Processing trade accounts for a large part in China’s foreign trade and serves as a major form for China to participate in international specialization. Currently, 30 million to 40 million people are directly employed in the industry of processing trade, representing about 20% of the employment in the secondary industry. In the post fi nancial crisis era, China is stepping into a critical stage to upgrade its processing trade, and the successful upgrading of processing trade is of great significance to transform the growth pattern of foreign trade, expand opening up in scope and depth, and to improve the open economy. Following are the major problems existing in China’s processing trade:
1. Low-end position in the international industrial chain. China now mainly undertakes assembling of fi nished products and production of low-end spare parts, which are defined by high labor intensity, as well as low technical content and added value. But China is still subject to foreign control in such highend segments as core technologies, brand control, product design, software support, key supporting parts, key equipment and models, and distribution channels.
2. Uneven distribution among regions. In the total import and export volume of China’s processing trade, the eastern regions account for a share of above 90%, including more than 70% held by such coastal regions as Guangdong, Jiangsu and Shanghai, and the central and western regions less than 10%. In recent years, due to the soaring prices of such factors as land and labor, the labor-intensive processing trade in the eastern regions is shifting to the central and western regions. But many constraints make it hard for the processing trade to effectively settle in the central and western regions in a short time.
3. Heavy pollution, high energy consumption and great resources dependency. In the past when some regions of China were going after quick economic growth, low standard was set for processing trade and preferential polices were granted indiscriminately. And many highly-polluting, energyconsuming and resources-dependent western enterprises settled in China, which claimed a high cost in environment, energy and resources. Having opened up earlier to the outside world, China’s eastern regions now possess a high proportion of processing trade and rapid economic development, but industrial pollution there is more severe than that of the central and western regions.
4. Low degree of localization. One indicator is the low share held by domestic-funded enterprises in the volume of processing trade. The other indicator is the self-supply rate. Primary products and labor-intensive products make up the majority of domestic purchase, which normally consists of ordinary or auxiliary equipment, while the key equipment and production lines with high technical content are mainly imported.
Upgrading of processing trade includes three aspects, namely, shifting from processing with supplied materials to processing with imported materials, from foreign-funded enterprises to domestic-funded enterprises, and from the eastern regions to the central and western regions. T e following suggestions are therefore made:
1. T e present development status and employment pressure of China determine that processing trade, in particular the labor-intensive processing trade, cannot withdraw from the economic sector. Instead of blindly suppressing processing trade, China needs to eliminate highly-polluting processing trade programs based on the status quo. In the mean time, in line with the local characteristics, multi-layer processing trade can be carried out to promote upgrading of the overall level of our country’s processing trade.
2. To elevate the status of China’s processing trade in the international industrial chain. China can increase the added value of its processing trade through three means—technological innovation, R&D and design, and global marketing and brand building.
3. To actively promote progressive relocation of processing trade. To meet the requirement of a new round of West Development and industrial relocation from the eastern regions to the western regions, more preferential polices are supposed to be granted to the western regions for developing processing trade, which will enhance the western regions’ ability to accommodate relocated industries, and will bolster the internal driving mechanism of economic development. Such effective policies as special zones, bonded areas and export processing zones implemented in the eastern regions can be introduced to the western regions. Preferential policies off ered in terms of taxation, land price and financing in the zones enjoying special polices will improve the condition of the western regions to develop processing trade and will sharpen the western regions’ international competitiveness to accommodate relocated industries.
4. To raise the localization degree of processing trade. It needs to create favorable external environment for domestic-funded enterprises to experience more rapid development. For instance, phasing out the super national treat- ment granted to foreign-funded enterprises will bring back a level playing fi eld to domestic-funded enterprises.
5. To perfect the management system of processing trade. (China’s Foreign Trade)
All-China Federation of Industry& Commerce (ACFIC) made a proposal named Suggestions on Making Full Use of Foreign Exchange Reserve to Promote Chinese Enterprises to Go Global.
To loan going-global enterprises foreign exchange reserve
According to the theory of Investment Development Path (IDP) developed by the British economist Dunning, once GDP per capita exceeds USD 3,000, net foreign investment will turn negative into positive.
With GDP per capita standing at around USD 4,500 in 2010, China is witnessing rapid development of foreign investment, the Proposal pointed out. Statistics from the Ministry of Commerce shows that China eff ected abroad a non-financial investment of USD 59 billion in 2010, with an annual growth rate of 52% during 2002 to 2010.
As early as 2009, at the 11th Conference of Chinese Diplomatic Envoys Stationed Abroad, Primer Wen Jiabao gave directives that China should accelerate the implementation of the“going global” strategy, where foreign exchange reserve could be used to assist enterprises in going global.
“Enterprises need foreign exchange for investing abroad, but the domestic fi nancial institutions generally suff er from shortage of exchange position with an imbalanced loan-deposit ratio. So, domestic enterprises normally have to use the RMB loans obtained from banks to buy foreign exchange, which exposes them to exchange rate risks,” said Li Fei, Deputy Director of the Research Offi ce of the Federation.
Therefore, the Federation pro- posed that the State put part of its foreign exchange reserve in commercial banks or policy banks, which would then directly loan foreign exchange to enterprises that intended to invest abroad.
