January 2010 Archives
Trade sanctions have clearly strained China’s steel industry. Seamless steel tubes, Oil Country Tubular Goods (OCTG), drill pipes, steel mesh panels, wire shelves... the list of newly sanctioned Chinese steel products goes on. Among the numerous made-in-China products impacted by international trade frictions, China’s steel industry has been hit the hardest, and given the severity of these trade disputes, the consequences for China’s steel enterprises are substantial.
Price and quantity decreases
Proposed last April, the oil well pipe anti-dumping and anti-subsidies action undertaken by the US International Trade Commission will adversely affect Chinese exports of as much as USD 2.8 billion. These exports are supplied by around 200 steel mills, and these provided oil well pipes to the US during early 2008 and Q1 2009. The monetary value at stake makes this the largest steel trade dispute in US history.
The oil well pipe anti-dumping and anti-subsidies case is only a sample of the international trade sanctions that have targeted Chinese steel makers in recent years. Since 2008, the EU, the US, Russia, India and other countries have successively launched anti-dumping and anti-subsidy surveys on China’s seamless steel pipes, oil pipes, drill pipes, steel mesh panels and other steel products. As a result of the financial crisis, global market demand has rapidly declined, exacerbating ongoing trade frictions – particularly within the steel industry. According to China Customs, in December 2009 China exported 3.34 million tons of steel, which contributed to a total of 24.6 million tons for the whole year 2009. This annual figure represented a 58.5% y-o-y decline.
Of all steel goods, pipe products were the most severely affected. In 2009, China's seamless pipe exports dropped by almost 50% compared to 2008. In 2009, China's export price for oil well pipes to the US was only USD 1,600/MT, well below highs of USD 3,600/MT in 2008.
Entering new markets
Some Chinese producers have adjusted their strategies in response to the sanctions. As an example, take one of China’s major seamless steel manufacturers, whose exports accounted for 48% of total sales volume before the financial crisis. In 2009 its shipments to major regions such as North America and Europe fell by more than 70% compared to the previous year, yet its total 2009 export volume dropped by only 10%. Its secret weapon: new markets – the company’s sales in Asia increased by 30% and African sales by 100%.
Other steel mills have followed suit, successfully exploring new markets such as Southeast Asia, the Middle East and Africa, thereby weathering the decline in demand from mature markets.
Along with the shift from mature to developing markets, export product structures are also changing. Many manufacturers are shifting their focus from high value-added products such as oil well pipes to a number of oil and gas transmission pipeline products, primarily in demand in countries in Southeast Asia and Africa. These regions are without well-established steel industries, ensuring less risk of new trade frictions arising from local competition.
Expanding domestic demand
Many Chinese steel mills capitalised on the national stimulus package which enlarged the domestic market in 2009. One of China’s largest stainless steel mills stated that although their exports declined by more than 50%, domestic sales increased by 58%, causing profits to remain consistent with those of 2008.
As of November 2009, China's net exports of steel have been largely restored to earlier levels. Nevertheless, China’s steel exports are facing more difficulties as overcapacity problems mount and international protectionism becomes more severe. As a consequence, China’s steel industry may yet have to adjust again in the near future.
A new shade of green is gradually sweeping across China's export manufacturing industry, one that took a while to take root, and companies are riding the environment-friendly wave.
Pressure from the national government and tightening regulations in overseas markets are compelling a growing number of suppliers to modify their business strategies and incorporate ecologically safe processes. The transition is neither extreme nor desperate, but the impact could be widespread as many midsize and small companies are also taking "green" initiatives. Due to the sheer number of these suppliers, they account for a large portion of the pollution and wasteful practices in the country.
Irrespective of size, companies are introducing long-term strategies anchored on recycling, waste reduction and sustainable energy adoption.
