Foreign Tradein China

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

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.

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

• 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

1988 to 1990: carrying out the so-calledcontracting 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

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

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

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.

China’s 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

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 %

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

The Evolution of China’s 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

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

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

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.

China’s 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

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.

• -- 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.

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

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.

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 –

-- 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.

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.

-- 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

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

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)

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

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

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

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.

China’s 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

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,

-- 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 China’s Wooden Furniture, which involves 1 billion US Dollars, being the biggest case in terms of value.

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

“ 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.

• 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%

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.)