China Trade Management

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October 2014

CHINA TRADE MANAGEMENT
Opportunities, Challenges
and Best Practices
By Alan M. Field
PRODUCED BY

WHITEPAPER, OCTOBER 2014
CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

TABLE OF CONTENTS
I. Introduction. . . . . . . . . . . . . . . . . . . . . .1
II. China Pushes Inward and Outward. . . . . . . . .2
III. Challenges to Effective Trade Management:
Infrastructure Weaknesses. . . . . . . . . . .4
IV. Excessive Costs and Errors. . . . . . . . . . . . .5
V. Role of Global Trade Management . . . . . . . . .7
VI. How China Trade Management Helps. . . . . . .8
VII. About JOC Group Inc. . . . . . . . . . . . . . . 16

COMMENTARY
China Trade Management Case Studies . . . . . . 10
CTM Best Practices. . . . . . . . . . . . . . . . . . 12
Working with Local Agents . . . . . . . . . . . . . 13
The Shanghai Pilot-Free Zone. . . . . . . . . . . . 14

FIGURES
Fig. 1. China’s Merchandise Exports and Imports . . 2
Fig. 2. Industrial Output by
Foreign-invested Firms in China . . . . . . . 3
Fig. 3. Exports and Imports Attributed to
Foreign-invested Enterprises. . . . . . . .

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CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

I. INTRODUCTION
Although long the world’s most populous nation, China was a relatively modest
player in the global trading system until a dozen or so years ago. Since then, China’s
merchandise exports and imports have grown at explosive rates. From 2000 to
2012, China’s global merchandise exports grew by 703 percent, and its merchandise
imports grew by 656 percent. Today, China ranks as the world’s largest merchandise
exporter, and the second-largest importer, behind only the United States.
Although China’s GDP growth has slowed in recent quarters, the country is on
course to become the world’s largest importer, said Ty Bordner, vice president
of solutions consulting at Amber Road, a New Jersey-based provider of Global
Trade Management solutions. “From that perspective, China is an incredibly
important country in terms of volume. Practically everyone in the Fortune 2000
list (of leading global companies) does business in China,” whether in the form
of manufacturing, retailing, warehousing or marketing products, Bordner said.
China’s transformation has also become a major opportunity for providers of
international transportation and logistics services eager to explore new markets
for China and around China as the center of gravity for the Asia-Pacific region.

Total logistics
costs in China are
the highest of any
country in the
world.

Total logistics costs in China are the highest of any country in the world, at
$1.7 trillion in 2013, when figures for mainland China, Hong Kong and Taiwan are
included, according to Evan Armstrong, president of Wisconsin-based research
and consulting firm Armstrong & Associates. That’s the equivalent to 53.7 percent

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CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

of the logistics costs of the entire Asia-Pacific region. “The nice
thingEconomic
about China
China’s
Conditions
is that third-party logistics revenues increased there by 9.6 percent from 2010 to
2013,” Armstrong said. “From 2013 to 2016, we expect it will grow by about another
8 percent. FromFigure
2013 to12.
2016,
Chinese
growth will
be the
second-fastest in the
China’s
Merchandise
Trade:
2000-2011
world, second only to India, which is ($
expected
to
grow
by
8.8 percent.”
billions)
2,000

II. CHINA
1,800

PUSHES INWARD AND OUTWARD

1,600
Having already become the world’s largest merchandise exporter, China’s

economic growth no longer centers around expanding the nation’s presence in
1,400

foreign markets. A great deal of the focus in China is “less about import-export
and more about building up networks for domestic distribution and intraregional
1,000
distribution within China,” Armstrong said. With economic growth, the average
per-capita
income of the Chinese population has increased dramatically,
800
sparking an enormous increase in the number of people who qualify as
600
belonging to the country’s middle class. These are the people who have enough
400
purchasing
power to acquire a wide range of consumer
goods made in China or
262.2 297.4
198.2 184.5 157.9
177.6
imported
from abroad.
101.9
200
1,200

24.1

22.6

30.4

By 2020, a
staggering
607 million Chinese
will belong to the
middle class.

32

25.6

0
As recently
as 2000, only 23 million people in mainland China belonged to the
2002with
2003
2005
2006 then
2007the2008
2009 2010
2011
middle 2000
class, 2001
compared
1232004
million
in Japan,
Asia-Pacific’s
largest
consumer economy. By 2010, however, the number of middle-class Chinese had
Trade Balance
Exports
Imports
ballooned to 179 million, while the number of Japanese in that category had inched
up
to just
127 million.
ByUnit.
2020, a staggering 607 million Chinese will belong to the
Source:
Economist
Intelligence
middle class, far eclipsing the 122 million Japanese in that category.

