Export mix adjustment urged
By Yan Yang (China Daily)
Updated: 2004-12-21 09:36

Jiang Peimin's company earns 50 US cents for processing a Barbie doll that is priced at more than US$10 in US markets and even higher in the Chinese market.

Jiang, who owns the Peimin Toy Co Ltd, said he was very clear about the price.

"I know they earn a great deal in the business. They have the brandname and that's not my business," he said.

"The business is an important deal for us. I got it after fierce competition," he said.

Jiang said he had planned to produce toys with his designs and brands but that meant big risks.

"Maybe I could not sell them, so I am not able to earn 50 US cents for each piece," he said.

Many Chinese manufacturers who export are facing the same dilemma as Jiang. They, in the low-end of the business chain, want to move up but fear losing what they currently have.

A popular saying in the industry describes such situation: How many socks should be exported to buy one Boeing plane?

It is also a big headache for the central government though the country has greatly profited from the export business.

On November 20, one month ago, China recorded its annual foreign trade volume at US$1 trillion with exports surpassing US$500 billion.

The record enabled the country to become the world's third biggest trading nation, moving up from the rank of fourth last year.

However, the Central Economic Conference, held two weeks ago, said the country should readjust its export mix and supply more goods with high added value.

The major reason is the fact that China's massive exports generated relatively less wealth for the nation, compared with developed countries and other developing nations.

"China is a big player in the world in terms of foreign trade, but not a strong player," Chong Quan, spokesman of the Ministry of Commerce, was quoted as saying.

A report by the ministry set out China's weaknesses in exporting.

Big scale but small per capita volume

Though the annual foreign trade volume exceeded US$1 trillion, the per capita volume reached US$850, compared to US$8,427 in the United States, US$7,920 in South Korea and US$7,136 in Japan.

Strong in quantity but weak in structure

Industrial goods account for 90 per cent of exports. Products of high-technology only represent 27 per cent of exports, compared to 40 per cent of the OECD (Organization of Economic Co-operation and Development) members.

Big varieties of commodities but small number of brands

Only one Chinese brand Haier was ranked in the 100 world's top famous brands in 2003. Among the country's top 500 exporters, only 34 companies have national brandnames.

The Chinese Government had called exporters to supply more mechanical and electronic products rather than textiles, as a way to upgrade the export structure.

China's foreign trade has experienced three stages with textiles, mechanical and electronic products and finally high-tech products.

Government statistics indicate in the 1980s, textile products contributed to 61 per cent of the export increase. In the 1990s, 50 per cent of the exports increase came from mechanical and electronic products.

In the past three years, hi-tech goods represented by information technology account for 27 per cent of total exports. Exports of laptops, mobile telecommunication equipment, and integrated circuits have grown by 70-90 per cent this year.

Mei Xinyu, a researcher from the Chinese Academy of International Economic and Trade Co-operation, said it was not just the resolution to adjust China's export model, which is characterized by foreign investors' processing of imported materials.

Upgrading China's exports would not produce more products of high technology since lots of Chinese companies are just employees of foreign investors, Mei said.

"It is a normal relation in globalization. What is abnormal is that the number of Chinese companies who have their brands and can employ foreign companies is too small," he said.

Ministry of Commerce statistics indicate half of China's exports are goods produced by foreign-invested companies with imported materials.

The local added value of these goods created in China accounts for 35 per cent of their total value, says Mei.

Even the small portion of local added value 35 per cent is mostly obtained by foreign producers as profits, he said. Only a small part of the added value goes to Chinese in the form of salary, taxes and the cost either renting or buying factories.

That situation has not changed, despite the upgrading of Chinese exports from low-end garments to more expensive electronic appliances, which should net greater profits.

The ministry's statistics showed exports of engineering and electronic products were valued at US$110 billion, or 25 per cent of the total value of China's exports, last year.

But the local added value of the engineering and electronic exports is about 16 per cent, Mei said.

"High added values are not equivalent to high-tech goods like chips and computers," he said.

The government should map out new strategy to encourage exports of higher values, such as brand building, Mei said.

He said the tax rebate system, the key export promotion strategy presently, only directs exporters to focus on quantity and compete on prices, Mei said.

The strategy, which gives the money back after the goods are sold, has partly led to worsening trade conditions, he said.

"Incentives should be granted to earlier stages in the manufacturing chain, for example, the development of intellectual property rights and overseas marketing activities," Mei said.

An official from the ministry told China Daily that a supporting system to foster brand names in exports is being brewed by the ministry.

They are studying to set up a fund to help forge branded Chinese exports.

"The spirit of the new strategy will tell how to use financial support effectively and give the right signal to exporters," he said.

Local exporters with their own brands can compete to enter an annual list and get funds, he said.

Funds can be used to finance research and development, advertising and marketing of the brands overseas, the official said.

Developed countries have a very comprehensive network to finance export promotions. Financial support to export promotions is allowed by the WTO rules.

Cao Xinyu, vice-chairman of the deputy director of the China Chamber of Commerce of Import and Export for Textiles, said the proposed system could be a boost for companies who want to have their own brands.

"Only a few super Chinese companies know the way and have the capability to make a name for themselves in the international market. It is no easy task for other companies without systematic support," he said.

China's textile industry, which is blamed by global industry for low prices, is finding the answer in upgrading its industry.

Cao said most of the Chinese textile makers lack necessary information about international markets.

For branded textiles, the value of the brand itself accounts for about 40 per cent of the entire value, Cao said. Developing brand names will help Chinese enterprises compete for a greater share of the market, and also help them gain better economic results.

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