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A Turbulent Year Ahead in 2004
for China-US Trade Relations?
Special
Report - China Northeast updated on Oct 14, 2004
EDITORIAL:
"Diplomacy a must for Taiwan mission"
-
Business people must keep their eyes open
Detail Info
July 1, 2004
USCC Calls for "Course
Correction" in US-China Relations
On June 15th, the US-China Economic and Security Review Commission (USCC), which
was established by the US Congress in 2000, released its 2004 Report to
Congress. The report concludes that "a number of the current trends in US-China
relations have negative implications for our long-term economic and national
security interests, and therefore US policies in these areas are in need of
urgent attention and course corrections". The report emphasises that the US
continues to play a pivotal role in China's economic and technological
development, and that Washington should use the resulting leverage to develop a
framework for the bilateral relationship "that will help avoid conflict, build
co-operative practices and institutions and advance both countries' long-term
interests".
Since China joined the World Trade Organization (WTO) in December 2001,
Sino-American trade has boomed. Total two-way goods and services trade reached
almost US$181 billion in 2003, which resulted in a US trade deficit of US$124.07
billion, a 20% increase over 2002. This reality poses a persistent problem for
any US administration.
Assessing how the reality of Sino-American trade relations affects the US
economy as well as broader US security interests is an essential focus of the
USCC's work. Ralph D'Amato, the USCC's vice-chairman, explained, "Our report
details a number of areas where US-China relations have not developed in a
manner that benefits our nation's long-term interests". He added, "We believe,
however, that with a more co-ordinated, better managed approach to our relations
with China, accompanied by the firm use of the significant economic and
political leverage the US can bring to bear, we can move US-China relations in a
positive direction".
USCC Chairman Roger Robinson added, "US-China relations have become increasingly
complex, touching on vital areas of both US economic and national security". He
also underlined that the commission's report seeks "to identify the key
intersections of our vast economic relationship with China, the economic health
of our country and the security challenges we face from China's growing
political, economic and military prominence in Asia. Properly managing this
relationship will be an essential 21st century undertaking for the US".
The USCC report notes that the US trade deficit with China is of major concern
because it has contributed to both the erosion of US manufacturing jobs and the
current "jobless recovery". Yet, as the report chronicles, corporate America
continues to invest heavily in China, moving manufacturing capacity and, in some
cases, research and development operations into the country. In addition, an
increasing number of Chinese state-owned enterprises (SOEs) are tapping into US
and global financial markets, attracting billions of dollars from US investors.
The report acknowledges that Beijing has made significant progress in its
efforts to meet China's WTO accession obligations, but stresses that significant
compliance shortcomings remain. In this context, the USCC also recommends that
the US Congress should press the Bush administration to make greater use of the
WTO dispute settlement process and US trade laws to redress unfair Chinese trade
practices. This should include the effective use of the product-specific
safeguard under Section 421 of the Trade Act of 1974 and the China textile
safeguard.
With regard to textile and apparel trade issues, in particular, the USCC echoes
the demands of the US textile industry. The reports notes, "The textile and
apparel industries have suffered enormous trade-related job losses. Employment
in textile mills, textile product mills and apparel has fallen by nearly half
over the last decade. The ending of the Multi-Fibre Arrangement (MFA) at the end
of 2004 promises to significantly increase US imports of Chinese textile and
apparel products and wreak further heavy job loss on these sectors".
To halt this trend, the USCC urges the US Congress to direct the Bush
administration to work with other WTO members to convene an emergency session
with the objective of extending textile and apparel quotas at least through
2008. The commission reasons that this quota elimination delay would give the
affected US and foreign industries enough time to adjust to surges in imports
from China.
In addition, the USCC report emphasises that Congress should urge the US
Department of Commerce (DOC) to apply countervailing duty (CVD) laws to
non-market-economy (NME) countries such as China. And, in case the DOC refuses
to do so, Congress should pass legislation to apply CVD laws to NME countries.
Among other issues of greatest concern to the USCC is the alleged currency
manipulation of China. Despite the fact that the US Treasury Department cannot
find evidence of China's currency manipulation, the commission calls on the US
government to take action to counter China's exchange rate practices.
Specifically, the USCC demands that if the Bush administration fails to make
progress in its efforts to persuade China to undertake "a substantial upward
revaluation of the yuan against the dollar and to re-pegging the yuan to a
trade-weighted basket of currencies, Congress should pursue legislative measures
that will direct the administration to take action - through the WTO or
otherwise - to combat China's exchange rate practices".
Other alleged areas of concern are subsidies to Chinese producers, the use of
technical and safety standards to exclude foreign products, poor enforcement of
intellectual property rights (IPR) and the discriminatory tax treatment of
foreign semiconductor and microprocessor manufacturers.
To address these alleged shortcomings of China's trade regime, the USCC calls on
Congress to direct the Office of the US Trade Representative (USTR) and the DOC
to conduct "a comprehensive investigation of China's system of government
subsidies for manufacturing, including tax incentives, preferential access to
credit and capital from state-owned financial institutions, subsidised
utilities, and investment conditions requiring technology transfers". USTR and
the DOC should provide the results of this investigation in a report to
Congress, assessing whether these practices violate WTO rules and spelling out
specific steps the US government can take to address these practices.
Finally, the USCC contends that corporate governance standards in China are not
what they should be. The report observes that lacking "adequate information
about Chinese firms trading in international capital markets, US investors may
be unwittingly pouring money into black box firms lacking basic corporate
governance structures, as well as enterprises involved in activities harmful to
US security interests". Moreover, USCC also recommends barring US investment in
Chinese companies that have been identified and sanctioned by the US government
for proliferation activities.
Generally speaking, the USCC report views Sino-American trade as one ingredient,
albeit and exceedingly important one, of the overall bilateral relationship. The
report is generally critical of the current state of relations and wants
Washington to adopt tougher policies vis-ŕ-vis Beijing.
However, the Bush administration has shown little inclination to increase US
pressure on China. By and large, the Republican leadership in Congress has
supported this approach. In other words, at this time it is unlikely that many
of the USCC's recommendations will be translated into official US trade or
foreign policy, at least not any time soon.
Textile Industry Associations
from 25 Countries Attend Summit in Brussels, Call for Emergency WTO Meeting
On 16-17 June textile and apparel industry associations from twenty-five
countries attended the Summit on Fair Trade in Textile and Clothing in Brussels,
Belgium. The groups released a communiqu&ecute which called for convening an
emergency meeting of the World Trade Organisation (WTO) "to analyse and identify
WTO solutions to the pending crisis associated with the expiration of textile
and apparel quotas on 1 January 2005". The communiqu?also expressed support for
a three-year extension of textile and apparel quotas, the implementation of
automatic safeguard mechanisms to prevent disruptive surges of textile and
clothing imports and expedited and effective remedies to unfair trading
practices employed by certain major suppliers.
Cass Johnson, the president of the National Council of Textile Organisations (NCTO)
which had organised the meeting, stated, "There is no need to speculate on what
will happen after quotas expire on 1 January 2005. A few countries are well
positioned to monopolise the world market. For example, Japan and Australia are
developed countries with no quotas on textile and apparel imports. China now
controls more than 75% market share in those countries. In the US, in apparel
categories released from quotas on1 January 2002, China jumped from 9% market
share in 2001 to 65% market share as of March 2004. To make matters worse,
Chinese market share in these categories is still increasing".
Despite these appeals to postpone the quota elimination, it is as good as
certain that US textile and apparel quotas will disappear under the terms of the
10-year phase-out of the Multifiber Arrangement pursuant to the 1994 Uruguay
Round Agreement on Textiles and Clothing (ATC). The summit participants also
acknowledged, albeit indirectly, that it is probably too late to stop the quota
phase-out.
After all, the Brussels summit communiqu?also urges all countries to "implement
automatic and seamless transitional safeguard mechanisms in order to prevent
massive disruptive surges of trade from a few countries," which is indicative of
the desire on the part of attendees that there should be no time, or as little
time as possible, between the quota elimination and the imposition of
safeguards.
That said, most analysts do not expect import protection to evaporate
altogether, particularly where China is concerned. In fact, Chinese textile and
apparel exporters are likely to face a barrage of US import restraints, ranging
from the textile and product-specific safeguards contained in the country's WTO
accession agreement to anti-dumping duty (AD) orders. Some experts believe that
the US industry will rely more on AD cases and the product-specific safeguard
than on textile safeguard mechanism because the former stay in force much longer
and are generally perceived as being more effective in shutting down imports.
CITA Reserves Right to Deny Entry
to Overshipments
On 25 June 2004 the inter-agency Committee for the Implementation of Textile
Agreements (CITA) announced that textile and apparel products from WTO member
countries, and exported from the country of origin on or after 1 January 2005
will not require a paper visa, an Electronic Visa Information System (ELVIS)
transmission, a Guaranteed Access Level (GAL) certification or an exempt
certification to enter the US. For the exports of countries that are not WTO
members, the currently applicable requirements will remain in force.
In addition, CITA reserves its right under bilateral agreements, the Uruguay
Round Agreements Act and the ATC to deny entry to goods that have been shipped
in excess of 2004 limits; or to stage entry in 2005 to merchandise exported
during 2004, which exceed the restraint limits established for that period.
A properly completed visa, ELVIS transmission, Guaranteed Access Level (GAL)
certification, or exempt certification will be required for all shipments
exported in 2004, regardless of the date of entry into the US.
June 29, 2004
Filing Fees Chargeable for
Customs Protection of IPR
The General Administration of Customs (GAC) recently issued a
circular revising its regulations governing payments for the filing of records
for customs protection of intellectual property rights (IPR). Under the new
regulations, IPR holders are required to pay fees in accordance with state
regulations when filing IPR records with GAC. The fee is Rmb800 for each record.
Applicants are required to make
payments through GAC's special bank account. GAC will not accept postal orders,
cash, cheques or other forms of payment. Applicants must pay the fees before
submitting their applications and present the pay-in slips together with the
applications. GAC will not process applications submitted without the pay-in
slips. The new regulations will take effect on 1 July 2004.
Car parking a charging business
in Shenzhen
Shenzhen's motorcar population is
growing at an annual rate of 25%, while the number of parking spaces is growing
at a rate of 15%. The problem of meeting the shortfall in parking supply is
especially serious in the old residential areas, so investors have started to
tap the great demand.
A four-storey car park in Shenzhen's Jingtian Estate with 420 berths has over
95% of its space leased out. At Rmb400 (HK$377) per month per parking space,
annual parking revenue approaches Rmb2 million (HK$1.8 million), a tidy return
on investment.
