China is the world's most populous country and has a rapidly growing economy. China's real gross domestic product (GDP) is estimated to have grown at about 9 percent in 2008, while the country has registered average growth of 10 percent between 2000 and 2008. The recent global financial crisis has caused China's GDP to slow from highs of 13 percent in 2007, to 6.1 percent in the first quarter of 2009 (measured against Q1 2008), the lowest quarterly rate in 10 years. Most analysts predict growth of less than the government's target of 8 percent for 2009 as a whole; however, the second quarter 2009 rebounded somewhat and grew at 7.9 percent year over year according to the Chinese government. China's recent 4-trillion yuan ($586 billion) economic stimulus package, launched in November 2008, is focused on boosting China's domestic consumption (currently about a third of real GDP) and fixed asset investment, as well as improving industry value chains and energy conservation in order to decrease dependence on an export-driven economy. Using various measures such as tax reductions, rebates, fiscal subsidies, greater access to credit, and direct government expenditures, China is targeting almost all sectors of the economy: real estate/construction, transportation and power infrastructure, agriculture, social services, heavy and light industry, Sichuan earthquake reconstruction, technology advancement, and rural development. In light of the government's goals for energy security and energy efficiency, China is using its stimulus package through vehicles such as tax breaks, advantageous lending rates, and a foreign exchange fund to encourage state-owned oil companies to expand upstream investments abroad, increase downstream refining capacity, and augment crude and oil product stockpiles. Analysts anticipate the fiscal stimulus will translate into economic development in the second half of 2009 and 2010 and generate at least a moderate increase of domestic consumption including demand for energy commodities.
Despite the economic slowdown in exports and domestic demand in the past year, China's demand for energy remains high. China has emerged from being a net oil exporter in the early 1990s to become the world's third-largest net importer of oil in 2006. Natural gas usage in China has also increased rapidly in recent years, and China has looked to raise natural gas imports via pipeline and liquefied natural gas (LNG). China is also the world's largest producer and consumer of coal, an important factor in world energy markets.
Coal supplied the vast majority (70 percent) of China's total energy consumption requirements in 2006. Oil is the second-largest source, accounting for 20 percent of the country's total energy consumption. While China has made an effort to diversify its energy supplies, hydroelectric sources (6 percent), natural gas (3 percent), and nuclear power (1 percent) account for relatively small amounts of China's energy consumption mix.
CHINESE MARKETS
During recent years, the Chinese market in particular, has enjoyed a booming reputation. With a population of 1,3 billion, cheap labour costs and consecutive years of successful economic growth (10-11% in 2007), it is easy to see why China is so attractive to foreign investors. In fact, China is the new land of opportunity. Current forecasts predict that during the coming 30 to 40 years, China will be the world´s largest economic power. Entrepreneurs continue to invest in China as they have been doing for quite a while. However, their experiences so far have taught them that doing business in China is no straightforward matter. Factors such as cultural differences, the language barrier and lack of necessary and established contacts (Guanxi) are just some of the problems investors encounter when trying to do business in China.
As the sharp rise in Chinese exports in the last decade generated a rising number of trade disputes by advanced industrial countries against Chinese products, the Chinese government has resorted to various dispute mechanisms and other legal remedies to address these increasingly contentious trade issues. This paper examines the various trade policy instruments Beijing has developed to respond to trade challenges from abroad, including, most notably, anti-dumping and safeguard measures, and argues that China's foreign trade policy in recent years has been characterized by an embracement of aggressive legalism in the international arena. China's active utilization of legal instruments is puzzling given its non-legalistic culture and its very recent membership in the World Trade Organization.
Trade Policy
1910-1949:
Foreign powers operate in treaty ports located throughout much of coastal and Eastern China. These ports are open to foreign commerce and are foreign-administered by the Chinese Maritime Customs office. The United States, England, France, Germany, and Japan are China's main trading partners. More treaty ports open in the early 20th century, facilitating the growth and spread of trade.
1950-1976:
China has a largely closed economy with little trade. U.S.-led trade sanctions, imposed on China for its support of North Korea in the 1950-53 Korean War, push Beijing towards Moscow.
1977:
Within the scope of broad economic reforms under Deng Xiaoping, an open-door trade and investment policy is introduced. Special Economic Zones along the coast are set up for foreign investment.
1978-1985:
Foreign trade operations are decentralized. By 1985 trade represents 20 percent of China's gross national product. Textiles are the nation's leading export, with petroleum and food also strong. Leading imports are machinery, transportation equipment, manufactured goods, and chemicals. Japan is China's dominant trading partner, followed by Hong Kong and the U.S.
1986-1989:
Trade becomes increasingly decentralized as China strives to integrate itself into the world trade system.
1990-1998:
Foreign investment grows tenfold between 1990 and 1995. Despite unwieldy contractual and legal framework, China's billion-plus customers lure many investors, especially from ethnic Chinese in areas near Hong Kong and Taiwan.
1999:
China's global trade totals $353 billion; its trade surplus is $36 billion. China's primary trading partners are Japan, Taiwan, the United States, South Korea, Hong Kong, Germany, Singapore, Russia, and the Netherlands. In November, the United States and China arrive at a bilateral market-access agreement that paves the way for China's accession to the World Trade Organization.
2000:
China reaches a bilateral WTO agreement with the European Union and other trade partners and begins work on a multilateral WTO accession package. To increase exports, China encourages the formation of factories that assemble imported components into consumer goods for export. The U.S. approves permanent trade relations with China, and President Clinton signs the China Trade Relations Act of 2000.
