ROLLING OUT THE RED CAR­PET

In­ter­na­tional firms eye ex­pan­sion op­por­tu­ni­ties at China’s first im­port fair

NewsChina - - CONTENTS - By Xu Ming and Li Jia

From Oc­to­ber 5 to 10, China held its first-ever na­tional level im­port trade fair, the China In­ter­na­tional Im­port Expo (CIIE) – per­haps even the world's first – in Shang­hai, which fea­tures a melt­ing pot of East-meets-west cul­ture. Al­to­gether, 3,617 com­pa­nies from 151 coun­tries and re­gions showed off their prod­ucts and ser­vices. Con­tracts worth US$57.83 bil­lion were reached at the Expo, ac­cord­ing to or­ga­niz­ers.

The sig­nif­i­cance of the Expo goes be­yond these num­bers. Ob­servers say the CIIE is a mile­stone for a coun­try in which ex­ports were the ma­jor con­trib­u­tor to its rise to be­come the world's sec­ond-largest econ­omy. The CIIE sig­ni­fies “a ma­jor pol­icy for China to push for a new round of high-level open­ing-up and a ma­jor mea­sure for China to take the ini­tia­tive to open its mar­ket to the world,” Chi­nese Pres­i­dent Xi Jin­ping said in his key­note speech at the open­ing cer­e­mony. China's com­mit­ment to glob­al­iza­tion at the Expo is prom­i­nent, par­tic­u­larly as it comes against a back­ground of ris­ing pro­tec­tion­ism and uni­lat­er­al­ism that chal­lenges in­ter­na­tional free trade. In 2017, it im­ported US$1.8 tril­lion in goods, 16 per­cent higher

than in 2016. Xi an­nounced that the value of im­ported goods and ser­vices are es­ti­mated to ex­ceed US$30 tril­lion and US$10 tril­lion, re­spec­tively, in the next 15 years.

Meet­ing the grow­ing do­mes­tic de­mand for bet­ter qual­ity prod­ucts and ser­vices is in­creas- in­gly im­por­tant for China's econ­omy, which faces pres­sure from an eco­nomic slow­down as it tran­si­tions to a more con­sump­tionori­ented growth model. In the past sev­eral years, do­mes­tic de­mand has grown rapidly. More Chi­nese con­sumers are turn­ing to for­eign brands through cross-bor­der e-com­merce plat­forms and as they travel over­seas. Mean­while, more im­ports are also ex­pected to stim­u­late the up­grad­ing and in­no­va­tion of Chi­nese com­pa­nies through com­pe­ti­tion and in­put from for­eign brands.

Learn­ing Curve

In the early years of re­form and openingup, China needed to boost ex­ports as a means to trans­form from a planned econ­omy to a mar­ket-ori­ented econ­omy, Zhang Yan­sheng, chief re­search fel­low with the China Cen­ter for In­ter­na­tional Eco­nomic Ex­changes, told Newschina. “It was only through ex­port­ing that we learned how an or­der was made in the mar­ket econ­omy and the logic be­hind the op­er­a­tion of cap­i­tal, lo­gis­tics and sales,” Zhang said. Chi­nese ex­ports grew rapidly, es­pe­cially in the decade since China joined the WTO in 2001, and this re­sulted in the coun­try's large trade sur­plus with other na­tions.

How­ever, there have been con­se­quences from run­ning such a large trade sur­plus, in­clud­ing fre­quent trade con­flicts with other coun­tries, in­fla­tion­ary pres­sure on the do­mes­tic econ­omy and lin­ger­ing ex­pec­ta­tions over the ap­pre­ci­a­tion of the yuan. Be­sides, re­ly­ing too much on ex­ports made China vul­ner­a­ble to global fluc­tu­a­tions, a harsh les­son China learned in the global eco­nomic cri­sis of 2008.

Re­al­iz­ing the prob­lem, China has tried, since 2007, to pro­mote bal­anced trade by in­creas­ing im­ports while sta­bi­liz­ing ex­port growth. Tax re­bates for some ex­ports were re­duced or an­nulled in 2007, and tar­iffs on more than 700 cat­e­gories of im­ported goods were low­ered in 2012, in­clud­ing on goods like coal and in­fant for­mula.

In April 2012, China's State Coun­cil made the ex­pan­sion of im­ports a guide­line for the coun­try's for­eign trade. There fol­lowed a se­ries of mea­sures to ease the im­port process. Be­tween Jan­uary to Novem­ber

2017, the time it took to gain cus­toms clear­ance for im­ported goods took an av­er­age of 16.7 hours, a de­crease of 33.6 per­cent on 2016, Wu Yabin, ex­ec­u­tive di­rec­tor of the Re­search In­sti­tute for Global Value Chains at the Bei­jing-based Uni­ver­sity of In­ter­na­tional Busi­ness and Eco­nom­ics, cited in his re­cent book about the de­vel­op­ment of China's im­port sec­tor.