Figure 113. Annual Change in China’s Merchandise Exports and Imports: 1990-2011
Figure
ANNUAL CHANGE IN CHINA’S MERCHANDISE
EXPORTS AND IMPORTS:
(percent)
1990-2011

50.0
40.0
30.0
20.0
10.0
0.0
-10.0

Exports

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

-20.0

Imports

Source: Global Trade Atlas using official Chinese data.

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Congressional Research Service

2

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CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

By 2022, more than 75 percent of China’s urban consumers will earn 60,000
to 229,000 yuan ($9,000 to $34,000) a year, according to a report by McKinsey
Quarterly. This compares with just 68 percent of Chinese in 2012 and 4 percent
in 2000. “The evolution of the middle class means that sophisticated and
seasoned shoppers — those able and willing to pay a premium for quality and to
consider discretionary goods and not just basic necessities — will soon emerge
as the dominant force,” the report said. “This middle-class growth is expected
to drive sales volumes in retail markets and increase the number of people who
can afford to buy high-end and luxury products,” including many products made
in China, Armstrong said.

“This middleclass growth is
expected to drive
sales volumes in
retail markets and
increase the number
of people who
can afford to buy
high-end and luxury
products.”

Trade between mainland China and Southeast Asia also is growing at a brisk
pace, further lessening China’s dependence on trade with industrialized nations
of the West. China is now the largest trading partner of the Association of
Economic
Conditions
Southeast Asian Nations (abbreviated ASEAN), and ASEANChina’s
is China’s
thirdlargest trading partner, its fourth-largest export destination and its third-largest
source of imports. In 2013, total trade between China and ASEAN stood at
$443.6
billion,
up of
1135.9%
percent
frombut
2012. 
2.3%
in 1990
to a high
in 2003,
fell to 27.1% by 2010.18 In addition, FIE’s are
responsible for a significant level of China’s foreign trade. In 2011, FIEs in China accounted for
In the
early years
of China’s
transformation,
substantial
portion
its export
52.4%
of China’s
exports
and 49.6%
of its imports, aalthough
this level
was of
down
from itsand
peak in
2006
when
FIEs’
share
of
Chinese
exports
and
imports
was
58.2%
and
59.7%,
respectively,
import activity occurred in the narrow range of sectors where China enjoyed a as
indicated
in Figure
6. FIEs in such
Chinaas
dominate
China’s
high technology
exports.and
From
2002 to
comparative
advantage,
electronics,
automotive
equipment
industrial
2010,
the
share
of
China’s
high
tech
exports
by
FIEs
rose
from
79%
to
82%.
During
the
same
equipment. Now, shipments of health care products and life-sciences equipment
period, the share of China’s high tech exports by wholly owned foreign firms (which excludes
are growing rapidly, according to Kae-Por Chang, managing director of Amber Road
foreign joint ventures with Chinese firms), rose from 55% to 67%.
China. With China’s reform of its medical sector, medical coverage is expanding
Figure 5. Industrial Output by Foreign-Invested Firms in China as a Share of
National Total: 1990-2010
INDUSTRIAL OUTPUT BY FOREIGN-INVESTED FIRMS IN CHINA AS A
(percent)
SHARE OF NATIONAL TOTAL: 1990-2010
Figure 2

40
35
30
25
20
15
10
5

19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10

0

Source: Invest in China (www.fdi.gov.cn)

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from the largest cities into second- and third-tier cities, and “this is becoming a
big market.” Diabetes and other diseases associated with the world’s developed
countries are becoming more common in China, so demand for related medicines
and medical supplies is “increasing dramatically,” Chang said. Trade in luxury items,
such as watches and accessories, also is expanding.

