Import regulations and customs duties
Only the companies or institutions authorised by the Ministry of Foreign Trade and Economic Co-operation (MOFTEC) are allowed to carry out international operations. There are two possibilities: either companies of foreign trade or productive companies are entitled to trade on an international basis (import for their personal use conditioned by steady flows of export). There are currently about 9,000 companies authorised to carry out foreign trade operations in China (14 in 1979).
More than half of the imports towards China are subject to import licenses. The initial license is issued by various organisations according to the product, but the final license is granted by the MOFTEC. In order to obtain these licenses, the importer must hold an exact reserve of exchange and prove that the import is necessary. The grant of licenses often depends on the domain of activity, being able to be encouraged, allowed, restricted or simply forbidden, according to the rule of investments promulgated by China. It is in any case imperative to have strong relations with the Chinese Administration to succeed in obtaining these licenses.
There are import quotas for more than 400 products, such as cars and textile. The criteria to establish these quotas is not public and it is extremely difficult to get information on this matter. In a WTO membership prospective, China suggested they would lift these quotas by 2005.
Most imported goods in China are subject to inspection. Either a preliminary inspection takes place in the exporting country for some products ( textile for instance), or either there is an inspection in the port or in the airport of arrival to check that the products meet the Chinese standards. These controls are led directly and exclusively by Chinese Authorities.
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China applies the Customs Harmonised system (on the basis of the international 6 figure key). Customs duties are calculated Ad valorem on the CIF value and reached an average 22.1 % at the end of 1999. The duties can vary from 3 to 80% depending on whether the imports are encouraged or not by the Authorities (Motorcars, for instance, are discouraged from import by the authorities). Besides that, it seems that Chinese Authorities use more and more often minimum prices as references to determine the customs value of the goods.
There was previously a single tax called the CCIT (Commercial Consolidated Industrial tax), now replaced by three taxes based on the turnover.
There are five Special Economic Zones (SEZ): Shenzen, Zhuhai, Shantou, Xiamen and Hainan. Companies located inside these zones benefit from preferential rates. Imports enter under a special license: the Certificate of Approval for ZES imports. The imported goods must aim at producing goods meant for export and can not be sold in China without agreement of the government.
There are three tax-free zones in Shanghai, Tianjin and Shenzen where imports are free from any customs duties and tax provided that no goods produced inside the zone are resold on the domestic market. Bonded warehouses, trade and production companies aiming at exporting are authorised there. There are also two other zones in the same regions (Export Processing Zones) that benefit also from customs duties exemptions, but in which marketing is not authorised. There are also tariff quotas set up since 1996 for certain farm-products.
In spite of its devolution to China, Hong-Kong maintains its autonomy on the commercial ground in the same way as before: it remains a free harbour and a separate customs territory from mainland China, preserving its own quotas on imports, customs preferences and the other current trade agreements (see Hong-Kong file in Atlas).
Regulations governing payments
The Chinese currency (RMB) is not already completely convertible, which implies some restrictions in the exchange rate system. Chinese companies have to pay their imports with the corresponding currencies, which obliges them to export their production in order to be able to import. All deals are managed by the State Administration for Foreign Exchange.
Formerly dominated by a State controlled system, the rules governing the management of trade are not well structured in China. The main business areas in the country are located around Shanghai, Beijing, Guangzhou and Hong Kong. Hong Kong will maintain its status as a free-trade port for 50 years from the date of reunification with China. In fact, it is the preferred port of entry of goods into the Chinese market of 1.3 billion consumers.
The Business to Consumer (B to C) market
Disparities exist between the urban and rural areas in China: 75% of the sales area is concentrated in the Eastern part of the country. In addition, one also notes differences between the urban and the rural population: whereas the former has a per capita income of 800 US dollars, the latter has an income of only 270 US dollars.
Retail distribution is well-developed in large cities and towns; hypermarkets are growing strongly in the majority of large Chinese cities and reached 39,089 in 2003. The mass market is dominated by large Asian groups such as Shanghai Bailin which has 5,000 points-of-sale with a sales turnover of 6.8 billion euros. However, foreign groups have also successfully settled in China such as Carrefour which is the 5th largest distributor in China and opened its 65th hypermarket in September 2005.
