The People's Republic of China has one of the fastest growing economies in the world. Its gross national product (GNP) increased 13.4% in 1993 and 11.5% last year. Its growth is projected to increase by 9% next year and about 8-9% annually through the end of the century -- one of the highest in the world.

Certain regions in China -- especially those along the coast -- are booming, as many of the residents are becoming more prosperous. Political and economic decentralization has allowed each region to pursue its own interests as local governments and enterprises gain greater autonomy on a daily basis. Some 8,000 companies now have import and export rights. This trend will likely continue.

U.S. Exports to China Rising -- Faster

Foreign trade as a percentage of China's GNP now accounts for nearly 40 percent. From 1991 to 1994, U.S.-Chinese bilateral trade almost doubled -- reaching more than $48 billion. From 1993 to 1994, the United States edged up 18.4% to achieve 12.2% of Chinese import market share. And for the first two months of this year, U.S. exports to China rose 28.6% faster than the same period last year -- a considerable jump when compared to the much smaller 5.7% increase in exports from 1993 to 1994. Although more recent data is not yet available, this trend appears to be continuing.

Principal exports to China include boilers and machinery; aircraft; fertilizers; electrical machinery; and cotton, including yarn and woven fabric.

Last year U.S. imports from China rose considerably faster than exports, as the country moved up two notches to become our second largest supplier of goods. Principal U.S. imports include electric machinery; footwear; toys; games and sports equipment; apparel (unknit); and leather art, saddlery and handbags.

Last year, the U.S. trade deficit with China reached almost $30 billion. In the past, access to China's market of 1.2 billion consumers has been hampered. Recent trade agreements, however, will positively affect this.

Market Access Agreement Reached in March

In February of this year, China signed an agreement to protect U.S. intellectual property. During U.S. Trade Representative Kantor's visit there on March 12-13, he reached an eight point agreement with Minister Wu Yi on market access, bilateral services, and China's accession to the World Trade Organization. As part of the agreement, China also agreed to fully implement the October 1992 Memorandum of Understanding (MOU) which was suspended some time ago. The MOU committed China to make sweeping changes in its import regime, including the elimination of 90% of all non-tariff barriers.

At the March 29-30 market access consultations in Washington, D.C., China additionally agreed to lift quotas and licensing requirements on a wide range of agricultural goods, textile machinery, textile and apparel, computers and heavy machinery. As a result of these developments, U.S. exports will likely increase at an accelerated rate.

Best Export Prospects

U.S. products anticipated to do well in China include aircraft and parts; electric power systems; computers and peripherals; telecommunications equipment; automotive parts and service equipment; agricultural chemicals; industrial chemicals; plastic material and resins; chemical production machinery; building products; pumps, valves and compressors; electronics components; machine tool equipment; oil & gas field machinery; medical equipment; laboratory scientific instruments; and electronics production and test equipment. The list doesn't stop here.

Agricultural products in demand include wheat, cotton, logs, hides and skins, poultry, tree nuts (pistachios), dried fruits, especially raisins, and snack foods .

Obstacles Remain

Although political and economic structures are becoming decentralized, Communism remains intact in China. As a result, the system continues to erect roadblocks that are difficult to overcome. In addition to quotas and high tariffs (50%-250%), many of which will be reduced or eliminated, China inconsistently applies a 17% value-added tax on most imports, limits access to its retail sector, maintains foreign exchange controls, operates under an inefficient banking system, and sometimes applies unreasonable standards and quality control requirements.

Additionally, it is important to become familiar with changing logistical demands and penalties for nonconformance. For example, in order to ship over-sized packages to China, approval must be given from the airlines before delivery. This is especially important for inland shipments.

Plans for Development

The Chinese Government has embarked on an ambitious schedule to improve the country's infrastructure. Many of these improvements will not only help to better facilitate trade, but will also provide U.S. companies with opportunities to supply materials and products needed to complete the projects.

Two of these projects involve electric power generation and transportation improvements, as discussed below.

Electric Power, thermal and hydro: The Ministry of Electric Powers plans to add 15,000 MW per year to China's power generation capacity over the next ten years. Central and provincial expansion plans include the construction of over 35 power stations between 1992 and 1996. Hydro-power projects involve the construction of four huge structures, including the building of the largest hydro-power dam in the world.

Railways: China is receiving loans from the World Bank, the Asian Development Bank and the OECF to build and expand six rail lines and to import communications networks, intermodal container transportation and loading systems, computer and signaling systems, software and track maintenance equipment.

This article appeared in Global Shipper, a publication of Emery Worldwide, June 1995.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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