While Chinese exports will have more secure access to international markets, foreign goods and companies will have much greater access to the China market than before. Trade liberalisation will go well beyond the merchandise products. China will phase in market access liberalisation on most service industries over a period of up to six years. WTO membership will therefore be a milestone for China in its ongoing reform and modernisation programme.

Market accession conditions for foreign companies will alter considerably once China joins the WTO. The regulatory environment they face will also undergo substantial changes since China is in the process of revising laws, regulations and administrative rules to abide by its accession commitments and WTO rules and principles. The government has identified 116 laws and regulations to be revised and 573 to be repealed. Among laws and regulations which have already been revised are those governing wholly foreign-owned companies and Sino-foreign joint ventures in China. The initial stage of revising foreign trade laws and regulations is intended to be completed by the end of 2001.

Unlike the past amendments which had often been made arising from policy discretions, the future changes in China's legal framework of foreign trade and investment will be bound by the Protocol of its accession to the WTO. China is obliged to ensure the commitments stipulated in the Protocol and the provisions of the WTO agreement are being applied uniformly throughout its custom territory. In other words, local governments and authorities cannot enact or retain any laws and regulations that are contrary to the national commitments. Indeed, a thorough reviewing exercise of regional and provincial laws and regulations is being undertaken. Moreover, China has the responsibility to administer in a uniform, impartial and reasonable manner all its laws, regulations, rules, decrees, directives, administrative guidance, policies and other measures pertaining to or affecting trade in goods, services, and trade related aspects of intellectual property rights (TRIPs).

According to the WTO Agreement, all rules and regulations that have to be enforced will be publicised and disseminated through designated channels, specifying the implementation procedures and responsible institutions or departments. China has established a new unit - China-WTO Notification and Enquiry Centre - within MOFTEC to answer enquires on China's WTO agreement and its relevant laws and regulations.

Most importantly, China's accession to WTO will not just result in introducing new rules and laws to the economy, but the country has made a great leap forward in the rule of law. For Hong Kong companies operating in the mainland, the business environment is bound to be a sea change in terms of the regulatory regime and business strategy. Laws and regulations will be more transparent. For example, China will provide an English copy of the law or regulation to the WTO for reference 90 days before implementation. Grey areas in implementation will be slashed. Local governments' discretionary powers will be reduced. Although it is unrealistic to expect all old habits will vanish overnight, individual companies are advised to re-examine their past business tactics and develop new strategies in light of the new business conditions.

China's market liberalisation following its accession to the WTO will be a defining moment in the structural transformation of the Hong Kong economy -- just as the initial opening up of the mainland economy in the late 1970s proved to be. No longer will the mainland be used primarily as a production base to export to the world; the mainland itself will become a major market for Hong Kong manufacturers. Hong Kong's services companies will also find ample business opportunities in the mainland, following the wide range of market liberalisation measures to be implemented after accession. Nevertheless, competition among local and foreign players will escalate in the post-WTO market environment. Given easier access to and from China, there will also be opportunities and challenges for Hong Kong's role as a multi-faceted business hub linking the mainland with the world.

Full participation in the global economy is one of the main objectives of China's accession to the WTO. To do so, China will further reduce its tariff and non-tariff barriers to trade as well as increase the transparency of its legal and regulatory regimes. Throughout the past two decades, Hong Kong has been contributing to and benefiting from emerging globalisation trends in the Chinese economy. With over 60% of Hong Kong companies' exports sourced from the mainland and an additional 30% from other economies, Hong Kong's manufacturing and trading activities have significantly globalised.

However, the globalisation of production has been somewhat constrained by trade restraints imposed on the mainland by its trading partners. Relaxing such constraints, e.g. textile quotas, will allow Hong Kong companies to realise the full potential of production globalisation. On the other hand, Hong Kong companies have yet to ride on the tide of global marketing. Without a large domestic market, the majority of Hong Kong manufacturers have long depended on OEM production. Now, with the mainland's domestic market being widely opened up associated with WTO accession, a new dimension of business is unfolding before Hong Kong companies. Nearly 50% of Hong Kong companies with production in the mainland plan to either begin or expand their sales across the boundary.

In terms of Hong Kong's manufacturing activities in the mainland, the report singles out textile and clothing, electronics, auto parts, toys, jewellery and timepiece industries for detailed analysis. Regarding exports to overseas markets, China's WTO accession will hold particular promise for Hong Kong's textiles and clothing manufacturers. WTO accession will allow China to enjoy gradual increases in quotas, until they are abolished in 2005 under the WTO Agreement on Textiles and Clothing. The World Bank estimated that China's share of the world export market of apparel will rise from the current 19% to 47% in 2005. This is expected to encourage Hong Kong manufacturers to shift more of their production to the mainland, thereby enhancing their cost competitiveness.