Recycling is the most common practice among factories, one that is carried out internally or through third parties. This, however, goes beyond reusing offcuts and scrap materials. Highly polluting industries such as leather tanning have always been required to invest in wastewater cleaning systems, but very few actually do. Now, many are investing large sums in such facilities not only to comply with local ordinances but also as a marketing tool. This comes as an increasing number of buyers are including social responsibility as a criterion in supplier selection.
Fujian Guanxing Leather Co. Ltd in Shishi, a city under the municipality of Quanzhou in Fujian province, has invested USD 3 million in a 6,000-ton capacity wastewater processing station. Once operational, the facility is expected to save the company USD 1.4 million annually.
In fact, waste recycling is becoming the norm in the city, one of the major garment and textile hubs in the province. More than 20 manufacturers have now installed treatment systems such as those from Carrousel. The majority of Fujian factories that dye fabrics in-house have similar facilities for their sewerage as well. Moreover, several local governments have set up complementary wastewater recycling services to help ensure a continuous supply of fresh water.
When it comes to material refuse, many large enterprises contract professional disposal services. Small and midsize businesses often transact with recyclers and junkyard operators.
Guangdong Weiermei Underwear Co. Ltd, for instance, sells fabric cutoffs to waste collectors. Watch exporter Shenzhen Full Success Gift Mfg Ltd and lock specialist Make Locks Manufacturer Ltd vend metal scraps to recyclers.
Some companies involve customers in their green efforts. On request, Shenzhen FJY Electronic Co. Ltd uses recycled materials during production. Doing so has the additional benefit of lowering unit costs.
Adopting degradable materials, however, does not always bring a similar effect. In the beauty and cosmetics industry, bottles made from such substances are about 20% more expensive than conventional plastic.
While recycling and reusing are gaining more adherents, only a handful of operations are tapping sustainable energy sources such as wind or solar power. Cynthia Garments Making (Dalian) Co. Ltd has taken steps to do so by using solar water heating at its workers' dormitories.
This posting was contributed by Global Sources, a leading business-to-business media company and a primary facilitator of trade with greater China.
There are many similarities between China and India in today's global-economic climate. Both have over one billion citizens, both have experienced resilient growth in output, and both have greatly expanded their roles in international trade. The relatively inexpensive yet well educated workforces of these two countries have made them key prospects for the sourcing of manufactured goods. Yet differences remain in their supplier and logistical capabilities which must be taken into account by the sourcing professional.
Both India and China are capable of world class manufacturing processes. A study performed by the London School of Economics on the supply chains of the two countries’ automotive industries found that two-thirds of their domestic suppliers were able to provide inputs with defect rates of less than 100 parts per million – the typical threshold for suppliers in the US, Europe, and Japan. It was observed that both Chinese and Indian auto manufacturers domestically outsourced component production at similarly high rates, suggesting an adequate availability of competent local suppliers. Whereas the study found higher productivity levels in India, in terms of capital intensity, delivery frequency and stock-turn ratios, China had the edge. In a more recent, broader assessment across multiple industries, Deloitte found that the average number of days an item sits in inventory favored China at 24.2 compared to India’s 32.5.
Beyond the factory floor, connecting products to end users poses different challenges in China and in India. Within India there is a heavy reliance on roads. Their network is the second largest in the world, behind the US, at over three million kilometres. However, only around half of these roads are paved, and their width is generally too narrow to allow the passage of anything beyond smaller, two-axel trucks. Road transit is further slowed by a fragmented Indian trucking industry and by state border checkpoints. China, in contrast, has a far less extensive network of roads. Out of its million-plus kilometre road network, only around 300,000 kilometres are paved. But what China lacks in actual length, it makes up for by having newer, more passable roads. It has five times the number of multiple lane highways than India.
China also has more transport options available to its supply chains in the form of rail, air, and waterways. Over 78,000 kilometres of terrain are connected by rail in China compared with 63,000 in India. Goods can be flown in and out of China by way of 500 airports whereas there are only 334 locations to take to the sky in India. Thanks to geographical endowments, China also has more navigable waterways. Besides some of the world’s most active ports, commerce in China moves on 110,000 kilometres of inland aqueous passageways. This is more advantageous than India’s 16,000 kilometres of waterways, particularly in the movement of bulk commodities.
