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Head of the Department of Foreign Trade under the Ministry of Commerce Interprets the Several Opinions of the State Council on Promoting the Innovative Development of Processing Trade

The State Council promulgated the Several Opinions on Promoting the Innovative Development of Processing Trade (hereinafter referred to as the "Opinions") on January 18. In order that the public may better understand the Opinions, recently, the head of the Department of Foreign Trade under the Ministry of Commerce has interpreted relevant contents thereof.

The head indicates that, since more than thirty years' reform and opening up, the processing trade has achieved the high-speed and leapfrog development; its import and export amount has increased to more than USD1400 billion in 2014 from less than USD1.7 billion at the early stage of the reform and opening up, an annual average growth rate of over 20%, and 100,000 enterprises engaging in processing trade in the whole country directly employ 40 million employees. Processing trade has played an important role in promoting the economic and social development in China and strengthening the economic integration with the world. At present, the international environment and domestic conditions for the development of processing trade have undergone material changes, and as the undertaking of international industrial transfer has suffered from the compression from the developed countries and the developing ones, it is hard to continue traditional extensive development model, and issues restricting the innovative development and the transformation and upgrading are still prominent. We must hang on to the historic opportunity of the global industrial re-layout based on the opening up, accelerate and promote the innovative development of processing trade, and improve the status of processing trade among the global value chain, which is not only the inevitable course to strengthen a major trading nation and build a strong trading nation, but also the urgent need of promoting the industrial upgrading and build the strong manufacturing nation; moreover, it is also an inevitable requirement for stabling employment and improving national welfare and a strategic choice to serve the overall situation of economic diplomacy and propel a higher level of opening up.

In the face of the new normal of economic development, according to the requirements of the Party Central Committee and the State Council and for the purpose of promoting the innovative development of processing trade, the Ministry of Commerce drafts the Opinions with respect to the prominent issues restricting our innovative development and optimization and upgrading of processing trade in concert with the National Development and Reform Commission, the Ministry of Finance and other 14 departments. The Opinions has been officially promulgated recently after approved by the Party Central Committee and the State Council.

The Opinions consist of 33 articles in eight parts. The first part is the general requirements, indicating five basic principles of "Always persisting steady progress, focusing on promoting the transformation and upgrading, vigorously implementing the innovative drives, reasonably planning the internal and external layout and keeping optimizing the business environment", and defining the target of the innovative development of processing trade by 2020. The second to the fifth parts point out main tasks for the innovative development of processing trade, including extending the industrial chain and promoting the status of processing trade in the global value chain; exerting the demonstrating and leading role of coastal regions and promoting quality improvement and performance increase of the transformation and upgrading; supporting the gradient transfer of undertaking industries in inland and border areas and promoting the regional coordination and development; guiding enterprises to carry out the international capacity cooperation orderly and overall planning the two international and domestic markets and the two kinds of resource. The sixth part to the eight one set forth the requirements for organization and implementation, including reforming innovation and management system, strengthening development force; perfecting policy measures, optimizing development environment; and the organizational guarantee.

The next step, the Ministry of Commerce will, according to the Opinions, establish coordinative working mechanism, specify the tasks of division, implement the work responsibility, formulate relevant policies, promote the issuance of pointed measures of all local governments combining with their local actual conditions and make great efforts to the task implementation so as to accelerate the innovative development of processing trade to get the substantial results in concert with relevant departments.

The head answers some questions concerned by the public combining with the Opinions, which are as follows:

I. Processing trade has played an important role in the foreign trade and the national economic development in our country; however, the development of foreign trade has entered into a new normal in the new era, how to understand the role and importance of processing trade?

With the development of the economic globalization, the international division of labor gradually transforms from the inter-industry division of labor into the intra-industry division of labor and from the vertical division of labor into the horizontal one and transnational corporations distribute their production chains on a global scale, and the pace of international industrial transfer is accelerating. China, grasping the historic opportunity and successfully carrying on the international industrial transfer, makes an organic combination of capital, techniques, management and other advantages of the foreign investment with the advantage of low cost elements in China, such as the labor force, and becomes a processing and manufacturing base globally oriented. The processing trade is the outcome of the development of the international industrial division, and a result of grasping the historic opportunity and carrying out the transfer.

The promotion functions of processing trade in the national economic development are reflected in the following five aspects:
Firstly, the processing trade is the main support of major trade countries. According to the WTO, China has become the first country with the largest global trade in goods for three consecutive years, and during the period between January and November this year, China continued topping other players in terms of the global trade volume (the US, USD56.6 billion), in which, processing trade has made an important contribution. During 1981 and 2015, the proportion of processing trade in foreign trade has increased from 5.7% to 31.5%, and picked at 53% in 1998. At present, 1/4 of total import and 1/3 of total export in foreign trade are still contributed by the processing trade.