III. CHALLENGES TO EFFECTIVE TRADE MANAGEMENT:
INFRASTRUCTURE WEAKNESSES
Between 2000 and 2012, China’s expressway network grew at an annual rate
of more than 16 percent, according to a report by audit, tax and advisory firm
KPMG, transforming China’s road system into the world’s second-largest at
more than 75,000 kilometers by 2012. By 2017, China intends to build another
500,000 kilometers of modern roads and 108,000 kilometers of expressways;
invest $82 billion to $98 billion annually in a railway fund; and increase the
number of its civil aviation airports from 170 to 230, Vice Minister of Transport
Gao Hongfeng told a 2013 conference of transportation officials.
China’s transportation and logistics networks, meanwhile, aren’t fully prepared
for the ongoing surge in trade volumes, into and out of China and across
its inland trade routes. “The infrastructure is being built, (but) it hasn’t been
completely built,” Armstrong said. “Some regulatory issues interfere with
transportation, and the dramatic differences between inner China and the
(regions along its) seaboard make it harder to operate in China than in Europe or
the United States.”

China’s
transportation and
logistics networks
aren’t fully prepared
for the ongoing
surge in trade
volumes.

For now, China’s logistics costs represent a significantly larger percentage of
the country’s GDP — 17.3 percent — than logistics costs in the U.S., where they
amounted to 8.5 percent of GDP in 2013, he said.
In terms of managing trade and logistics, China is still a developing country,
with a logistics network that doesn’t work as efficiently as it does in the United
States, Canada or other developed countries. Railways are still passengerfocused, not freight-focused, Armstrong said. Although many superhighways
are being built, “a lot of secondary roads are not up to Western standards,”
he said. “In China, the railroads are not as efficient, which forces highwaybased solutions and trucking — once you get off the major arteries — and the
secondary roads are not as good. The equipment is not standardized so you
have a lot of different trailer types. And power units are older models, which
causes inefficiencies in the supply chain.”
All of those issues create additional variability in the supply chain, Armstrong
said. “If you are a manufacturer, or you are resourcing raw materials in China,
you have to build in more lead time to meet production schedules, versus what
we do in the U.S. in terms of on-time performance,” he said.

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Only 18 percent of China’s potential market for third-party logistics services is
being met, Armstrong continued. 3PLs will continue to find more opportunities
in China by partnering with an ever-broader range of U.S.-based exporters and
manufacturers that now have a presence in China.

IV. EXCESSIVE COSTS AND ERRORS
Foreign companies that operate in China can’t afford to wait until they’re
about to ship their goods to China before thinking about trade management
issues such as warehousing and compliance. In China, companies must
think about all aspects of their supply chain before a product is made or
shipped, Bordner said. “Trade compliance has an impact on procuring,
sourcing and engineering. If a company replicates its overseas trade
processes without incorporating rules specific to China, that will negatively
affect operations,” he warned.
Although a wide range of U.S. companies — including small and midsize
exporters — have flocked to China to take advantage of the opportunities,
most face a wide range of challenges in their efforts to maximize their
opportunities. When it comes to compliance with Chinese regulations, an
Amber Road survey of its customers found that fully 100 percent were
concerned with “persistent issues” involving the management of their
supply chains in China. These included the “excessive costs” involved in
running their supply chains, and the “manual transaction errors” that led to
higher costs and lower efficiency.

“If a company
replicates its
overseas trade
processes without
incorporating rules
specific to China,
that will negatively
affect operations.”

Approximately 30 percent of all Amber Road customers surveyed cited
concerns about fines and penalties imposed by Chinese customs. About
60 percent expressed concerns that their companies’ relationships with Chinese
compliance agencies would suffer a reduced status — specifically, a “reduced
agency rating” — that would make it more difficult and time-consuming for
these companies to manage their trade flows into and out of China.
When it comes to trade compliance, China is a “uniquely complicated”
country to do business with as a foreign company, Chang said. Compliance
requirements are complicated, with multiple agencies beyond simply China’s
Customs involved in the process. These other offices include:
The Ministry of Commerce, known as the MOFCOM.
CIQ, the China Inspection and Quarantine Bureau for Entry-Exit
Inspection and Quarantine, which deals with hazardous materials
and environmental emissions (including 3C - China Compulsory
Certificates).

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SFDA, the State Food and Drug Administration, which regulates
medical equipment and pharmaceutical items.
SAFE, State Administration of Foreign Exchange, which controls
currency regulations, taxation, VAT valuation input and input. Its
primary responsibilities include drafting policies and regulations
related to foreign reserves and foreign exchange.

“Each of the multiple regulatory agencies has its own sets of rules, for various
China trade operations,” Chang said. “Licenses and permits are complicated.”
Armstrong adds: “China customs regulations tend to vary by province. What
happens with certain commodities with regard to duties and taxes can be
very different from what happens in the United States. They might target
specific commodities on the import side and make it harder to import those
commodities into China, and the customs inspections might vary by province,
so you might have more inspections in one province versus another.”

