It seems that every trade periodical,
magazine, big city newspaper, and TV news program is speculating about
what will happen when quotas cease on January 1, 2005.
After reading a multitude of conflicting
reports as well as attending and participating in numerous panels and
seminars on this subject, I will try to give you (in layman's terms) my
findings from a
point of view. I cannot cover all of the areas
involved, nor can I predict what will happen; however, since I am involved
in this area every day, I will try to provide some insight that may help
you plan your approach for a profitable future.
It is not easy to do business in China.
Even though they have advanced to many new technical achievements in the
textile/apparel and electronic industries, there is a huge gap between the
numerous factories and how they are managed, so you must be very
First, let's talk about China and its
efforts to comply with the rules of the WTO. Literally hundreds of China's
laws must be changed in order to fulfill these regulations and many new
ones put into place. This does not mean they can be administered!
To those of you who deal in intellectual property, trademarks, copyrights,
patents, industry trade secrets, and exclusive design, all I can say is
Remember, you are dealing with a culture
that is 5,000 years old and has transcended many successes and failures.
While living in the Pacific Rim countries for many years, I learned that
the words I will try, I will do my best
and It is possible, all mean
No, and that it will not happen as you planned.
China's own economy is
growing at a very fast rate, and its need for higher living standards and
modern products is almost beyond comprehension.
Those of you who wish to
export into China must realize that China is creating its own standard for
product to be sold in China, and it may not comply with your
specifications. Therefore, to all of you in export, is the glass
half empty or half full?
Countries with up to 55% of
their textile/ apparel exports to the U.S. are wondering how to stay alive
when quotas are removed.
Second, I can tell you this: China is
focused on dealing directly with the buyer, whether the U.S.
manufacturer/importer or the U.S. retailer, and is trying to eliminate the
broker and agent margins. This will allow Chinese manufacturers to have
greater gross margins and remain competitive in costing.
Chinese banks can no longer loan monies
to their manufacturers and accumulate additional uncollectible debt.
Guessing how much uncollectible debt the four major banks in China are
carrying is like betting the odds in Las Vegas. Does this really matter?
When you look at the total balance of China's trade debt with the world,
it is really in pretty good shape, and they have a huge surplus of U.S.
Third, China and a few other aggressive
countries are now in the process of assisting their larger, more
sophisticated manufacturers to set up U.S. offices to service here
directly. This will not be just an individual firm, but a much larger
scale such as a permanent Expo or Mart format location. This means easier
sourcing, but you must a WIP infrastructure in place to ensure that you
get what you pay for.
When travel stopped due to the SARS
epidemic and considering the terrorist situation worldwide, these
countries realized they must now go to the mountain, as the mountain is
not coming to them, and in a timely manner or not at all.
Since China and its quota holders will be
losing billions of dollars in revenues, China is not rebating full export
taxes back to the exporter of record. The smaller banks are being told
that they must loan on profitable orders received by their manufacturing
clients, so we are not going to see as big a drop in F.O.B. prices as some
people are calculating. Yes, there will be a drop in first costs for the
short term, but I would not bet on it for the long haul.
Fourth, China is following the Taiwan
model. It is privatizing its industries and, in the banking arena, making
sure its local province banks have the opportunity to earn interest on its
large exports. At present, the Hong Kong banks almost have a monopoly as
corresponding banks for the Chinese exporters. Purchase order trade
financing is coming into the mainstream, in order to enhance available
production without LC's being required.
These are only a few of the many changes
taking place, all at the same time. If you do not think there will not be
many, many mistakes, you have your head in the sand.
Our government has taken steps to
prepare, and now other WTO nations are questioning the quota elimination.
We have put safeguards in place to stop dumping, U.S. Customs are now
looking for transshipping and country of origin, and we have moved our
U.S. Department of Trade into new management areas, all to try to stop
lowball F.O.B. costing.
You will always find some importer
dropping their proverbial pants to get the order from your customer. You
must do your homework and make an extra effort to ensure that you have all
the updated facts, know the true competitive cost, have the infrastructure
in place to receive the quality you contracted for, and make a realistic
commitment for on-time delivery.
There are many things to think about.
Those who go the extra yard will survive, prosper and avoid getting