Foreign trade opens up further
By Zhang Jin (China Daily)
Updated: 2004-07-27 13:55

Liu has been running a one-man import and export business since he left a State-owned trading company three years ago.

Due to the restrictions which had previously existed on individual traders, he had to work in the name of another company, which had trading rights.

Two foreign businesspeople check products from private enterprises at the China International Consumer Goods Fair. The Foreign Trade Law, which took effect on July 1 has, for the first time, given the green light for individuals to conduct foreign trade.[newsphoto]

"I earn bread with my own efforts," he said. "That company gives me no more help than acting as a cover."

"But I have to pay it an amount of money simply because of that," he complained.

"I feel good that I can be a genuine individual trader."

"I will be legal," he exclaimed, saying the approval of his trading rights is pending and might arrive soon.

A total of more than 100 individuals have registered at local authorities in Beijing, meaning they can legally engage in international trade, local media said.

"And more people are calling for consultation, saying they are interested in running import and export businesses by themselves instead of under the name of a company," said a Beijing Bureau of Commerce official.

Remarkable move

Liu Yuqin, a senior researcher at the Chinese Academy of International Trade and Economic Co-operation (CAITE), a think-tank of the Ministry of Commerce (MOFCOM), said that granting foreign trade rights to individuals marks the final move in the country's transition from a planned to a market economy.

"Individuals can now legally do foreign trade," she said. "There is no ownership restriction to limit the qualification of traders."

"That means the sector is now fully subject to market competition," she added.

This also indicates a shift in the import and export sector's status from a "privileged one" to an "ordinary sector," said Huang Jingbo, a professor at Guangzhou-based Sun Yat-sen University.

It helps to further break up the State monopolies.

China had just 14 State-level companies with foreign trading rights in 1979, when the country had embarked on the reform and opening campaign.

This is in stark contrast to the current 120,000, a number that excludes foreign-funded firms and is expected to increase as trading rights can be granted by registration rather than licensing since July 1.

From 1979, trading rights were gradually extended to more State-owned enterprises, then to private companies, Sino-foreign joint ventures, wholly-owned overseas-funded firms, and now finally to individuals.

"In this sense, the move is symbolic and profound," said Zhang Hanlin, director of the China Centre of World Trade Organization (WTO) Studies under the University of International Business and Economics (UIBE) in Beijing.

Experts suggest that this deregulation means China has fulfilled its WTO commitments well ahead of schedule.

China vowed to liberalize the trading rights of all enterprises, including foreign ones, by 2005.

The move also caters to the reality that an increasing number of individuals are engaged in the import and export business.

"Most of them are doing border trade," Zhang said.

Before July, they had to conduct trade illegally or under the name of a company.

Legal, administrative support

But analysts say that more legal and administrative work needs to be done in order to carry out the spirit of the Foreign Trade Law, dubbed the "constitution" of the foreign trade sector.

Fan Ying, a professor at Beijing's China Foreign Affairs University, said that the first step is the repeal or revision of a whole host of laws in order to bring them into line with this deregulation.

"The Foreign Trade Law only theoretically allows individuals' entry," said Fan. "In effect, they will run into a number of setbacks due to the lack of tailored regulations."

Foreign trade is a long chain that covers numerous links such as customs clearance, quota allocation, tax levy, safety inspection and environmental protection, she added.

The "lack of any link will hamper a trade transaction," Fan warned.

Such a lack of a comprehensive legal framework means that the first batch of newly-approved individual traders have already encountered difficulties.

"I am not sure when I can do my first foreign trade deal, although I have got trading rights," said an individual trader surnamed Zhang, who complained that he remained busy dealing with customs, the foreign exchange bureau, the quality inspection office and the taxation department.

"Sometimes, officials do not know how to handle affairs related to individual traders."

The government is keenly aware of this situation.

"At least a dozen related laws and regulations are being revised to cater for the new Foreign Trade Law," said a ministry official.

And red tape is another big concern to these individuals, especially after government departments' workload intensifies as more companies and people apply for trading rights.

Experts also pointed out that it may take time for government officials to adjust to the new circumstances.

Shen Sibao, a senior professor at the UIBE, said: "For a long time, trade-related officials were used to managing traders with administrative rules and regarded themselves as administrators."

However, they should transform themselves into public servants, as trading rights are no longer granted through certification.

Challenges ahead

Although individual traders are now legitimate, their future will not be as positive as some imagine, experts say.

Client resources and professionalism are required in order to conduct international trade, Fan said. "Anyone who wants to plug into the trade sector as an individual must think twice before he leaps."

She added that veteran traders and Chinese returned from overseas might have the advantage.

Funding can be another obstacle for individual traders.

Automobile, furniture, and household appliances trading, all of which requires large amounts of capitals and a complete after-sales service network, may be some of the "forbidden" areas for most individual traders.

Trade in apparel, leather goods a nd toys, and tourism might benefit them, Fan said.

Individual traders are also fully aware of the challenges ahead.

"I can not compete with trading companies," Liu said.

He confessed that he only handles some small deals in cash transactions.

He Bing, the manager of a Dalian-based trading company cautioned that individuals might find it difficult to handle trade barriers and anti-dumping cases.

And without a firm, clients might doubt the credit of an individual trader.

Apparel trading companies on Yabao Road in Beijing said they will continue to run their businesses under the name of a firm, although their trading mode is similar to that of individual traders.

"No one trusts you without a company," said Chen Jiong, who has been trading there for five years.

"Cash for goods," he said, "We are running the same way as an individual trader does."

"But we look more formal in the name of a company than of an individual, and thus having more business opportunities," he added.

Trading companies are not worried that the opening of the market might cause a brain drain, saying individual traders will only take a negligible slice of their businesses.

Wu Jiming, an official with the Sainty Group, the largest trading house in East China's Jiangsu Province, understands this situation.

"Clients will leave you if you quit the company and do business as an individual," he said.

He confessed that he never thought about running exports on his own before he is able to establish his own company and has attracted a number of stable clients.

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