“Each of the
multiple regulatory
agencies has its own
sets of rules, for
various China trade
operations.”

A second concern is that the regulatory landscape in China is dynamic, Chang
said. “China manages its economy through rapid macro policy and regulatory
changes” that are abrupt and unpredictable, he said. To meet that challenge,
companies “really need to have people on the ground in China to constantly
monitor changes and incorporate them quickly.”
One example of abrupt change occurred in March 2009. Before then, when a
company imported materials under its so-called Processing Trade provisions and
later sold that product on the domestic market — rather than export it — the
company had to pay duty and deferred interest at an annual rate of 6.12 percent.
Overnight, China reduced the annual rate to 0.35 percent, prompting the
companies to evaluate the interest payments against their internal working cost
of capital (IWCC) and make strategic changes in their approach to “Processing
Trade” — the Chinese business activity of importing all or part of the raw and
auxiliary materials, parts and components, accessories, and packaging materials
from abroad in-bond, and re-exporting the finished products after processing or
assembly by enterprises within the mainland.
A major concern is the frequency of audits, a costly, time-consuming process.
In China, about one-third of all companies surveyed by Amber Road cited
“extensive audits” of their operations as a major issue. In such cases, “Most
likely, there will be a settlement with the agency at a great cost (to the
company),” Chang said. “Also, they can bring criminal charges (against the
company) and the legal representative of company. That has happened.”
The government, Chang said, can require companies to post guarantee deposits
in the millions of dollars, potentially causing working capital problems for a

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company, or even suspend the import/export operations. In the absence of
a settlement of the dispute, the foreign company’s supply chain operations
“would eventually have to stop,” he said.

V. ROLE OF GLOBAL TRADE MANAGEMENT
To address these complexities more quickly and effectively, a growing number of
multinational companies are turning to Global Trade Management (GTM) software
platforms. Amber Road, a leading provider in the sector, provides companies with
a single centralized platform for managing the cross-border movement of goods
in 139 countries, including various trade routes into and out of China. Its list of
customers, including General Electric, Monsanto, Honeywell and TE Connectivity,
use the company’s platform to enable their goods to flow unimpeded into and out
multiple countries, including China in the most efficient, compliant and profitable
way possible.

To address these
complexities
more quickly
and effectively, a
growing number
of multinational
companies are
turning to Global
Trade Management
(GTM) software
platforms.

Amber Road’s suite of GTM software is composed of specific applications
designed to automate and manage business processes for the following
needs: sourcing optimization, foreign supplier management, global
transportation management, export management, supply chain visibility, import
management and duty management. By centralizing and automating these
processes, the company accelerates the movement of goods across international
borders, enhances compliance and reduces global supply chain costs.
Amber Road also has built a global trading network that provides preestablished connectivity to hundreds of trading partners. The network’s secure
data communication services enable suppliers, forwarders, transportation
carriers and customs brokers to share supply information and alerts that are
critical to the timely delivery of the goods they handle.
Last year’s acquisition of EasyCargo allowed Amber Road to add the Shanghaibased company’s GTM functionality, called China Trade Management or
CTM, into its product line-up. “Until now, Amber Road has only been capable
of supporting clients importing into and exporting out of China, and not to
manage the in-country processing and manufacturing of goods,” information
technology and advisory firm Gartner wrote after the acquisition closed. With
the EasyCargo acquisition, “Amber Road customers can now rely on a single
cloud-based provider for both import-export compliance and support for Chinese
customs processing under the popular ‘Processing Trade,’ General Trade, and
other duty suspension regimes.” These duty suspension regimes have unique
requirements that make it difficult for software vendors to construct one
application to handle all duty programs.

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These duty
suspension regimes
have unique
requirements that
make it difficult for
software vendors
to construct one
application to
handle all duty
programs.