Secondly, processing trade is the important carrier to carry on the international industrial transfer. Since 1997, 51% foreign investment in China has focused on the manufacturing industry. Even though the proportion of investment in manufacturing industry has decreased in recent years, the annual investment scale has still kept at USD40 billion. A considerable part of the manufacturing industry in China is completed by the processing trade. According to the incomplete statistics, among 64 kinds of mechanical and electrical products ranking the first place in the world, there are 20 kinds of which the processing trade export proportion exceeds 50%.

Thirdly, processing trade is the important manner for employment enlargement. At present, there are 100,000 processing trade enterprises in China, which offer 40 million jobs, 20% of in the number of employees in the second industry of China. According to Dongguan City, the job provided by processing trade exceeds 8 million, and the GDP is 1000 times of that in 1978.

Fourthly, processing trade is an important force to lead the promotion of the whole industrial level. We have realized the model of "learning by doing" by participating in global division of labor and keeping learning and mastering the advanced technologies, standards and methods of production management. Processing trade leads the promotion of enterprise's innovation capability. According to Guangdong Province, the proportion of ODM+OBM of processing trade enterprises in Guangdong has risen to about 66%. Processing trade leads the development of private enterprises, since during January and November 2015, the import and export proportion of processing trade in private enterprises has advanced to 10.2%, 7% higher than that in 2002. Depending on the rapid development of processing trade, China has rapidly risen and become the most important hardware manufacturing base in the world IT industry from the country with relatively backward electronic industry. Cellphones, computers, digital cameras and other electronic products with the latest style are designed and produced by enterprises in China.

Last, processing trade is an important link to establish close economic and trade relations between mainland China and Hong Kong, Macau and Taiwan. The number of Hong Kong, Macau and Taiwan enterprises is about 54,000 (including about 45,000 Hong Kong and Macau enterprises and about 10,000 Taiwan enterprises), which is about 50% of the processing trade enterprises. Hong Kong is the second largest export market for processing trade in Chinese mainland by virtue of 25% in the processing trade export; Taiwan is the second largest source of imports of processing trade in mainland China based on 15% in the processing trade import.

Practice has approved that processing trade conforms to the national conditions in China, and has played an important role in promoting the status of major trade country, incorporating the international division of labor system and improving the industry level, and is a practice of "going out" without going abroad. For a period of time in the future, processing trade will be still the important carrier to further integrate the international industrial division system, achieve the jump of value chain and improve the employment level, and we should hang on to the opportunity of global industry re-layout, and continue to develop the processing trade.

II. What is the background and meaning of the Opinions? What changes have occurred in the international and domestic environment?

The speed development of processing trade in our country proceeds amid economic globalization and deepening international division of labor, depending on the low cost elements such as labor force and land and through carrying on the international industrial transfer. At present, the international environment and domestic conditions for the development of processing trade have undergone material changes, and carrying on the international industrial transfer has suffered from compression from the developed countries and the developing ones, it is hard to continue the traditional extensive development model, and issues restricting the innovative development and the transformation and upgrading are still prominent.

Currently, China’s processing trade has the following trends: to begin with, obvious slowdown of international industrial transfer with large scale dominated by transnational corporations as the developed countries vigorously promote the "industry regression" and "reindustrialization"; there is no industry similar to IT technological revolution and the industry transfer lacks highlights, hotspot and supporting point; secondly, increasingly quick transfer of the processing trade industry and orders in China to the outside world, since, according the incomplete statistics of the Ministry of Commerce, the foreign trade exports affected by the outward transfer of capacity and orders in China has reached to USD95 billion since 2013; meanwhile, industrial and capital transfer carried on by Vietnam and other developed countries speeds up; thirdly, rapid rise of the cost of production factors; the annual increase rate of labor force cost has exceeded 10% since 2009; the cost for hiring workers in coastal regions has reached to CNY5,500 per month, three to five times of Burma, Bangladesh and other neighboring countries, and close to Hungary, Romania and other countries in Eastern Europe.; fourthly, obvious drops in traditional advantage of low-cost manufacturing in the wake of the persistent economic growth, continuous cost increase of labor force, lands, resource and other production factors in China; also, the environmental carrying capacity has reached or approached to the upper limit.

We should actively, under the new normal of economic development and motivated by the innovation and further opening up, develop innovative processing trade by taking the opportunity of depth adjustment of international industrial division and the implementation of "Made in China 2025" and on the basis of the national conditions of China.