In addition to collecting charges for parking, some residential developments are
also selling their parking spaces as commoditised berths, with prices ranging
from tens of thousands of yuan to over Rmb200,000 (HK$188,679). Many developers
have made a fortune from selling parking lots alone.
To encourage private investment in building car parks, Shenzhen is believed to
be considering new regulations governing the assignment and transfer of parking
spaces and allowing residential developments to sell parking spaces to flat
owners.
The freedom to sell or purchase parking spaces is almost certain to make car
park construction an investment hot spot.
According to people in the real estate trade, a large car park can fetch
Rmb5,400 (HK$5,094) in parking fees a month, while a well-decorated flat of the
same size can only generate Rmb3,000 (HK$2,830) in monthly rental.
Economic returns will more than double for multi-deck car parks. Since these are
cheap to build and maintain, it makes much better business sense to build car
parks than to build residential units and shops.
The shortage of parking spaces is most keenly felt in prime commercial
districts, residential developments and large hotels and parks.
Mr Chen, who has been doing business in Dongmen for many years, reckons that a
convenient car park is like a treasure bowl and brings prosperity to its
surrounding areas.
The rise of Huaqiang Road North and the stagnation of Dongmen is a good case in
point. Business was slow around Huaqiang Road North six or seven years ago. As
the number of cars increases, it is still possible to find a parking space in
this area today. But parking is impossible in Dongmen.
Experts also pointed out in particular that mechanised vertical parking
facilities are the wave of the future, and a major area of investment in the
next few years.
Mechanised parking facilities have the advantage in that they take up less space
and therefore have a higher rate of space utilisation. In general, they only
need 1/2 or 1/2.5 of the space needed for level parking, and can increase the
rate of space utilisation by 75%.
The mechanised facilities are relatively inexpensive to construct. It costs
between Rmb30,000 and Rmb120,000 (HK$28,300 to HK$113,207) to build a mechanised
parking space, but over Rmb150,000 (HK$141,509) to build an ordinary, standard
parking facility.
Finally, it requires no more than 120 seconds to park or pick up a car. Cars
also have a leading edge in anti-burglar and safety protection and in improving
the city's appearance and environment. Some motorists simply leave their cars on
the sidewalk when they cannot find a parking spot. Well-designed car parks
provide these motorists the facilities - and investors with good returns.
Foreign heavyweights at China's
top car show - report from Auto China 2004, Beijing
The biennial Beijing international car show attracted 1,400 automobile and
component makers from more than 20 countries to this year's China 2004 show,
which recently closed. The event was record-breaking both for its exhibition
area of 120,000 sqm and the number of exhibitors from home and abroad.
China's automotive industry will soon be fully open to foreign investment, as
the car market grows by leaps and bounds. The Chinese government promulgated its
second set of policies for the industry on 1st June, allowing foreign and
domestic carmakers to compete equally, so competition is set to intensify.
Foreign companies appear to regard the Beijing event as one of the eight major
car shows in the world, alongside those in Frankfurt, Detroit, Tokyo and Geneva.
China has become the fourth largest auto market in the world and is set to
overtake Japan as the second largest in 2008, according to auto analysts.
Ford made its appearance as a company of multiple brands for the first time at
the show. In addition to Buick, a leading name in the local car market, Ford
also introduced its top-of-the-line, China-made luxury Cadillac, to be
introduced at the end of 2004.
The joint presentation of Regal, Excelle and Buick GL8 with Cadillac's CTS and
SRX showed Ford's determination to make use of its international and domestic
resources to venture into China's luxury car market after conquering its
mid-to-high grade, medium-grade, MPV and mini-car sectors.
The show also marked Ford's entry into a new period of simultaneous development
of all passenger car series. The display of Buick and Cadillac's North American
concept cars was meant to show the latest international trends to Chinese
consumers.
Buick has developed from a name for a single product into a brand name with 19
models represented in four different series, all manufactured in China. It has
won the praise of consumers with its local cultural identity and strong sales
figures.
Buick increased sales by 99% year-on-year between January and the end of May
this year, far outstripping the industry average. Its market share also rose
from 9.8% at the end of last year to 11.7%. It is because of the popularity of
Buick that Shanghai GM has firmly consolidated its position as one of the three
dominant car manufacturers in China.
The Beijing car show also provided the platform for local car manufacturers.
Marques such as Chery, Changan, Geely and Hafei have continuously launched new
models - but have also introduced a number of concept cars and power systems of
international advanced standards.
The growing R&D capability of enterprises with own marques should actually
increase the influence of the Beijing car show in coming years.
Peugeot-Citroen and Ford both did their best to introduce their latest brands
into the show.
According to Citroen general manager Claude Satinet, although the marque did not
launch any new model this time, its partner's Peugeot 307 made its formal debut
at the recent car show.
This, together with the subsequent launch of Peugeot 206 in China, underlies the
group's determination to make a synchronised entry into the China market with
both brands. Satinet believes that Citroen's 10-year history in China is
irreplaceable by any of its rivals.
Ford, together with Mazda, Jaguar and other brands represented by the group,
occupied 1,800 sqm of Hall 2, with dozens of different models.
BMW exhibited 14 prototypes, including four Minis, five BMW motorcycles, one F1
simulator and one BMW formula car, virtually covering all major series produced
by the group. Five models were produced and marketed in China.
Mercedes-Benz, which occupied the whole of Hall 5, announced that its investment
and profile at this show represented the company's biggest show outside the
Frankfurt auto show last year. The carmaker unveiled its super luxury Maybach.
The high degree of international carmakers at Auto China 2004 was a global
watershed for the show, as it was for the wider market. At previous Beijing car
shows, multinationals only displayed models which had already been exhibited
elsewhere.
This year, Ford made the unprecedented move of unveiling its new concept car in
Beijing.
Organisers however said that the existing exhibition centre cannot meet
international needs in terms of transport facilities and venue size. A new
international exhibition centre is being planned and a new, modern venue should
be ready for Auto China 2006.
Car shows are conceivably the most important events in China's exhibition
calendar. Profits are impressive because there is no competition - yet. Auto
China 2004 achieved a record revenue for domestic car shows. It is estimated
that rental and ticket revenue alone amounted to Rmb200 million (HK$188.6
million).
According to a staff of the Information Department of the China International
Exhibition Centre Group Corp which co-organised the event, space at the car show
was charged at a rate of US$260 per sqm for foreign companies and Rmb1,200
(HK$1,132) per sqm for domestic manufacturers. With an exhibition area of
110,000 sqm and calculated at Rmb1,500 (HK$1,415) per sqm, the show grossed
Rmb160 million (HK$150.9 million) in rental charges alone.
Two types of ticket were available to enter the show. Special tickets were sold
at Rmb100 (HK$94.3) and ordinary tickets at Rmb50 (HK$47.1). Assuming that
400,000 people visited the show, ticket revenue amounted to at least Rmb24
million (HK$22.6 million).
Car shows also have impressive fringe value. They give a big boost to catering,
entertainment, tourism, carparking and even telecommunications businesses. The
ratio between the direct revenue and social benefits of exhibitions is 1:9
according to international standards. On this basis, the weeklong exhibition
indirectly generated an income of Rmb1.8 billion (HK$1.6 billion) for Beijing.
Auto China now among eight major car shows in the world.
Leading foreign car manufacturers are understood to be optimistic about the
China market, because of its new regulatory environment.
China's latest Auto Industry Development Policy supports the development of auto
financing. Subject to approval, all qualified enterprises may establish non-bank
financial institutions for auto sales.
According to people in the trade, the development of auto financing is an
important means for promoting car sales under the country's new industrial
policy. At present, less than 10% of motor vehicles have credit financing. This
compares to 70% in Germany and 80% in the US.
The presence of a large number of Chinese consumers with a low ratio of
consumption credit suggests that auto companies are looking at a huge market
worth hundreds of billions of yuan. The growth of auto financing is itself
expected to greatly stimulate vehicle sales.
However, in spite of soaring car sales over the last two years, banks and
insurance companies are forced currently to act with caution, because of
mounting bad debts and the rate of loss they have incurred.
The China Banking Regulatory Commission (CBRC) is aware of the risk. At the
Conference on Foreign-Funded Banks in China, CBRC Chairman Liu Mingkang made it
clear that China intended to raise the threshold for auto financing companies.
In future, Chinese car manufacturers wishing to set up auto financing companies
must form strategic partnership with companies with strong retailing track
record. Since no domestic enterprise meets this criterion, domestic carmarkers
have to team up with qualified foreign partners to set up auto financing
companies.
Actually, foreign enterprises with substantial strength have already started
their fight for a share in China's auto financing market. Not long after the
promulgation of the Measures Governing Auto Financing Companies and the
Implementing Rules of the Measures Governing Auto Financing Companies, CBRC gave
the go ahead for SAIC-GM, Toyota and Volkswagen to start auto financing
business.
On 27th May this year, the BMW Group's Huachen-BMW signed a cooperative
agreement with China Merchant Bank to provide credit to customers and dealers of
BMW and Mini cars. Beijing Hyundai also signed an agreement of all-round
cooperation with CITIC Industrial Bank to provide the Hyundai manufacturer and
dealers with credit support.
Meanwhile, Volvo Financial Services and Shenzhen Development Bank have signed a
financial cooperation agreement, with the bank providing Volvo dealers with
factoring service for complete cars and components. In the long term, foreign
auto companies will aim to set up their own auto financing companies if
conditions permit.
June 23, 2004
Tax Amnesty for Foreign Residents
Before 30 June, 2004
For foreign residents subject to individual income tax in China who have overdue
or under-reported tax liabilities, Circular No.27 issued by the State Taxation
Administration (SAT) in March 2004 is in effect a “tax amnesty”. According to
this circular, penalties will be waived if they declare and pay taxes in arrears
before 30 June.
This SAT circular on strengthening
the collection and administration of individual income tax for foreign
individuals has aroused great concern among foreign residents in China. The gist
of the circular is: First, foreign residents or their withholding agents will
not be penalised if they declare their outstanding tax liabilities and pay the
taxes in arrears before the end of June with an interest of 0.05% per day for
late payment. Second, foreign residents who fail to pay their taxes in arrears
before the above-mentioned date will be pursued for delinquent payment plus
surcharge and other penalties according to the Tax Collection and Administration
Law for the taxable income they have long concealed or falsified in their tax
return.