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VI. HOW CHINA TRADE MANAGEMENT HELPS
Overall, the benefits of CTM software can be divided into three categories,
Chang said.
Managing the company’s trade compliance mandate more efficiently:
“A company has a mandate to meet government and internal
compliance. We provide them with tools to enforce company-wide
policies, meet local compliance requirements and help facilities get
higher customs ratings, which helps provide for preferential regulatory
terms, better dispute resolution, and overall compliance.”
Providing specific financial benefits, such as tax savings that may
derive from Processing Trade, importing materials and/or reducing
discrepancies. This includes benefiting from trade agreements to
reduce duties and tariffs, or making changes in sourcing strategy, or
identifying local candidates for manufacturing. Amber Road provides
a suite of tools that enables companies to benefit from free-trade
agreements, Chang said.
Enabling operations to become more efficient and scalable, as well
as more automated and more rule-based. GTM or CTM-enabled
operations involve a reduced amount of rework and helps reduce the
amount of work that doesn’t provide value. “Another key thing is to
help our customers (determine) typical import-export performance and
be able to apply lean principles for supply chain operations. We enable
our customers to have lean operations,” Chang said.
Finally, technology and content must be combined in China. They affect
each other, so vendors of trade management software can’t simply provide
technology without also providing a source of content. Speed is essential.
“Because the environment is dynamic, we need to be able to deliver these
changes quickly to our customers,” Chang said.

Technology and
content must be
combined in China.

When it comes to using advanced technologies to manage trade and logistics
operations, most 3PLs utilize customized technology rather than entirely offthe-shelf solutions. In a July 2013 Armstrong & Associates study, 62 percent of
Chinese 3PLs said they use their own customized versions of technology they
purchased. Only 31 percent reported using software they purchased entirely off
–the-shelf.
For example, UTi Worldwide, which provides air and ocean freight forwarding,
contract logistics, distributions, customs brokerage and other supply services,
has integrated pieces of software to make its own priority system. “It is very
common for 3PLs to purchase different pieces of software and transportation

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and warehousing software, and then put it all together, and develop some sort
of reporting or visibility tools on to that,” Armstrong said.
Amber Road customers have the flexibility to create a GTM system that
they find most appropriate for their needs, Bordner said. “We provide a
SaaS (software-as-a-service) solution, but we will also install the software if
companies choose to deploy it that way. Ten years ago the weight between
those two options would have been 90 percent on premises and 10 percent
SaaS, but today it’s the opposite.”
This kind of service also takes a lot less time to implement than traditional
software requires. Deployment typically takes two to three months. “Most
customers, in terms of adoption [in China], are at a very early stage, although
there are quite a few large multinational organizations working with us. Other
companies are starting to see the benefits,” Bordner said.
General Electric, one notable example, has multiple business units and many
facilities in China involved in its implementation. “GE is a high-visibility company
and other companies have heard about what they have done. We see this
momentum gathering, and we are getting more and more inquiries,” Bordner
said.

“Some customers
don’t want third
parties to rekey
information about
their operations,
while others may be
more comfortable
having things work
that way.”

The entire software suite is set up in the cloud, and all users can access it via
their Internet browsers. On-site installation isn’t required by any users. Do
third-party service providers play a role? That depends on the customer. “Our
software doesn’t eliminate third parties, in most cases. Some customers don’t
want third parties to rekey information about their operations, while others may
be more comfortable having things work that way,” Bordner said.
“Sometimes, brokers use our software for their customers so that they can
take advantage of our offerings. It’s easier for them to deliver service to them.
It’s a win-win for all parties,” Chang added.
Although many major multinationals are among the early adopters of GTM
solutions, this kind of service is increasingly accessible to smaller companies as
well. “We do have small companies using our software, and the trend toward
using it is increasing across small, medium and large companies, because of
the pricing structure, which they can afford,” Bordner said.
Amber Road’s software subscription model is linked directly to the number and
size of the transactions. While the cost of managing a one-line item shipment
is different from a 200-line item shipment, fees are not dependent on the value
per se of the line item.

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CHINA TRADE MANAGEMENT CASE STUDIES
The following brief case studies illustrate the multiple ways CTM platforms can be used to
meet the diverse needs of U.S. and other foreign companies operating in China.

CHALLENGE: An automotive parts manufacturer with 21 facilities across China,
engaging in both Processing and General Trade, was burdened with customs audits of
many facilities in clearance delays and additional import tax payments.
CTM PROCESS: In an effort to optimize its China trade compliance processes, the
manufacturer deployed the Amber Road CTM solution to handle up to 6,000 customs
declarations per month, covering some 50,000 items under management.
RESULTS: The manufacturer not only reduced its tax payments for bonded
materials, and minimized its clearance delays, but also simplified its service-provider
management, and upgraded its Chinese Customs Classification status so that it
received preferential regulatory terms.
Implementation of CTM technology provided the following results to the automotive
parts manufacturer:
l

It was upgraded from Customs class B to class A, and then to class AA, enabling
the company to comply with customs audit requests on a more timely basis and
avoid settlement discussions.

l

It has enjoyed duty savings of up to $27 million under Processing Trade and duty
savings of up to $8 million under provisions of various trade agreements.

l

Productivity in China trade management increased 40 percent, enabling the
manufacturer to support its business expansion and focus on analytical goals
rather than clerical work.

l

The company reduced its safety stock level by leveraging the CTM solution to
achieve predictable information about clearance and turnaround times.

