To seriously renovate the operating environment for China s exports

To seriously renovate the operating environment for China's exports

Disorderly competition, particularly the race to under- cut each other among Chinese exporters, remains a serious concern. Let's take the example of motorcycle exports, which have experienced a substantial growth in recent years . Total exports in 2001 amounted to three million units; however, their unit price had degenerated to half of the comparable price of 1998. Anti-dumping lawsuits were ignited and some countries are requesting China to exercise voluntary export constraint. Competitive pricing has been so devastating that 1) it deviates from the strategic goal of China's national export promotion programme; 2) it imposes losses on parts of the country and the entire industry; 3) it damages the overall reputation of Chinese products and thus reduces the confidence of clients and customers; 4) more profoundly, it causes the activation of anti-dumping measures with the effect that the target market turns its back on Chinese exports.

Since the 1990s there has been a sharp increase in anti-dumping lawsuits against Chinese exports with an average of 30.5 cases per annum. In the year 2001, as many as 43 anti-dumping lawsuits were lodged by 13 countries against Chinese exports, which involved an array of industries such as iron and steel , light industrial goods, chemicals, mechanical and electronic products, textiles and medicinal drugs. By the end of 2001, anti- dumping lawsuits against Chinese exports totaled 485 cases, over 60 per cent of which were adjudicated as violating anti-dumping legislation. The surtax rates levied ranged from 8 per cent to 1,005 per cent, which can be translated as a humongous loss of $10 billion over Chinese exports. To rub salt into the wound, Chinese companies are reluctant to defend themselves against anti-dumping allegations. Most companies chose to back off from defensive efforts for fear of the litigation cost, thus increasing the chances of loss. From a practical point of view, companies who were ready to defend stood a better chance over the outcome of the lawsuit. Even in cases of loss, the surtax levied would be far less than for those who chose to back off. We conclude that in order to eradicate disorderly competition, we must continue the restructuring endeavour and accelerate the establishment of a modern enterprise system so that companies will adopt as the basis of independent operation, full responsibility for loss and profit, self-growth and self-discipline. We must completely dismantle the stereotype in which state-owned enterprises are free from responsibility when losses occur. Corporate governance has to be changed to the extent that the responsibility of the board of directors is completely separated from the management. The board of directors should be restricted to the preservation and growth of state assets, and is vested with the role of effective supervision over management. The salary and benefits of the management and workers should be directly related to the performance of the business. In addition, public auditing by independent accounting firms will be promoted. Internal regulation within specific industries through chambers or associations formed by exporters will play a strengthened role in serving their members with information, coordination, facilitation and protection. The customs house can be involved in the assessment of import and export pricing schemes. Effective measures will be formulated to sanction unethical behaviour that inflicts harm on the whole market, such as competitive auctions. Administrative departments will strengthen their role in policy guidance and supervision over implementation. They will ensure that those who achieve outstanding performance through lawful and ethical means are rewarded, and that those who engage in malpractices that are detrimental to national interest will be duly punished. Economic and business attach s within Chinese embassies and consulates abroad will provide guidance, service and supervision to the local operations of Chinese business entities within their jurisdiction. They are vested with the responsibility to prevent vicious competition among Chinese firms, to protect the national interest and to maintain friendly cooperation with host countries.

To continue the reform in the administrative approval system so as to unleash the potential of various market players in the area of foreign trade

Along with the progress in market opening to the outside world and reform of the economic system, the list of projects subject to approval has been substantially compressed. This is not yet compatible, however, with the requirements for socialist market economics and active participation in international competition. The list, subject to administrative review, will need to be further streamlined before it can unleash the potential of various market players.

A primary target for reform is the approval and licensing system over the qualification of companies to engage in foreign trade business. The 15th plenary session of the central party congress clearly identified that a diversified ownership structure with state ownership as the backbone is the foundation of the Chinese economic system during the preliminary stage of socialism. A non-state owned economy is recognized as an essential part of the socialist market economy. However, not only the non-state owned firms, but also some state owned firms, are still under certain restrictions on engagement in foreign trade transactions. China has pledged to the world that, within the next three years, it will substitute a registration system for the rights to engage in foreign trade for the approval system, and that foreign companies will be able to enjoy identical treatment in this respect. We are working under the pressure of that timeline. The first step is to institute a registration system among various types of domestic firms so as to foster the core competence of domestic firms within the transitional period. In the meantime the Chinese government will take advantage of the transitional period to improve its administrative system so as to prepare for the wholesale rollout of the registration system. We understand a smooth transition is utterly important to ensure market order and fair competition. Practically speaking, for the sake of the healthy development of Chinese foreign trade, the registration system is both feasible and necessary. Already over 400,000 foreign invested enterprises (FIEs) have obtained the right to engage in foreign trade at the time of their inception. A positive result has been achieved over the first year of its implementation among firms of different ownership structures. Some firms that have not been granted the right to engage in foreign trade have long been renting licences from other companies, which poses considerable difficulty for administration and supervision. The infrastructure for foreign trade administration, such as digitalized government regulation, the 'Gold Pass' programme and the 'Gold Taxation ' programme are well under way. These provide the necessary base for effective administration when the foreign trade registration system rolls out among various business entities. In terms of the need to expand China's foreign trade, it is necessary to optimize the trade composition and to reorganize and restructure the business community in order to be prepared for a new chapter in global competition. While harvesting and refocusing on existing markets, we need to cash in on new market segments. More flexible business models and entrepreneurship are required to explore new markets. These are the markets where small and medium- sized businesses can exercise a particular competitive advantage.

