China Slows Down the Global Supply Chain

There's a school of thought in some manufacturing circles that suggests that the loss of millions of manufacturing jobs over the past decade can be blamed largely, if not entirely, on China's emergence as the world's low-cost producer while flouting the global trade rules that other countries follow. China, for instance, "has consistently manipulated its currency to steal productive capacity from the United States," observes Kevin Kearns, president of the U.S. Business and Industry Council. This currency manipulation has allowed China to "devastate America's invaluable productive industries, addict the country to debt-fueled, bubble-created 'growth' and destabilize the global economy."

While politicians and trade groups debate the merits of applying some sort of sanctions on China, for those manufacturers already doing business overseas the situation is becoming even more complicated and restrictive, thanks to a push among the Chinese for new import/export regulations. According to Jackson Slipek, a senior consultant with the Trade Management Consulting team at financial giant J.P. Morgan, there are three areas attracting the most attention from Chinese regulatory authorities within the context of China-U.S. trade: anti-dumping, China Compulsory Certificates and additional import license requirements for encryption products.

Jackson Slipek, senior consultant, Trade Management Consulting team, J.P. Morgan

In 2009, the Chinese government launched a series of anti-dumping investigations against the United States involving products such as automobiles, Adipic acid and chicken products, Slipek notes. "During the anti-dumping investigation process, a firm will face challenges importing into China, potentially resulting in detained shipments or demands for more information, thereby adding time and cost to supply chain cycles."

Slipek suggests that U.S. manufacturers "should consider purchasing domestic products or evaluate the possibility of purchasing foreign products with a different country of origin. Specific to spare parts, a firm could avoid anti-dumping duties as long as the parts are imported along with complete equipment or systems. Regardless, the importer must provide and maintain complete and clear financial and cross-border trade information for the inevitable anti-dumping inspection."

By The Numbers:
The State of the Chinese Supply Chain

As China's manufacturing-based economy continues to grow, so too does the realization of the importance of supply chain management as a strategic function. According to a recent A.T. Kearney survey of 100 Chinese companies, primarily industrial and consumer goods manufacturers, nearly half (45%) say that within five years supply chain managers will need to focus on formulating strategies, investment decisions and IT implementations. Following are other results of the survey:

81% percent of respondents that outsource some or all of their transportation

80% percent of Chinese companies unsatisfied with their on-time delivery performance

22% percent of Chinese companies who source internationally

15% percent decreae in average number of days of inventory from 2004 to 2008

15% percent decrease in days of inventory expected from now to 2013

12% amount that logistics costs rose in four years (2004 to 2008)

Source: "China Pursues Excellence in Logistics," A.T. Kearney

Last September, Chinese authorities began requiring a formal China Compulsory Certificates (CCC) exemption that would be issued during the import customs clearance process. This extra layer of compliance targets activities in which a business imports raw or ancillary materials, spare parts, components and packaging materials, with the intention to re-export the finished product after processing or assembling, Slipek explains. "In the past, this process was encouraged by the Chinese authorities," he notes, but today, this new process will add one to two working days and additional fees to the process. "It is safe to assume that with this impediment to smooth supply chain operations, the Chinese government is no longer encouraging sole assembly operations as they did five to 10 years ago."

U.S. manufacturers of various electronic products that use encryption technology, such as printers, copiers and telecommunications devices and equipment, need to be aware that the Chinese government plans to regulate various products based on their Harmonized Tariff Schedule (HTS) number. From now on, manufacturers of these products will need to have an import license for entry into China; if not, they will be held by Chinese customs.

"Considering it takes at least 25 working days for China to process a license application and additional time to actually prepare the application documents, materials could be held up for a month," Slipek warns. "Delays will reverberate through the supply chain cycle, resulting in negative impacts to overall shipping time, poor service level, reduced Overall Equipment Effectiveness (OEE) metrics, and inventory build-up and rescheduling havoc."

Slipek recommends that U.S. manufacturers should evaluate whether goods imported into the U.S. from China are subject to any retaliatory trade consequences of U.S. governmental actions toward China. At the very least, they should thoroughly familiarize themselves with current Chinese trade regulations.