CHALLENGE: A global industrial conglomerate with multiple business units and large
number of facilities in China engaging in General Trade, Processing Trade, and Bonded
Zone operations. The company encountered compliance issues in multiple facilities,
resulting in high guarantee deposit requirements, Customs classification downgrade,
and additional import tax payments.

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CTM PROCESS: The company selected Amber Road’s CTM as its enterprise standard
for all China operations since 2010.
RESULTS: The company enhanced its compliance capabilities, increased bonded
material contents, minimized clearance delay, simplified service provider management,
upgraded Customs classification, and obtained guarantee deposit waivers.

CHALLENGE: A global metal-forming manufacturer with one major facility in China
engaging in Processing Trade needed to develop advanced expense-management
functionality for automating the processes of estimating, verifying and allocating
expenses at different levels of its organization.
CTM PROCESS: The manufacturer deployed Amber Road CTM technology to manage
up to 700 declarations a month, covering some 3,000 items under its management.
RESULTS: This implementation not only improved expense estimation and allocation,
but also reduced expense report preparation from seven days to just two, eliminated
26 spreadsheet-based reports from these processes, and generated new kinds of
reports that were previously unavailable.

China’s Economic Conditions

Figure
3
Figure

6. Share of China’s Exports and Imports Attributed to Foreign-Invested
SHARE OF CHINA’S EXPORTS
ANDinIMPORTS
ATTRIBUTED TO FOREIGNEnterprises
China: 1990-2012*
INVESTED ENTERPRISES IN CHINA:(percent)
1990-2012*
70
60
50
40
30
20
10

20
10

20
09

20
08

Imports

20
Ja
n11
Ap
r2
01
2

Exports

20
07

20
06

20
05

20
04

20
03

20
02

20
01

20
00

19
95

19
90

0

Source: “Invest in China (http://www.fdi.gov.cn/pub/FDI_EN/default.htm)
Note: Data for 2012 are January-April 2012.

According to the Chinese government, annual FDI inflows into China grew from $2 billion in
1985 to $108 billion in 2008. Due to the effects of the global economic slowdown, FDI flows to
China fell by 12.2%+1.800.952.3839
to $90 billion in 2009.
They totaled $106
billion in 2010 and $116 billion in
| www.joc.com/group
| www.amberroad.com
2011 (see Figure 7).©Chinese
data
for
January-May
2012
indicate
that FDI fell by 1.9% on a yearCopyright JOC Group Inc. 2014
on-year basis. Hong Kong was reported as the largest source of FDI flows to China in 2011
(63.9% of total), followed by Taiwan, Japan, and Singapore, and the United States. Accoroding to
Chinese data, annual U.S. FDI flows to China peaked at $5.4 billion in 2002 (10.2% of total FDI

11

WHITEPAPER, OCTOBER 2014
CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

CTM BEST PRACTICES
What are the best practices for taking full advantage of the benefits of China Trade
Management solutions? Kae-por Chang, managing director of Amber Road China,
suggests the following:
l

Clearly Define Roles and Responsibility: Creating a successful program requires
that you first establish what functions are needed, and then assign roles to
corporate and facilities as appropriate.

l

Establish Corporate Compliance Policies and Objectives: Apply an 80/20 rule and
clearly define corporate compliance policies and objectives to enable each facility
to quickly devise its own CTM practice that meets its specific requirements based
a consistent corporate framework.

l

Invest in a China Trade Management (CTM) Solution: Without an effective CTM
system solution with continual regulatory updates, companies may be able to
identify patterns and promulgate best practices at the operations level, but the
approach will be, at best, “catch as catch can.” This brings with it unmitigated
compliance risks, clearance delay, supply chain impact, additional tax payments,
inefficient operations, and an inability to respond to agency audit. A CTM Solution
provides the tools you need to do the job right the first time, every time.