By the end of Novem­ber, China had al­ready cut im­port tar­iffs four times in 2018, cov­er­ing thou­sands of prod­ucts, in­clud­ing ve­hi­cles and med­i­ca­tions, which ef­fec­tively cut prices on con­sumer goods that peo­ple use in their ev­ery­day lives. This has re­duced the over­all tar­iff rate from 9.8 per­cent in 2017 to 7.5 per­cent in 2018.

The type of goods China im­ports has changed over the years to fa­cil­i­tate the coun­try's eco­nomic take­off. Com­modi­ties for in­dus­trial pro­duc­tion, like steel, ac­counted for 81 per­cent of China's to­tal im­ports in the 1970s. In the 1980s, the im­port of man­u­fac­tured prod­ucts rose, and that of com­modi­ties for heavy in­dus­try de­clined rapidly. In 2001, the im­por­ta­tion of cap­i­tal-in­ten­sive and tech­nol­ogy-in­ten­sive goods ac­counted for 57.8 per­cent of to­tal im­ports, while la­bor-in­ten­sive prod­ucts made up 23.4 per­cent. Be­tween 2012 and 2017, im­ports of man­u­fac­tured goods, mainly elec­tro-me­chan­i­cal prod­ucts and high-tech prod­ucts, con­sis­tently grew.

In the past decade, the im­por­ta­tion of con­sumer goods such as ve­hi­cles, house­hold ap­pli­ances, watches and per­fume surged, show­ing a shift of fo­cus on pro­duc­tion to liveli­hoods. Im­ports of high-end con­sumer goods, like medicines, floor mop­ping ro­bots, jew­elry, cos­met­ics and dried fruits climbed, sig­ni­fy­ing China's in­creas­ing con­sump­tion power.

China is now the big­gest ex­porter and the sec­ond-largest im­porter in the world. Wei Jian­guo, for­mer min­is­ter of China's Min­istry of Com­merce, told Newschina that in­creas­ing the level of im­ports is a nec­es­sary step for

China to trans­form from a big trad­ing coun­try to a pow­er­ful trad­ing coun­try.

Con­sump­tion Power

Cof­fee from Ethiopia, jade from Myan­mar, 3D teeth print­ers from Ger­many, the world's first-ever Nu­clear Mag­netic Res­o­nance Spec­trom­e­ter for in­fants – the myr­iad of qual­ity prod­ucts ex­hib­ited at the CIIE are ex­pected to sat­isfy Chi­nese peo­ple's in­creas­ing de­mands for a bet­ter life­style.

Ex­pand­ing im­ports will stim­u­late do­mes­tic con­sump­tion, which has grown to be­come a ma­jor driver of the Chi­nese econ­omy in re­cent years. In 2015 and 2016, when China's for­eign trade de­clined for two con­sec­u­tive years, the ro­bust do­mes­tic mar­ket played a key role in off­set­ting the im­pact from shrink­ing for­eign de­mand.

In the first three quar­ters of 2018, con­sump­tion ex­pen­di­ture ac­counted for 78 per­cent of China's GDP, 14 per­cent higher than the same pe­riod of 2017.

Chi­nese con­sumers are not only spend­ing more in to­tal, but they are also spend­ing on more ex­pen­sive prod­ucts and ser­vices, a trend de­scribed as “up­graded con­sump­tion.” Dur­ing the 12 months to mid-2018, China's house­hold wealth amounted to nearly US$52 tril­lion, the sec­ond-largest in the world be­hind only the US, ac­cord­ing to the Global Wealth Re­port 2018 pub­lished by the Credit Suisse Re­search In­sti­tute in Oc­to­ber.

So­cial re­tail­ing of con­sumer goods in 2017 rose to 36.6 tril­lion yuan (US$5.3T), a yearon-year in­crease of 10.2 per­cent from 2016, with 7.2 tril­lion yuan (US$1T) in on­line re­tail­ing sales, ac­cord­ing to the Na­tional Bureau of Statis­tics of China.