2001-2003:
In 2001 China serves as the Asia Pacific Economic Group's (APEC) chair; Shanghai hosts the annual APEC leaders meeting. After the 2001 World Trade Organization summit in Qatar, China becomes a full member of the WTO. Many tariffs and regulations are streamlined or ended, but foreign investors still face procedural obstacles. Trading partners complain that the Chinese currency is undervalued.
Import Regulations - China
As with most countries, regulations governing the import of goods and their subsequent sale on China's domestic market are complex. In China's case, they are also changing rapidly. This overview of import regulations aims to provide some insight into the complexities of exporting to China.
Importers
In the past, only a very restrictive number of Chinese companies with foreign trading rights were approved to import products into China. Further to China's accession to the WTO, companies seeking to engage in import trade only need to register with the Ministry of Commerce (MOFCOM) or its authorized local offices according to the Foreign Trade Law and the Measures on Filing and Registration of Foreign Trade Operators in 2004.
All companies (Chinese and foreign) have the right to import most products but a limited number of goods reserved for importation through state trading enterprises.
What to import:
China classifies imports into three categories - prohibited, restricted and permitted categories. Certain goods (e.g. wastes, toxics) are banned from being imported, while select products in the restricted category are subject to strict restrictions by requiring quotas or licenses.
Most goods fall into the permitted category. Importers are free to decide how much and when to purchase. MOFCOM implements an Automatic Licensing system to monitor the import of part of these goods (e.g. machinery, electrical products). A detailed list of merchandise categories can be obtained from MOFCOM or through the one of Exporter’s country's missions in China.
Import tariffs:
China charges tariffs on most imports, primarily ad valorem. These tariffs are assessed on the transaction value of the goods, including packing charges, freight, insurance premiums and other service charges incurred prior to the unloading of the goods at the place of destination. Many tariffs have been lower since China's accession to the WTO. The average tariff dropped from 15.3% in 2000 to 9.9% in 2005.
The General Administration of Customs administers the tariff and publishes a tariff schedule on an annual basis (available from the Economic Daily Press, 65 Youanmen Nei Da Jie, Xuanwu District, Beijing, 100054, tel: 6356-2870 ext 2515).
Value added tax (on almost all products) and consumption tax (on some products) are also assessed at the point of importation. The normal VAT rate ranges from 17% to 13% for certain items. Importers of certain consumer goods (e.g. tobacco, liquor and cosmetics) must pay consumption tax at a rate varying between 3% and 45%.
Free trade zones:
In China, there are 15 free trade zones (FTZ); these special zones provide exceptions to the usual customs procedures and allow for preferential tariff and tax treatment. All forms of trade conducted between companies in FTZs and areas in China outside the zones are subject to the usual rules that would apply to imports into China.
Export processing:
Special provisions (e.g. refunds of VAT and duty) apply to goods imported under export processing trade arrangements involving manufacturing contracts where all of the manufactured goods are exported. All such arrangements must be approved by MOFCOM or its local offices.
Import licences:
The importation of certain goods requires an import licence. Generally speaking, applications for import licences are submitted to MOFCOM. For some goods (e.g. crude oil, digital mobile telecommunication exchange), the licence is issued automatically to all applicants and is only used to track imports more accurately. In other cases, approval is not automatic. Such non-automatic import licences are used to control the importation of dangerous goods and to implement tariff rate quotas (i.e. two-stage tariffs, where the right to pay a lower tariff is granted to importers up to a certain total quantity of goods).
Import quotas:
Quotas used to be in place on 15 product categories including processed petroleum, certain chemical fertilizers, motorcycles and certain parts, and automobiles and certain parts. As required by the WTO, China phased out all import quotas by 2005.
Tariff Rate Quotas (TRQs):
TRQs (i.e. two-stage tariffs, where the right to pay a lower tariff is granted to importers up to a certain total quantity of goods) are in place for wheat, corn, rice, sugar, wool, cotton, certain fertilizers, and wool tops. Chinese companies seeking to import at the lower TRQ tariff rate must apply to MOFCOM for an allocation between October 15 and 30 each year (or for re- allocations of unused TRQ, between September 1 and 15 each year).
Import inspection/certification:
Complex inspection and certification requirements are in place, requiring certain goods to be inspected on arrival and/or to be accompanied by formal certification recognized by the Chinese government (e.g. CCC and RoHS for electrical goods or pest-free certification for certain agricultural products). Goods that fail to pass the required inspections and/or that are not accompanied by the required certification may be confiscated. Certification requirements may include factory
inspections in Exporter’s country.
In some cases, China recognizes certification provided in Exporter’s country (e.g. by the Exporter country’s Standards Association or the Exporter country’s Food Inspection Agency). In other cases, testing will need to be conducted in China to obtain the necessary certification. For some goods (primarily agricultural goods and electrical/electronic products), it may also necessary to have the Exporter country’s factory or processing facility certified by the Chinese government (which may require site visits by Chinese inspectors paid for by the Exporter country’s company).
Labelling/packaging requirements:
China has a range of labelling and packaging requirements in place that are particularly important for consumer goods. In some cases, goods that do not meet these requirements will be refused entry to China.
Currency controls:
Chinese importers may freely convert renminbi [yuan] to foreign currencies for the purpose of purchasing goods for import, but must complete the necessary formalities with the State Administration of Foreign Exchange to demonstrate that all of the foreign currency is being used to fund imports and is not being transferred abroad for other purposes.
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