These transportation differences are partially reflected in the World Bank’s Logistics Performance Rankings. China is rated the highest of all BRIIC (Brazil, Russia, India, Indonesia and China) countries at 27th in the world. Its comparatively higher scores in customs clearance, infrastructure adequacy, logistics, timeliness and tracking ability place it above India, ranked 47th globally. Some of the largest discrepancies between the two countries are shown in survey data collected by the World Bank. Responders reported much higher frequencies of compulsory warehousing/transloading and involuntary payment solicitation in India, while in China greater expenses were incurred in the form of agent fees.
The infrastructure and logistical differences may explain why India is a more common site for the outsourcing of services, particularly IT services, which do not require a physical good to be brought to market. However, India should not be entirely discredited as a sourcing destination for manufactured goods. Both it and China have allocated over 10% of their GDPs toward infrastructure development which will enhance their future logistical abilities in bringing their products to the world’s consumers. The greatest similarity between China and India: neither can be ignored by the sourcing professional.
|Clearance time with physical inspection (days)||3.38||3.45||5.47||5.12||4.62|
|Clearance time, no physical inspection (days)||1.70||1.92||1.67||2.14||2.57|
|Percent of imports physically inspected||8.59||13.63||10.54||11.08||44.20|
|Percent of imports inspected multiple times||2.46||6.20||2.04||2.56||10.05|
|Export lead time from shipper to port (median)||2.77||2.34||2.80||2.12||3.98|
|Import lead time from port to cosignee (median)||2.56||5.31||3.88||5.35||2.88|
|Number of export agencies||4.06||3.43||3.47||2.50||5.83|
|Number of import agencies||4.20||3.71||4.21||3.67||5.17|
|40 ft container export charge (USD)||418.90||660.30||1,614.05||378.93||1,310.37|
|40 ft container import charge (USD)||376.37||1,266.94||1,570.42||1,023.84||1,144.71|
The 7th China International Offshore Oil & Gas Exhibition
Date: 22 - 24 March 2010
Organiser: Beijing Zhenwei Exhibition Co., Ltd.
Tel: +86 10 5823 6588
As one of the largest annual petroleum exhibitions in Asia and one of the top four expos within the industry in the world, this event is intended to provide a platform for enterprises at home and abroad to establish and maintain relationships with customers. The expo will display the latest industry information as well as the most advanced products like offshore petroleum equipment, petroleum and petrochemical pumps, valves, compressors, pipelines, auto-instruments and electric explosion-proof equipment, etc. The event will feature nearly 1100 exhibitors from China, the US, Germany, France, Italy, Norway, Russia, Kazakhstan, Japan and South Korea, among others.
January 2010 is the beginning of a new decade yet it also inaugurates a new era in international trade with the commencement of the ASEAN-China Free Trade Agreement. The 1.9 billion citizens of its member countries now comprise the largest free trade area in the world. In terms of total trade volume, the ASEAN-China Free Trade Agreement ranks third behind only the European Union and the North American Free Trade Agreement.
After its signing in 2002, China and the six veteran ASEAN members – Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand – have incrementally reduced their tariff levels, typically at 5% per annum. As of January 1 2010, 93% of the commodities exchanged between these countries will have their tariff rates reduced to zero. The newest members of ASEAN – Cambodia, Laos, Myanmar and Vietnam – are scheduled to follow suit with most of their intra-ASEAN tariffs eliminated by 2015.