Payment of Taxes in Arrears in Beijing to be Reported Before End of July
Many foreign residents are taking a wait-and-see attitude toward this first-ever
amnesty granted by SAT, and very few of them have come forward to pay tax in
arrears. According to media reports, some foreign residents have misgivings
about paying taxes in arrears, thinking that if they do so, the tax authorities
might suspect that their employers have under-reported or failed to report their
salaries and would hence be asked to pay up this part of corporate income tax.
According to Beijing’s municipal local tax bureau, the district and county tax
sub-bureaus will keep separate records and open special files for tax in arrears
paid by foreign individuals. The implementation of this task and the specific
payments have be reported to the municipal local tax bureau before the end of
July. The government appears to be taking a low-profile approach to this
amnesty. A local tax official stressed that the exercise is intended to
encourage taxpayers to clear their outstanding tax liabilities.
Tax Losses Involving Foreign Residents Amount to Rmb10 Billion A Year
According to SAT, the mobility of foreign residents and the complicated nature
of policies for individual income tax have made it difficult for the tax
authorities to correctly assess the tax obligations of taxpayers and monitor the
tax sources. For these reasons, income tax return omission and payment evasion
are frequent. Conservative estimates by experts put tax losses involving foreign
residents at about Rmb10 billion a year.
 Shaanxi: shirts of many colors for men in
Summer 2004
Spring and Summer clothing for men are in perfect match with the seasons for
2004, with gaudy and showy colors giving way to natural shades. Light and fresh
colors are in vogue, and nothing reflects this trend more than in shirts.
Gone are the dull, monotonous and predictable tones of the past. Beige, pastel,
light yellow and ivory colors are popular. Even rugged men from the north look
somehow more sartorially inspired in these softer and lighter colours.
In addition to plain, light-colored shirts, there are also shirts made of
colourful yarn-dyed fabrics. Thick and thin yarns are used to produce patterns
of stripes or checks. These are not only used on casual wear. Even top brands
are matching bright-coloured checked shirts with formal suits, a break from the
drab dress code for formal wear.
Fine embroideries and romantic prints have been exclusive for ladies' wear in
the past. But today, they are also used in designs for men's shirts, either
above the hemline in front or on the chest.
Modified embroideries and prints are more natural and elegant, with a touch of
"country" and sunshine. They are no longer just in black and white: tropical
prints and brighter colours are ubiquitous.
Although changes in men's shirts are more subtle than for ladies' blouses, there
are still many changes in detail and design of men's shirts this summer. One
obvious one is the use of raised seams on various parts of the shirt, as with
jackets.
Youngor, Romon, Shanshan and other domestic manufacturers of men's clothing have
all highlighted this detail on the cuff, neck, fronting and other suitable parts
of shirts. Other finer details include cuff buttons, little triangles on the
pocket, rounded fronts and flat bottoms with slits.
The collar has always been a major element of the changing design in men's
shirts. Stand collars are back in favor. Stand collars of square, round and
other irregular shapes best portray the image of the city man - trendy, with
character and having innately elegant qualities. Small pont collars are also
popular.
Discarding old-styled suits, men can still look suavely sophisticated freely
picking from a wide selection of shirts.
Many of the latest technologies are used in the making of fabrics for today's
men's shirts. Bamboo fibre fabrics and functional fabrics that are
anti-bacterial, stain-proof and scented are now freely used in the production
process.
Bamboo fibres are wrinkle-proof and porous - and are excellent as fabrics for
shirts. Anti-bacterial, stain-proof and scented fabrics are designed to suit
man's physiological characteristics.
In addition to classic, pure cotton and mercerized cotton, fabrics featuring
seersuckers, fine stripes and jacquard stripes are also widely used for men's
shirts this spring and summer. Subtle jacquard and weaved patterns and stripes
can best show man's temperament and their fondness for texture.
June 16, 2004
A Review of US Trade Measures and
their Implications for Hong Kong Exporters Content
Executive Summary - To enhance cost competitiveness, most Hong Kong
manufacturers have already relocated their production facilities to the Chinese
mainland, making the mainland by far the most important production hinterland
for Hong Kong. Hong Kong's manufacturing sector is supported by around 60,000
factories and over 10 million workers in the mainland. The US, for its parts, is
Hong Kong's second largest export market after the mainland, accounting for
18.6% of Hong Kong's total exports in 2003. Against this background, certain US
trade measures against mainland goods are likely to affect the interests of Hong
Kong exporters.
While the US economy has regained growth momentum, slow creation of
manufacturing jobs continues to be a concern. To complicate matters, the US has
recorded growing trade deficits with China, particularly in the past two years.
Although a report of the US Congressional Budget Office points out that the
increase in imports from China only reflects a shift of imports from other Asian
countries rather than an increase in total imports, some members of the US
public may still associate the loss of manufacturing jobs with growing imports
from the mainland. This perception could lead to an increasing use of US trade
remedy measures against Chinese products.
Within this setting, this report is prepared to assist Hong Kong companies to
acquire a better understanding of a wide variety of trade remedy measures at the
disposal of the US government, in order to keep abreast of regulatory
developments and their implications.
Major US Trade Remedy Measures
Purpose and Type of Measures - Similar to those in other parts of the world, the
purpose of trade remedy measures in the US is twofold. On one hand, they are
used to protect the domestic industry from the influx of imports. While proof of
unfair trade practices by foreign countries is required to invoke some measures
(e.g. anti-dumping and countervailing duties), such grounds are not applicable
to certain other measures (e.g. safeguards). On the other hand, trade remedy
measures may be employed to enhance the market access of US companies/products
to foreign countries. Typical examples are "Special 301" scrutiny and "Section
301" investigation.
Among various trade remedy measures, Hong Kong manufacturers should pay special
attention to anti-dumping (AD) investigation and textile and apparel safeguard,
which are likely to be invoked more frequently in the US.
Anti-dumping Investigation (AD) - AD orders provide relief from the adverse
impact of imports sold at "less than fair value" in the US market. The relief is
granted in the form of extra duties on the dumped product. For the purpose of
anti-dumping investigations, the Chinese mainland is considered to be a
non-market economy in which the government controls pricing and production
decisions. Against this background, the US selects the prices of inputs and the
expense and profit percentages experienced in a "surrogate" market economy to
determine a theoretical price that would be charged in the mainland if the
mainland were a market economy.
In the coming future, AD actions will likely remain the weapon of choice. What
makes AD actions so attractive is the fact that they are predictable for the
petitioning industry and highly efficient in shutting down foreign suppliers. In
fact, the mere filing of a case can be disruptive, simply because US importers
suddenly become unsure of the ultimate cost of their purchases, which means that
long-established sources of supply could suddenly become traps. In turn, that
danger may prompt US buyers to switch suppliers.
Textile and Apparel Safeguard - This measure is contained in China's WTO
accession protocol, which allows the US (and other WTO members) to restrain
imports of textiles and clothing of China origin in the form of quotas if these
imports are causing a market disruption, thereby threatening to impede the
orderly development of trade in these products. The textile safeguard will be
valid through 31 December 2008.
In the coming year, textile and apparel safeguards appear to pose the greatest
challenge to Hong Kong exporters of textile and clothing for at least two
reasons. First, as last year's safeguard action illustrated, the standard of
proof for establishing "market disruption" under the China textile safeguard
appears to be quite low. Second, a precedent was set by invoking this safeguard
successfully in December 2003.
Main Suggestions for Hong Kong Exporters
Understanding and Monitoring US Trade Remedy Measures - Hong Kong exporters are
advised to strengthen their understanding of US trade remedy measures, including
their operation and timelines, so as to plan ahead for any changes which might
affect their business. In the next year, textile and clothing safeguards are
expected to be a major threat. The first basic requirement is therefore to
detect the possible textile and apparel categories likely to come under fire.
Since it takes time for the US government to process a safeguard petition, Hong
Kong exporters can respond properly in the interim to minimise disruption.
Preparing for Anti-dumping Allegations - Far and away the most frequent measure
with which all Chinese products will be confronted in the coming years is AD
action. Companies that take a proactive stance in dealing with AD investigations
can gain a competitive advantage in the US market. If an anti-dumping proceeding
has been initiated, Hong Kong exporters should participate in the investigation
to reduce the adverse effect of the action. Seeking assistance from an
experienced law firm is deemed necessary for completing the questionnaire and
submitting information. To lower or eliminate the adverse effect of an existing
AD order, the manufacturers concerned may take advantage of procedural
opportunities, such as administrative, new shipper, sunset and changed
circumstances reviews.
US Official Says
Market-Economy Status for China Still Years Away
On June 3rd an inter-agency working group of the US government held a public
hearing on China's desire to receive market-economy status under US anti-dumping
law. The fact that a public discussion of China's status under US trade law is
underway at all suggests that the Bush administration's declared goal of helping
China shed its non-market-economy (NME) status is no empty promise. However, a
senior Bush administration official poured cold water on hopes that this process
could be completed in the near future. James Jochum, the US assistant secretary
of commerce for import administration, said that it may take years for China to
graduate to market-economy status.
In his opening remarks Jochum, who
chaired the meeting, observed that the process remains in its early stages,
stressing that Beijing first needs to implement a number of "fundamental
reforms" in a number of areas. He also underlined that under World Trade
Organisation (WTO) rules, members of the world trade body do not have to treat
China as a market economy until 11 December 2016.
However, in light of China's growing global economic importance - the country is
already the third largest US trading partner - Beijing is likely to achieve
market-economy status much earlier. As Dai Yunlou, the economic minister-counsellor
of the Chinese embassy in Washington, pointed out, China views the December 2016
date "as a maximum, not a minimum". In fact, the Chinese government believes it
already has undertaken the necessary reforms to qualify as a market economy. New
Zealand, Singapore and Malaysia treat China as a market economy.
No matter, it appears certain that the process is destined not to be a quick
one. According to Jochum, the purpose of the hearing and the creation of the
Working Group on Structural Issues under the umbrella of US-China Commission on
Commerce and Trade (JCCT), was simply to gather information and identify the
structural economic reforms that must be taken by China before it can qualify as
a market economy.
Jochum underscored, "Any decision to graduate China to market-economy country
status - whenever that decision is made - must be made in the context of a
formal, quasi-judicial proceeding" in accordance with Section 771(18)(B) of the
Tariff Act of 1930. He also stressed that the Bush administration is not
launching a formal review of China's NME status.
If and when the Bush administration gets around to considering a formal request
by China, under the Tariff Act of 1930 the country will have to meet six
criteria to be designated a market economy by the US Department of Commerce
(DOC). Those criteria are: (1) currency convertibility, (2) free bargaining of
wages, (3) foreign investment, (4) the extent of government ownership or control
of the means of production, (5) government control over the allocation of
resources and (6) other appropriate factors.
