China's Foreign Trade
By Klaus Koehler, Managing Director, Klako Group


In 2003, China's foreign trade value witnessed a historical growth of 37.1 per cent and reached US$ 851.21 billion. Imports surged 39.9 per cent to US$ 412.84 billion, outperforming the country's exports, which increased by 34.6 per cent. As a result, the country's trade surplus decreased by more than 16 per cent to US$ 25.5 billion. The growth of China's foreign trade is expected to slow down in 2004, but given the large increase in the country's gross domestic product, imports will continue to expand at a high level to feed the thriving economy. China's exporters, however, are expected to face challenges, partly due to rising trade frictions and a cut in Value Added Tax rebates.

When China launched its reform and opening-up policy in 1978, the country's foreign trade volume was 20.6 billion US dollars, ranking the country 32nd in global trade terms. Last year, China replaced France as the fourth largest trader in the world, following the United States, Japan and Germany.

For eleven straight years, Japan has been China's largest trade partner, with a bilateral trade volume of US$ 133.58 billion, rising 31.3 per cent in 2003. The Sino-US bilateral trade volume totaled US$126.33 billion, increasing 30 per cent. Trade with the European Union surged by 44.4% to a total volume of US$ 125.22 billion. China's trade with other regions, especially with the ASEAN countries also increased significantly.

Exports, investment and consumption were again the three driving forces of the Chinese economy. Foreign-invested enterprises played a significant role in boosting China's foreign trade. Export and import activities from those companies accounted for around fifty per cent of the total foreign trade volume. Chinese private enterprises also witnessed strong trade growth, up 84.3 per cent year-on-year. China's main export commodity was machinery, which accounted for half of the total export volume. There was a significant increase in imports of primary products, such as steel, crude oil and refined oil.

Import and Export Regulations in China

Until 1979, China's foreign trade was exclusively conducted through national foreign trade corporations under strict import and export plans assigned by the former Ministry of Foreign Trade. With the introduction of the "open door" policy in 1979, the Chinese government began to reform and decentralize the country's foreign trade sector. Since joining the World Trade Organization (WTO) in late 2001, China has further revised many of the laws governing foreign trade so as to honor commitments made under the WTO rules.

Only companies authorized by the Ministry of Commerce (MOFCOM) can engage in imports and exports. Wholly Chinese-funded enterprises planning to deal in import and export activities are required to apply to MOFCOM in advance for import and export rights. Foreign-invested manufacturing enterprises have international trading rights automatically and may conduct import and export transactions related to their production business. There are still considerable restrictions for foreign-invested enterprises engaged in pure trading activities, i.e. wholly foreign-owned trading companies are only permitted in free-trade zone. However, foreign investors may be majority shareholders in Sino-foreign joint venture foreign trade companies.

Import and Export Licenses

The import and export license system, which was initiated in 1950, has been an important administrative measure in China's foreign trade management. Under this regulation, all foreign trade enterprises dealing with import and export business were under strict government control. Since adopting the policy of reform and opening to the outside world, China's foreign trade has witnessed continuous development and relaxed regulations.

The Chinese government largely removed import restrictions and only continues to enforce import license controls over the products of a small number of selected industries. Products with import restrictions as to quantity are subject to quotas. Some categories of goods may only be imported by state-owned trading companies or by designated parties.

Most exports from China are still conducted through state foreign trade companies (FTCs). They may export products manufactured by third parties or act as an agent for a domestic manufacturer. Other types of businesses and individuals are required to apply for government authorization before they can export goods from China. As application procedures are lengthy, in practice, these parties often approach FTCs to export goods as their agents.

There are general licenses and special licenses. Under a general license, a FTC may export goods within its authorized scope of business and does not need to apply for a license for every transaction. Special licenses are required where any enterprise or individual, including an FTC, wishes to export a product that is restricted under government regulations. The responsibility of obtaining a valid export license lies with the exporter and products cannot be shipped until an export license has been issued.

The Chinese authorities prohibit and restrict the export of certain goods and technologies on grounds of public policy or in order to comply with international treaties or agreements. Certain categories of goods may only be exported by state-owned trading companies or by specially designated traders.

Tariffs and Taxes

All importers of goods into China must pay value-added tax, which ranges from 17% to 13% depending on the product category. Importers of certain selected consumer goods (including tobacco, liquor, cosmetics, skin and hair-care products, expensive jewellery, pearls, jewels and jade, motor cars, fireworks, petrol, diesel oil and motor vehicle tyres) are liable for consumption tax. The consumption tax rate varies from 5% to 40%. Exports from China a mostly duty free except certain selected dutiable items.

On 1 January 2004 revised regulations on import and export tariffs went into force. The new regulations replaced the previous ones issued in 1992 and provide more detailed and transparent specifications on the application of tariffs, how to define the taxable value of import/export products and levy of tariffs. The categorization of most-favored-nation, negotiated, preferential and general import tariff rates as well as the principles and scope of their application by country are now clearly defined. The principles of applicable tariff rate have been further clarified for imports which are of Chinese origin or whose country of origin is unknown. Also included are tariff rates applicable to imports and exports that enter or exit the country by special means, such as bonded goods, goods eligible for tariff concessions and imports that are leased goods.

Significant changes have been made to customs valuation. The main parts of the WTO Agreement on Customs Valuation have been incorporated in the new regulations. In order to standardize customs duty collection, stipulations are made regarding the time and place of customs declarations required of the consignor and consignee of import-export goods.

The rules concerning applicable exchange rates have also been modified. Where the transaction price of import-export goods and related fees are in foreign currency, the basic exchange rate announced by the People's Bank of China will be used to calculate the dutiable price in RMB.

Significant changes have been introduced in regards to rebates and deferred payment of duties. Rebate may now be granted for defective goods or goods not compliant with specifications that are returned to the supplier. For returned goods that were previously exports, the application for duty rebate must be accompanied by proof that the repayment of export-related domestic taxes has been made.

China Compulsory Certification (CCC)

In August 2003, the Chinese government retired two approval marks for imported goods into China - the CCIB mark for product safety, and the CCEE (Great Wall) product approval mark, which certified products for import/export. They were replaced by the single CCC (China Compulsory Certification) mark for all imported goods. The CCC mark applies to all catalog-covered products which can be marketed, imported or used in China, and is part of China's commitments for entry into the World Trade Organization (WTO).

When using the mark, the certificate holder must abide the by the Regulations for Compulsory Product Certification Mark. Failure or delay in getting certification for catalog-covered products will result in hefty fines. The importer or exporter must apply for this certificate online at http://www.cqc.com.cn and purchase corresponding "CCC" marks for the imported commodities from the Certification and Accreditation Administration of the People's Republic of China (CNCA).

All other sector-specific certification schemes in China have not been changed and continue to apply. These include NAL for telecoms and SDA for medical applications.

If you require assistance with the above subject, please contact us at info@klako.com with your detailed questions.

All information in this report is verified to the best of our ability and is assumed to be correct at time of release; however, Klako Group does not accept responsibility for any losses arising from reliance on the information provided within.