China: The Regulations and Risks
China: Importing Regulations, Risks and Mitigation
January 28, 2014
This article has been produced by the efforts of the following members:
Hamza Tariq – Research Assistant
Louis-Claude Perrault-Carré – Team Leader for China-Industry
China’s presence in the global imports network has increased substantially over the past decade. Several major economies of the world are deeply linked and reliant on China’s investment-led growth, so much so that an investment slowdown in China can cascade potential global spillovers. China’s top five imported products remain crude oil, integrated circuits, iron ore, gold and automobiles. The top five import partners for the country include Japan, South Korea and other Asian countries, followed by the United States and Germany.
An importer in China is required to get authorization from various governmental bodies and possess an import license in some cases, before purchasing imported goods. The importer must first get authorization from the municipal level and the industrial bureau that directly administrates its activities.Secondly, the approval of the State Planning Commission (SPC) is required. The SPC designs the general economic plans for each region and any proposed imports must be in line with the SPC’s economic development policies. After receiving the approval of the SPC, the importer must seek approval from the Economic Commission (EC) before purchasing imported products. The EC determines which enterprise will import the product into the country. Lastly, authorization is required from the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the Foreign Trade Companies (FTC).
MOFTEC develops and implements regional trade plans along with the SPC and also administrates state FTCs. The importer is required to have a state FTC sign an import contract with the foreign exporter. If an imported purchase is deemed to be profitable and in line with regional economic goals then a FTC may supply an importer a foreign exchange quote if the importer lacks foreign exchange.
An importer might be required to apply for an import license if the product that is being imported is listed as a ‘restricted good’ by the MOFTEC. A license might also be required if the importer does not possess foreign trade rights or if the involved FTC imports goods that were beyond the scope of the authority vested in it by the government. To obtain an import license, the importer must first apply to local bureau officials. If the license application is approved, the importer can apply to MOFTEC or another governmental body that issues import licenses.
Companies looking to conduct business in China or currently doing business in the country are required to follow a list of technical requirements. This list includes adherence to standards (mandatory and voluntary), technical regulations and lastly demonstrating compliance to standards and regulations.
Public regulators and government officials usually set mandatory standards, and compliance is compulsory; voluntary standards on the other hand are set by standard development organizations such as the International Organizations of Standardization (ISO), national trade associations and other stakeholders involved with national standard bodies.
Voluntary standards can become ‘de facto’ mandatory if producers require suppliers to comply with these standards. A survey of Chinese firms revealed that that compliance to voluntary standards is increasingly used as a measure of increased product quality and safety, and as an incentive to access foreign markets. Items sold in the Chinese markets are generally required to display the standards that have been followed, on the product.
Standards can be further divided into national, professional, local and enterprise standards. National standards are the most widely and commonly implemented level. In addition to standards, Chinese regulation authorities also issue technical and regulations for products being made available in the Chinese market.
Once the required standards and regulations are identified for a particular product, the next step for companies is to determine if measures are required to exhibit conformance with official Chinese requirements. While there are a number of product and industry specific mandatory testing and certification schemes, the most prominent is the China Compulsory Certification (CCC) scheme.
Unfortunately for companies planning on exporting to China, a central directory for standards and regulations is not available. Companies have to consult with the local importers, distributors, trade associations and certifications bodies to confirm if their product is up to the required standards. Companies can also make enquiries through their national World Trade Organization (WTO) enquiry points.
The ministries and departments in China overseeing trade regulations are given extensive leeway to enact and enforce their own mechanisms. The onus of proving that all import regulations are met is almost entirely on the importing parties. Another important factor to note while exporting to China is that complete responsibility cannot be put on the local importer in the country. Even if the exporting party has no operation in China, the company is still liable if products are imported illegally.
China is set to earn higher returns on external assets that result from direct investment by firms’ rather than by low-interest government debt that is bought with foreign reserves. Hence the current Chinese stress on imports will continue because imports rise faster than exports, and help in relieving trade policy pressures.
Direct foreign investments and importing to China hold great potential, as China has a vast market for imported goods and services, especially since financial globalization has only just begun for the country.
