Rising Trade Protectionism in Severer Global Economic Environment

“Due to the downturn of the market in Europe and America， it is not optimistic for the prospect of the orders that Chinese companies received. From January to July， the amount of export has still had a distance to the target made at the beginning of 2012. It is difficult that the target could be attained by the end of the year，” During an exclusive interview with Mr. Zhang Jie， vice president of China Chamber of Commerce for Import and Export of Light Industrial Products and Arts-Crafts in September， he expressed his concerns about the light industry prospects.

According to the statistics from the Chamber， China import and export of light industrial products and arts-crafts amounted to US$61.87 billion in June 2012， and US$63.5 billion in July， a slight increase compared with the previous month. From January to July in 2012， the import and export of light industrial products and arts-crafts amounted to US$385.3 billion， an increase of 12.9% year-on-year， which takes account for 17.8% of the total value of import and export. The export increased 17.2% year-on-year to US$308.05 billion， and the import amounted to US$77.25 billion， a decline of 1.8%.

The export of light industrial products and arts-crafts plays an important role in China’s foreign trade. Providing the affordable consumer goods for the global market， it also solves the problem of domestic employment. However， Mr. Zhang pointed out that since the beginning of this year， the export environment of Europe and U.S. is more sever and not as good as expected. Furthermore trade protectionism is rising. Many countries revised the production standards successively， and some imposed anti-dumping investigations against Chinese industries. For those Chinese enterprises， undoubtedly， the challenge is greater than ever before.

It is reported that recently， European Committee for Standardization CEN passed the new standard on personal protective equipment — safety shoes standard of ENISO20345:2011， which will come into effect in June 2012 and replace the previous standard of ENISO20345: 2004/A1: 2007. It is a new challenge for Chinese enterprises that produce the safety shoes exporting to over 30 EU countries.

On June 12， the United States Consumer Product Safety Commission (CPSC) implemented the new revision for toys Standard Consumer Safety Specification(ASTMF963-2011) to replace the old standard and which compliance with becomes federal law. The new standard increases the safety requirements of the quality to a great extent， which means the companies must choose a higher-quality material for production to meet the new standard， this adds the burden of cost on those enterprises. After the new standard is implemented， the testing cost also increased by almost 30%. Toys are labor-intensive products with low profits. Coupled with the rising cost of labor force and materials， the companies operate under great pressure. If the new standard is implemented， it will be an obstacle to those companies who export toys overseas.

“Against the background of the worsening global crisis， many countries take the trade protectionism to protect the local industries. It shouldn’t be advocated. China always carries out the regulations according to WTO， but shouldn’t become the main victim of rising trade protectionism.” Mr. Zhang criticized this phenomenon. He gave some examples， such as Russia initiated safeguard measures against China ceramic for daily use; Mexico imposed anti-dumping investigations on China ceramic tableware， and so did the EU. He told China’s Foreign Trade that those companies involved are positive to make pleas against the investigations. He explained that the trade protectionism is a double-edged sword; he hoped related countries should deal with the trade affairs according to the rules of WTO. He added: “For those Chinese companies， just like what Premier Wen Jiabao said that facing the more difficult environment， we must have confidence.”

Against the worsening situation， Mr. Zhang suggested that the transformation is urgent. But how to make the transition is the biggest problem for companies. Now， Chinese export oriented companies are divided into four types: first， OEM enterprises that specialize in production. Second， ODM companies that specialize in design. Third， OBM includes production and design as well as brand building， and the last is the type of supply chain Management Company， such as Li Fung Group with annual import and export volume of US$20 billion. While the upgrade includes the aspects of product， management and service.

Nowadays， just OEM is not enough， once the order companies are affected by the worse environment， those companies might suffer a huge loss. Zhang mentioned that this year a European brand has several OEM factories in China. However， due to shrinking business， it cut a number of orders， which directly affected Chinese OEM factories. Therefore foreign trade enterprises should change their ways and find the suitable model for the development of their own business. For instance， by strengthening their design they could increase the added value of the products. Zhang made an example that smart mobile phones install many different software that is able to upgrade， the companies could innovate the related products and software surrounding the industry chain.

Mr. Hill Liu， manager from China Faucet Sanitary Ware Industrial Design Center told China’s Foreign Trade that they focus on ODM with the cooperation of three of five leading brands in North America， and also this year IKEA has become a new client. According to Liu， the company attaches great importance to the RD which employs over 300 people. Here they insist on the strict standard during the process of design and production. For instance， they have applied lead free brass in production since 2010， which is also one of the few domestic enterprises to attain the high standard. Every year， the export volume is around RMB 3 billion. There is a slight increase in export this year.

In addition， the management upgrade of companies should focus on brand marketing. Mr. Zhang noticed that there is a misunderstanding that everyone believes brand building is the original brand. He further explained that the brand building is that not only the companies create their own brand， but also they could buy out brands， and lease brands， even choose the equity management and co-operation. For instance， a company in Fujian Province has leased the brand of Swiss Army Knife over 20 years， and developed successfully.

When mentioned that Adidas and Nike moved their factories out of China， Mr. Zhang viewed that as a normal withdrawal move. From the beginning， Adidas pursuits the cost advantage: its production base was established in Europe， then moved to the areas with lower production cost such as Japan， South Korea， Taiwan area， then mainland China. The most important is that the industrial chain in China couldn’t be moved. In recent years， the Chamber established 32 industrial export bases including ceramics， glass products and hair products. Practice has proved that through built export bases， a number of light industrial clusters have been formed with strong competitive and distinctive characteristics. It promotes local exports and employment.

Mr. Zhang told China’s Foreign Trade that the wig industry was an example， it exported the amount of US$500 million two years ago， now the figure is over US$2.5 billion. According to the statistics from China Customers， from January to June in 2012， China’s total exports of hair products reached US$1.39 billion， an increase of 42.21% compared with the same period in 2011， the average unit price of US$52.97， a year-on-year growth of 27.96%， in which， its exports to North America reached US$656 million， an increase of 38.04%; and exports to African attained US$394 million， and an increase of 79.93%.

At the same time， Chinese companies should attach importance to the domestic market. Mr. Zhang said although foreign trade enterprises encounter the difficulties due to the bar is set high by the large shopping mall， so that they can hardly sell in large shopping malls. Recently， the Ministry of Commerce is in ongoing discussion on renovation; he believed that in the near future those companies could sell their products in the shopping mall. Another problem is of receivable accounts; due to the fact it takes longer for companies to receive accounts domestically than overseas. Zhang pointed out that the companies need more support from the government to assist them to realize the transition. At the same time， Zhang said that the Chamber would also organize many exhibitions for more Chinese enterprises to display their products in domestic marketplaces.