Most US industry witnesses concurred in their submitted comments that China
currently falls short on all of these counts. Congressman Philip English
(Republican-Pennsylvania) echoed these sentiments. He warned that China has not
made the necessary economic reforms to be granted market-economy status.
English has authored legislation (HR 3716), co-sponsored by 50 other House
members, that would allow countervailing duty (CVD) laws to apply to China
despite its NME status, and another bill, the Currency Harmonisation Initiative
through Neutralising Action (CHINA) Act of 2003 (HR 3058), which would allow
tariffs of up to 40% to be applied to Chinese imports to the extent that China's
currency is being manipulated. English noted that the latter is co-sponsored by
85 House members.
Graduating from NME to market-economy status is an important goal for China
because exports from NME countries frequently face higher duties in anti-dumping
cases because of the DOC's methodology. This reality effectively negates
whatever genuine comparative advantage Chinese firms might have. However, the
DOC-chaired hearing illustrated that the US government is not yet prepared to
proceed with alacrity. Although it is not likely that China's NME designation
will stay intact until 2016, it is still too early to predict when the US
government might be ready to accommodate Beijing's wishes in this area, at least
not with any amount of accuracy. Jochum will travel to China next month for
talks on changing China's NME status, but it would be overly optimistic to
expect any breakthroughs. A long hard road still lies ahead before China will
achieve its goal of being recognised as a market economy.
US Textile Industry Hails First
Asian Signatories of Istanbul Declaration, Announces Summit in Brussels on 15-17
June
On May 27th National Council of Textile Organisations (NCTO) announced that
twenty-five additional textile and clothing trade associations from sixteen
different countries have endorsed the Istanbul Declaration since April 13th. The
effort is led by NCTO, the American Manufacturing Trade Action Coalition (AMTAC)
and the Istanbul Textile and Apparel Exporters Association (ITKIB). In total, 71
trade associations from 38 different countries now support the so-called
"Istanbul Declaration", a letter that calls on the World Trade Organisation (WTO)
to extend the quota phase-out until 31 December 2007.
NCTO, AMTAC and ITKIB also have announced that an "Istanbul Declaration Summit
on Fair Trade in Textiles and Clothing" will be held in Brussels, Belgium on
15-17 June. The purpose of the summit is to bring together world textile and
apparel industry leaders to co-ordinate efforts to persuade the WTO to address
what the groups term "the certain catastrophic fall-out to be associated with
the phase-out of textile and apparel quotas" on 1 January 2005 under the WTO
Agreement on Textiles and Clothing (ATC).
The prospect that China will dominate the global trade in textiles and apparel
is the primary motivation behind these efforts. The Istanbul Declaration
contends that China's WTO accession "represents a severe and disruptive change
in circumstances not present during consideration in the early 1990s of a
timetable for the phase-out of quotas".
According to the declaration's signatories, the threat posed by China and a few
other countries could result in massive job losses around the world, many in
least-developed countries whose economies depend on textile and apparel exports.
In a statement, Augustine Tantillo, AMTAC's executive director, explained, "Not
only will the US lose more than 75% of its textile and apparel manufacturing
sector, but millions of the expected 30 million job losses will occur in
countries on the frontline in the war on terrorism such as Bangladesh, Sri
Lanka, Malaysia, Thailand, Indonesia, Morocco, Tunisia, Turkey, Jordan and
Egypt". Tantillo added pointedly, "Destabilizing the economies of these critical
allies by damaging their textile and apparel industries with the quota phase-out
will only make the war on terrorism that much more difficult to win".
The most recent additions to the list of the Istanbul Declaration's signatories
all come from Asia. They are the Bangladesh Textile Mills Association,
Bangladesh Knitwear Manufacturers & Exporters Association, the Federation of
Bangladesh Chambers of Commerce and Industry and the Confederation of Garments
Exporters of the Philippines. The new signatories are the first Asian
associations to endorse the Istanbul Declaration.
Though the worldwide effort to garner support for the Istanbul Declaration among
textile industry groups has been impressive, it is unlikely to be successful in
achieving its declared goal of postponing the quota phase-out. After all, the
quotas will be eliminated on 1 January 2005, and US as well as European Union (EU)
trade officials have observed repeatedly that it is simply too late to change
the process now.
Nevertheless, the apparent success of the Istanbul Declaration in garnering
international support ensures that postponing the quota phase-out will remain a
part of the trade policy debate in Washington, thus improving the chances of
success for future textile safeguard petitions and other trade remedy measures
against imports of Chinese textiles and apparel come January 2005.
CBP Launches Third Phase of Bioterrorism Act
Implementation, FDA Announces Procedures for Detention of Suspect Food
The US Department of Homeland Security's Bureau of Customs and Border Protection
(CBP) has launched the third phase of implementing the Public Health Security
and Bioterrorism Preparedness and Response Act of 2002. This phase requires that
CBP and the Food and Drug Administration (FDA) receive prior notice of all food
for humans and animals imported into the US. Failure to provide prior notice
will result in the refusal of entry.
Under the law, prior notice
timeframes are two hours for truck shipments, four hours for rail and air
shipments and eight hours for ocean shipments. According to CBP, in this
implementation phase the US government will hold goods which have not given
prior notice at the port of entry or an FDA-registered secure facility. The
carrier will have the opportunity to voluntarily re-export the items if
compliance with the Bioterrorism Act cannot be accomplished in a timely manner
or at all.
Meanwhile, on May 27th FDA announced a final rule establishing procedures for
the administrative detention of food under the authority of the Bioterrorism
Act. This new authority applies to food for which FDA has credible evidence or
information, resulting from an inspection, examination or investigation, that it
presents a threat to the US food supply. The final rule will take effect on July
6th.
Lester Crawford, the acting FDA commissioner, explained, "Identifying and
removing contaminated food from the food supply is an essential part of
responding to terrorist acts". He added, "This rule describes how the FDA can
hold food in place while it initiates legal action in court to seize it and
permanently remove it from commerce. Alternatively, our experts can determine
that the food is safe and the detention order may be terminated".
Every detention order must be approved by the FDA district director in whose
jurisdiction the detained article of food is located. A copy of the detention
order will be presented to the owner, operator and/or agent in charge of the
place where the article of food is located, and to the food's owner if the
owner's identity can be readily determined. If FDA issues a detention order for
an article of food located in a vehicle or other carrier, it also must provide a
copy of the detention order to the shipper of record and the owner and operator
of the vehicle or carrier if the owner's identity can be readily determined. The
food detention period may not exceed 30 days.
June 9, 2004
Chinese Multinationals to be Allowed
Greater Autonomy to Operate Forex Funds Overseas Operation
Wei Benhua, deputy director of China's State Administration of Foreign Exchange
(SAFE), said at the end of May that SAFE is drafting rules allowing qualified
Chinese multinational companies to have greater autonomy in using their own
forex funds for overseas operation.
This would expand the investment channels and diversify investment risks while
better supporting overseas enterprises, said Wei Benhua at an international
forum on Chinese enterprises "going global".
According to Wei Benhua, China has a steadily growing foreign exchange reserve
and enjoys a favourable balance of international payments. Under the
prerequisite of controllable risk and prudent supervision, it is not only
feasible, but also necessary, to appropriately relax foreign exchange control
for capital accounts and allow qualified Chinese multinational companies to use
their own forex funds to support overseas operation.
The shortage of working capital funds and the high cost and harsh terms of
overseas financing have become major problems urgently awaiting solution for
Chinese enterprises "going global".
Under the existing administrative framework, overseas companies can only gain
financial support from home through capital increases by domestic investment
entities. This involves complicated procedures and cannot effectively address
the fund flow shortage. Thus, many Chinese-funded multinationals have requested
that they be allowed to extend loans to their overseas operations from their
forex funds.
China's favorable balance of international payments, stable RMB exchange rate
and abundant foreign exchange reserve have created satisfactory conditions for
the further implementation of the development strategy of "going global", said
Wei Benhua.
Wuhan transforming into regional
distribution centre
One of the redoubtable features of the distribution scene in Hubei Province is
its large number of substantial commercial enterprises, with four in Wuhan
alone. There are also many sizeable shopping malls in the province, with more
than 10 in Wuhan and others in prefectural-level cities.
Little wonder that people in Wuhan are enthusiastic about shopping in their
numerous malls. But there are not that many specialty shops around. So, for
example, most retailing in Wuhan by Hong Kong-based Jean West tends to be
through special counters at department stores, with only a few street-level
shops.
One insider in the toys and electronic market likes to say that shoppers at
department stores and those frequenting specialty stores are two completely
different consumer groups, with different shopping mentalities.
People go to department stores because they have faith in their management and
believe they will not end up buying fakes. Tourists from other provinces and
cities, in particular, are attracted by the reputation of certain stores.
By contrast, people who shop at specialty stores tend (at least in their own
eyes) to have more of an informed understanding of products on display, and
prefer to protect their own interests. They also like to compare prices.
Competition is naturally keen among Wuhan's shopping malls. Suppliers are often
compelled to slash prices, and only a few dominant brands can afford to refuse
to play the price competition game.
People in the trade estimate that Hong Kong brands have a leading edge in Wuhan
and are competitive not only in style and service but also in price. They have
the highest shares in the casual wear market.
Jean West has a market share of 20%, while Baleno, G2000 and U2 each has a
market share of 9%. Casual wear has dominated the mainland fashion scene in
recent years and many women now wear more casual clothing to work. Basically,
there is huge demand.
By contrast, specialized counters play a dominant role in department stores. The
foreign stores and hypermarkets have brought pressure to bear on traditional
stores in recent years through this approach
Despite losing market share, traditional stores have generally not modified
their business strategy, given the fact that hypermarkets have a different
market trajectory.
However, department stores like Wuhan Plaza and Central Department Store have
taken on a more "high-class" image and adjusted their merchandise mix in the
hope of attracting more influential and appealing brands.
For example, Central Department Store now has Mondi and other European brands in
its imported fashion section, while Wuhan Plaza has SK-II, Lancome and several
international names displayed in its cosmetics department.
The majority of leading brands are marketed through their branch offices in
Wuhan. The reason is that they are doing a better job in brand protection and
image building. Most distributors in Wuhan are small operators with limited
expertise.
Wuhan opened its retail sector in 1997. Foreign players in the market include
PriceSmart from the US, B&Q from Britain, Carrefour from France, Ekchor Lotus
from Thailand, Sogo from Japan, Trust Mart from Taiwan and New World from Hong
Kong.
