China’s recent nomination for membership in the World Trade Organization (WTO) is yet another acknowledgment that with every passing day this once-sheltered nation is becoming more integrated into the global economy. WTO membership certainly does mark a crucial step in the transformation of the highly dynamic Chinese economy. But that transformation would be taking place even without the prospect of membership in any organization.

Indeed, the effects of WTO membership on China may be less profound than many people are expecting (Exhibit 1). Although China’s markets will be more open to multinationals, whether and how they can defeat state-owned companies and nimble midsize firms remains an open question. Some industries, such as banking and insurance, may be altered fundamentally. Yet others, such as consumer products and electronics, are already highly competitive and open to global competition and thus will see little real change.

Local advantage

Overall, WTO membership will make China far more accessible to large non-Chinese companies. Access, however, does not mean acquiescence. Formidable state-owned enterprises compete in the Chinese oil, telecommunications services, and transportation markets. These companies may lack world-class productivity and management, but they have strong legacy positions, high aspirations, and lots of knowledge of local...