III. What is the direction and path to promote the innovative development of processing trade?

The processing trade has entered into a new stage of transformation of quantum leap after thirty years' development. Traditional extensive development model is hard to continue, and the transformation and upgrading that remain unchanged regardless off people's will, is a long-term and difficult task, and is a long-term dynamic process.

The Opinions indicate the path to innovative development of processing trade according to three kinds of situations, which are, "stay, introduction and transfer". Those stayed should expand their connotation and extension; that is to say, to expand the processing trade, promote the transformation of manufacturing industry from production-oriented to production service-oriented, and integrate with the service trade, the Internet and the intelligent manufacturing on the basis of encouraging processing trade enterprises to accelerate the transformation and upgrading of the manufacturing links. Those introduced shall focus on investment attraction. To specify the policy expectations, promote the foreign investment utilization level of processing trade by combining capital, intelligence and technology introductions. Meanwhile, take an active part in the negotiation on multilateral and bilateral rules and the negotiation in free trade areas to create an international economic and trade environment with fair competition for the development of processing trade. For those transferred out, on the one hand, accelerate the promotion of transfer of coastal processing trade to inland border areas on a priority basis, formulate after study different policies supporting the inland border areas to carry on the gradient transfer; on the other hand, emphasize on the function of overseas cooperative zone as a platform and guide enterprises to carry out orderly international capacity cooperation.

There are five aspects regarding the innovative development and optimization and upgrading of processing trade should be specially emphasized: 1. promote the technical content and added value of products by low-end to high-end development. 2. extend production chain, transferring to the integration and development of manufacturing and service trade. 3. enhance the strength of business entities, transferring from processing and assembly plants to technology, brand and market enterprises. 4. optimize regional layout, gradually realizing the coordinated development of east-central-west regions and domestic and foreign reasonable layout. 5. convert growth motivation, transferring from factor-driven growth to the growth combining factors with innovation.

IV. What are the outstanding features and highlights in the Opinions?

The Opinions, based on processing trade but not limit to processing trade, are a programmatic document guiding the future development of processing trade. The Opinions, according to existing problems, make clear the guiding ideology, basic principle, development targets and policy measures for innovative development, and emphasize the following aspects:

Firstly, pay attention to stabilizing the policy expectation of processing trade. Fully affirm the important role of processing trade, indicate the innovative development of processing trade on the basis of China’s national conditions; consolidate traditional advantages and accelerate the cultivation of competitive advantages; put forward the basic principle of "always persisting the steady process" and keep the continuity and stability of policies for processing trade. Meanwhile, create a public opinion environment in favor of the development of manufacturing industry, stabilize the policy expectation and enhance the confidence in development.

Secondly, expand the connotation and extension of processing trade. On the basis of encouraging processing trade enterprises to accelerate the transformation and upgrading in manufacturing link, expand the connotation of processing trade, i.e. the integration of processing trade with service trade, Internet and intelligent manufacturing.

Thirdly, emphasize the promotion of utilization level of foreign investment. Under the background that European and American countries implement the "reindustrialization" strategy, and developing countries accelerate to carry on the international industrial and capital transfer, continue to focus on investment attraction, combine the capital, intelligence and technology introduction, and promote the utilization level of foreign investment of processing trade. Meanwhile, take an active part in the negotiation on multilateral and bilateral rules and the negotiation in free trade areas to create an international economic and trade environment with fair competition for the development of processing trade.

Fourthly, overall plan the domestic and overseas markets. On the one hand, accelerate the promotion of transfer of coastal processing trade into inland border areas on a priority basis, formulate after study different policies supporting the inland border areas to carry on the gradient transfer; on the other hand, emphasize the function of overseas cooperative zone as a platform and guide enterprises to carry out orderly international capacity cooperation.

Fifthly, strengthen the combination with the national economic and diplomatic strategies. Plan the overseas cooperation layout for processing trade linking with "the Belt and Road" and other national economic and diplomatic strategies, carry out cooperation with countries along "the Belt and Road" and China's important economic and diplomatic countries, put forward the "Sino-Africa industrial partners action plan", and actively carry out the Sino-Africa industrial cooperation.

Last, persist in reform and innovation in the whole process. The Opinions put forward the requirement on vigorously implementing the innovation-driving in the basic principles and development targets, the sixth part specially arranges the affairs on the reform and innovation management system, proposes to overall promote the administrative examination and approval of processing trade, enhance supervision in during and after affairs, optimize the supervision method, and accelerate the promotion of the facilitation of sale in domestic market and the integration and optimization of special custom supervision area.