Other main hypermarkets in the country are: Wall-Mart (55 points-of-sale and sales turnover of 307 million euros), Tesco and Park'n shop.
In the rural areas, traditional trade is still of considerable importance because foreign firms are not yet established there.
The Business to Business (B to B) market
In order to sell in China, it is best to have a specialized agent having good institutional relations. If an export company wants to have a large trade volume in the country, the opening of a representative office in China should be considered. In fact, the Chinese government incontestably wants to have more and more foreign companies and encourages them to set up representative offices; that being the first stage towards setting up in China. However, setting up of a company in China is still subject to a process of surveillance under the control of the official authorities.
The other difficulty is to get the various permissions & certificates to enter this market: in fact, companies often get permission from local authorities but not necessarily from the central authority. Because of this, Carrefour had to give up some of its stores to its competitors.
Since joining the WTO in 2001, the Chinese government has opened its doors to foreign firms, and as a result, has attracted more than 34 billion investment dollars in 2004, a growth of 150% as compared to 2003. In addition, the government adopted a law on 1 June 2004 allowing companies create their own chains stores.
Transportation of goods
The road network, with a density of only 1,010 km of roads for 1 million inhabitants, is one of the recurrent issue that explains the slow-paced development of the Chinese economy. Moreover, the existing infrastructures, often badly conceived and of poor quality, are usually blocked by badly repaired vehicles (cars, lorries, cycles, carts .).
One of the priorities of the Chinese authorities since 1980 has been to develop the Chinese road network which covers 1.34 million km of roads today among which only 11,000 km of ways allowing speeds above 120 km/h. The secondary (paved roads) and local ways represent respectively 25 and 61% of the total network.
The current efforts from the government are especially concentrated on the implementation of the National Trunk Highway System (NTHS), system of inter-provincial toll motorways including 12 corridors on 35,000 km. This network, which construction is planned over thirty years, should enable to connect 95 cities of more than 500,000 inhabitants. At the same time, the governmental body which is in charge of the road construction at the national, provincial and municipal level began to improve the quality of infrastructures and their management.
Despite the Chinese governments' efforts to develop other means of transport, railroads remain the main one and the least expensive solution for long distance freight. In 1997, among all transport means, railroads collected 50% of the tonnage kilometres and more than 40% of the passengers kilometres of the country. The network covers 61,212 km, mostly concentrated on the oriental part of the country.
The main operator is the "Ministry of Railways" which takes on the exploitation of the network and the management of all the railway projects.
The biggest port is Shanghai: it includes three-quarters of the sea transport in 1995 and its infrastructures have been developed. In 1994, a port of containers began to operate in Shenzen, the special economic zone close to Hong-Kong. The main ports of the country are: Dalian ( Northeast), Tianjin and Qingdao (which serves Beijing and the North of China); Shanghai (East), Guangzhou, Shenzen and Xiamen (which serves Southern China).
The British Ocean Shipping Consulting Company forecasts that Chinese transport by containers will rank first in Asia in the 15 years to come.
China ranks 9th in the world regarding the total distance of its transport flights (85.7 billion km). Within 20 years, this figure should improve by 8.5 % a year to reach 438.7 billion km in 2019. Chinese air freight considerably developed since the country opened its borders and since civil aviation reforms were initiated. In 1998, the volume of cargo and mail transport reached 1.4 million tons, 25 times more than in 1978, that is an average annual growth of 19.8% over this period. Since 1997, the 13 most important cargo companies taped the Chinese market (Air France, FedEx, Korean Air, Singapore Airlines...) and wish to increase their flights frequencies on China.
The main international airports are: Beijing, Guangzhou Bayiun, Shangai Hongqiao, Chengdu, Shenzen and Xiamen.
The main airlines are Air China, China Airlines and China Eastern. Domestic flights are ensured by China Xinhua Airlines
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