Foreign Trade in China

1
Foreign Tradein China
2
Changes of Government Policy concerning Foreign
Trade

• 1949 1978 Establishing centralized foreign
  trade system
• -- setting up the guideline of Independence,
  and centralization
• -- establishing highly centralized trade system

3
After 1979

• Since 1979, china adopted the policy of reform
  and opening up to the outside world.
• Jun. 1980, it was first announced to the public.
• Nov.1981, it was adopted as the basic policy of
  the country.
• Dec.1982, it was written into the Constitution.

4
After 1979

• 1979 four Special Economic Zones
• (1988 Hainan Special Economic Zone)
• (1990 Pudong of Shanghai )
• 1984 14 coastal cities from Dalian in the
  North to Beihai in the South
• 1985 1988 set up coastal economic areas
• 1992 Inland frontier cities and inland
  provincial capital cities
• 1999 develop the West

5

• 1979 up to now
• 1979 to 1987 decentralization
• -- Branch corporations were disconnected
  with the head office in Beijing, and many other
  Foreign Trade Companies were established
• by the end of 1987, the number of the
  foreign trade companies was 11 times than that of
  in 1979.
• -- in order to encourage export, internal
  settlement rate(2.8) was used, compared with the
  official rate 1.5, and the two rates combined in
  1985 because of the depreciation of the official
  rate.
• -- from 1983, foreign exchange reserve
  system was adopted.
• -- Starting from 1985, carried out export tax
  drawback(refund) systems

6
1988 to 1990 carrying out the so-calledcontracti
ng operation system

• Although the previous reform was
  successful with the continuous export growth, the
  government subsidies increased greatly.
• With the system, all corporations were
  responsible for
• -- the value of foreign exchange earned through
  export
• -- the value of foreign exchange submitted to
  the government
• -- amount of the subsidies from the government

7
1991 to 1993 further reform

• -- 1991 eliminated all export subsidies
• -- 1994 eliminated import subsidies
• -- central government no longer set import and
  import plans, and all trade corporations were
  responsible for the profits and losses by
  themselves
• -- further depreciation of the official rate
• -- the approval right of the FDI released to the
  local government

8
The foreign exchange rate since 1979 (RMB/USD)
1979 1.5545 1988 3.7221
1980 1.4984 1989 3.7651
1981 1.7050 1990 4.7832
1982 1.8925 1991 5.3233
1983 1.9757 1994 8.6187
1984 2.3270 1996 8.3142
1985 2.9366 2002 8.2770
1986 3.4528 Jul 2005 8.11
1987 3.7221 Oct.2007 7.49
9
1994 to now comprehensive reform

• Import tariff reduced
• Foreign exchange rate reform
• Export credit adopted China Import and Export
  Bank established in 1994.
• New laws enacted Foreign Trade Law enacted in
  May 1994 and revised in Apr. 2004.
• Dec 18,2001 China Export Credit Insurance
  Company established.

10
Chinas Foreign Trade Development

• First Stage 1950s Increasing steadily
• Second Stage 1960s and early 1970s fluctuating
• Third Stage 1972 to 1978 Increasing at a high
  speed
• Fourth Stage 1979 up to now Increasing steadily

11
year Export growth Import growth
1950s 17 15.8
1960s to early 1970s 1.3 0.30
1972 to 1978 20.5 25.6
1979 up to now 15.8 14.5
12
Export Value by Different Trade Patterns in
100 million US Dollars
Year General Processing Barter Others Total
1992 436.75 396.17 10.78 5.70 849.40
1993 431.99 442.48 34.82 8.15 917.44
1994 615.61 569.80 18.32 6.33 1210.06
1995 713.66 737.03 16.42 20.69 1487.80
1996 628.39 843.33 5.70 33.06 1510.48
1997 780.03 996.58 1.48 49.83 1827.92
1998 741.94 1045.53 0.98 49.64 1838.09
1999 791.13 1108.72 1.63 47.83 1949.31
2000 1051.92 1376.55 0.84 62.81 2492.12
2003 1820.3 2418.5 -- 144.9 4383.7
13
The Evolution of Chinas Foreign Trade System

• Before 1978 Fully centralized, dominated by a
  dozen or so specialized foreign trade companies
  organized along products lines and based in
  Beijing
• Since 1978 SOE and JV are allowed to deal with
  their own materials and products
• July 1997 Sino-foreign JV are allowed to
  engaging in international business
• Oct.1998 Stated owned research institutes and
  high-tech enterprises are allowed
• July 2001 Private enterprise are allowed, based
  on application and rectification
• 2005 has removed all restrictions

14
Application of Import Tariff

• Ad Valorem Duty
• Specific Duty apply to beer made of malt, crude
  petroleum oil, phototypesetting films
• Compound Duty apply to video tape recorders,
  videotape reproducers, television cameras and
  camera with digital image storage
• Selective Duty apply to natural rubber only