Walmart plans to open in the city shortly. Faced with competition from
hypermarkets like PriceSmart and Carrefour, Central Department Store has been
expanding its hypermarket business in recent years, an area which now
contributes 35% of its overall turnover. Central's supermarket business approach
has traditionally been to assume a virtual monopoly in Wuhan - but that is
changing.
In order to stay competitive, Central Department Store plans to consolidate and
set up a purchasing centre in Guangzhou. It also intends to develop house brands
for 15% of its merchandise, and will directly approach manufacturers to produce
the goods.
The retail scene is soon to become more complicated, with new shopping malls in
Wuchang and Hankou. This is likely to loosen the grip of department stores still
further, so that specialty outlets will find more scope for development,
capitalizing on new brands on the market.
As a result of these swift and somewhat brutal changes, Wuhan is becoming a
retail and distribution centre for other provinces and cities, especially those
on the borders of Henan, Anhui, Jiangxi and Hunan.
According to Wuhan's commercial bureau, the city grossed Rmb85 billion (HK$80.1
billion) in retail sales in 2003, ranking second after Guangzhou.
However, Wuhan consumers are very price sensitive. They have comparatively low
incomes and their spending power is lower than in Chengdu. Non-residents tend to
leave out Wuhan for brand-name and high-end product shopping. Dealerships are
also undeveloped because Wuhan does not as yet possess its own branding or the
expertise to develop their brands.
However, Wuhan's strategic position as China's highway and railway hub should
begin to transform already active industrial and geographic advantages into an
impressive logistics sector, as its economy continues to develop in leaps and
bounds.
May 18, 2004
China to Strictly Enforce Market
Access for Protection of Domestic Industries
China will act to protect its domestic industries by strictly enforcing
market access requirements, strengthening self-discipline by individual
industries and other measures, according to a set of guiding opinions for
protecting the domestic industries recently issued by the Ministry of Commerce.
The guiding opinions stress that government departments and industrial
organisations must guide enterprises to readjust and optimise their industrial
structure and regulate competition through various means in accordance with the
state’s industrial, technological and environmental protection policies. They
must restrict and eliminate products and enterprises that are technologically
backward, encourage the development of priority and high-tech industries and
products with future and market demand, avoid vicious competition and waste of
resources, and establish a good market environment and competition order.
The document also calls for greater efforts to build a credit system, regulate
market competition, and prevent and stop monopolies, regional barriers,
underselling and other improper acts of competition. It is necessary to fully
bring into play the role of market regulations and self-restraint, and make sure
that the self-discipline mechanism built by individual industries meets the
requirements of the socialist market economy.
It is understood that overlapping construction of enterprises at a low level has
led to excessive production capacity, price competition between enterprises, and
anti-dumping measures imposed by foreign governments on Chinese exports, which
have affected the development of China’s industries.
China's leading market for pearls
up north
Beidaihe, under the city of Qinhuangdao, lies in the middle section of the
northern shore of the Bohai Bay in northeastern Hebei. It is 250 km to the east
of Beijing and only takes two hours to travel from Beijing on the Beijing-Shenyang
Expressway.
Renowned as China's summer capital, Beidaihe has beautiful scenery and has
always been the summer resort for China's top leaders. With millions of tourists
visiting annually, the city has well-developed tourism, service and retail
sectors.
Shi Tang Lu Market is located in the mid-section of Shi Tang Road, which runs
parallel to the coast of Beidaihe.
With its ideal location at the foot of the hill and facing the sea, Shi Tang Lu
is at the busy commercial section of Beidaihe. The market was first established
in 1984 as a small open market. At the beginning, it was just a place where
peddlers sold to tourists necklaces made of pearls they cultivated themselves.
As the number of tourists multiplied, the market also grew in size.
The market is currently undergoing relocation and transformation to widen and
renovate Shi Tang Road and attract investment. There are plans to turn Shi Tang
Road into a pedestrian shopping street like Beijing's Wangfujing. This shows the
importance of Shi Tang Lu Market to the local business sector.
Inland tourists find shell decorations fascinating.
Shi Tang Lu Market has now developed into a large and comprehensive indoor
market. It sits on an 18,021 sqm site and has a total floor area of 28,189 sqm.
With 800 fixed stalls and more than 100 shops, it provides jobs for 2,000 people
and receives more than 3 million local and overseas tourists a year.
Annual turnover is Rmb250 million (HK$235.8 million). This Rmb58 million
(HK$54.7 million) market has become the largest shopping centre in Beidaihe. It
is a place tourists have to go for souvenirs.
Pearl strands form the bulk of merchandise at Shi Tang Lu Market.
The market has two levels. Ground floor shops mainly sell traditional
commodities such as necklaces, handicraft works and dried and fresh seafood.
Shops on the first floor sell souvenirs, clothing, bags and luggage. The market
deals in over 1,000 varieties of goods, with 30 major categories.
The wholesaling of necklaces and handicraft works forms an integral part of the
business of Shi Tang Lu Market. As many as 310 operators deal in these products,
accounting for more than one-third of the total number of operators in this
market.
Most of the necklaces are made of cultured pearls from Zhejiang and other
places. In addition to pearl, necklaces made of agate, jade and crystal are also
sold. The necklaces range between a few yuan and over Rmb1,000 (HK$943.3) in
price, and are much cheaper than in retail markets in the big cities.
According to people in the trade, pearl necklaces priced over Rmb1,000
(HK$943.3) in shopping plazas in other cities can be bought for just Rmb300
(HK$283) at Shi Tang Lu. The wholesale price can be even cheaper.
Many of the handicraft works on sale are made of marine products. These include
shell decorations and ornaments. There are also items made of crystal, jade and
ox horn. The varieties of dried and fresh seafood are similar to those sold in
other seaside markets. These include dried fish, dried shrimps, dried seaweed
and all kinds of seafood fresh from the sea.
Shi Tang Lu Market is a wholesale/retail market. The golden period for retail is
the summer peak tourist season. As a designated tourism spot, the market
attracts some 30,000 visitors a day in peak seasons.
Retail turnover is very impressive in summer, while wholesaling dominates after
the summer peak. Purchasers come from all parts of the country. Most of them are
buyers for handicraft retailing in the three northeastern provinces as well as
Beijing, Tianjin, Shijiazhuang and other northern cities.
More investors from various parts of the country come to make investment as Shi
Tang Lu Market grows in fame. Leases for market stalls are open for tender, and
more than 2,000 bidders take part in bidding each year.
Average annual rental is around Rmb10,000 (HK$9,433) for stalls, with the
highest bid for the best spot reaching a record Rmb49,800 (HK$46,981) last year.
Average rent for shops (13 sqm in size) is Rmb15,000 (HK$14,150) per year, and
those in prime locations could fetch Rmb130,000 (HK$122,641).
The market's total rental income was Rmb7 million (HK$6.6 million) last year.
According to Li Guang, deputy director for market development and services, Shi
Tang Lu Market plans to undergo internal extension following the renovation of
the surrounding streets.
The project will increase the number of stalls by 100 to satisfy investors'
needs. The market provides tenants with a range of services, such as application
of licences and payment of fees. In a bid to diversify the market, preferential
tax and rental terms are offered to tenants intending to bring in new
commodities.
In order to ensure its market lead in pearl necklaces, the market management has
strengthened its hardware and software in recent years and assigned equal
importance to management and services.
The offices for industrial and commercial administration and taxation,
commercial banks, post office, clinic and a transportation centre at the market
are ready to serve tenants and customers.
In order to protect the interests of consumers, the market development and
services centre signed a responsibility agreement with tenants to ensure that
all goods sold are genuine.
A market access system is also in force. Supervisors for individual trades would
inspect the goods coming into the market every morning. They would strictly
abide by this market and bar any substandard goods from the market. The centre
has also established a jewellery appraisal office, which has four experts with
PhD qualifications from Yanshan University's Jewellery An Appraisal Research
Centre taking turns to provide customers with jewellery appraisal service so
that they can make purchases without fear of being cheated.
The market has invested Rmb10 million (HK$9.4 million) to carry out renovation
and refurbishment since 2001 in order to turn itself into a tourist attraction
and a mall with beautiful, clean and green shopping environment.
Xian gets fit and fit centres get
richer - Fitness Xian style.
The first fitness centre opened in the city of Xian four years ago. The
industry has since developed from scratch, evolving from small to large
operations with precise market positioning.
Today, there are fitness advertisements all over the city, from roadside
billboards to elevators in residential estates. As many as 80% of the fitness
centres were established from 2002, including leading names such as Megafit Spa
Fusion, Orient and Maxwin Gymnasium.
Competition has never been keener. Many fitness centres are offering discounts
of between 50% and 60% to attract members.
Competition in Xian is already comparable to Beijing, and nation-wide the
phenomenon is growing.
The Spa and CSI-Bally Total Fitness opened for business in Beijing in 2002. The
former is a subsidiary of UK-based Fitness First, the third largest fitness
group in the world, while the latter is a joint venture between the China Sports
Industry Co Ltd and Bally Total Fitness, the only commercial operator of fitness
centres to be listed on the New York Stock Exchange.
These operations show that China's fitness market is rapidly growing and
maturing.
According to the general manager of a health club in Xian, there is still ample
room for development in the city's fitness market.
In the US, 30% of people in the 20-to-50 age group has joined health clubs or
similar institutions.
In China, less than 1% of people in the same age group have similar health
plans.
In Xian with a population of 7 million, 1% means 70,000 people. It will take
some 70,000 sqm of professional fitness venues to meet their needs. The total
area of fitness centres in Xian falls far short of this target.
The growth in health club membership best illustrates the development prospects
for the fitness market.
Megafit has opened two centres in two years, with membership exceeding 3,000.
Orient has a membership of over 2,000. Maxwin also has more than 2,000 members.
Hefty membership fee of Rmb3,000 (HK$2,830) do not seem to deter people's
enthusiasm for fitness.
Although health clubs are fairly concentrated, they each have their distinct
character and do not completely overlap.
Megafit targets young white-collars and designs its décor and programmes
accordingly.
Orient caters to the business set. It has a business bar and attracts
businessmen with is full range of equipment and spacious venue.
Maxwin is mainly for more mature people. Most of its members are over 40 years
of age. It has even introduced a social card for its members.
Jiqing Feiyang is open in the vicinity of schools and targets nearby students.
Flamingo caters to people in the local community.
While all health clubs can afford to buy expensive equipment and hire capable
instructors, unique business concepts and precise market positioning are crucial
for their success.
Market integration and improvement needed.