But how can the State avoid nonperforming or bad debts of the stateowned foreign exchange reserve? The Federation suggested that the State Administration of Foreign Exchange and the bank sign an earmarking agreement for foreign exchange deposits, where the bank promises to keep the rate of return not less than the Coupon rate of the Treasury bonds issued by the US Federal Government during the same period. T en, after having directly evaluated the enterprises, the bank loans foreign exchange to them for investing abroad.
In this way, triple-win will be achieved: both the banks and the enterprises avoid risks posed by variations of exchange rate; the Central Bank ensures revenue of its foreign exchange reserve, and support the enterprises in investing abroad, the Federation said.(China Business News)
“China has leapt to the world’s second largest economist with import and export trade volume topping the world. Meanwhile, the working pattern of China’s all-round external exchanges is maturing, which creates a favorable global environment for China’s development. However, there is still some room for improvement, and the prominent problem is that China’s right to speak in the international arena has not been enhanced accordingly,” said Wan Jifei, Standing Committee Member of CPPCC and Chairman of China Council for the Promotion of International Trade (CCPIT).
Wan stressed that the upcoming fi ve to ten years would be the most critical period for China to earn greater right to speak in the international arena. China needs to take this opportunity to enhance its voice in the international arena: fi rst, with raised awareness and a clear objective, we should have a correct stance; second, development should be speeded up for a more solid foundation; third, active actions should be taken to involve in international aff airs; fourth, multi-facetted approaches are supposed be adopted; fi fth, in a realistic and pragmatic manner, we should improve the quality and enhance the eff ectiveness; sixth, we should step up our efforts in overall coordination for consolidation and improvement. All in all, right to speak in the international arena is an external manifestation of comprehensive national strength, and only unremitting endeavor both in internal development and external exchanges can make us stronger. (People’s Daily Overseas Edition)
Wei Jianguo: China Should Cut Import Tariff
To expand import will become one top priority of China’s foreign trade in 2011, said Wei Jianguo, CPPCC Member, Secretary-general of China Center of International Economic Exchanges and the former minister of the Ministry of Commerce. T e regulatory authorities concerned, therefore, need to consider cutting the import tariff. Moreover, developing service trade should be listed as a national strategy, as it will give impetus to the transformation of China’s economic growth mode.
Wei pointed out that relevant departments and organizations should enlarge import of grain, cotton and other material reserve on one hand, and on the other hand of luxuries, jewellery, red wine, suitcases and cosmetics from developed countries. Wei also predicted that this year China’s total export trade volume would see a year-on-year rise of 15% with a trade surplus of less than USD 100 billion, the smallest in the past ten years. In this critical year for transforming economic growth mode, China would see greater domestic demand, Wei added.
According to Wei, the section on service trade in the12th Five-year Plan mainly focuses on how the State will promote the development of service trade, including tariff , layout and status of service trade. On the occasion of service trade relocating across the world, it is wise for China to list service trade as a national strategy and choose some key industries to accommodate the relocated service trade from foreign countries.(China Securities Journal)
Yang Lan: Private Cultural
Enterprises Cry for More Support for Going Global
Yang Lan, CPPCC Member and Chairman of the board of directors of Sun Media Group mentioned in an exclusive interview with China News Service on March 7th that private cultural enterprises cried for more support for going global.
At present, more and more private cultural enterprises actively participate in the international market, and they are likely to form a new drive in the parade of the going- global enterprises. Yang said that China’s cultural industry grew at a rate of above 20% in 2010, and 17 enterprises were listed at home and abroad, all of which manifested the huge potential of the cultural industry. However, defined by small scale, decentralized power, and lack of longterm development strategy and brand influence, private cultural enterprises are still in the infancy and need support from improved policies and a public service platform.
Yang said that many private cultural enterprises are caught in such a predicament that their cultural products and intangible assets cannot be mortgaged for bank loans. As China lacks a sound rating mechanism of intangible assets, it is hard for private cultural enterprises to get loans from commercial banks. Yang proposed improving the investment market of the cultural industry by establishing independent, authorita-
tive and just asset rating corporations, which will evaluate the cultural enterprises before the bank determines to grant loans or not. Serving as a bridge between the cultural enterprises and the commercial banks, the third party will pave the way for the cultural enterprises to go global.
Speaking of the national publicity film showed by several European and American media and in the Times Square this January, Yang regarded the concept of using fi gures instead of achievements made in national construction as the main subject of the fi lm a big step forward. But the representatives from various sectors only stand to pose in the fi lm, which may be diffi cult for the foreign audience to understand and identify with, and thus the publicity eff ect will be weakened.
Yang suggested learning from the French and Singaporean model, where a cultural promotion fund is established to encourage greater innovation and participation from private cultural enterprises in external cultural exchange programs. T e Fund provides the enterprises with some budget subsidy after having evaluated and screened the applied programs. Besides, a third party supervises the publicity eff ect of the programs, such as publicizing the national image, promoting national culture and attracting investors or tourists.
Taking her own experience as an example, Yang also suggested the cultural enterprises extend the industrial chain by focusing more on media brand and multimedia communication.(China News Service)