China Business Network
Updated2022-03-22 21:05:08
Zhou Jule, President of China-Base Ningbo Group, though a veteran in foreign trade, expressed that “he hasn’t slept for two days” in a recently held conference. What have been concerning him are a combination of “black swans” such as changing international landscape, ongoing pandemic at home and a fluctuating financial market as well as intensifying challenges such as rising costs of raw materials and mounting export credit risks.
The knock-on effects triggered by a series of overlapping factors are putting foreign trade enterprises under unprecedented challenges. The increasingly stringent compliance requirements in the overseas market and the potential new trade frictions force foreign trade enterprises to place more emphasis on compliance than ever before. Local governments and cross-border e-commerce platforms have also noticed this change and the demand behind it.
Greater challenges in compliance
“This year, we have placed more emphasis on compliance and paid more attention to avoid risks associated with compliance in details such as formulating the contract.” Zhou Mu (alias), a person in charge of a large garment foreign trade enterprise in the Yangtze River Delta area told China Business Network that amid the changing international landscape, they are now mapping out plans in advance to try to avoid risks through formulating framework, sorting out terms of contracts and enhancing enforcement capability in operation related to compliance.
Jia Chunxian, Deputy Director-general of the Trade Remedy and Investigation Bureau of the Department of Commerce of Zhejiang Province that many enterprises don’t have a clear awareness of compliance when dealing with foreign trade. Lacking enough understanding of common international practice, laws and regulations, they have paid their “tuition fee” for the economic loss resulting from compliance problems.
Zhou Mu expressed that as a large foreign trade enterprise, the company used to ship the goods as promised unless the overseas clients had asked not to. Nevertheless, this time for the orders involving Russia failed to use RMB to settle the payment, the goods will not be shipped even the production has been finished. “This is the first time in the history of the company”, which is also a standardized and reasonable response to the foreign trade. In addition, for orders involving the United States, they also start to adopt FOB price or split the now expensive international freight as agreed in the contract to reduce costs resulting from the fluating freight.
In the meantime, to avoid investment risks, more and more private enterprises start to deploy international layout. Jia Chunxian pointed out that with more overseas business, many enterprises have already suffered economic loss related to compliance in a complicated and changing global economy and trade environment. Some enterprises even have to drop their plan of going public due to compliance problem with their upfront investment being wasted.
Under such circumstances, the Department of Commerce of Zhejiang Province has printed and issued “Three-Year Action Plan (2022-2024) for Advancing Building of Enterprises’ Foreign Trade Compliance System” (hereinafter referred to as “Action Plan”) to strengthen risk prevention in foreign trade and improve foreign trade enterprises’ competitiveness in compliance. A more direct purpose is to help enterprises improve sensitiveness of the aforementioned problems and remind enterprises of paying attention to the addition and changes in relevant international trade laws and regulations so as to reduce rookie mistakes.
This is China’s first provincial-level policy document regarding building of compliance system related to foreign trade enterprises. Zhejiang Province plans to nurture 100 pioneer enterprises in foreign trade compliance within three years with China (Zhejiang) Pilot Free Trade Zone taking the lead in forming a compliance system and nurturing trajectory covering foreign trade enterprises.
Aside from dealing with overseas compliance, standardization at home is also being strengthened. Zhou Mu stated that a change occurred in recent practical operation is that non-compliance practices in the form of advance payment under cross-province agency are no longer allowed.
Ding Jihua, expert of National Corporate Compliance Commission, believed that from the perspective of enterprises, strengthening building of compliance system for foreign trade enterprises can help establish a mechanism for self-supervision and restraint. This can help guard against compliance risks, establish a compliance management system and improve enterprises’ refined management capability to better deal with changes in overseas operation rules and strengthen international competition soft power. From the perspective of the macro economy, it can better prepare China’s supply chain for international competition, integrate international resources and promote high-quality development of foreign trade and the economy at large.