The distribution of health clubs is quite concentrated in Xian. Virtually all
health clubs in the city are located in the new and high industrial development
zone, in the neighbourhood of the Second Ring Road and within the walled city.
There are very few clubs in the northern, western and eastern suburbs. According
to people in the trade, health clubs have a service radius of between 3 and 5.
Customers are unlikely to go to gyms that are too distant. Unbalanced
geographical development is one of the shortcomings of Xian's fitness market.
Compared with places like Beijing and Tianjin, another shortcoming of Xian's
fitness market is the lack of personal attention.
For example, large health clubs in Beijing and Tianjin have children's play
corners where parents can leave their kids while they work out.
Health clubs in Xian do not have such facilities. For this reason, many people
have to give up the idea of going to the gym for workouts, and gyms are losing
their valuable customers.
May 12, 2004
Central Commercial and Cultural
Plots at Olympic Park Up for Tenders
The planning organ for commercial and cultural plots at the centre of the
Beijing Olympic Park has started the work of calling for bids. The invitation of
tenders will ensure not only the smooth progress of the construction of the
park's central district but also the effective use of the venues after the
Olympics.
These commercial and cultural plots are situated at the heart of the Beijing
Olympic Park. They cover an area of about 33 hectares and will have a total
building area of 1.37 million sqm. The nature of planned land use is commercial
or cultural/commercial. The plan is to build commercial facilities, offices,
guest houses, hotels and apartments on these plots. Legal persons and other
economic entities legally registered within or outside China with experience and
expertise in real estate investment planning may submit tenders individually or
as conglomerates (unless otherwise stipulated by law). Tenders may be submitted
between 28 April and 2 pm on 21 May.
Taiwan-associated companies to
list in Hong Kong
Solomon Systech, a Motorola spin off chip designer with a Taiwan and Hong Kong
background, recently made its debut on the SAR's Stock Exchange, the Hang Seng
Index.
Meanwhile, a large contract electronics manufacturer, Hon Hai Precision
(otherwise known as FoxConn Electronics in the US) is also intending to carry
through listing plans in Hong Kong, while cable TV specialist Taiwan Broadband
Co is scheduled to reveal its initial public offering (IPO) to Hong Kong
investors this year, appointing as underwriter Goldman Sachs.
Taiwan companies are determined to raise funds internationally and while the
mainstream might seek a US listing through the offer of American depositary
receipts, or by floating in Luxemburg or London through offers of global
depositary receipts, Euro-convertible bonds or exchangeable bonds, there is
another, closer venue to look at.
"The latest trend is to look for the possibility of listing in Hong Kong," said
Chien Kuo-wei, Taiwan representative for merchant banker, JP Morgan Chase.
As pointed out by Jonathan Back, managing director and co-head of equity capital
markets for JP Morgan Chase, global fund raising soared last year, with
securities issuances growing by 76% and 68% in the US and the Asia-Pacific
countries respectively.
Securities issued in the Asia-Pacific region accounted for 52% of the global
total last year, far exceeding the 34% share of the US market.
According to Capital/Data Bondware, shares with a total value of US$63 billion
were issued in the Asia-Pacific region, including Japan, Australia and New
Zealand, last year. The biggest source of funds came from Taiwan, accounting for
26%, followed by Japan with 23%, Australia and New Zealand with 13%, the Chinese
mainland with 11%, and Hong Kong with 10%.
Shares totalling US$33 billion were issued in Hong Kong between 2000 and 26th
March this year, says Bondware. Mainland companies accounted for 79.6%, while
domestic firms made up only 20.4%.
Solomon Systech's IPO set its price on 30th March and was listed on the Hong
Kong market on 8th April. The company's funds mainly came from Taiwan's China
Development Industrial Bank and Quanta Computer, with JP Morgan Chase as
underwriter.
About 20 Taiwan companies have listed in Hong Kong over the past 10 years.
Taiwan companies, including Yue Yuen Industrial Holdings of the Pou Chen Group
and Kangshifu of the Tinghsin Group, have long since actively studied the option
of listing in Hong Kong to raise funds for their mainland ventures, said Chien
of JP Morgan Chase.
Many Taiwan companies have indeed already listed in Hong Kong. As Brad Rohal,
vice president of JP Morgan Chase points out, Hong Kong has attracted
considerable international capital in recent years with its developing capital
market and stable regulatory system.
It is quicker to list in Hong Kong than in Taiwan, bankers like to say. The
price-to-earnings ratio of Hong Kong shares is also higher. Both are good
reasons why Hon Hai is eyeing a Hong Kong issue.
The biggest shareholder in Taiwan Broadband is the Carlyle Group, a leading
private equity firm. Taiwan Broadband mainly operates cable TV in Taoyuan,
Taichung, Hsinchu, Miaoli and the Greater Taichung District, but is keen on
going public. Its underwriter is Goldman Sachs, which plans to raise US$200
million in Hong Kong this year.
Hebei's Xianghe Wholesale Furniture Market
dominates north
Xianghe county, Hebei province, lies within the triangle of Beijing, Tianjin and
Tangshan, and is 50 km from Beijing and 70 km from Tianjin. It is accessible via
the Beijing-Shenyang Expressway and several other provincial-level highways.
Xianghe is 30 minutes from Beijing on the Beijing-Shenyang Expressway.
Beijingers new nothing of the market a few years ago, but it is now becoming
increasingly well known.
The wholesale furniture market has expanded to its present scale of 500,000 sqm
following the establishment of the 1,200 sqm Chuncheng Furniture City back in
1998. Today, it is the largest furniture wholesale and distribution centre in
northern China and ranks third in the country after Shunde in Guangdong and
Likou in Jiangsu.
Liu Fengshun, chairman of Xianghe Furniture City Management Committee, says
Xianghe Furniture City makes use of trade fairs, expos and seminars to promote
itself to domestic and foreign furniture dealers and tries to attract investment
through online and media advertising.
The present Xianghe Furniture City has 23 exhibition halls and 2,300
enterprises, with products from Fujian, Zhejiang, Hong Kong, Taiwan, Beijing,
Tianjin and other places. These companies produce, supply and market.
The City is wholesaling to more than 10 provinces and municipalities in northern
China and has expanded its retail business to neighboring cities within a radius
of between 400 km and 500 km. Annual turnover in 2003 is Rmb1.5 billion (HK$1.4
billion).
In spite of its northern location, it is understood that Guangdong funds are
behind one-third of its exhibition halls and nearly 20 of the 2,000-plus
enterprises that have set up business in the furniture city are Hong
Kong-funded. According to Liu Fengshun, the place is attracting a large number
of southern enterprises because of its flexible policies.
The local government has introduced a series of preferential policies to attract
foreign investment and accelerate development.
For example, projects with a fixed investment of Rmb10 million (HK$9.4 million)
are eligible for a 30% discount on fees other than those payable to the state,
province, city and land compensation; projects with a fixed investment of
between Rmb10 million and Rmb30 million (HK$9.4 million and HK$28.3 million) are
exempted from all fees except those payable as above.
These projects are also exempted from land use fees for five years. For projects
with an investment of over Rmb30 million (HK$28.3 million), preferential
policies are fixed on a case-by-case basis.
For enterprises that invested Rmb1 million (HK$943,396) or more on new or
additional fixed assets, all corporate income tax paid in accordance with state
law will be returned to them as of right for five years, starting from the first
profit-making year, to be spent on enlarging reproduction.
For high-tech projects that comply with state regulations, the value-added tax
paid to the local government will be returned as of right for five years on the
basis of the actual amounts paid, that is, 50% for investments of less than
Rmb500,000 (HK$471,698), 70% for investments of between Rmb500,000 (exclusive)
and Rmb1 million, and 80% for investments of over Rmb1 million.
Article 9 of the regulations stipulates that preferential policies for key
projects with an obvious role promoting the furniture industry will be
considered on a case-by-case basis.
The regulations also stipulate that domestic and foreign investors are entitled
to the same treatment as local residents in nursery, schooling, medical
treatment, insurance, housing and other domestic concerns.
In terms of supporting facilities, the banking, taxation and industrial and
commercial departments can provide integrated service to occupants of the
furniture city.
There are supporting logistics companies in the furniture city. Consumers only
need to pay a delivery and handling fee of Rmb200 (HK$188.6) to have their
purchases delivered and installed.
The furniture city practices strict management, so occupants are required to pay
a deposit of not less than Rmb5,000 (HK$4,771.6) as guarantee for good service.
In order to bring the market closer to Beijing consumers, Xianghe Furniture City
set up an office in Beijing at Tiantong West Garden in September 2003.
Noted for its cheap prices and reliable quality, Xianghe Furniture City is
visited by over 10,000 people on a busy day and grosses Rmb4 million (HK$3.7
million) a day on average. Most buyers are people in the Beijing and Tianjin
areas, many of whom are employees of foreign embassies in Beijing.
According to statistics compiled by the China Furniture Association, per-capita
furniture consumption is less than US$8 in China, only one-third that of
countries like Brazil, the Philippines and Thailand.
People in the industry predict that market demand will grow to Rmb180 billion
(HK$169.8 billion) at an annual rate of over 10% between 2001 and 2005 and to
Rmb300 billion (HK$283 billion) at an annual rate of 5% between 2005 and 2015.
Beijing will be building more than 300 new hotels and renovating another 500
over the next five years for the Olympic Games in 2008. This will generate
excellent business for the furniture market.
According to market analysis by a management consultancy in the Chinese capital,
sustained market growth will provide ample room for the development of the
furniture industry.
Furniture as bulk consumer merchandise has a higher average profit rate than
usual. The furniture industry fares much better than other industries in capital
investment and the expansion of operational scale. In terms of regional demand,
northern China is trailing behind the south, especially the southeastern coastal
areas, by at least 10 years in the level of consumption. The region is bracing
for an upsurge in household furniture consumption in the wake of rising per
capita income and a property boom.
Tower cranes dominate the landscape on the sites of Xianghe Furniture City,
where several projects with an investment of over Rmb10 million (HK$94.3
million) each are under construction amidst the rumbling of piling machines.
The Rmb200 million (HK$188.6 million) Golden Key International Furniture Plaza
was opened in November 2003, providing 110,000 sqm of facilities for exhibition,
trading, catering and accommodation.
Construction of Huabei-II, Huimei-II, Shuanghexuan, Xinyilong and other
furniture plazas with investments of over Rmb10 million each are underway, ready
to tap booming business opportunities.