More peo­ple are buy­ing for­eign goods as do­mes­tic sup­ply ob­vi­ously falls short of de­mand, with con­sumers be­com­ing more dis­cern­ing and di­verse as liv­ing stan­dards have im­proved. From 2010 to 2016, im­ports of con­sumer goods were above 10 per­cent of over­all im­ports. In 2017, trade vol­ume through cross-bor­der e-com­merce plat­forms reached 90.2 bil­lion yuan (US$13T), a yearon-year in­crease of 80.6 per­cent, among which 56.6 bil­lion yuan (US$8.1T) went on im­ports, an in­crease of 116.4 per­cent over last year, Yu Guangzhou, for­mer di­rec­tor of China's Gen­eral Ad­min­is­tra­tion of Cus­toms said at the First Global Cross-bor­der E-com­merce Con­fer­ence in Fe­bru­ary in Bei­jing.

Dur­ing this year's Alibaba-led Dou­ble 11 Sin­gles' Day shop­ping spree, for ex­am­ple, Chi­nese cus­toms cleared 10 mil­lion items bought that day by 9am on Novem­ber 11, 10.5 hours faster than last year, ac­cord­ing to data from Cainiao Net­work, Alibaba's lo­gis­tics data plat­form op­er­a­tor.

Stim­u­lat­ing Do­mes­tic De­mand

Ex­pand­ing im­ports is also ex­pected to bring new dy­nam­ics to Chi­nese in­dus­tries. It is gen­er­ally be­lieved that in­tro­duc­ing in in­ter­me­di­ates (semi-pro­duced goods), ad­vanced tech­nol­ogy, stan­dards and man­age­ment ex­pe­ri­ence will help with the up­grad­ing and op­ti­miza­tion of China's in­dus­trial struc­ture and help cul­ti­vate new in­dus­tries.

Im­ports of qual­ity prod­ucts and ser­vices could stim­u­late fair com­pe­ti­tion among do­mes­tic com­pa­nies and force them to im­prove ef­fi­ciency and in­no­va­tion. “China's open­ing-up in the past 40 years has proved that in­tro­duc­ing ad­vanced tech­nol­ogy and equip­ment is an im­por­tant chan­nel to stim­u­late the updating of the do­mes­tic in­dus­trial struc­ture and en­hance com­pet­i­tive­ness,” Xu Mingqi, vice di­rec­tor of the In­sti­tute of World Econ­omy at the Shang­hai Academy of So­cial Sciences, said at a di­a­logue on the mean­ing of the CIIE held by the Shang­haibased Wen­hui Daily and the Shang­hai In­sti­tutes for In­ter­na­tional Stud­ies in June.

He added that the trade in patents and other tech­nolo­gies will be of great sig­nif­i­cance to re­in­force an econ­omy's com­pet­i­tive­ness and in­dus­trial up­grad­ing, par­tic­u­larly when in­tel­lec­tual prop­erty pro­tec­tion is be­ing strength­ened glob­ally.

There have been wor­ries that the flood of for­eign prod­ucts and ser­vices might squeeze many do­mes­tic com­pa­nies out of the mar­ket and thus drag the growth rate down. Zhang Yuyan, di­rec­tor of the In­sti­tute of World Eco­nom­ics and Pol­i­tics, Chi­nese Academy of So­cial Sciences, rec­og­nized that it is nec­es­sary to bal­ance the short-term pains and longterm ben­e­fits.

“Some com­pa­nies and their staff might be af­fected by higher lev­els of im­ports when com­pe­ti­tion be­comes fiercer. But this short-term im­pact could be min­i­mized with proper poli­cies to help vul­ner­a­ble groups, such as train­ing,” Zhang told Newschina at the CIIE.

“In the long term, com­pe­ti­tion will re­sult in pros­per­ity. New tech­nolo­gies and man­age­ment ex­pe­ri­ence will come along­side higher lev­els of im­ports. It is a new op­por­tu­nity for China to achieve growth through in­no­va­tion at this key point,” he noted.

Ex­pand­ing im­ports will also drive the coun­try to carry out in­sti­tu­tional re­forms to pave the way for high-qual­ity growth. “Pres­i­dent Xi men­tioned that China will pro­vide a fairer en­vi­ron­ment for com­pe­ti­tion, which will mean re­form to the whole sys­tem,” Zhang Yuyan told Newschina. He ex­plained that, for ex­am­ple, bet­ter pro­tec­tion of in­tel­lec­tual prop­erty rights will bring bet­ter im­ports and more in­vest­ment, but it can only be achieved through le­gal re­form.

“Thanks to the se­ries of poli­cies, par­tic­u­larly op­ti­miz­ing the re­view for new medicine and stream­lin­ing the process of medicine im­ports and ex­ports, in the last five years, As­trazeneca had five new med­i­ca­tions ap­proved. More than 10 new medicines tar­get­ing dis­eases like cancer and ane­mia will be on the shelves in China in three to five years,” Leon Wang,

In­ter­na­tional and China Pres­i­dent at As­trazeneca, a Bri­tish-swedish phar­ma­ceu­ti­cal com­pany, told Newschina at the CIIE.

