The intensive occurrence of trade frictions and increase in industrial conflicts has become unavoidable challenges for China. Statistics from the Ministry of Commerce show that China has suffered in recent years a good number of trade frictions involving considerable amount of money, which makes it the nation confronted with most anti-dumping investigations 16 years in a row and most anti-subsidy investigations in 5 consecutive years.
In 2010, China was exposed to 66 trade remedy investigations, involving US$7.1 billion, from developed economies such as the U.S. and European countries, as well as developing countries such as Brazil, Argentina and India. Some of the investigations were against China’s traditional advantageous industries, and others were against high-tech, high value-added industries such as electronic information. According to statistics from the World Trade Organization (WTO), China’s export in 2010 accounted for about 10% of the global total, while the number of trade frictions against China accounted for about 35% of the total.
Recently, AQSIQ released results of questionnaires concerning foreign technical trade measures’ impact on China’s export enterprises. The finding suggests that its influence is significant and is considered by many exporters as the major obstacle besides exchange rates. A random sample of 2,598 exporters was selected in the investigation from31 provinces(autonomous regions and municipalities). Estimation based on the survey showed that 31.74% of export enterprises were affected by foreign technical trade measures to varying degrees, causing a direct export trade loss of US$58.241 billion (3.69% of the export volume) and an additional cost of US$24.391 billion.
The top four countries or regions that largely affected China’s export are the European Union, the United States, Japan and Australia, accounting for 37.32%, 27.02%, 6.1% and 5.73% of the total direct loss respectively. The top five industries that were largely affected by foreign technical trade measures are mechanical and electrical equipment, chemical mining metal industry, toys and furniture manufacturing, textile, shoes and hats production industry, and leather and rubber products, accounting for 29.67%, 18.55%, 18.45%, 12.08%, and 7.97% of the total direct loss respectively. “Some countries have also taken trade protection measures against Chinese goods; in 2010, 15 new trade protection policies were launched globally, 10 of which were against Chinese goods”, Said Song Heping, an ombudsman of Department of Commerce Bureau of Fair Trade.
“Trade dispute is the appearance whose root cause lies in the similarity of industrial structures”, said Wang Jun, Vice Minister in Consulting and Research Department of China International Economic Exchange Center. He suggests that as some of China’s products are of high substitutability with products in other countries, if Chinese trade merely relies on low factor costs instead of achieving core international competitiveness, violent export friction is liable to be caused by a slight change in external demand.
Statistics show that iron and steel, chemicals, petrochemicals, and electronic information industry rank high among all industries in China in terms of the number of cases and amount involved. These industries happen to be those of domestic overcapacity and mainly relying on international market or those of similar indus- trial structure with foreign markets and competing directly with foreign products on the international market.
“The worsening of world economic situation, the more intense competition in international trade, and the increasing number of international trade frictions demand that we pay more attention to competition between developed and developing countries.” said Zhong Shan, Vice Minister of Ministry of Commerce, in a forum on foreign trade situation.
In fact, China’s current foreign trade is faced with unprecedented complexity and severity, for instance, instability in Middle East and North Africa, violent exchange rates fluctuation of major currencies, continuous weakness of international market demand. Furthermore, experts such as Robert Zoellick, World Bank President indicated recently that the European sovereign debt crisis and the U.S. sovereign credit rating downgrading combined to plunge the global market into a “new risky zone”. Meanwhile, emerging economies and developing countries are suffering from severe inflationary pressures as the United States has repeatedly resorted to quantitative easing, a unconventional monetary policy.
After the international financial crisis, a major reform on global trade and economic development strategies are brewing around the world. “National Export Initiative” introduced by the U.S. government, a new strategy of foreign trade “Trade, Growth and World Affairs” promulgated by EU, and merchandise exports program put out by Indian, all these strategies emphasize expanding exports during the next three to five years, in a view to creating more jobs for the locals. Analysts believe that this means not only will the international market competition become more intense, but appeal for domestic industry protection and anti-globalization may reemerge in the above economies, and China tends to bear the brunt. For example, since 2010, the United States has strengthened its trade law enforcement by modifying its domestic law, aiming at enhancing its protection for domestic industries; China has been its main object of law enforcement. In addition, political circle and industries of some developed countries accuse that Chinese stateowned enterprises receive government subsidies and other unfair competitive advantages and they plan to set more discriminatory rules against in the field of trade remedies. Once this scheme is carried out, Chinese state-owned enterprises will have much more difficulties in dealing with relevant trade remedy investigations.
Lan weibing, director of China Ceramic Industrial Association Foshan Office pointed out in an interview that September would be a vital period for determining the exports of ceramic industry. “The EU will soon announce the final ruling on the largest ceramic anti-dumping case throughout history in mid-or-late-September, and I am not very optimistic about the results from the perspective of our poor response”, he said. “According to my research and investigation, dozens of companies have begun to retreat from Foshan ceramics. Though cancellation of companies may yet to take place, business owners have actually turned to investing in other industries”, claimed Lan weibing: “it s besieged on all sides; reexport to the EU which can be done through South Korea, Southeast Asia countries and other economies is now also confronted with anti-dumping; traditional re-export countries such as South Korea are also largely engaged in anti-dumping against Chinese goods, which combines with the former factors to break the record of re-export costs; what’s worse, even emerging economies like Argentina in Latin America take to anti-dumping against Chinese ceramics and its tariff almost doubles.” “If EU’s final ruling determines to levy higher tariffs on Chinese ceramics, in the coming half year ceramics export collectively affected by domestic monetary tightening and controls on real estate industry, is likely to hit a record low and more ceramics enterprises will be shut down.” Lan weibing expressed his deep concern about ceramics foreign trade.