15
Ad Valorem Duty

• General Tariff Rate apply to goods imported
  from and produced in countries and regions with
  which China has concluded no agreements for
  reciprocal tariff preferences
• MFN Rate apply to goods from WTO members and
  other countries and regions which have
  preferential agreements with China
• The Agreement Rate apply to goods imported or
  produced or manufactured in the countries and
  regions which join together with China into
  regional trade agreements for tariff preferences

16

• The agreement tariff rate are currently
  applicable to the imported goods from Korea, Sri
  Lanka, based on Bangkok Agreement, and Pakistan,
  Chile based on the relevant agreement with China,
  goods from ASEAN members, based on the
  arrangement of CAFTA.
• The Special Tariff Rate apply to goods from
  countries and regions that have special tariff
  preferences with China. Currently applicable to
  imported goods from 39 countries, including
  Cambodia, Burma, Laos ,Bangladesh and other
  least developed Africa countries. Zero rate for
  goods from Hong Kong and Macao based on CEPA
  Closer Economic Partnership Arrangement with Hong
  Kong and Macao.

17
Chinas Products Subject to Export Duty

• There are 84 items products under H.S. headings
  subject to export duty. The rate is raging from
  20 to 50.
• The products subject to export duty are mostly
  production materials, such as
• -- live eels fry bones and horn-corns zinc ores
  and concentrates tungsten ore and concentrates
  benzene pig goat Ferro-silicon copper cast
  irons iron and steel

18
Products subject to State trading

• Import Products Subjects to State Trading
• Grain
• -- China National Cereals,Oil Foodstuff
  Imp. Exp. Co.
• Vegetable Oil
• -- China National Cereals,Oil Foodstuff
  Imp. Exp. Co.
• -- China National Native Products and Animal
  Byproducts Imp. Exp.

19

• -- China Resources Co.
• -- China Nam Kwong National Imp. Exp. Co.
• -- China Liangfeng Cereals Imp. Exp. Co.
• -- China Cereals, Oil Foodstuff Co. (Group)
• Sugar
• -- China National Cereals, Oil Foodstuff
  Imp. And Exp. Co.
• -- China Export Commodities Base Construction
  Co.
• -- China Overseas Trade Co.
• -- China Sugar Wine Co. (Group)
• -- China Commerce Foreign Trade Co.

20

• Tobacco
• -- China National Tobacco Imp. Exp. Co.
• Crude Oil / Processed Oil
• -- China National Chemical Imp. Exp. Co.
• -- China International United Petroleum
  Chemicals Co.
• -- China National United Oil Co.
• -- Zhuhai Zhenrong Company

21

• Chemical Fertilizer
• -- China National Chemical Imp. Exp. Co.
• -- China National Agricultural Means of
  Production Group Co.
• Cotton
• -- China National Textiles Imp. Exp. Co.
• -- Beijing Jiuda Textiles Group Co.
• -- Tianjing Textiles Industry Supply and
  Marketing Co.
• -- Shanghai Textiles Raw Materials Co.

22
Export Products Subject to State Trading

• Tea
• -- China National Native Products and Animal
  By-products Imp. Exp. Co.
• Rice / Corn / Soy Bean
• -- China National Cereals Oil and Foodstuffs
  Imp. Exp Co.
• -- Jilin grain Imp. Exp. Co. Ltd
• Tungsten Ore / Ammonium Paratungstates /
  Tungstate Products

23

• -- China National Metals and Minerals Imp.
  Exp. Co.
• -- China National Non-ferrous Imp. Exp. Co.
• -- China Rare Earth and Metal Group Co.
• -- China National Chemical Imp. Exp. Co.
• Coal
• -- China National Coal Industry Imp. Exp. Co.
• -- China National Metals and Minerals Imp.
  Exp. Co.
• -- Shanxi Coal Imp. Exp. Group Co.
• -- Shenhua Group Ltd.

24

• Crude Oil / Processed Oil
• -- China National Chemical Imp. Exp. Co.
• -- China International United Petroleum
  Chemicals Co.
• -- China National United Oil Co.
• Silk / Un-bleached Silk
• -- China National Silk Imp. Exp. Co.
• Cotton / Cotton Yarn (Containing 85 or more by
  weight of Cotton)
• -- China National Textiles Imp. Exp. Co.
• -- Qindao Textiles United Imp. Exp. Co.