l

Create Protocols to Manage Service Providers: By extending purchasing and
compliance processes and developing a set of rules and regulations to determine
how data is transmitted to inbound trading companies, companies can shorten
cycle times, improve service levels, lower supply chain execution costs and
better support compliance initiatives. These protocols should include service
provider qualification; expense management; audit measurements; and regular
performance reviews.

l

Conduct Regular Internal Audits: The key to managing the complex,
interconnected systems of global trade operations is establishing key performance
indicators, analyzing results and developing strategies to continuously improve
performance. Internal audits can serve as catalysts for improving an organization’s
governance, risk management and management controls; making data-driven
decisions; and shifting from tactical decision-making to continuous improvement
programs. Establish performance measurement systems as the basis for internal
audit and continuous improvements.

l

Leverage Internal CTM Expertise: Knowledge of CTM practices is more important
than ever and the supply is limited within a company. Structure the CTM
organization to effectively and efficiently utilize the expertise with the necessary
tools and technology.

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12

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CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

l

Establish a CTM Infrastructure to Meet Performance Objectives: Align your CTM
approach with the company’s overall goals. Performance objectives should
be defined and measurable and allow for continuous process improvement.
Incorporate compliance requirements into strategic and daily supply chain
operations.

WORKING WITH LOCAL AGENTS
Everyone who does business in China agrees that local business agents play a
critical role in China, as it does elsewhere in Asia. “It is critical to have people
on the ground and people locally in your operation who can interface with local
operations and get plugged into the local network,” said Evan Armstrong, president
of research and consulting firm Armstrong & Associates. “Any provider that is
serious about developing China business has to have people within operations
in China. It is not a place to do business at arm’s length. It is best to either be all
in, or all out. Those U.S. companies that are there are pretty much “all in” if they
are doing well. The ones having some issues probably haven’t made the right
commitment to the region.”
The attitudes of U.S. companies doing business in China tend to fall into one of two
extremes, said James Chan, president of Philadelphia-based consulting firm Asia
Marketing and Management. Many Americans “don’t think that doing business in
China requires any special knowledge. They underestimate China,” he said. At the other
end of the spectrum, many Americans are overly scared by all the horror stories about
intellectual property theft, local competition and intractable officials.
In Chan’s experience, many U.S. companies see China as an admirable friend or a
fearful enemy. They often fail to recognize that both extremes are wrong. “China has
become both a friend and an enemy, both an attractive and profitable market, and a
potentially dangerous competitor,” he said.
Rather than flee from China’s complexities, Chan encourages non-Chinese companies
to embrace the underlying duality of their relationship with the West. The regulatory
complexities are a smokescreen that effectively prevents many foreign companies
from leveraging their opportunities, Chan said. “If you are so paralyzed by changing
regulations, you will never succeed. You will be confused,” he said. “But if you know
how to approach them, it is not daunting.”
Most foreign companies are distracted by those complexities, and they wind up being
unfocused. The answer, Chan says, is to find and groom an agent, someone who you
can rely on to understand the niche, whether transportation or pharmaceuticals, or

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© Copyright JOC Group Inc. 2014

13

WHITEPAPER, OCTOBER 2014
CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

something else. That person must become your eyes and ears on Chinese soil, he
said, so their requirements go beyond speaking English well and understanding your
technologies. Such a process can take several years.
Chan, who has trained successful agents for U.S. exporters of industrial products,
cautions U.S. companies against relying on statistical metrics for measuring agent
performance, because that doesn’t work in China. An important question to ask about
any Chinese agent is whether you feel the agent understands your products, and “that
he believes that working with you is a ticket to prosperity” over the long term. Only in
those cases where a prospective agent is confident in your success will that individual
wind up being the loyal, longtime ally your company needs in China, he said.

THE SHANGHAI PILOT-FREE TRADE ZONE
In a significant move aimed at striking a balance between agency enforcement and
trade facilitation, the Chinese government has established the Shanghai Pilot Free
Trade Zone (PFTZ) in September 2013. The 29-square-kilometer zone encompasses four
previously discrete bonded zones in Shanghai: Waigao Waigaoqiao Free Trade Zone,
Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port and Pudong Integrated
Bonded Zone.
The Shanghai PFTZ’s goal is to provide a central government-approved location for
conducting experiments in policy and administrative reforms across multiple Chinese
agencies. Trade operations outside of the PFTZ are expected to be quite different from
those within the zone, according to Amber Road. The government hopes to analyze
the results of the PFTZ and use its success to change governmental mindsets at other
agencies throughout China.
Following the launch, the first significant change was the introduction of the
“negative list” at the PFTZ. In a significant departure from past practices, the Chinese
government has replaced the complicated and lengthy approval process previously
required for every business operation with a simple filing registration. The only
exceptions are the 16 business sectors designated on this list.

