China IT firms face opportunities, challenges after tariffs lifted

BEIJING - Chinese IT producers are expected to benefit from an upcoming expansion of a tariff elimination agreement, but analysts also warn cheaper imports could come as a blow.

Members of the World Trade Organization (WTO) clinched a deal in Geneva on Friday to expand the Information Technology Agreement (ITA) struck in 1996, by eliminating tariffs on 201 IT products.

New-generation semi-conductors, GPS navigation systems, medical products which include magnetic resonance imaging (MRI) machines, machine tools for manufacturing printed circuits, telecommunications satellites and touch screens are covered in the new accord.

WTO data showed annual trade of the 201 products is valued at more than $1.3 trillion every year, accounting for roughly seven percent of total global trade.

WTO Director-General Roberto Azevedo hailed the ITA expansion as "a landmark", saying it will create jobs, help boost GDP growth around the world and support lower prices across several sectors that use IT products.

Friday's agreement on ITA expansion cleared the way for negotiators to hammer out an implementation plan in Nairobi in December, when the WTO will hold its 10th ministerial conference. The new ITA is expected to enter into force on July 1, 2016.

It is the first major tariff-cutting deal at the WTO in 18 years and analysts say it will benefit China's IT producers.

Yao Jin'an, chairman of Shenzhen-based intelligent home service provider i-Tone, said many domestic firms rely heavily on imported semi-conductors and rising prices squeeze their profit margins.

A wide range of IT product components are included in the new agreement and tariff elimination will likely lower costs for Chinese manufacturers.

"I hope the new deal will come to the rescue," said Yao.

The inflow of key components will make it easier and cheaper for Chinese companies to access state-of-the-art technologies in the world, said He Weiwen, a researcher with the China WTO Research Institute.

He predicted the market position of China's competent IT companies, especially smartphone makers like Xiaomi, Huawei, ZTE with a global vision, will be further consolidated.

However, analysts also warned that the updated ITA could come as "a double-edged sword" and hurt less competitive Chinese firms.

Cheng Shuaihua, a board member of the Geneva-based International Center for Trade and Sustainable Development, said the tariff expansion will cover many competitive items made in western countries.

U.S. Trade Representative Michael Froman said the ITA expansion is "great news" for the American workers and businesses that design, manufacture and export state-of-the-art technology and information products, ranging from MRI machines to semi-conductors to video game consoles.

For Japan, more than eight trillion yen ($64.5 billion) worth of exports would be tariff-free under the new agreement, according to news agency Kyodo.

"Foreign competitors' competitive edge will be sharpened, just like 'adding wings to tigers'", said Cheng, adding that homegrown IT firms will face tough challenges.

To cushion the impact, Liang Jia, an analyst with Citi Bank, said domestic firms need to hike expenditures on research and development, and increase the quality of their products, rather than resorting to an old solution of a price war.