As for electronics, China's commitment to participating in the Information Technology Agreement (ITA) means that IT-related parts, components and products imported into the country will be subject to zero tariffs. In the event, Hong Kong manufacturers with export-processing arrangements in the mainland will be able to derive additional cost savings. In the meantime, the liberalisation of the trading and distribution sectors will further let Hong Kong companies market their parts and components freely, while increasing relocation of more sophisticated processes of multinationals to the mainland is another positive factor. The mainland will also liberalise a number of telecommunications and Internet services, further spurring the demand for IT and telecom equipment.

There will also be widespread tariff reductions of China's imports of cars and auto-parts, toys and games, watches and clocks, and jewellery items, likely facilitating the penetration of Hong Kong products into the mainland. In particular, the emergence of a larger class of affluent consumers should bode well for the sales prospects of Hong Kong's medium-to-high end apparel and accessories. The appetite for fashion jewellery and timepieces should likewise become hearty. However, Hong Kong manufacturers will face keen competition in supplying the mainland domestic market from local companies as well as other foreign players. All these suggest that unprecedented opportunities as well as new challenges are being posed to Hong Kong's manufacturers in these industries.

Services supports are of vital importance to production globalisation. While services contribute over 85% of Hong Kong's GDP, they account for only 33% of China's. Even in the relatively higher income cities in the mainland, e.g., Beijing, Shanghai and Tianjin, services contribute only around 50%. China's full integration with the world economy will substantially benefit Hong Kong's services economy and set in motion the next wave of opportunity in the mainland for Hong Kong service providers.

Precise opportunities in the mainland for Hong Kong's services providers vary by industry. Since logistics in China's industrial production takes almost 90% of the whole production cycle time and 40% of general production costs, strengthening the logistics sector is crucial for China's attempt to improve overall production efficiency. The demand for logistics services will escalate in the post-WTO environment, given the expected rise in the volume of external trade and domestic distribution. Experienced Hong Kong companies have therefore shown keen interest in investing in cargo-handling facilities, logistics centres and providing freight-forwarding services in the mainland, in response to easier access to the market post WTO accession.

Professional services of various kinds will be in keen demand in China to lend support to the growth of the economy under the new competitive landscape. Hong Kong professional services companies and professionals, be they in the accounting, legal, advertising and market research, management consulting, design or business training field, are already active in the mainland and are ready to expand their offerings when restrictions on their scope of business are further relaxed.

In the banking sector, Hong Kong banks, the second-largest foreign banking group in the mainland, will benefit from further relaxation of rules on foreign banks conducting business in Rmb. Business opportunities are enormous as 10%-20% of all Rmb deposits, totalling over Rmb 10,000 billion, are expected to flow from local banks to foreign banks. Banks based in Hong Kong already have a large clientele across the boundary thanks to Hong Kong's vast investment in the mainland. The high asset requirement (US$ 20 billion) for opening branch offices, however, has meant that smaller Hong Kong banks are barred from competing for a share of the mainland market.

Heavy investment in infrastructure will be needed in China, not only to build sustainable development in the new era of openness, but also to ensure the success of the western development strategy, Beijing's 2008 Olympics and the housing reform. Hong Kong is renowned as an infrastructure integrator, able to provide integrated services from planning, design and financing to construction and operation.

In the telecommunications, Internet and IT industries, a few Hong Kong telecommunications firms are big enough to compete with global players in the mainland market. At the same time, Hong Kong's small and medium-sized companies are more likely to make use of their niches in developing and customising commercial applications, their bilingual skills and acute marketing sense to target value-added services and Internet business in the mainland.

Since big cities along China's coastal region will probably be overcrowded with large international players, small and medium-sized service providers from Hong Kong, including those in distribution, infrastructure, professional services and business services may find opportunities in second-tier cities as well. Utilising their management know-how, technological expertise and local connections, they should have a good chance to succeed in grasping new opportunities and meeting the competitive challenges arising from China's WTO accession. Given its sheer size and diversity, the country is not a single market, and offers various opportunities to different classes of practitioners in different market segments.

Hong Kong's future role as a hub and a gateway after China joins the WTO is likely to continue to prosper. The expansion in China's trade and investment activities with the rest of the world should benefit Hong Kong as a hub. Through providing more value-added and focused services, Hong Kong's excellent skills in trading, transportation, communications, financial services and professional and business services will play a more active, not diminished, role.