The trade agreement seems to have been effective. Since the first provisions of the treaty went into effect in 2002, trade has soared between China and ASEAN countries. The exchange of goods among China’s top five trade partners in ASEAN – Indonesia, Malaysia, the Philippines, Singapore and Thailand – expanded at an average rate of 22.9% from 2004 through 2008. In the four newest ASEAN members during this five year time period, imports to China have grown at an astounding rate of 36.1%, albeit with great variation between countries and years.Source: UN Comtrade; Beijing Axis Analysis
From this rapid increase, China has edged out the United States to become ASEAN’s third-largest commercial ally, behind Japan and the European Union. China-Asian trade totalled USD 231 billion in 2008. Although the first half of 2009 saw a decrease of 24% over the same period the previous year, indications of a global economic recovery suggest that expansion should once again resume in 2010.
Currently, trade between China and its southeast Asian counterparts is characterised by China swapping finished products, such as electronic equipment and machinery, for inputs such as oil/lubricants, plastics, rubber and intermediate electronic components. The effects of the free trade agreement may gradually change this. It is expected that a number of Chinese manufacturers may expand into areas with cheaper costs.
Take Cambodia, for example. Due to its net exporter status of cotton and to its low production and labor costs, Chinese garment factories may be enticed to relocate given these factors and the extremely competitive environment of China. Provisions of the free trade agreement, such as fair treatment of foreign investment and impediments to nationalisation make foreign direct investment within treaty participants a more viable option for such manufacturers.
Despite the progress already underway through this new agreement, there are still a number of obstacles that must be overcome in order for it to reach its full potential. Road and rail networks are limited between China and ASEAN members; exchange almost exclusively takes place by sea. The Chinese government has allocated USD 25 billion to alleviate this problem, but the construction process will take years to complete. The fact that the free trade agreement has been made without the guidance of the WTO is also a concern. Given the lack of transparency in China and in several Asian countries, restitution in legal disputes may be difficult to obtain.
But the effects of these glitches seem to be minimal. The ASEAN Secretariat estimates that the agreement will contribute an additional 0.3% to China’s GDP and another 0.9% to the GDP of the whole of ASEAN. One may expect that at the beginning of the next decade, the ASEAN-China Free Trade Agreement may yet truly rival those in North America and Europe.
The new January 2010 edition of The China Analyst is now available. We are pleased to once again provide this publication as a free resource online. In this edition, we look at the the threat of protectionism facing China; we delve into China’s prominent role in the rare earths industry; and we look at the new era for China and Africa after November’s FOCAC meeting.
Then of course there all the usual sections analysing China's
economy in range of perspectives: Macroeconomic Monitor, China Souring
Strategy, China Trade Roundup, China Facts & Figures, China Capital
and China Business News Highlights. The four regional focus sections
analyse the latest trade and investment relations between China and
Africa, Australia, Latin America and Russia. In this edition we also launch a new Strategy section, which includes a map comparing China's economic performance in 2009 with the rest of the world, and a section discussing the business strategy of China International Marine Containers (CIMC), a great success story for China Inc.
To download this free quarterly publication by THE BEIJING AXIS, please click on the link below
The China Analyst - January 2010.pdf
or go to the Knowledge section of THE BEIJING AXIS website to see the full range of our publications. As always, we welcome your feedback and hope you enjoy this edition of The China Analyst.
Ningbo International Sourcing Expo
Date: 2 - 6 March 2010
Organiser: China Council for the Promotion of International Trade, Ningbo Sub-Council
Tel: +852 3588 9688
As one of the largest international sourcing expos in China, this event is intended to establish a bridge for enterprises at home and abroad to exchange the latest product information and technology. The event attracts various areas like baby and nursery products, beauty and health products, consumer electronics, fashion accessories, apparel home textile and interiors gifts and premiums.
In the post financial crisis era, many countries are seeking new paths for economic growth and are implementing defensive measures to preserve their own domestic industries. Given these circumstances, along with the recent anti-dumping cases raised by the US Department of Commerce in regards to China's steel plate and pipe products, maybe it is time for China to rethink its business development methods and to shift its focus to value added products.