Post-WTO: What Import Volumes?
Annex: Major Traders for Imported Products
The key factors that need to be considered with respect to post-WTO trade into China are:
To assess the impact of WTO admission on the wholesale into China, Southern China was used as a case study, given it has been a major entry point over recent years. To do this, the author undertook a detailed examination of the cost chain into China for citrus products. Under arrangements existing at the time of preparing this report, citrus into China, via Hong Kong, attracted an all-up fee per container. The price chain, summarised in Table 12, assumes the following:
Customs duty and VAT are absorbed in the "transport" to either Huadu or Lishui wholesale markets
Table 12
Derivation of imported orange price (2000 indicative prices)
Entry via Southern China |
||||
Unit |
Assumptn |
Cum. Price/box |
Price/kg |
|
Landed Hong Kong |
HK$/box |
95 |
5.27 |
|
Transport handling charge |
HK$/container |
0 |
95 |
5.27 |
Exchange rate |
HK$:Rmb |
1.06 |
101 |
5.58 |
Customs duty |
% of Import $ |
0% |
101 |
5.58 |
Transport to Lishui |
Rmb/container |
70,000 |
151 |
8.36 |
VAT |
% of Import $ |
0% |
151 |
8.36 |
Agent's margin |
% of landed $ |
6% |
160 |
8.86 |
Wholesale price Lishui |
Rmb/box |
160 |
8.86 |
|
Freight to Beijing (refrigerated) |
Rmb/container |
20,000 |
174 |
9.66 |
Agents margin |
% of landed price |
6% |
184 |
10.24 |
Tax |
% of wholesale price |
0% |
184 |
10.24 |
Wholesale price Beijing |
Rmb/box |
184 |
10.24 |
|
Freight/storage |
Rmb/box |
18 |
202 |
11.24 |
Retail margin |
% of wholesale price |
25% |
253 |
14.05 |
Retail price Beijing |
Rmb/kg |
18 |
253 |
14.05 |
Source: RCS market research
The cost of direct imports with current and post 2004 duties were compared. For this exercise, assumptions similar to those in Table 12 were used, with the following changes:
Table 13
Impact of WTO Admission on Wholesale Orange Price
Existing Channel |
Pre-WTO |
Post-WTO |
|
Wholesale price Lishui (Rmb/box) |
160 |
173 |
137 |
Difference |
|||
-from Lishui access path |
8% |
-14% |
|
-between Pre- and Post-WTO |
-20% |
Source: RCS market research
Using the assumptions in Table 12, the impact of WTO, on the price of imported fruit, is compared to the current assess path for citrus that cannot be legally imported. Table 13 shows that the common access path results in a Lishui/Huadu price which is about 8% less than that of fruit which had official duties and VAT applied at market prices. However, with WTO access, the reduction in wholesale price is estimated to be 20%.
A visit to the Beijing International Fruit Market, at the same time as the above price chain was being prepared, saw USA valencias selling for Rmb 160/box and these had entered via Tianjin. By comparison, Australian navels were selling for Rmb 220/box and these had entered via Hong Kong.
While this topic is discussed elsewhere in this conference, it will remain a significant barrier for many countries in China post WTO, unless there is a change in the approach in dealing with phytosanitary issues. For countries without quarantine clearances, entry via southern China remains the only option, however, as indicated in Table 13, there will be a price penalty on such fruit.
The above analysis provides a framework for assessing the likely trade implications post WTO. If we firstly examine the import situation, most traders are cautiously optimistic with respect to increasing volumes into China. It is clear that most feel that, even with WTO admission, phytosanitary issues will take some considerable time to sort out. Therefore, most are looking at a 3-5 year time frame.
In the interim, traders have been only too happy to use Hong Kong as the major access for their fruit. This enables exporters to get a feel of the China market and to assess the competitiveness of their fruit against other suppliers. While some feel that the opening of direct trade will cause a shift from Hong Kong to more northern ports, this is unlikely. With an estimated 60-70% of all fruit entering China via Hong being sold within the Pearl River Delta, it means that much of the north has yet to be exposed to significant volumes of imported citrus.
Despite the increase in direct imports to central and northern China they are not expected to genuinely impact on transshipment volumes for around another 5 years. The volume entering via these ports is estimated to be around 5% of all citrus imports into China. For the more immediate future, the figures above show that the USA, with access, is increasing direct imports with China and this has been at the expense of countries without access.
According to official statistics China's citrus planting's have been virtually static over the past 3-4 years. Internal industry estimates suggest that orange production has been increasing at 3-4% annually, however area planted still represents less than 25% of the total area planted to citrus. As oranges are still a small proportion of total plantings, the area planted to quality navel varieties is considered to be such that the impact on the market will be minimal.
In summary, China will, for a host of reasons, continue to be an important market for citrus producers. The key reasons for stating this are:
The internal demand for high quality oranges is unlikely to be met internally within the next 3-5 years. Oranges will continue to dominate the trade within this period. Navel oranges are particularly sought after within China. However, the market for premium quality easy peels, lemons and grapefruit will continue to grow, but they are expected to remain small.
Counter seasonal supply or out of season fruit will continue to have a good presence in China. Peak periods for festivals, especially the autumn festival, will grow with quality product that can not be supplied within China. A lack of a quality postharvest coldchain will continue to hamper the lengthening of China's supply period, creating opportunities for importers.
This is a major problem for a lot of China's fruit. It is an issue that has not been addressed in citrus nearly as well as the apple industry.
China's export potential is great, however the industry will need to address varieties that neighbours want and providing the appropriate quality systems in place to ensure maximisation of value to all participants in the supply chain. Having said this, it is becoming apparent that oversupply on the domestic market is potentially a problem given that the reduction in wholesale price is probably the best indicator of demand.