Since July 20, “The New EU Toy Safety Directive” (hereinafter referred to as “Directive”) has been formally implemented. The new standard for toys sets strict requirements on their mechanical, physical and chemical properties; limitation on heavy metals has increased from 8 to 19 species, and the use of 66 allergic spices has been definitely restricted, among which 55 species are forbidden and 11 species must be marked when their content exceeds 0.01%. In this new regulation, the number of testing standards soars from the previous 16 items to 57items. Therefore, this “Directive” is alleged in its industry as “the most stringent”toy safety standard. Some toy company officials indicates that introduction of this directive will increase enterprises’costs by at least 17%. Besides, materials purchased by the original standard have to be scrapped.
For Chinese toy enterprises, not only the EU has improved the standard, but the U.S. toy safety standards for lead content would be formally carried out on August 14. Canada, Malaysia and other countries have also introduced a new series of protection measures, improving entry barriers for toys. Standards vary from country to country, which requires different raw materials be purchased, thus amounts of profit is eaten up.
Toy industry is not the only affected by trade barriers. In 2009, Chinese fastener industry also suffered high EU anti-dumping. On July 15, the appellate body of World Trade Organization(WTO) trade dispute mechanism announced a report at its headquarters in Geneva, in which the final arbitrament ruled in favor of China on China-EU trade dispute concerning fasteners.
“In fact, fastener anti-dumping initiated from anti-dumping investiga- tion launched by the EU against China’s carbon steel fasteners, which involved US$760 million over the nation, US$ 320 million in Zhejiang Province, and US$97 million in Jiaxing City (Zhejiang Province), and 90fastener manufacturing and trading enterprises were involved”, says Yang Fengdan, deputy secretary of Jiaxing Fastener Import and Export Enterprises Association. At that time, 1/3 enterprises in fastener industry were closed or suspended, 1/3 enterprises were producing at a loss, and only 1/3 of the businesses can maintain modest profit. Consequently, this caused a loss of 400 million Euros a year in foreign exchange earnings in fastener industry as well as 800,000 jobs.
In the future, the risk of trade protection may increase. Brazil and other countries have began to adopt more stringent trade protection measures, while traditional trade countries such as European economies and the United States are likely to enhance trade protection against the backdrop of increasing domestic economic pressure, which will do harm to China’s external trade environment.
China’s manufacturing and industrial products’ participation in international division with greater breadth and depth may objectively lead to more trade frictions and industrial conflicts. Foreign trade protection against China is expanding from traditional trade in goods to other areas such as RMB exchange rate, market access, innovation policy, intellectual property protection and investment. Dispute points of trade friction also spread from a single product to the whole industry, and expand further to the level of macro-economic policies and institutions at last.
Under the background that China’s industrial upgrading and exportoriented economic development are faced with a variety of internal and external negative factors, Chinese companies’ way to break through the siege has become a major concern of foreign trade enterprises.
Song Heping suggests the response mechanism “Four-Body Interaction”should be given full play to. (The four bodies are the Ministry of Commerce, local competent commercial departments, business associations and enterprises involved) This mechanism works as follows: business associations fully play their role in self-discipline and coordination; industrial sectors give early warnings and provide other information, as well as fully communicate and interact with foreign markets; enterprises rise to respond actively, forming efficient responding teams and mobilizing various resources including the importers to deal with the lawsuits comprehensively, and at the same time take the initiative to further improve their management to master methods of coping with trade friction, establishing sound financial management system, for instance.
AQSIQ will also study relevant response measures together with member units of ministerial joint conference over the nation, in a view to enhancing Chinese enterprises’ response awareness, capability and effectiveness to foreign technical trade measures, thus promoting the healthy development of China’s exports.
As a major object country of trade friction, China has its unique coping strategies. For example, in dealing with EU’s trade remedy investigations, Zheng Wei from Ministry of Commerce Bureau of Fair Trade recommends that involved Chinese companies can strive to selectively win over some of EU members as EU adopts the unique determining mechanism in which votes of the 27 member states count. Meanwhile, involved Chinese companies can “knock down” related trade remedy measure applications by allying with EU’s downstream companies and importers and taking advantage of its community interests terms.
Long Guoqiang, Minister of Foreign Economic Research Department of the State Council Development Research Center said that the key to a country’s status enhancement in global division does not lie in industrial upgrading, but in improvement of production value. Therefore, China should seize the high-end part of the value chain by evolving from low valueadded industries to high value-added industries such as capital-and-technology-intensive industries or information management-intensive industries.
When lots of domestic tire companies were depressed, Doublestar Group Co., Ltd. swiftly shifted its market to the Europe, Africa, Middle East, South America and other regions. Particularly in the European market, Doublestar Group avoided limitations such as low-end tires within the “special safeguard” as well as technical barriers and advanced to developed markets like Germany, Britain, Italy, and Netherlands with its high-end tires by the virtue of its exclusive core technologies. Under the extremely tough market circumstances, exports of Doublestar Group’s high-grade wide tires accounted for more than 40% of total sales instead of being affected.
Chen Guanda said that fastener enterprises in Zhejiang Province collectively gave up trade friction-inflicted markets, and strived to explore highend markets such as aerospace and high-speed railway whose high added value may facilitate business transformation and upgrading. “Under the current circumstances, enterprises are smart in taking orders; for example, taking into consideration of the exchange rates fluctuation, they may divide a 1000 tons order into 10 orders, 100 tones per order, thus significantly reducing the risks”, said Chen Guanda.
Yang Fengdan also believes that fastener manufacturers should also speed up the adjustment of product structure and work on enhancing technology involvement, including developing high-strength fasteners, to upgrade the products and improve their added value; in addition, the existing way of export growth should be changed to enhance the international competitiveness and help China’s fastener industry to become a real international leader in this field.