Xi Jinping set to sell International Import Expo as symbol of China’s openness and globalisation
- President will deliver a keynote speech to kick off the weeklong trade fair in Shanghai, which has attracted about 3,000 companies from around the world
- But while foreign firms are free to display their goods there, they’ll still face the non-tariff barriers that make it hard to sell them
President Xi Jinping will seek to promote China as an advocate for globalisation and free trade on Monday when he officiates at the launch of the inaugural China International Import Expo in Shanghai.
He is expected to deliver a keynote speech to kick off the weeklong trade fair, which has attracted about 3,000 companies and traders from around the world, all of which want a slice of China’s massive consumer market.
Among them will be Peter Pan, a Chinese-American entrepreneur who runs a factory in southern California that makes personal care products. He is exactly the kind of businessman that warms US President Donald Trump’s heart, after selling his operations in eastern China about three years ago and relocating to the US.
But while Pan has rented 12 booths at the Shanghai trade fair to display thousands of his products, at the moment he cannot sell any of them in China.
Despite setting up a sales office in Shanghai last year, and beginning the process of registering 100 products – covering everything from detergents to cosmetics – as required by Beijing, not one of them has been approved. The process has so far cost him 1.5 million yuan (US$217,000).
The extent of the Chinese bureaucracy has eroded Pan’s patience and comes on top of an unexpected rise in sales and production costs because of the escalating US-China trade war. Caught in the middle of the latest round of retaliatory tariffs, he now has to pay 10 per cent more – a figure that could increase to 25 per cent on January 1 – on packaging materials imported from China.
Also, he said he would have to pay an import tariff of 10 per cent in China if he was ever “fortunate” enough to receive the approvals necessary to sell his made-in-the-US shampoo and skincare products in the world’s most populous nation.
Pan’s experience illustrates the difficulties many foreign companies face when trying to sell in China. The perceived lack of a level playing field is one of the core issues at the heart of the US-China trade war and is something the Shanghai expo is unlikely to do anything to change.
While Beijing lowered the average tariff on nearly 200 categories of imported goods to 7.7 per cent from 17.7 per cent last year, cut tariffs on some imported consumer products three times this year, and pledged zero import duties on certain goods on display at the import expo, invisible and more complicated non-tariff obstacles on imports remain pervasive, and in some industries, are becoming increasingly prominent.
Non-tariff measures – from anti-dumping taxes and subsidies to price and quantity controls – are not uncommon in international trade. The US, for instance, has about 100 kinds of anti-dumping and countervailing duties in force against Chinese goods, while China has 22 similar measures in place on US goods, according to the United Nations.
While the World Trade Organisation (WTO) urges member countries to have a “legitimate purpose” for applying such measures – national security or the protection of human health, for example – it leaves it to member states to determine their extent, which gives Beijing plenty of room to argue that its trade restrictions are legitimate.
“There are a variety of non-tariff barriers in China that are applied to imports, including unjustifiable product certification and labelling standards, and customs clearance delays,” Zhang Yifan, a professor of economics at the Chinese University of Hong Kong, said in an interview.
“In the service sector, one example is foreign banks trying to open more branches in China. A complex and slow approval procedure basically limits the number of branches that foreign banks can open each year,” he said.
In the first few years after joining the WTO in 2001, China decreased both tariff rates and non-tariff barriers significantly to embrace a multilateral trading system. But after the global financial crisis in 2009, non-tariff restrictions rose again and gradually dominated Beijing’s trade policy, according to a study by Niu Zhaohui, an assistant professor of world economics at Beihang University in Beijing, that analysed data from 1997 to 2015.
The research also found that while import tariffs on manufacturing goods such as electronic equipment and motor vehicles – which are mostly exported by China – fell more than average over the decade, non-tariff restrictions rose, partially eroding the benefits of trade liberalisation.
“Overall, the larger the tariff cut, the more likely the government was to adopt NTMs [non-tariff barriers] because there is no external pressure to liberalise them,” Niu said.
China’s arsenal of non-tariff measures are dominated by technical regulations and standards – 4,187 in force on all foreign exporters, based on the latest figures from the UN, compared to 2,559 initiated by the US. It means foreign suppliers often have to spend significant time and money to meet Chinese standards for certain products, such as audio and video equipment.
By sticking to its own standards while slowly adopting international ones, the government protects domestic suppliers, who would otherwise be at a disadvantage when competing with foreign producers because of a gap in technology. Also, Chinese government procurement favours home-made goods and discriminates against foreign suppliers.
But even if the same requirements were applied to everyone, foreign suppliers would not feel they were treated equally in the Chinese market.
For instance, Beijing requires a China Compulsory Certificate (3C), a quality and safety mark, for both Chinese and imported goods in some categories. The tedious certification process include tests that can only be conducted in Chinese laboratories because Beijing does not recognise internationally recognised third-party testing facilities. It also demands on-site inspections, which take longer and cost more for foreign suppliers because they must accommodate Chinese auditors visiting overseas facilities, including paying for interpreters.
“As all testing and assessment relevant for the 3C mark must be conducted in China, US exporters, compared with national suppliers, have to spend more time, effort and money to sell the same products in the Chinese market,” Li Li, a patent lawyer, said in a paper published in the Santa Clara Journal of International Law this year.
With approvals of his skincare products still unsettled, Pan is betting heavily that there will be a ceasefire in the trade war after Trump meets Xi at the G20 leaders’ summit at the end of the month. If that does not come to pass, he might be out of options in China.
“I am battling with thoughts of giving up the Chinese market,” he said.
Hong Kong’s Chief Executive Carrie Lam Cheng Yuet-ngor is also expected to speak in Shanghai on Monday, at an economic and trade forum organised as part of the expo.
She will be joined by Hong Kong Secretary for Commerce and Economic Development Edward Yau Tang-wah who said before setting off that the city’s participation in the event showed its businesses still had a significant role to play in global trade, despite the difficulties they faced because of the trade war.
“The import expo … shows that despite the uncertainties, China, as one of the biggest markets in the world, is willing to open its doors,” Yau said.
“As our country’s doors continue to open, Hong Kong’s business sector will have great potential.”
Additional reporting by Tony Cheung