The China Factor: Global Trade’s Big Hub

Posted by Gary M. Barraco on May 22, 2017

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Business often comes down to numbers, with bottom lines, profitability, growth and more, all part of the ongoing calculation of making a company succeed.  Unfortunately, the recent upheavals in global trade have made these calculations much more difficult. Unpredictability has become the new normal, with rising protectionism, saber-rattling from global leaders, and slow economic growth hindering financial projections. One factor that must be part of the equation for companies doing business globally is China.

China has the Numbers

Since their accession to the World Trade Organization (WTO) in 2001, China’s economy has been growing by leaps and bounds. And despite a recent slowdown in that growth, the Chinese economy continues to outpace the rest of the world. By the numbers, China has the biggest population, largest working class, and coming soon, the largest middle class in the world. Capturing that market for both production and sales will be key to squeezing growth out of a stagnant global economy.

Although there’s a general sense in some industries that China’s heyday as the world’s factory is in decline, it remains profitable for companies who do business there. Compared to some of the emerging economies with cheap labor such as Bangladesh and Ethiopia, China has well-traveled roads, and clear roadmaps for dealing with regulatory and enforcement issues, written by companies who’ve been there for decades.

As China’s central government continues to make inroads on lowering barriers to trade, the growing Chinese middle class asserts its power as a global force for growth. For companies looking to export to China or import from China, now is the time to crunch the numbers and calculate both the risks and potential. Over the past several years, countries that traded heavily with China recovered faster from the global economic crisis, thanks to cheaper imports for struggling residents and a large market for exports. China’s low rate of imports of trade in services means even more potential for growth.

The Trump Factor

When President Trump took office in January following a campaign that relied heavily on anti-trade rhetoric, the trade community held its collective breath. In his first 100 days, Trump followed through with many of his trade-related promises, including withdrawing the U.S. from the Trans-Pacific Partnership agreement, a 12-nation Pacific Rim pact that did not include China. This step was seen by some analysts as a boost for China in the region. The negotiations on the Regional Comprehensive Economic Partnership (RCEP) are well underway and it could substantially lower trade barriers between China, ASEAN, and a large group of other Asia-Pacific nations, including TPP partners like Australia, Japan and New Zealand.

Trump also made clear his intention to re-negotiate the decades-old North American Free Trade Agreement (NAFTA). For US companies, NAFTA partners Canada and Mexico are currently the biggest export markets andthey also export a large proportion of US imports. That could change rapidly if the NAFTA renegotiation takes a bad turn;already reports are coming from the two countries that they are weighing their options elsewhere for trade, should trade relations with the US go downhill. Who’s ready to step into the shoes of the US if this does happen? Among those countries vying for the opportunity is, of course, China.

After meeting with Chinese President Xi Jinping, Trump announced he would not name China as a currency manipulator, one of his platform promises and one of the major concerns for the trade industry. With the possibility for improved trade relations between the US and China as Trump works closely with Xi on trade and national security issues, many of the fears of sour relations between the two countries have fallen away, replaced instead with anticipation.

Weighing the Odds

As companies look towards the future, China is increasingly an important factor to consider. But doing business there requires the right tools to navigate the maze of regulations in China, and to help calculate and mitigate the effects of any changes in US trade policy towards China. Companies wanting to succeed in China must harness Global Trade Management (GTM) software that can provide a clear picture of central and regional government regulations. With GTM, companies can identify regulatory changes and respond to them swiftly, managing the impact on sourcing and manufacturing, licensing requirements, cross-border documentation, and duty minimization programs in China.

The best GTM tools automate the import and export processes for all facilities in China, meeting local compliance requirements for General Trade, Processing Trade, and Bonded Zone operations with continual regulations and regulatory data updates. Understanding and applying Customs enterprise classification for more favorable regulatory terms and issue resolution flexibility will increase profitability and reduce compliance, indirect, and transactional costs, making a difference on the bottom line.

While there is uncertainty with US-China relations moving forward, the opportunity to capture even a small share of China’s huge market can be worth the risk. Those willing to take the leap must be prepared with the right solutions to navigate the complexity of China’s regulations, and to withstand the instability of global trade fluctuations in 2017 and beyond.

Download our eBook, The Keys to Effective China Trade Operations, for actionable steps you can take to overcome challenges and manage China trade compliance more efficiently!

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This post was published on May 22, 2017 and updated on May 22, 2017.

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Topics: China Trade Management, Duty Management, Foreign-Trade Zones

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