May 6, 2004
JCCT Meeting Results Improve
Sino-American Trade Relations Significantly
The US and China took significant steps to resolve a number of smouldering trade
disputes at the annual meeting of the Joint Commission on Commerce and Trade (JCCT)
on April 21st. Going into the meeting, the US sought commitments from China in a
number of areas, including improving intellectual property rights (IPR)
protection, progress towards abandoning discriminatory industrial policies and
generally opening its market more to US exporters. By all accounts, Washington
got most of what it wanted. In return for China's concessions, the Bush
administration promised to establish a process to help China receive the
market-economy status under US trade law. Without this status, China is subject
to more antidumping cases with higher duties on its exports to the US.
Beijing's promises to meet its World Trade Organisation (WTO) accession
obligations go a long way toward restoring US confidence in China's commitment
to genuine economic reform. Meanwhile, Washington and Beijing agreed to
establish a working group to assess the reforms China has undertaken to date and
identify steps the country would have to take to be granted market-economy
status by the US government. That working group will be chaired jointly by James
Jochum, an assistant commerce secretary, and the appropriate director-general
from China's Ministry of Commerce (MOFCOM).
In short, the JCCT meeting provided a much-needed reaffirmation of Sino-American
trade relations. President George W. Bush continues to face political pressures
to get tough with China, as the US unemployment rate remains relatively high
despite improving somewhat last month. While JCCT meetings have taken place
annually since 1993, President Bush and Chinese Premier Wen Jiabao agreed last
December to raise the profile of the exercise. Vice Premier Wu Yi, who has
authority over all the key economic departments, led the Chinese delegation. For
the US government, the meeting was co-chaired by US Commerce Secretary Donald
Evans and US Trade Representative Robert Zoellick and Agriculture Secretary Ann
Veneman.
IPR Protection - At the top of the JCCT agenda was the lack of effective IPR
protection in China. The Bush administration and corporate America sought a
"credible plan of action" to reduce counterfeiting and piracy of US films,
software, music and other products. It got what it wanted, on paper at least.
Beijing presented an action plan designed to significantly reduce piracy levels
through a nationwide campaign co-ordinated at the national, provincial and local
level by Vice Premier Wu. Among other things, China will increase penalties for
IPR violations by the end of this year. This includes subjecting a greater range
of IPR violations to criminal investigations and applying criminal penalties to
the import, export, storage and distribution of pirated goods.
In addition, China will amend its laws to protect sound recordings transmitted
over the Internet. Toward this end, China promised to ratify and implement the
World Intellectual Property Organization (WIPO) Internet treaties and to do so
as soon as possible. Beijing will also extend to the local level the existing
ban on the use of pirated software for central and provincial government
agencies.
With regard to IPR enforcement, the Chinese government intends to crack down on
IPR violators by conducting nationwide raids as well as increasing customs
targeting of both imported and exported products. Finally, Beijing committed to
launching a national campaign to educate the Chinese population about the
importance of IPR protection and establishing a JCCT IPR working group, which
will allow US and Chinese trade, judicial and law enforcement authorities to
improve their co-operation.
How corporate America and thus the US government will perceive China's IPR
protection efforts will depend largely on the measures' effectiveness in
actually reducing piracy.
Various American trade associations welcomed China's IPR commitments. Mitch
Bainwol, the chairman and CEO of the Recording Industry Association of America (RIAA),
praised the agreement by saying, "China has committed to tangible, specific
steps to address the rampant piracy of copyrighted works. If fully implemented,
this will be a landmark announcement and a real victory for composers, record
companies, artists and other copyright owners in China". Bainwol called China's
commitments an "important first step", adding that Beijing must reduce piracy by
50% by the end of 2004, with further verifiable and significant reductions in
the following years.
The International Intellectual Property Alliance (IIPA) struck a more critical
note. It pointed out that China made no commitment to combat the unauthorised
use of business software in the private sector. Moreover, IIPA highlighted that
Beijing did not commit to take enforcement actions against software piracy
administratively.
China's Industrial Policy in Technology
The US also wants China to abandon what US government and industry view as
discriminatory industrial policies that appear to be primarily designed to
strengthen China's technological base. This issue clearly has national security
implications for the US, as Beijing's policy is perceived in Washington as
serving to build up its defence industry. In this regard, the Bush
administration was successful on at least one issue. The Bush administration
received a commitment from Beijing that China would indefinitely delay the
implementation of a new encryption standard for wireless technology, which was
due to come into force on June 1st.
Late last year, China had stipulated that Wi-Fi products sold in the country
would have to use the WLAN Authentication and Privacy Infrastructure (WAPI)
encryption standard, but had provided the technical specifications for this
standard only to twenty-four Chinese companies, which would have forced all
foreign firms to enter into joint ventures with these Chinese entities. China
promised to work to revise the WAPI encryption standard, taking into account
comments received from both Chinese and foreign firms and participate in
international standard-setting bodies.
China also announced that it would move towards a market-based and
technology-neutral approach for the development of next generation wireless
standards, which means with respect to third-generation (3G) telecoms standards
that telecom service providers in China will be able to choose which standard to
adopt. All of these steps help to ease some of the concerns shared by the US
high-technology industry and, albeit to a lesser degree, the US national
security establishment.
Textiles and Apparel
Total US imports of textiles and apparel from China were worth US$11.6 billion
in 2003 while US exports to China of these products totalled only US$225
million. China's exports of textile and apparel products to the US have surged
dramatically since quotas were lifted on for some products at the end of 2001.
The US textile industry has maintained that a variety of Chinese policies
distort trade and investment in the sector, citing high tariffs, improper
customs valuation practices, arbitrary import taxes, non-transparent import
licensing, subsidies provided to state-owned enterprises, value-added tax (VAT)
rebates and currency undervaluation. In addition, the US industry maintains that
IPR violations, including textile design "knock-offs" and trademark piracy,
continue to be problems in textile and apparel trade between China and the US.
Despite the continuing friction over surging Chinese textile and apparel exports
to the US, this sector was not expected to play a significant role in the
discussion. Nevertheless, the issue was addressed, and both sides agreed to take
steps to ease tensions. Specifically, Washington and Beijing agreed to reinforce
the existing dialog on textile trade, including by upgrading ongoing discussions
to the under-secretary-vice ministerial level. These talks will cover mutual
trade and investment opportunities, barriers to US exports of textile products
to China, IPR protection and possible scenarios for the evolving bilateral
textile and apparel trade relationship when quotas are eliminated under the WTO
Agreement on Textiles and Clothing.
The US government's press release stressed that "further business-to-business
discussions" will be held in the US later this year "with a view to improving
the trade imbalance in this sector".
Market Access for US Services
In the services sector, China agreed to move with alacrity to give American
companies full control of their supply chains by allowing them to import,
export, distribute and sell their products in China without having to go through
local intermediaries, ie, state trading companies. Specifically, China agreed to
implement its WTO trading rights obligations by July 1st, fully six months ahead
of schedule, with draft regulations to be published for comment by June 1st.
Beijing will also extend distribution rights to US companies on schedule by the
end of 2004. Draft implementing regulations for this were already published on
April 16th.
The US and China also exchanged diplomatic notes that confirm the completion of
all agreed upon actions to allow the bilateral maritime agreement to enter into
force, which allows US shipping companies and container transport service
companies to exercise commercial rights that are on par with domestic Chinese
firms, such as the ability to open full branch offices throughout the country.
China also agreed not to raise the threshold weight below which only the Chinese
postal service may deliver packages.
Agricultural Trade Issues
US agricultural exports to China have tripled over the course of the past two
years. In fact, China is now the fifth largest market for US exports of farm
goods. Some progress was made with regard to agricultural trade disputes at the
JCCT meeting. For example, China agreed to implement new transparency procedures
and issue product approvals that will further open its market to US agricultural
products, such as increasing transparency of its tariff-rate quota (TRQ)
allocation process for wheat, cotton, corn and other commodities. Beijing also
will issue final safety certificates for US biotech soybeans.
In addition, China agreed to partially lift its ban on the import of US beef
products. Beijing had banned imports of US beef and beef products after the
discovery in the US late last year of bovine spongiform encephalopathy (BSE).
This so-called "mad cow disease" has been linked to a fatal brain disease in
humans called new variant Creutzfeldt-Jakob disease (nvCJD). Under the deal
struck in Washington, China will resume imports of beef tallow, semen and
embryos. Yet, not all agricultural trade issues were resolved, as little
progress was made on China's import ban on US poultry which had been imposed in
response to an outbreak of avian influenza in some parts of the US.
Other Steps
The US and China reached agreement on various other trade issues. Among other
things, Washington and Beijing agreed on the issue of end-use verification
visits for US dual-use and high-technology exports (please see the related
article in this issue of Business Alert-US). China's General Administration of
Quality Supervision, Inspection and Quarantine (AQSIQ) and the US Consumer
Product Safety Commission (CPSC) formalized a working relationship under which
they will exchange scientific, technical, and regulatory information to help
ensure the quality, safety and proper labeling of consumer products.
Sino-American Trade Relations Back on Track
In short, the JCCT meeting was a resounding success, particularly for
Washington. The results from the meeting go a long way towards resolving some of
the most contentious issues of the bilateral Sino-American trade relationship,
which continues to grow in importance for the health of the US economy. Although
the global economy has struggled since 2000, China's economy has expanded by
more than 8% in each of the last three years. Meanwhile, US exports to China
have grown by 76% during this period, while US sales to the rest of the world
actually declined by 9% between 2000 and 2003. China is now the sixth largest
market for US exports and America's third largest trading partner, surpassing
Japan last year.
These facts alone explain China's growing importance in the US, and why the
country is increasingly becoming a target for US criticism. And despite the
positive results, US criticism is unlikely to die down any time soon. Both the
US government and the corporate sector want to see action.
The Chinese government's actions with regard to combating IPR piracy and living
up to its market-opening commitments will be the measure by which Beijing will
be evaluated. However, in light of the fact that the bilateral trade
relationship appeared to be drifting toward a crisis in recent months, as
various trade disputes were on the verge of escalating, the JCCT meeting's
outcome represents a stunning turnaround. Both sides effectively managed to calm
the waters sufficiently enough to ensure that election year rhetoric in the US,
which will inevitably be hostile to China, cannot do significant damage to the
bilateral relationship. That qualifies as a significant success indeed, and one
that both Washington and Beijing can savour.