V. What are specific initiatives on innovation of the management system for processing trade?

Processing Trade Goods are bonded that must be managed in a different manner. The relevant departments of the State Council, for years, have established and formed a complete management system for processing trade, which plays an important role in guarding against smuggling and safeguarding development. Currently, as the processing trade deeply integrates into the global industry chain and the reform progress continues deepening, it is necessary to set up, improve and promote a new-type management system adapting to the innovative development of processing trade. For such purpose, the Opinions propose the following reform initiatives:

Firstly, promote the administrative examination and approval of processing trade reform in an overall manner. Overall promote the reform nationwide based on the experience in the pilot reform for the administrative examination and approval in Guangdong Province. Strengthen interim- and post-supervision, improve the verification mechanism for business operation and production capacity of enterprises and urge enterprises to actively perform safe production, environmental protection and other social responsibilities.

Secondly, improve the dynamic management mechanism for the classification of processing trade goods. Adjust the catalogues of prohibited and restricted commodities in processing trade dynamically and improve the access management for the enterprises engaging in processing trade of major sensitive goods.

Thirdly, optimize supervision approaches. Change the current supervision approach mainly by manuals and gradually carry out the supervision regarding each enterprise as a unit. Explore and implement the management approaches with respect to unit consumption and self-examination for enterprises having good credit status, transparent information and meeting the requirements of the customs.

Fourthly, carry forward the facilitation of domestic sales further. Based on the cancellation of the examination and approval of domestic sales, simplify the formalities for the verification and cancellation of duty repayment for domestic sales and generalize the implementation of centralized taxation for domestic sales.

Fifthly, extend the functions of special supervision zones of the customs. At the special supervision zones of the customs, carry forward the policies levying customs duties on selected commodities for the domestic market by launching pilot projects and expand the pilot regions as appropriate. Promote the diversified development of special supervision zones of the customs to bonded processing, bonded logistics and bonded services, etc.

VI. Since the domestic and foreign environments for the development of processing trade have changed greatly, how should we respond to such changes, and from what aspects will the government concentrate on optimizing the development environment of processing trade?

It is quite important to optimize the development environment of processing trade for the promotion of the innovative development of processing trade. Currently, great changes have occurred to the international environment and domestic situation faced by the processing trade. Through deep analysis, we systematically review the positive and negative factors in the internal and external environments that influence the transformation and upgrade of processing trade and propose initiatives for response to the improvement and optimization of the development environment of processing trade from six aspects:

Firstly, enhance financial support; bring the guidance effect of financial funds into play in the aspects including the introduction of advanced technical equipment, product innovation, research, development and design, brand cultivation and standard formulation to promote the transformation, upgrade and gradient transfer of processing trade.

Secondly, raise the level of financial services, encourage the provision of diversified financing services for the transformation and upgrade of processing trade enterprises, strengthen the financing guarantee services of medium- and small-scale processing trade enterprises, encourage the provision of financing supports for transnational operation by means of domestic loans under overseas guarantee, etc., and focus on resolving the problems with respect to difficult or expensive financing of processing trade.

Thirdly, improve social security system. For the overcharged burden of "five insurances and one housing fund" in processing trade enterprises, it is proposed to lower the rate of social insurance premiums timely and properly, accelerate the realization of nationwide online interconnection and the enhancement of the convenience of insurance handling and management and complete the social insurance work for migrant employees in key development regions of processing trade.

Fourthly, optimize the legal environment. Improve the law and regulation system on processing trade management, enhance the classification management for processing trade enterprises, set up the department coordination mechanism, carry forward the construction of credit evaluation system of processing trade enterprises and strengthen the protection and application of intellectual property to create an impartial, transparent and high-efficient institutional environment.

Fifthly, create an impartial external environment. In order to neutralize the trade conflicts and disputes and expand new international space for the development of processing trade, it is proposed to promote, guide the formulation of multilateral, regional and bilateral international economic and trade rules, improve the two-way access conditions with respect to goods, services and investment markets between China and major trade partners and carry forward the liberalization and facilitation of trade and investment.

Lastly, create a public opinion environment beneficial to the development of manufacturing industry. Emphasize to stabilize the policies on processing trade, provide an expectable environment for long-term development, encourage and protect innovation, respect and carry forward the entrepreneurship and support manufacturing enterprises to expand, improve their businesses and strive to establish century-old enterprises. Enterprises should be encouraged to focus on research, development and technological application to raise the management level. Consensus publicity and experience promotion of the model enterprises with respect to transformation and upgrade shall be strengthened.

In a word, the innovative development of processing trade is a long-term and a systematic task. We will keep close cooperation with relevant departments to continue improving relevant policies and measures for the purpose of making every effort to provide a sustainable and excellent development for the innovative development of processing trade.


Translated by Wang Baihua
Proofread by Eddiea

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