The following reform measures have attracted the greatest interest among Amber
Road customers:
l

Trade facilitation changes enacted by Customs and China Inspection and
Quarantine.

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CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

l

The impact of those changes on supply chain and compliance operations of
companies operating in China.

l

How Amber Road’s solution enables companies to take advantage of these new
reform measures.

In its efforts to enable companies to conduct business more rapidly and cost effectively
— while also enforcing customs regulations — China Customs and China Inspection
and Quarantine have taken steps based on these four principles:

1. First Line Opening to speed up the entry of goods into the PFTZ. This involves:
l

Inbound declarations after entries. In the past, each inbound shipment needed
an inbound declaration filed prior to entry. This new measure enables inbound
declarations within a 14-day window after goods enter the PFTZ.

l

License and certificate waiver. Under this new measure, items not on the CIQ list
no longer require supporting documents to accompany their declarations. Thus,
CIQ will begin to differentiate the treatment of inspection from quarantine at the
first line of the PFTZ.

2. Second Line Control is an effort to establish more effective and efficient enforcement
of compliance while supporting supply chain operations between the PFTZ and
domestic markets. This involves:
l

Coordinated Agency Clearance. In the past, Customs and CIQ conducted their
own declarations, inspections and goods release, based on separate processes
and timelines. This coordinates the activities from both Chinese agencies so that a
company only needs to submit the declarations once, respond to inspections once
and receive the release of goods once.

l

Pre-Registration of Licenses and Certificates. In the past, each China import
declaration required its own supporting documents, including licenses and
certificates. This was time-consuming and led to clearance delays. The new
measure enables companies to pre-register their licenses and permits with
Customs based on forecasts, while waiving requirements for supporting
documentation from the subsequent declaration submissions.

l

Simplified CIQ Inspection for China imports. CIQ previously inspected each
shipment, increasing clearance time. The new measure authorizes CIQ inspections
in batches before the submission of CIQ declarations. CIQ is currently choosing
third-party, inspection-service companies and devising a risk-based approach for
ad hoc inspection.

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© Copyright JOC Group Inc. 2014

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CHINA TRADE MANAGEMENT: Opportunities, Challenges and Best Practices

3. Free Material Flow within PFTZ: The goal here is to reduce the time and cost to
transport goods among the four previously discrete bonded zones within the PFTZ.
In the past, “white trucks” — special Customs-supervised, bonded vehicles — were
required for transporting goods among these four boned zones.

4. PFTZ System Enhancements, which include:
l

Single Window System. Based loosely based on the United Nations concept,
this aims to provide a single outlet to submit regulatory documents and receive
responses from all agencies involved.

l

Single PFTZ Supervision Platform. Each of the four discrete bonded zones within
the PFTZ currently has a different supervision platform, but the goal is to create a
single platform based on the experience gained over the past few years.

ABOUT JOC GROUP INC.
JOC Group Inc. is the authoritative provider of business intelligence, data
and events covering the global container shipping and logistics market.
Through its PIERS and JOC products — online, print and events — JOC Group
Inc. provides the access, intelligence, insight and support that enable our
customers to establish and maintain critical customer connections and make
informed decisions to compete effectively in the global marketplace. JOC.
com is the leading information portal providing a mix of editorially created
content and pertinent visualized data combining more than 200 different data
sets. JOC Group’s leading industry events include TPM (held annually in Long
Beach, California), TPM Asia and JOC Inland Distribution. Through PIERS, the
world’s most comprehensive database of U.S. waterborne trade, international
businesses from transportation, chemical, energy and finance sectors analyze
unique intelligence to inform critical business decisions.

JOC Group Inc. is part of the AXIO Data Group, owned by Electra Partners, an
independent private equity fund manager with more than 30 years’ experience
in the mid-market. As of March 31, 2014, the firm had funds under management
valued at over £1.5 billion. The firm’s flexible investment approach allows it
to invest across a broad range of sectors and financial instruments including
equity, senior equity, convertibles and mezzanine debt.

+1.800.952.3839 | www.joc.com/group | www.amberroad.com
© Copyright JOC Group Inc. 2014

For more
information visit
JOC.com/group

For further information
please visit
www.axiogroup.net
or
www.electrapartners.com

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