Spend­ing Power

Still, there are doubts over whether China's do­mes­tic mar­ket is ro­bust enough to with­stand a large-scale in­flux of im­ports. Af­ter all, im­ported prod­ucts, par­tic­u­larly those re­lated to con­sump­tion, need to be backed by con­sumer spend­ing power. Ef­forts have been made in rais­ing in­di­vid­u­als' in­comes and there­fore pur­chas­ing power, by rais­ing the thresh­old of tax­able per­sonal in­come from 3,500 yuan (US$504) to 5,000 yuan (US$720) per month from this Oc­to­ber. But year-on-year growth of per capita con­sump­tion ex­pen­di­ture of ur­ban res­i­dents, an in­dex of res­i­dents' spend­ing power, has dropped con­tin­u­ally for six quar­ters since early 2017.

Zhou Xiaochuan, gover­nor of the Peo­ple's Bank of China, the na­tion's cen­tral bank, warned at a fo­rum in Zhe­jiang Prov­ince on Novem­ber 2 against the fast rise of con­sump­tion credit, which may in­di­cate that the younger gen­er­a­tion is bor­row­ing too much to spend on con­sumer goods. He also ex­pressed con­cern over the de­cline in the house­hold sav­ings rate. In­deed, the high mort­gage re­pay­ments that many Chi­nese house­holds have to pay have also caused wor­ries among an­a­lysts due to a lower po­ten­tial for con­sump­tion of goods and ser­vices.

What's more, Li Xun­lei, an econ­o­mist from Zhong­tai Se­cu­ri­ties, a Chi­nese se­cu­rity com­pany, pointed out in an ar­ti­cle pub­lished on his Wechat pub­lic ac­count in Oc­to­ber that the chal­lenge also lies in how to cope with the re­la­tion­ship be­tween in­creas­ing im­ports of high-tech prod­ucts and en­cour­ag­ing in­de­pen­dent in­no­va­tion.

Af­ter com­par­ing data on im­ported high­tech prod­ucts and sci­en­tific re­search projects in 31 prov­inces and cities be­tween 2012 and 2016, Li found a neg­a­tive cor­re­la­tion be­tween the two, and con­cluded that “it is dif­fi­cult to rule out the pos­si­bil­ity that pur­chas­ing high-tech prod­ucts might squeeze the fund to sup­port in­de­pen­dent in­no­va­tion.”

“It will be an in­evitable and im­por­tant chal­lenge for Chi­nese com­pa­nies to re­ally get in­ter­na­tion­al­ized and sharpen their com­pet­i­tive­ness glob­ally,” Zhao Ping, di­rec­tor of the in­ter­na­tional trade re­search de­part­ment un­der the Academy of China Coun­cil for the Pro­mo­tion of In­ter­na­tional Trade, said in an in­ter­view with The Bei­jing News on Novem­ber 9.

She sug­gested that China should pay more at­ten­tion to the up­grad­ing of its do­mes­tic in­dus­trial struc­ture and in­crease im­ports of high-grade and so­phis­ti­cated prod­ucts to meet the de­mands of the de­vel­op­ment of the Chi­nese econ­omy in this new era that stresses qual­ity.

Great waves sweep away sand, but gold re­mains, a Chi­nese say­ing goes. It is Chi­nese com­pa­nies and con­sumers that will de­cide whether China will suc­ceed in im­port­ing new dy­nam­ics of growth as well as cars and cos­met­ics.

Chi­nese Pres­i­dent Xi Jin­ping and his wife Peng Liyuan pose for a group pho­tos with lead­ers from around the world at the first China In­ter­na­tional Im­port Expo in Shang­hai on Novem­ber 4, 2018

Peo­ple look at a dis­play of home ap­pli­ances, in­clud­ing TV sets and ra­dios im­ported by Ja­pan’s Sanyo, in a shop in Shang­hai, Fe­bru­ary 4, 1982

China’s first ad­ver­tis­ing board for for­eign goods was erected on Wang­fu­jing Street in Bei­jing, 1984

An em­ployee of a lo­gis­tics com­pany serv­ing cross-bor­der e-com­merce plat­forms pre­pares stock for the an­nual “Dou­ble 11” shop­ping spree in a ware­house in Chongqing on Oc­to­ber 10, 2018

Peo­ple linger in front of a dis­play case of im­ported seafood in an Alibaba-owned Hema Fresh shop in Bei­jing on June 1, 2018

Cus­tomers look at im­ported goods in a su­per­mar­ket in Shang­hai on Oc­to­ber 29, 2018

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