The next target for reform is administration over foreign trade products. Except for a limited number of products that are vital to the national economy and those that are subject to the commitments of international conventions, the remaining products that have been placed on the quota and licence control list will be gradually phased out. Firms will be placed on an equal footing for competition and growth. Products that need to be retained (or maintained for a certain period) on the control list, or those that have to be handled by designated companies, will be publicized, as much as possible, for competitive bids. Only companies which outperform competition on their own business strength will be awarded quotas and licences. This approach better reflects the policy initiative for quota and licence control, and is instrumental in boosting the integrated competitiveness of China's foreign trade.

The third target for reform is the macro-management mechanism of China's foreign trade. The government must learn to substitute for direct intervention through administrative measures with indirect methods such as economic and legal measures to coordinate and supervise. Government intervention in the market will be substantially reduced by the ongoing reform in the administrative approval system and installation of market economics. This does not imply that the government will play a lesser role in macro-management, but rather that it has to rely more on economic and legal measures to indirectly coordinate and supervise. Tariffs, exchange rates, interest rates, credit, taxation and insurance are examples of the tools available to lead foreign trade on to the track of orderly competition and healthy development. Experience shows that under the open- door policy and market economics, economic measures are far more effective than administrative regulations. For example, in the early years of our open-door policy, although our export value surged, the amount of foreign exchange received dropped on a yearly basis. The results of the administrative orders for control were insignificant. In 1994 the government decided to eliminate dual track foreign exchange rates and set the exchange rate afloat as dictated by market supply and demand. This floating rate has been subject to management by the government through open market operations. The government buys and sells foreign exchange reserves to keep fluctuations within a tolerable range in line with its foreign trade and economic development objectives. Consequently firms were driven by the profit motive to call back their foreign currencies and have them exchanged in China. Almost automatically the inflow of foreign exchange by Chinese exporters increased and a reasonable level has been sustained up to the present. It is also worth noting that we have accumulated a certain experience in regulating foreign trade through interest rates, credit and taxation. The Import and Export Bank was established to provide credits to buyers or seller's credit for the purpose of supporting China's exports of machinery and electronic equipment. The Bank is especially instrumental in the support of export packages for equipment from China. We must be ready to learn both from our past experience and foreign practices so as to facilitate the transformation of our approach to foreign trade administration. At the same time, government offices in the foreign trade area must reinforce communication and coordination with other relevant government organs for concerted action. An information system responsible for the surveillance of foreign trade operations is of paramount importance for the government to make correct and prompt decisions.

To devise various international economic cooperation channels for the strategic promotion of foreign trade

At present, our international economic cooperation structure is multidimensional to include import and export trade, foreign investment, overseas project construction, labour service exports and foreign aid. These activities are interrelated and intra-facilitative.

International investment, piggy - backed by international trade, is one of the major elements in global economic activities. In retrospect, since the launch of China's open-door policy, and especially in the past ten years, foreign investment in China has been playing an increasingly important role in our foreign trade growth. The proportion of the import and export value generated by FIEs has far outweighed China's industrial output. Moreover, the contribution to the rate of growth both in import and export value, as well as foreign exchange surplus , has far exceeded that of domestic enterprises. FIEs stand out as an important force behind our export growth and a major source of the increase in foreign exchange reserves. Many FIEs are associated with multinational corporations that possess advanced technology, management expertise and established global marketing networks. Their products are perceived to be of superior quality with a higher technology content and added value, thus enjoying competitive advantage in overseas markets. They are ready examples for domestic Chinese firms to learn from in the implementation of the 'winning through quality' strategy and in their business and market diversification. China is in the process of conversion from a 'big' trading nation into a 'strong' trading nation. To that end, we have to open our arms to foreign direct investment and further integrate FIEs into the major efforts of the country's foreign trade development.

As China's economy and foreign trade develop, the 'stepping out' strategy, ie to invest abroad, becomes both imperative and feasible. We enjoy an abundance of labour supply and a considerable level of industrial capability. To cope with the limited per capita resources, we have to utilize both domestic and foreign resources synergistically. To tap overseas resources through investment abroad or production relocation can serve multiple purposes. It can compensate for the shortage of domestic resources while reducing the export costs. It is conducive to the balance of bilateral trade. It can facilitate the export of Chinese products and equipment. More realistically , it helps to penetrate protectionist barriers and to allow Chinese businesses to grow together with the host countries in terms of both economic development and technological progress. We also encourage Chinese firms to set up research and development centres in selected markets. This will improve our product compatibility through technological localization and market customization. Attention is also directed towards combining overseas investment promotion with our foreign aid programme. Through localized manufacturing, a showcase will be presented in the host country for the level of our technology and product quality. This is the most effective approach to market promotion and helps to facilitate ensuing exports, particularly export package of equipment, significantly. We have accumulated considerable strength in project construction overseas. If we are better able to integrate project consulting and design in constructing contracted projects, our exports, particularly export packages of equipment, will enjoy an enormous market. Success depends on concerted efforts from both government and the business community. With strategic integration of management and operation, our foreign trade will broaden its horizon.

The development of foreign trade is a highly complex system involving multi- faceted endeavours. Naturally, much remains to be considered and desired. Above all, we count on all our colleagues in the foreign trade arena to exercise their patriotic enthusiasm , to disregard difficulties, and always to move forward in the pursuit of excellence. As the popular proverb goes, 'wherever there is a will, there is a way'. Willpower is the driving force behind abundant material wealth, and it is also the most important guarantee for the sustainable, rapid and healthy development of China's foreign trade.