Nevertheless, all these benefits can only be realised with Hong Kong being able to continuously improve its quality of services. Gone were the days when Hong Kong was the only gateway linking the semi-open Chinese economy with the rest of the world, which found "China trade" attractive but daunting. China's commercial environment is improving fast, Chinese companies' experience in international business is catching up fast, and foreign companies' understanding of China is accumulating fast. Hong Kong cannot afford to stand still.

For example, cargo diversion from Hong Kong to other ports in the mainland will continue to follow long-term trends regardless of China's WTO membership. However, improved transportation access to the mainland need not threaten Hong Kong's role as a trading hub. The long history of trading and the existence of a critical mass of traders will help Hong Kong maintain its competitive advantages. There are 100,000 trading companies here. According to a recent TDC survey, over three-quarters of overseas buyers source over half of their Chinese products via Hong Kong. Also, more than a thousand multinational companies (MNCs) with regional headquarters and regional offices in the Hong Kong Special Administrative Region (HKSAR) focus on selling and distribution in the mainland market.

Upon China's accession to the WTO, foreign companies will be given full trading and distribution rights. Hong Kong trading companies will thus be able to operate in the mainland and extend their mainland distribution services. True, Hong Kong trading companies will face intense competition from international firms that are also able to access the China market directly. But the extensive networks, experience and professionalism will give Hong Kong traders a considerable edge. Even though overseas buyers or suppliers will be able to deal directly with mainland companies, many -- especially smaller companies - will still choose to go through Hong Kong.

At any rate, the long-term prospects of Hong Kong trading companies hinge on the competitiveness of Hong Kong's manufacturers who face increasing competition from indigenous Chinese enterprises. Among the buying offices in Hong Kong surveyed recently by the TDC, 95% source their products from Hong Kong manufacturers. How competitive Hong Kong manufacturers are will affect Hong Kong's future position as a sourcing hub for international markets. On the other hand, how good the products made by Hong Kong companies are will determine the business of Hong Kong's traders and retailers in the mainland's domestic market.

The presence of MNCs' regional headquarters and regional offices in Hong Kong demonstrates the global characteristics of this city. China's WTO accession will attract a large number of MNCs to this region. Various studies show that Hong Kong is still very competitive against its major mainland rival, Shanghai, especially in terms of financial and physical infrastructures. Further opening-up and liberalisation in the Chinese mainland will somewhat shift the gravity towards this big city on the Yangtze river delta as some large MNCs may opt to move closer to the central part of the China market. Many medium-sized MNCs, particularly those medium-sized "born global" firms, will still need the supporting services available in Hong Kong or provided by Hong Kong-based companies. So long as Hong Kong is able to upgrade the quality of its professional and management staff as well as to contain the costs of doing business, then Hong Kong's attractiveness is unlikely to diminish.

Hong Kong's position as the international financial centre in the region currently has few rivals. With free flows of information, capital and currency convertibility, Hong Kong's supremacy in providing financial services will remain unchallenged in the years to come. The established legal framework, the tested supervisory institutions, the concentration of institutional investors as well as massive and liquid capital markets will all enhance Hong Kong's position. Given the anticipated rapid development of domestic financial centres in the mainland, there is a high degree of complementarity between them and Hong Kong in meeting the huge financial needs of China's continued reforms and modernisation programmes.

Hong Kong is home to a large number of professionals and professional service firms. When the mainland market opens, these firms and individuals will undoubtedly benefit. To preserve its superiority as a service hub, Hong Kong should attract and retain mobile first-class professionals. Many major business cities attract individuals and businesses not only because of the opportunities they offer, but also because of the attractiveness of the physical environment and quality of life they provide. Given recent increasing concerns over these issues and Hong Kong's natural disadvantages, there is every reason for Hong Kong to do more now than in the past.

In an overall sense, as a manufacturing control centre and a business services hub, Hong Kong will benefit from its companies' robust activities across the boundary. Exports, especially exports of services, will expand more rapidly. Hong Kong's trade with the mainland is conservatively estimated to increase by an extra 4-6% by 2005 resulting from China's WTO accession. Also, income generated from investment and labour in the mainland will rise. Involvement in the mainland's services market will trigger off the next wave of Hong Kong's investment and professional participation in the mainland. As a result, they are expected to generate a much greater contribution, in income terms, to Hong Kong's GNP than that can be captured in its GDP.

In formulating its economic policy, Hong Kong should thus take into account not only the resultant impact on Hong Kong's domestic economy but also that on Hong Kong's companies and personnel across the boundary. Measures that help Hong Kong firms' access to and operation in the mainland market are desirable. At the same time, Hong Kong should continue to improve its business environment to ensure its future status as a "World City" in Asia - supporting and linking closely with its investments beyond its boundary.