Trade trends after WTO entry

China's WTO entry will change the way trade is conducted in the country, in terms of levels of trade, types of goods being traded, and associated financial and documentary arrangements.

Trading terms

The current trend of strongly growing imports into China is expected to continue. The growth in the import of primary and capital products has been particularly significant “ the increase in primary goods being mainly due to the large jump in petroleum products which will remain a major item for the foreseeable future. Imports of raw materials including timber, pulp, minerals, chemicals and metals have also risen strongly (up 50 per cent in 2000 according to China Trade Roundtable), while within an overall increase in manufactured products, electrical, electronic and automotive products and instruments rose 40 per cent “ a reflection of China's economic restructuring and upgrading.

The slowing of export growth through 2001 signalled the end of recovery-induced high growth and a slowing world economy. The depreciation of the currencies of China's trade partners weakened the country's export competitiveness and a shift towards high tech products like electronic components , electronics products and computers and their peripherals became apparent in China's export market. This shift in the pattern of trade is the inevitable outcome of foreign direct investment of US$330 billion, mostly through the establishment of some 350,000 foreign- funded firms in the five special economic zones (SEZs) along China's southern coast , which has helped to transform the economy from exporting primarily raw materials to becoming a large exporter of manufactured goods.

Payment terms

While the trade finance products available in China are largely generic, DCs remain prevalent in trade deals with foreign suppliers. However, there does appear to be an increasing number of requests to suppliers to offer open account terms, even for bulk commodities (raw materials).

On the export side, a greater percentage of transactions are on open account, and this number is growing. Estimates vary from 30 “65 per cent, depending on the products involved and the location of the exporters. This growing trend will encourage trade banks to look at meeting the needs of the market quickly.

Cash management

Increased foreign investment in mainland China has inevitably led to a greater focus on cash management. Historically, corporate growth in China has been a fragmented affair, resulting in numerous legal entities with completely separate operations and administration. Under local regulations, a subsidiary's scope of business is tightly defined by its 'business licence' and this makes it impossible to create centralized treasury or cash management operations under a holding company structure. However, the position improved significantly in 1999 and 2001 when the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) extended the business scope of holding companies. This enabled them (subject to certain conditions and approvals from MOFTEC) to act as principal in selling their subsidiaries' products, thereby centralizing sales and invoicing , to provide transporting and warehousing for their subsidiaries only, and to house a research and development centre .