25

• -- Beijing No.2 Cotton Mill
• -- Beijing No.3 Cotton Mill
• -- Tianjin No.1 Cotton Mill
• -- Shanghai Shenda Co. Ltd.
• -- Shanghai Huashen Textiles and Dying Co.
• -- Dalian Huanqiu Textiles Group Co.
• -- Shijiazhuang Changshan Textiles Group
• -- Luoyang Cotton Mill, Henan Province

26

• Antimony Ores / Antimony Oxide / Antimony
  Products
• -- China National Metals and Minerals Imp.
  Exp. Co.
• -- China National Non-ferrous Imp. Exp. Co.
• -- China Rare Earth and Metal Group Co.
• Silver
• -- China Banknote Printing and Minting
  Corporation
• -- China Copper Lead Zinc Group

27
Products Subject to Designated Trading

• Natural Rubber
• Timber
• Plywood
• Wool
• Acrylic
• Steel
• -- Liberalized within 3 years after accession to
  the WTO ( in Dec. 11, 2001)

28
Differences between State Trading and Designated
Trading

• Authorization of certain companies engaging in
  the import and export business of certain
  products
• Designated trading shall be liberalized according
  to the admittance, while state trading can be
  retained, unless otherwise stipulated

29
Products and Services subject to price controls

• Products subject to state pricing
• -- Tobacco, edible salt, pharmaceuticals,
  grain, vegetable oil, processed oil, fertilizer,
  silkworm cocoons, cotton
• Public utilities subject to government pricing
• -- gas for civil use, tap water, electricity,
  heating power, water supplied by irrigation works

30

• service sectors subject to government pricing
• -- postal and telecommunication services
  charges, entrance fee for tour sites, education
  services charges
• Service sectors subject to government guidance
  pricing
• -- transport services charges, professional
  services charges, charges for commission agents
  services, charges for settlement,clearing and
  transmission services of banks, selling price and
  renting fee of residential apartments, health
  related services

31
Agricultural Products subject to TRQ

• Products currently subject to TRQ
• -- Wheat, Maize, Corn, Rice, Wool, Cotton and
  Fertilizer, with 1 tariff quote rate.
• WTO Rule
• -- According to the WTO rules, members have to
  eliminate all varieties of non-tariff barriers
  for agricultural products and convert to the
  corresponding tariff tariffication. Also,each
  member has to offer the minimum market access
  opportunities for other members with low rate.

32
Chinas Tax Refund System for Export Products
Industrial Products Products with Agricultural resources
Jan.1,1994 17 13
Jul.1,1995 14 10
Jan.1,1996 9 6
Jan.1,2000 Raised Raised
Jan.1,2004 Lowed Lowed
33
Chinese Products facing barriers in the
international market

• Antidumping and Counter-vailing duties
• -- Between 1979 to Sep. 2002, there are 33
  countries and regions launched 541 anti-dumping
  and safeguards cased, among which 500 were of
  anti-dumping cases. China has been the biggest
  victim in the World, and nearly 1 of the overall
  export were affected . It caused total loses
  directly for China around 16.05 billion US
  Dollars.
• quota
• ---Textiles
• article242 of the report of the working party
  on the accession of China,

34

• -- in 2003 along, the United States has launched
  7 cases of anti-dumping duties against Chinese
  goods, with export value 1.6 billion U.S.
  Dollars. For instance, on 24 Nov,2003, the
  Department of Commerce of the United States has
  judged initially that Chinese Color TV Sets exist
  dumping, with rate raging from 27.94 to 78.45.
  It has seriously affected the normal trade
  relations between China and U.S.A.
• -- on Jan.9, 2004 , the International Trade
  Commission of the United States has just judged
  an anti-dumping case against Chinas Wooden
  Furniture, which involves 1 billion US Dollars,
  being the biggest case in terms of value.

35
What is Dumping?

• According to the rules of the WTO a product is
  to be considered as being dumped, i. e.
  introduced into the commerce of another country
  at less than the Normal Value
• Is the rule suitable to China?
• While all the above rules are only suitable to
  those so-called market economy members. However,
  according to (ii) (a) Article 15 of the Protocol
  on the accession of China to the WTO

36

• The importing WTO members may use a methodology
  that is not based on a strict comparison with
  domestic prices or costs in China if the
  producers under investigation cannot clearly show
  that market economy conditions prevail in the
  industry producing the like product with regard
  to manufacture,production and costs of that
  product.
• -- therefore, there were many cases (including
  the TV case mentioned above), a third
  substitution country was used to calculate the
  cost of Chinese products.

37

• Some of the examples of the ridiculous
  anti-dumping duties to Chinese products
• Mexico Chinese Shoes 1004
• Peru Chinese Shoes 903.92
• Brazil Chinese Locks 760
• Mexico Chinese Pencils 451

38
Technical Barriers

• In 2000 along, 25 of export products and 60 of
  Chinese export enterprises were affected.
• With total loses reached to 10.4 billion US
  Dollars.
• Technical Barriers in the Western Countries
• -- in EU, more than 100,000 technical standards
• -- in Japan, 8184 industry standards and 379
  agricultural standards
• -- in USA, 55 qualification systems (technical
  regulations, standards, quality
  qualifications,etc.)