Bush Administration Rejects
AFL-CIO's Section 301 Workers' Rights Petition, Says Will Not Accept Currency
Manipulation Petition
On April 28th US Trade Representative Robert Zoellick, Commerce Secretary Donald
Evans, Labor Secretary Elaine Chao and Treasury Secretary John Snow appeared
together to announce that the Bush administration had rejected a petition by the
AFL-CIO labor federation under Section 301 of the Trade Act of 1974. However, in
turning down the AFL-CIO's petition, which had called for an investigation of
working conditions in China, the Bush administration announced that China has
agreed to a comprehensive joint effort aimed at effective implementation by
China of internationally recognized core labor standards.
The AFL-CIO's petition documented
how the Chinese government prevents workers from forming and joining independent
unions and bargaining collectively, denies workers safe working conditions,
provides no minimum wage and uses forced labor in a number of industries. As a
result, the AFL-CIO's case claimed that Chinese workers' wages are between 47%
and 86% lower than they should be, which in turn reduces the price of Chinese
manufactured goods by 11% to 44%.
The AFL-CIO petition argued that if China did not violate workers' rights, the
price of Chinese manufactured goods would increase by 12% to 77%. Applying the
COMPASS model used by the US International Trade Commission (USITC), the AFL-CIO
calculated that Chinese manufacturers enjoy an unfair cost advantage of 43%,
which is the midpoint of the 12% to 77% range, and that this unfair advantage
has translated into a loss of between 268,345 and 727,130 American jobs.
The petition argued that this employment impact clearly constitutes a "burden"
on US commerce and that the Chinese government's persistent pattern of violating
workers' rights is an "unreasonable" practice, under the terms of Section 301.
On the basis of this conclusion, the AFL-CIO called on President George W. Bush
to impose trade remedies commensurate with the 43% cost advantage caused by
China's denial of workers' rights, and to negotiate a binding agreement with the
Chinese government to come into compliance with internationally recognized labor
standards.
In addition, the Bush cabinet members stressed that the White House would not
accept either a Section 301 petition alleging that Beijing manipulates its
currency to gain an unfair advantage vis-ŕ-vis US manufacturers. This
announcement effectively pre-empted the Fair Currency Alliance, a group of
approximately 40 trade associations and labour unions, which was close to filing
such a petition. The petition was being prepared by the Washington law firm of
Collier Shannon Scott.
In a statement, Treasury Secretary Snow said, "With steady progress clearly
being made, the most effective way at this time to achieve the goal of a
flexible, market-based exchange rate in China is to maintain the persistent
engagement we have established rather than through a trade petition. Economic
isolationism does not work and it is a path we will not follow".
Zoellick added that until Beijing floats its currency and allows "free
bargaining between labour and management", China will not be able to reach its
goal of gaining market-economy status from the US.
Progress Made to Enable US
Technology Exports to China
At the Joint Commission on Commerce and Trade (JCCT) meeting on April 21st the
US Department of Commerce (DOC) reached an agreement with China's Ministry of
Commerce (MOFCOM) on procedures to strengthen end-use visit co-operation,
designed to help ensure that US exports of controlled dual-use items are used by
the intended end-user for their stated purpose. This understanding specifies
procedures for conducting end-use visits, while also providing a mechanism for
consultations on issues that may arise during those visits. It thus promises to
resolve a long-standing issue of great importance to Sino-American
high-technology trade relations.
The US high-tech industry hopes that this understanding will lead to increased
US exports to China. On the other hand, whether this end-user inspection
agreement will have the desired effect is highly questionable. House Armed
Services Committee chairman Duncan Hunter (Republican-California) and House
International Relations Committee chairman Henry Hyde (Republican-Illinois)
oppose loosening export controls in general, and that is all the more true
vis-ŕ-vis China, which many conservative Republicans view as America's greatest
challenger in the 21st century.
Meanwhile, the established export control procedures run their usual course. For
example, the DOC's Bureau of Industry and Security (BIS) has issued an updated
version of its "unverified" or "red flag" list, which removes the Power Test &
Research Institute of Guangzhou, China, from this list, after a post-shipment
verification took place at its facilities.
Exporters are called upon to use "enhanced due diligence" on exports to foreign
entities cited on the "red flag" list, which identifies parties in past
transactions where pre-licence checks and post-shipment verifications, which are
required for granting a license for advanced US technology exports, could not be
conducted despite the US government's best efforts. In this context, it should
be noted that end-use visits for licensed US exports are a normal part of US
high-technology trade and are conducted routinely with US trading partners. The
inability to carry out such visits raises concerns regarding the ultimate
end-user.
Any transaction involving an entity or individual cited on this list is deemed
to raise a "red flag". Whenever there is a "red flag", exporters have the duty
to inquire, verify or otherwise satisfy themselves that the proposed transaction
does not involve a prohibited proliferation activity or another violation of the
Export Administration Regulations (EAR). However, the listing of an entity does
not in itself constitute a licensing requirement.
Currently, the "red flag" list is comprised of the following entities: Lucktrade
International of Hong Kong, Brilliant Intervest of Malaysia, Dee Communications
of Malaysia, Shaanxi Telecom Measuring Station of China, Yunma Aircraft Mfg of
China, Civil Airport Construction Corporation of China, Beijing San Zhong
Electronic Equipment of China, Huabei Petroleum Administration, Bureau of China,
Peluang Teguh of Singapore, Lucktrade International PTE Ltd of Singapore and
Arrow Electronics Industries of the United Arab Emirates (UAE).
In related news, the US Department of State has announced that it will undertake
a massive campaign to prevent US companies from illegally exporting
defense-related equipment. In 2003, the State Department imposed record fines
totaling US$63.5 million. The programme is administered by the State
Department's Bureau of Political-Military Affairs, which is headed by Assistant
Secretary of State Lincoln Bloomfield, who has doubled the number of licensing
officers dealing with defense-related export controls covered under the Arms
Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).
While the US government's efforts to crack down on illegal exports of defence-related
systems is largely explained in the context of the "war on terrorism", the
spectre of the ongoing Chinese arms build-up plays just as important a role.
This fact is abundantly illustrated in official Washington's unease at the
prospect that the European Union (EU) might lift its fifteen-year-old ban on
selling arms to China, which is likely to occur in the coming months. In recent
years, China has become the world's largest importer of defense systems, worth
more than US$2.3 billion in 2002. The US government is opposed to the EU lifting
the embargo, arguing that the move would destabilise the delicate security
balance in East Asia, particularly in the Taiwan Straits.
Why is this arms export control issue relevant to export controls administered
under the expired and not-yet-renewed Export Administration Act (EAA)?
After all, US defense exports to China are banned. Harald Stavenas, a spokesman
for the House Armed Services Committee, provided the answer when he was quoted
in the National Journal's April 24th edition. He said that should Brussels lift
its arms embargo that decision would undermine the Wassenaar Arrangement, the
multilateral export control regime for advanced dual-use technology, which in
turn would render unilateral US export controls useless.
May 4, 2004
Foreign Banks Have Set Up
192 Business offices in China - None from Hawaii yet
To date, 64 foreign banks from 19 countries and regions have established 192
business offices in China, the TDC has learned from the Conference on Foreign
Bank Development in China held by the China Banking Regulatory Commission in
Beijing in mid-April (12 April 2004).
Among these 192 business offices, 88 have been authorized to conduct renminbi
business. Total assets of all foreign bank offices in China valued at US$49.5
billion. In addition, foreign banks have established 209 representative offices
in China.
As an integral part of reform and opening up, China's banking sector has made
remarkable progress in opening up in recent years. Upon China's accession to the
World Trade Organization, the banking sector quickened its pace of opening up by
lifting the geographical and client restrictions on foreign currency business
conducted by foreign banks. Foreign banks are allowed to conduct renminbi
business in 13 cities, as opposed to just two cities, namely, Shanghai and
Shenzhen, in the past. Foreign banks that satisfy relevant requirements are
allowed to provide renminbi business to Chinese enterprises from 1 December
2003, and foreign financial institutions are now allowed to have a higher equity
participation in Chinese commercial banks.
Giant Shishi clothing city in
Fujian
Shishi, which will be one of the largest garment trade marts in Asia, has
over 3,000 textile and clothing enterprises, and the number exceeds 10,000 if
firms for textile, garment manufacturing and neighboring supporting industries
are taken into account.
Annual output is already valued at over Rmb30 billion (HK$28.3 billion).
The city produces a wide range of casual wear under some 3,000 registered
trademarks, including Septwolves, Fuguiniao, Gemzboh, Yepao, Seven, K-Boxing,
Edenbo, Pin, Hadley, Joe One and Weles.
Shishi has also developed a chain of industries that encompasses textile,
dyeing, production of auxiliary materials and marketing, with garment processing
at the core. The nationally-renowned Yuanyangchi Fabrics Market, the
up-and-coming Yatai Textile and Fabrics Market, as well as the Nanyang Fabrics
Street have each become booming trade centres for over 1,000 fabric suppliers
from Southeast Asia and various parts of China.
More than 60 textile factories across the country have so far set up offices in
these markets, where some 2 billion metres of fabric have been sold annually so
far. With a total annual turnover of Rmb12 billion (HK11.3 billion), these
factories have, in a short space of time, become the second largest fabric
market in the country in terms of scale and sales volume. It is in Shishi that
many internationally-recognised brand owners purchase materials and place their
production orders.
Shishi also boasts a flourishing clothing market, which serves the whole
country. Today, the city has already become the most renowned distribution
centre for clothing and raw materials along China's southeastern coast.
As many as 18 streets are taken up by the wholesalers, primarily garment
traders, with over 6,000 clothing shops doing business there. Apart from these,
eight other wholesale markets are available for different types of garments,
including casual wear, children's wear and sportswear.
More than 30,000 people are engaged in garment trading in the city. Annual
turnover amounts to over Rmb6 billion (HK$5.6 billion).
Shishi has held more than 10 trade fairs for clothing and related industries
since 1992, before the event was officially named the Straits Textile Clothing
Fair (STCF) in 1995. It is becoming increasingly influential and is attracting
many visitors. The display of the works of leading designers and the latest
fashion trends at STCF is the only platform where one can see the latest works
of famous Hong Kong, Taiwan and mainland designers.
In 2003, the Casual Wear Expo and the Third Chinese Professional Models
Competition were staged at STCF. Total turnover of the fair has come to exceed
Rmb3 billion (HK$2.8 billion).
Accessibility to Hong Kong and Taiwan
The main structure of the Shishi Clothes City had its topping out ceremony on
9th March this year, making it one of the top projects for the province in 2004.
It is also a major construction project for Quanzhou and Shishi town, with
support from local governments at all levels.
The entire project is a joint deal between the private sector and the
government, with the latter playing a leading role and providing effective
backing.
A garment city after 20 years of development. The Shishi |
