China's recent initiative to bolster processing trade activity will offer export-oriented companies more options to sustain growth in 2024, thus aiding in the transformation from a labor-intensive development pattern to a more dynamic model in global trade, said industry sources and analysts.
The government introduced a guideline to improve the development of processing trade in late December. It put forward 12 measures encompassing six categories, encouraging the processing trade of high value-added products, while supporting the development of advanced manufacturing and strategic emerging industries engaged in the sector.
Processing trade refers to the activity of importing all, or part of, required raw and auxiliary materials from abroad, and reexporting related finished products after processing or assembly by companies within China.
The proportion of processing trade in China's total foreign trade peaked at 53.4 percent in 1998. The country's value of exports and imports related to processing trade amounted to 5.57 trillion yuan ($779.99 billion) in the first three quarters of 2023, accounting for 18.1 percent of its total foreign trade, said the Ministry of Commerce and the General Administration of Customs.
With escalating labor costs putting pressure on traditional manufacturing sectors in China's coastal areas, coupled with a surge in trade protectionism by certain countries and softening external demand, these measures have been crafted to create new growth points, said Zhang Jianping, director of the China Center for Regional Economic Cooperation at the Chinese Academy of International Trade and Economic Cooperation in Beijing.
For example, the government allows companies to conduct bonded maintenance services for a batch of industrial goods within China's comprehensive bonded zones.
Suzhou Soin Internet Technology Inc, a Jiangsu province-based printing equipment manufacturer, initiated its first bonded maintenance project on Dec 31. This endeavor focuses on servicing a 5-metric ton printing machine located within Wuzhong Comprehensive Bonded Zone in the city.
With over 1,000 clients both at home and abroad, the Chinese company's maintenance service model previously involved directly importing used printing machines from abroad. These imported machines would then undergo a comprehensive process involving maintenance, refurbishment and upgrades before being reexported.
"Due to the large size and high unit cost of these mega printing machines, each imported equipment unit requires the payment of relevant taxes, together with transportation and storage expenses, which has placed significant pressure on our operational expenditures," said Jiang Anli, the company's chairman.
Saying that the value of printing machines the company imported amounted to 140 million yuan last year, Jiang said that with the support of policy incentives, the value of the company's bonded maintenance services for imported equipment is projected to exceed 200 million yuan in 2024, making this type of service a new growth area for the company in expanding into global markets.
As a crucial link in the industrial chain, maintenance services deeply integrate manufacturing and service sectors, providing new impetus for the transformation of the comprehensive bonded zone from traditional simple processing to diversified production services, said Zheng Ke, an official at Suzhou Customs, a branch of Nanjing Customs.
"One of the government's new measures we are most concerned about is the decision to encourage large-scale companies to conduct processing trade. Customs authorities have provided us with detailed explanations, and our sales specialists have established communication channels with relevant units within the group," said Hu Shouguo, head of the export unit at Dalian, Liaoning province-based Dayang Group Co Ltd, a large-scale exporter of made-to-measure suits with more than 4,500 employees.
"We will actively facilitate the unified management of group accounts and the free flow of materials, ensuring implementation of these measures in an organized manner. It is expected to reduce annual outbound processing filings by over 200 cases and render exempting a guarantee deposit of 800,000 yuan this year," Hu said.