Upgrading of cross-border e-commerce platforms
According to statistics of the Customs Department, China’s total value of imports and exports registered 6.2 trillion RMB in the first two months this year, up by 13.3% year-on-year. Among which, exports stood at 3.47 trillion yuan, up by 13.6% year-on-year; imports reached 2.73 trillion yuan, up by 12.9% year-on-year. The trade surplus was 738.8 billion yuan, increasing by 16.3% year-on-year. The export of both electromechanical and labor-intensive products witnessed growth; import of crude oil, coal and natural gas decreased with the price rising, and the import and the price of soybeans and refined oil increased.
Generally, foreign trade enjoys a sound momentum. However, affected by various factors such as high service costs of compliance and fluctuating prices of raw materials and exchange rates, transformation towards cross-border e-commerce has become the way out for more and more enterprises to amid uncertain profits.
In 2021, China’s imports and exports in cross-border e-commerce reached 1.98 trillion yuan, up by 15% year-on-year. Since 2017, China’s cross-border e-commerce size has increased by nearly 10 times in 5 years.
“One important point in doing global business is compliance of different countries.” Zhang Kuo, President of B2B cross-border e-commerce platform Alibaba.com, expressed that overseas markets including Europe and North America will impose stricter requirements in tax compliance and commodity compliance. For Chinese enterprises to run a stable and lasting business, theymust meet the changing local administration, laws and regulations.
Hao Jianbin, Director of the New Industry Center of AliResearch Institute, expressed that through investigation of small- and medium-foreign trade enterprises in the second quarter of last year, AliResearch Institute had found that about 38% of the enterprises suffered loss. Among which, enterprises with transaction between 800,000 and 30 million US dollars cared more about tax risks of the export country; whereas enterprises with transaction between 150,000 and 800,000 US dollars paid more attention to the future flow of e-commerce and policy risks of the export country; micro- and small-sized enterprises with transaction less than 150,000 US dollars attached more importance to the legal risks of the export country as well as lack of relevant talents in law and operation. Another common challenge is the complicated and changing external environment such as the increasing tax and legal risks of the export country or the destination and increasing protective tariffs amid trend of trade protectionism.
It is pointed out in this year’s government work report that multiple measures have been launched to stabilize foreign trade. Coverage of export credit insurance will be expanded for small- and medium-sized foreign trade enterprises; greater support will be extended to export; and foreign exchange services will be optimized to accelerate process of tax refund and help foreign trade enterprises to stabilize orders and production. Efforts will be made to accelerate development of new forms of business and new patterns of foreign trade, bring into full play the role of cross-border e-commerce, and build a batch of overseas warehouses.
Among the key objectives in the above mentioned “Action Plan”, aside from carrying out compliance work in enterprises’ export, overseas operation, and going public overseas, cross-border e-commerce has also been mentioned. Enterprises are instructed to meet requirements in such aspects as laws and regulations involving foreign trade, international treaties, commercial practice, regulatory provisions, industry standards and moral standardization.
In terms of major measures, aside from strengthening training and nurturing compliance talents, the “Action Plan” also points out the need to strengthen digital empowerment, establish a compliance service platform, and build a compliance business platform by working with third-party institutions such as law firms and information technology service platforms dependent on “order + list” monitoring system to release global trade rules and warning information and carry out distant testing and diagnosis for enterprises. At the same time, an alignment platform for product compliance risks recognition is established to release compliance guidance for foreign trade enterprises and provide compliance services for micro- and small-sized enterprises.
For foreign trade enterprises, “the solutions are more than problems”.
Unlike Zhou Mu who agreed with the clients in the contract to split the freight, Gu Weijun, General Manager of Ningbo Huamao International Trading Co., Ltd., insisted on “putting risk avoidance first”, namely maintaining the cash flow and taking actions until the situation is clear. In the meantime, they also signed long-term agreement with the clients in advance to guard against the risk of soaring coal price. Chen Han, the person in charge of Huiye Toys Co., Ltd. in Chenghai District, Shantou, told China Business Network that this year the export of the company will reach more than 500 containers. Therefore, he planned to sign contract directly with the ship-owner to book theshipping space in advance to ensure shipping capability and favorable freight.
Editor in charge: Huang Yuhan
