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. Last Updated: 07/27/2016

Provinces May Not Heed Rules

PINGYAO, China -- The Marlboro Man can't show his face in Pingyao.

Shopkeepers in this ancient walled town in northern China hide foreign cigarettes in drawers or behind boxes, pulling them out only when customers ask.

Merchants say officials here bar them from selling foreign smokes to protect Chinese manufacturers. Pingyao's government says only two outlets in the town of thousands may sell foreign brands.

For businessmen, it's a familiar tale. Punishing tariffs, poverty, daunting geography and barriers to trade have long made China a tricky place to turn a profit.

Much of that is likely to change with the communist giant's accession to the World Trade Organization.

But in the initial years of Chinese membership in the global trade club, getting officials and judges in rural towns and distant provinces to follow the rules could be a battle.

The longer-term effects should be dramatic, prying open China's markets and putting more of its 1.26 billion people within reach of foreign firms, goods and services.

The psychological impact could be massive, too. China's name for itself -- Zhongguo, or Middle Kingdom -- reflects a time when the Chinese saw themselves at the center of the world, with all the sense of global self-esteem that the name implies.

But by investing 15 years in gaining a WTO seat, China is saying it wants be a part of world markets and play by their rules.

Overall, tariffs on industrial products will fall to below 10 percent by 2005, and to zero on computers and other high-tech products. Import quotas will be phased out. Foreign banks will be allowed to offer loans; insurers will be able to sell nationwide, and retailers will be able to distribute goods.

China is banking on WTO entry to lure investment, spur exports and force change on state enterprises that have become dinosaurs of communism in a country rushing to embrace capitalism.

"In accepting the rules of the WTO, we are accepting that foreigners will help us reform," said Chinese economist Mao Yushi. "It's been hard for us to do it alone."

But there will be pain. Tens of millions could lose jobs as farms and state firms succumb to cheaper imports.

While ministers in Beijing insist that China will abide by WTO rules, local officials who have to cope with the resultant unemployment -- or who have a financial stake in the old order -- may prove resistant.

Despite its effectiveness in crushing political dissent, Beijing often has trouble enforcing its will on economic issues.

Local officials tolerate and even have ties to companies that counterfeit goods, pollute and kill workers with dangerous work conditions.

Governments shield local firms by using taxes, discrimination and even violence to keep out competitors.

"Although there are policies at the central government level, there are countermeasures at the local level," said Song Guobin, a sales officer for Jinlongquan, a large brewery in the central province of Hubei. Company employees say competitors abetted by local officials have beaten up its salesmen and attacked its delivery trucks.

Others barriers are less obvious.

Some provincial governments simply refuse licenses to outside firms, or make their employees buy local goods. State media say that, in commercial disputes, courts side with local firms by a 2-to-1 margin.

Even China's financial capital, Shanghai, has tried to protect local producers. The city, which has a Volkswagen plant, imposed steep fees on cars made elsewhere. Hubei province, which has a Citroen venture, retaliated with fees of its own.

Both sides lifted the fees last year. But Sun Peiyong, the Citroen venture's Shanghai sales manager, says he sold just 1,000 cars last year, while Shanghai Volkswagen says it sold 29,000 in the city.

"The protections in Shanghai are fearsome," Sun said. "The work and time we put into selling one car in Shanghai is equivalent to selling 10 cars in Hubei."

Chinese and foreign experts say this kind of protectionism is waning. The government says that, where trade laws conflict, WTO rules will take precedence.

A decade ago, Beijing and other cities still distributed ration tickets for eggs and other staples. Today they have ATM machines, fashion boutiques, supermarkets and frothy lattes. The foreign investment promised this year already shows a sharp jump.

"Increasingly, everyone is coming to understand the basic tenets of the World Trade Organization ... free choice, equal competition, that Chinese and foreigners are to be treated the same," said Mao, the economist.

"But it will be difficult. ... Economic reforms can't be carried out overnight. It's a slow process of change. You have to give it time."