Trading a trend in China

25 April 2008

Until recently the Great Wall of China was a fitting symbol for companies around the world that wanted to do business with that nation, the world's largest by population and third largest by area. Trade barriers in China have slowly been coming down during the last quarter century. A significant turning point came when China agreed to economic reforms as a stipulation for being accepted into the World Trade Organization in 2001.

“There's a feeling among traders that it's getting easier today to get goods in and out of China,” noted a special report in the 16 April issue of The Journal of Commerce. The magazine pointed out that traders can still easily get tangled up in red tape, largely because front-line Chinese officials face a steep learning curve to comprehend such fundamentals as classification and valuation. Reportedly, though, they are eager to learn and continually ask about the practices of other trading nations such as Brazil, Great Britain, Japan and the US.

Also restraining trade are regulations that need to be eliminated. A classic example is one that mandates the physical inspection of every container of wastepaper - a major import to China.

Despite such obstacles, China's economy has become the new frontier for businesses throughout the world. Measured on a purchasing power parity basis, China in 2005 stood as the world's second-largest economy after the US. Last year, the Chinese economy grew 9.5% and retail sales increased 14%.

Export success to China has been enjoyed by SC&RA members and by a number of other industry sectors that include: power generation equipment; electrical machinery and equipment; agricultural products such as soybeans, cotton and oleaginous fruits; medical equipment; chemicals; plastics; pulp and paper; and iron and steel.

Make no mistake, the balance of trade continues to tilt in favour of China. Indeed, the nation's trade surplus topped $101 billion last year - triple the 2004 figure. The big jump came despite a 2% revaluation of China's currency, the yuan, in July 2005.

However, there's more to this than meets the eye. More than half of all Chinese exports are from foreign-owned companies or joint ventures. That share has been growing about 1 or 2% annually in recent years but may be stabilising now.

About half of all goods produced by foreign companies in China are sold there, according to Nicholas Lardy, a senior fellow at the Institute for International Economics in Washington, DC, “The auto sector is the best example: 95% of the autos sold there are made by foreign companies or joint ventures,” said Lardy.

Due to the importance of China to SC&RA members worldwide, we periodically cover that nation's relevant economic developments in our weekly newsletter. Earlier this year, we reported on the Northern East-West (NEW) freight corridor, which is expected to be opened by mid-2006. Containers will be transported by rail from China via Kazakhstan, Russia, Finland and Sweden to Narvik in Norway and from there by ship to Iceland and vice versa. NEW officials claim the corridor can shorten the 30 day journey by sea from China to the US by 18 days.

In a newsletter article in January SC&RA reported the Chinese government's recent agreement with Airbus for 150 passenger aircraft. The order included A319, A320 and A321 aircraft, to be divided between Air China, China Eastern Airlines, China Southern Airlines, Sichuan Airlines and Hainan Airlines.

Exemplifying China's transition to a market-orientated economy are two signficant trade shows - ConExpo Asia, 15 to 18 May in Beijing, and Bauma China, 21 to 24 November, in Shanghai. Both will showcase manufacturers of equipment, products and services related to the construction industry in China and Asia. Like China, such events will become increasingly important for many of SC&RA's members.

Latest News
Three electric machines on zero-emission jobsite
Machinery noise levels are said to be ten times lower than that of traditionally powered equipment
Devaluation of Egyptian pound hits Orascom’s revenue
The devaluation of the Egyptian pound has dented revenue at contractor Orascom, although this was partially offset by a strong performance in the US
British Steel wins multi-million contract for high-speed electric railway in Turkey
British Steel says that this will help create a lower-emission transport link between Turkey’s second-largest container port and inland cities