WTO, which sets and enforces global trade rules.
But Beijing must still strike a deal with the 15-member European Union. Three rounds of China-EU talks this year have failed to remove differences over access to China's markets.
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