China Trade Information

Starting from July 1st, China will cut or eliminate export tax rebates for more than 2,800 export items. This is the boldest move yet to rein in exports since China joined the World Trade Organization in 2001.
According to the Ministry of Finance, the targetted items account for 37 percent of all exported products. The textiles industry is one of the most affected areas.

The tax rebates of textile export goods will be deducted by 2 per cent.

Currently the average profit margin in the textiles and clothing industry is no more than 5 percent. Such a disincentive will result in benefits of the textile industry shrinking by 10 to 20 percent.

Many clothes business traders say they’ve sensed the pressure brought along with the measure.

Huang Xinhua is deputy manager of a textile company in eastern China’s Zhejiang Province.

“As we could not get the cargo delivered by the end of June, we will have to accept the reduced tax rebates. So basically for this round of deals our net profit is very small.”

The textiles industry is described by the Ministry of Commerce as “easy to trigger trade frictions”.

As the major creator of China’s huge trade surplus, it comprised more than 70 per cent of China’s total trade surplus last year.

Professor Xu Fu with the International Economy department of the Tianjin-based Nankai University, says China’s exporters should use this opportunity to restructure the industry, and actively change their ways of making profits.

“Small textile clothes manufacturers should improve the quality of their products and their service, in order to offset the loss in tax rebates. They should also develop a series of brand name products to increase their competitiveness.”

Mercedes-Benz (China) Ltd expects sales of its imported sports cars in China to grow at least 30 percent this year as it eyes this segment of the market due to growing demand.

Sales of the luxury car maker’s imported models increased 34 percent for the first five months in China, outpacing the 23 percent growth for the luxury car market as a whole.

Its top S-Class models were responsible for driving up the sales with a 44 percent surge.

However, the German car maker is now eying aggressively sports car buyers to tap the growing demand to diversify its brand and boost sales.

“Customers in China are looking for more individualism, passion and emotional valve linked with driving a car, especially a luxury sports car,” said Klaus Maier, president and chief executive officer of Mercedes-Benz (China) Ltd.

Stuttgart-based Mercedes-Benz now imports four sports models - the CLS coupe, SLK and SL sports cars, and CLK cabriolet - to China.

It also import four complete lines of sport utility vehicles in China in the second half of this year.

It started selling four of its AMG models at the end of March. The high performance cars costing from 1.48 million yuan (US$172,000) to 2.98 million yuan received 40 orders within just one month.

Two more AMG models are expected to hit the Chinese market next year to further reinforce the car maker’s sportiness among Chinese customers.

Volkswagen AG’s joint venture with First Automotive Works Corp (FAW), one of the top Sino-foreign car partnerships, expects its 2007 profits to climb by at least a quarter, helped by brisk sales and cost-cutting efforts.
The venture, FAW Volkswagen, in the northeastern city of Changchun, will have a “minimum” profit growth of 25 percent this year from 2006, said Joachim Wedler, its vice-president in charge of finance.

But Wedler didn’t reveal how much the firm - in which FAW holds a 60 percent stake and Volkswagen 40 percent - will earn this year.

Weiming Soh, the venture’s sales chief, said it plans to sell more than 400,000 cars this year, up from 350,000 units last year.

In the first five months, its retail sales jumped by 25.1 percent year-on-year to 173,218 units, making it No 3 after General Motors‘ venture with SAIC Motor Corp and Volkswagen’s other partnership with SAIC.

FAW Volkswgen’s June sales are expected to exceed 40,000 units, Soh said.

The company’s bold profit and sales projections came amid blistering growth of China’s vehicle market. Sales of all China-made vehicles increased by 22 percent to 3.65 million units from January to May, including 2.12 million passenger cars, according to industry data.

In the first four months, combined profits of the top 16 Chinese auto groups reached 18.1 billion yuan, rocketing by 51.3 percent.

Wedler said FAW Volkswagen will use more locally made engines and spare parts to cut costs.

“We are shooting for a very high localization rate to have more financial power to beat competition,” he said, without elaborating.

Competition in China’s passenger car market has been heating up with price incentives and product launches. Carmakers offered some 50 price cuts in the first five months of this year, according to data from FAW Volkswagen.

An Tiecheng, the venture’s general manager, said it plans to roll out at least two new models under the Volkswagen and Audi marques annually in the next five years to woo increasingly sophisticated buyers. Audi is the luxury car unit of Volkswagen.

The venture will launch a Volkswagen Magotan large-sized sedan next month. Its current lineup includes Volkswagen’s Jetta, Bora, Golf, Sagitar and Caddy as well as Audi A6 and A4.

A more stringent vehicle emission standard equivalent to the Euro III will begin on Sunday, said China’s environmental regulator. And the sale and licensing of Euro II vehicles will expire a year later.

The State Environmental Protection Administration (SEPA) said that as the world’s second-largest vehicle market and third-largest vehicle producer, China’s rapidly growing car sales aren’t just creating traffic jams in major cities; they’re also causing noticeable deterioration of air quality in some large cities including the country’s capital, Beijing.

The new standards would cut vehicle pollutants by 30 percent, said Zhao Yingmin, head of SEPA’s department of science, technology and standards. He also said an emission standard equivalent to the Euro IV would take effect in 2010.

The new standard, equivalent to the Euro III, was issued in China by SEPA in April 2005. More than 7,000 types of vehicles have been able to meet the new standard, according to ministry figures. And most automakers in China have the technology to produce Euro III vehicles.

The national adoption of the Euro III standard will help the country reduce its pollutants, like sulfur dioxide (SO2). China planned to cut its SO2 emissions 2 percent year-on-year from 2006 to 2010, but failed to meet the target last year. SEPA reminded carmakers of the timetable to eliminate high-emission vehicles.