Imports in the North of China will increase with WTO accession and implementation and while this may result in some minor reduction in trade through Hong Kong, the impact will be minimal and short-term. As indicated above, the majority of fruit entering China has been consumed in the southern regions of China. Direct imports are targeting the northern ports at present where they can compete on relatively equal price terms with fruit trans-shipped from Hong Kong (see Table 12 and subsequent text). Industry opinion is this that this early separation of markets by the direct importers targeting the north and the Hong Kong trans-shippers will help build the northern markets.
The impact of a 20% reduction in price will aid the speed with which this market grows.
Current citrus imports are estimated at some 160,000 mt. This volume has increased from somewhere between 60,000 - 80,000 mt in 19962. However, most of the volume increase has been between 1997 and 2000. As indicated in Table 6, Hong Kong re-exports peaked in 1998 with direct imports assuming a greater role in recent times. While some view the growth rates of the period 1996-2000 as continuing, most industry observers are more cautious. During the next 3-5 years total imports can reasonably be expected to grow at around 10-20% per annum depending on the economic conditions within China. Growth (in volume terms) will be dominated by oranges; however, there will be niche market growth for sweet mandarins which are counter seasonal and for red grapefruit. The large plantings of lemons in Yunnan are expected to reduce the growth for this crop in the 5 years plus period.
For example, Sunkist have an immediate target of 50,000 cartons per month to China. In the period March 2000 (when imports were allowed) to January 2001, some 200,000 cartons of oranges and lemons were shipped. Achieving this target would increase the volume threefold to some 11,000 - 12,000 mt (representing around 7% of total imports).
The preparation of this paper has been supported with funds from the FAO. Special thanks for assistance in data collection in China go to Associate Professor Xiong Cunkai, John Rutledge and Ken Leung.
David Hanlon is a director of Resource Consulting Services Pty Ltd, an Australian Agribusiness consulting firm. Over the past decade he has undertaken market research in China and business entry assessments for a wide range of clients representing both the public and private sectors. During this period David has investigated investments in excess of US$350 million within China.
ANNEX
Major Traders for imported products
Guangdong Fully Ltd.
Shop 39, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (86 757) 568 0966
Fax: (86 757) 568 0968
Note - A major player in Lishui and Beijing before being declared bankrupt in late 2000.
Jet All Trading Co.
Shop 40-42, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (0757) 568 0988
Fax: (0757) 568 0938
Sun Rising Development (H.K.) Ltd.
Shop 43-45, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (86 757) 568 0933
Fax: (86 757) 568 0909
Jade Trading (H.K.) Ltd.
LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (0757) 566 4381
Fax: (0757) 566 4378
Goldland Economic & Trading Ltd.
No. 30,Shang Ye Da Shi Jie, Huadu Fruit Wholesale Market,
Huadu, Guangdong, China
Tel: (8620) 8686 5160
Fax: (8620) 8686 6790
Fai Kee Laan
B37, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (86 757) 568 0923
Fax: (86 757) 568 0983
Shenzhen YuanXing Fruit Co. Ltd.
102, Cold Storage Company Courtyard, No. 1 Taoyuan Rd,
Shenzhen, China
Tel: (86 755) 241 6912
Fax: (86 755) 240 7118
Shop 1, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (0757) 568 0941
Fax: (0757) 568 1941
Yong Wei Fresh Fruits Trading Co.
Shop 57, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (0757) 568 1969
Fax: (0757) 568 2482
Hua Sheng Fresh Fruit Trades
Shop 17, LiShui Fruit Wholesale Market,
Nanhai, Guangdong, China
Tel: (86 757) 568 0987
Fax: (86 20) 8487 2287
Huadu Bowyawl Enterprise Group Co.
43 Commercial Ave.
HuaDu City, Guangdong, China
Tel: (86 20) 8681 9068
Fax: (86 20) 8683 9728
Daily Fresh Provisions Ltd.
Shop 13, M/FL., Phase 2, Fruit Wholesale Market,
Waterloo Rd, Kowloon, Hong Kong
Tel: (852) 2770 1083
Fax: (852) 2738 58685
Yesurgence Trade Co.
Huadu Fruit Wholesale Market,
Huadu, Guangzhou, China
Tel: (86 20) 8686 0505
Fax: (86 20) 8686 2776
Wing Fung (H.K.) Trading Co.
Huadu Fruit Wholesale Market,
Huadu, Guangzhou, China
Tel: (86 20) 8686 1625
Dong Tai Trading Co.
Huadu Fruit Wholesale Market,
Huadu, Guangzhou, China
Tel: (86 20) 8686 2152
Fax: (86 20) 8686 4152
New Peak (Fruits) Ltd.
Huadu Fruit Wholesale Market,
Huadu, Guangzhou, China
Tel: (86 20) 8686 0305
Fax: (86 20) 8686 0305
Zhonghong Fruit Vegetable & Food Development Company
C3 - C4 saga Business Garden
No. 2 Jianguomen Nei Nan Da Jie, Dongcheng District Beijing
Tel: (86 10) 6514 0737
Fax: (8610) 6514 0738
Beijing Nong Tong Industry Development Corp.
International Trade Company
Tel: (86 10) 6346 6217
Fax: (86 10) 6439 8653
Shanghai Qixin Fruit Management Co. Ltd
No. 365 Zhong Shan Rd (S), Shanghai, 200010, China
Tel/Fax: (86 21) 6378 0978
Shanghai Fudi Fruit Co. Ltd
No.2000 Hunan Rd, Pudong New District,
Shanghai, 201204, China
Tel: 58448820
Fax: 6892 7202
2 In 1996, official imports plus Hong Kong Re-exports amounted to some 16,000 mt. The balance is a "guesstimate" of unaccounted transfers.