China inaugurated a harbor area with preferential tax rates on Thursday in the northeastern city of Dalian, a major step towards forming a free trade zone between China, Japan and the Republic of Korea (ROK).

The Dayaowan Bonded Harbor Area, located at the Dagushan Peninsula in the northeastern part of Dalian, enjoys preferential taxation and foreign exchange policies, said Zhang Shikun, director of the Dalian Bonded Area Administrative Committee.

“It will remove tariffs for foreign cargo and offer tax rebates for domestic cargo. It will also exempt businesses from value added taxes and consumption taxes if they trade with each other,” Zhang said.

Analysts predict the efficiency of logistics will be raised by 20 percent after the port is put into operation.

The first phase of the area covers 3.06 square kilometers and includes warehouses, cold storage facilities, a container terminal and processing and logistics services.

About 200 million yuan (25 million U.S dollars) has been spent on the construction of the area since August 31 last year, when the State Council approved its establishment.

The second phase is expected to be finished by the end of next year, expanding the area to 6.88 square km.

The Dalian port is the seventh largest in China and handled 200 million tons of cargo and 30 million containers (TEUs) last year.

The Dayaowan Bonded Harbor Area is the second of its kind in China, following the operation of the Shanghai-based Yangshan Bonded Harbor Area in December 2005. The State Council has also approved a third such area, the Dongjiang Bonded Harbor Area which is under construction in north China’s Tianjin Municipality.

Analysts say the Dayaowan area is expected to increase China’s share in the northeast Asian shipping industry, and is also considered a major step towards forming a free trade zone between China, Japan and ROK, which political leaders and business circles of the three countries have repeatedly called for.

Dalian has advantages for a free trade zone in terms of its location and its close economic and cultural links with neighboring countries, said Wang Jun, associate professor on logistics studies with the Dalian Maritime University.

Dalian is one of the most successful Chinese cities in attracting Japanese and ROK businesses — half of the city’s overseas-funded businesses come from Japan and the ROK, more than 5,000 in number, and 40 percent of the city’s foreign trade comes from the two countries, local government statistics show.

“The internationalization of Dalian has been largely due to Japan and the ROK, and Dalian has every advantage for building a free trade zone in northeast Asia,” said Xia Deren, mayor of Dalian.

“We expect to develop the area of about 50 square km surrounding the Dagushan Peninsula into a free trade zone on the basis of the Dayaowan Bonded Harbor Area,” he said.

“But, of course, it has to depend on the country’s overall economic layout,” he added.

Energy prices rallied yesterday after the government reported a surprising drop in US stockpiles of gasoline and distillates such as heating oil and diesel fuel.

Other commodities finished mixed as gold and silver prices slipped, industrial metals made modest gains and agriculture product prices reacted to changing weather patterns, The Associated Press reported.

The Energy Information Administration yesterday reported the nation’s gasoline inventories fell by 700,000 barrels, bucking analysts’ consensus forecast for a build of more than 1 million barrels. At 202.6 million barrels total, gasoline stocks stand well below the average level for this time of year.

Distillate stocks, which include heating oil and diesel fuel, also declined despite market expectations for an increase. The summer is typically a key time for the market to grow heating oil inventories, and the surprise draw bolstered prices.

Although the report showed a larger-than-expected rise in crude oil inventories, improving rates of refinery utilization indicated that demand for crude will soon start to climb, said Man Financial analyst Andrew Lebow. US refinery use rose to 89.4 percent last week from 87.6 percent a week earlier.

“As refinery runs continue to increase — and they will — we should be looking at some fairly significant crude stock draws in coming weeks,” Lebow said. “I think the market in crude is looking beyond this week’s report and viewing that as supportive.”

Light, sweet crude for August delivery picked up US$1.20 to settle at US$68.97 a barrel on the New York Mercantile Exchange. Gasoline futures rose less than one cent to close at US$2.2546 a gallon, while heating oil added 3.13 cents to US$2.0246 a gallon.

Elsewhere on the Nymex, gold prices wavered between modest gains and losses yesterday but ultimately failed to recover from Tuesday’s steep fall. A strengthening US dollar pressured prices, canceling support from a dip in the yield on the Treasury’s 10-year note.

Gold for August delivery dropped 50 cents to settle at US$644.80 an ounce on the Nymex yesterday, a day after prices touched their lowest level since mid-January. Silver also fell, with the July contract shedding 7 cents to end at US$12.21 an ounce.

Overseas, copper prices nudged higher on news that workers at Europe’s largest copper miner, Poland’s KGHM, will vote on a potential strike, while workers at a Southern Copper Corp mine in Peru continued their strike, according to Dow Jones Newswires.

The other industrial metals edged less than 1 percent higher on the London Metal Exchange, except for zinc, which closed the session down 1.5 percent. Nymex copper rose 4.35 cents to settle at US$3.357 a pound.

In Chicago, corn prices recoiled amid reports that rains have finally reached the parched eastern Corn Belt. The market also looked ahead to an upcoming report from the US Department of Agriculture, due out Friday, which will show how many acres of land farmers dedicated to corn this year.

In March, the USDA had reported that farmers intended to plant 90.5 million acres of corn — the most since 1944. Market analysts expect Friday’s report of the acreage actually planted to be even higher, at about 91 million acres, said DTN analyst Elaine Kub.

Those expectations also took their toll on prices. Corn for July delivery dropped 12.6 cents a bushel to settle at US$3.436 on the Chicago Board of Trade.

In the wheat market, too much rain in Texas and Oklahoma continued to inflame concerns about wheat supplies and briefly sent prices to a new 10-year high above US$6.25 a bushel. The July contract fell back before the close, however, ending down 2.4 cents to US$6.06 a bushel.

July soybeans followed the others lower, falling 3.4 cents to close at US$8.034 a bushel.