Reflections on Policies & Initiatives for Expanding Consumer Goods Imports

On April 28， Premier Li Keqiang chaired the State Council executive meeting to deploy initiatives for improving import export policies of consumer goods such as tax regulation and increasing imports of popular con-sumer goods among the general public with an aim to upgrade consumption.

Expanding domestic demand is a significant initiative for stable growth and restructuring. Proper and reasonable increase of consumer goods import is of great significance to expand domestic demand， ensure employment and benefit the livelihood， to bring the basic role of consumption into full play for economic growth and to advance the domestic in-dustry to medium- and high-end level.

To properly understand the significance of consumer goods imports to economic development

Expanding consumer goods im-port is not only the change of goods import or trade mode. It is a profound reform for traditional strategic direction and policies guidelines of foreign trade.

First， to change the phenome-non of \"valuing export yet ignoring import\" for foreign trade

As China has gone through more than 10 years for foreign trade deficit during 1978-1989， the governments at all levels particularly the local governments have long implemented the foreign trade policy \"encouraging export and restrict-ing import\" and carried out various supporting policies in terms of finance， tax， inspection， quarantine， banking and foreign exchange administration. This kind of concept against economic glo-balization has to be changed.

Second， to change the phenom-enon of \"putting economic construc-tion before people's livelihood\" for export trade

Under the long-term shortage economy， the strategic direction \"pro-duction comes before livelihood\" is also reflected in the import policy. The Opinions from the State Council Gen-eral Office to Support Stable Foreign Trade Growth issued in May of 2014 still requires \"proactively supporting im-ports of advanced technology equip-ment and key spare parts， expanding imports of domestic deficient resources and reasonably increasing imports of necessary general consumer goods that are closely related with the general pub-lic\". In the Opinions， consumer goods import is listed at last with several con-fining words such as \"reasonable\"， \"nec-essary\" and \"general\".

Third， to change the phenome-non of \"raw material more important than consumer goods\" among im-ported goods

According to statistics from the Foreign Trade Bureau ofthe Commerce Ministry， under the above-mentioned strategic direction， the capital goods such as machinery equipment， elec-trical equipment and industrial trans-portation equipment account for 16.7% in total imports; such intermediate goods as spare parts for machinery equipment， raw materials and energy minerals account for 78.1%; such con-sumer goods like food， garment， home appliance and cars only account for 5.3%， which has improved in these years as the consumer goods import ratio increased to 7.3% in 2014 and then t0 7.8% during January to April.

Reasons for Chinese people to be crazy about buying consumer goods abroad

So far， there is no authoritative report about Chinese tourists' purchase volume abroad. According to the survey conducted by British Financial Times on the Chinese outbound tourists and travel agencies， Chinese tourists spent abroad $498 billion in 2014， around RMB 3，060 billion by the average an-nual exchange rate of RMB 6.1428/$1. This equals t0 11.7% of the total retail sales of social consumer goods， which is surprisingly a big number.

That Chinese people are crazy about panic buying abroad can be at-tributed to many factors.

First， the price. The Ministry of Commerce conducted an exclusive sur-vey through the Chinese business agen-cies abroad on the price of some high-end brands in the US， Britain， France， Italy， Japan， Korea and Hong Kong SAR. The average price (average price in Beijing， Shanghai， Guangzhou and Shenzhen) of20 high-end commodities into five categories including watches， bags， garments， high-end wines and electronics is 72.4% higher than that in France， 50.9% higher than the US， 47.7% than Hong Kong SAR， 37.9% than Italy and 37.7% than Switzerland. The sharp price difference is undoubt-edly extremely attractive to the Chinese people.

Second， the commodity. The high-end brands in the overseas market sell far more categories than that in the domestic market. Even for the same brands， the overseas market offers more choices in terms of style， color and size. Besides， the product quality guarantee in the country oforigin and the enthusi-astic salesman are very attractive to do-mestic consumers. Domestic consumers are not only crazy about buying high-end commodities， but also many low-price and convenient daily necessities are also included on the shopping list.

Third， the culture. China has the custom to bring gifts for relatives and friends when travelling abroad ever since the ancient times. Unlike the western developed countries， Chinese people are more likely to present the commodities bought abroad as gifts for others.

Besides， we should also observe that after the reform and opening up China is long in the imitating consump-tion phase\" nd travelling shopping is now becoming a tendency. Therefore， we have to on one hand be fully prepared for such a phenomenon and on the otherhand to gradually guide such a trend.

Comprehensives measures to be taken for sound development of consumer goods imports

Since the reform and opening up， the Chinese economic society is developing rapidly and consumers have tremendous purchase power. The key is to ensure exciting supplies with assur-ing product quality. Individualized and diverse consumption has become the mainstream and there is great demand for high-quality and good-service con-sumer goods and services. Consumers will turn to the international market if their demands cannot be met in the domestic market. In order to effectively stimulate the general public's consump-tion desire， turn this into a powerful growth impetus and to maintain the valuable consumption resources within the domestic market， comprehensive measures have to be taken for boosting imports of consumer goods.

To cutimport tariff

Due to historical reasons， Chi-na has imposed multiple taxations on consumer goods import (customs duty， consumption tax and value-added tax) and the tax rate is high. As of Novem-ber of 2008， the author submitted a request to the State Council for a lower import tax rate ofsome consumer goods in order to boost imports and maintain the consumption power within China. Chinese leaders such as Wen Jiabao， Li Keqiang and Wang Qishan gave im-portant instructions to relevant divisions for earnest studies. Starting from June 1， the import tax rates for some garments， shoes， skin care products， paper diapers have been cut down by over 50%. So far， China has lowered the import tax rates for garments， shoes， skin care products， baby food supplies， kitchenware， tableware and glasses. So as to further encourage imports， it is necessary to combine the tax categories and gradual-ly lower the tax rates. For instance， val-ue-added tax has been exempted on the domestic fresh agricultural products in the circulation section. Based on the na-tional treatment principle， it is possible to consider lowering or even exempting the value-added tax for the same kind of imported fresh agricultural products.

To deepen circulation reform

Both domestic and overseas prac-tices show that cutting tariff may boost imports， but the price cut ofimported commodities is constrained by many other factors. For instance， China has cut the tariff on kitchenware and glasses， but some branded knives and glasses saw price hike rather than price cut. The phe-nomenon of \"tariff cut yet price hike\" lies in the fact that the sales channel of most overseas high-end brands and the priang are fully controlled by foreign merchants. To tackle this problem， the circulation mechanism has to be reformed in a bid to rebuild the circulation channel and to break the price monopoly.

First， large-scale retail business groups are required to be cultivated as soon as possible with self-procurement and sales ability. At present， most of the domestic large-scale retail companies especially the department stores have given up commodity procurement and they make profits by charging \"basicrent\" plus \"operating income commis-sion\" on the operating enterprises (incl. foreign merchants) in the department stores. Thus， the department stores have turned into real estate landlords from business operators by giving up commodity procurement， pricing and management rights. Such an operation model should be changed to increase the ratio of self procurement or buy out commodity proprietary so that greater decision-making power will be achieved for the imported consumer goods. In particular， the large foreign trade groups with international trade experience and overseas procurement resources as well as with large-scale shopping centers in the domestic market are encouraged to directly negotiate procurement business with international top brands.

Second， sound development needs to be boosted for cross-border e-com-merce. According to the deployment at the State Council executive meeting， customs clearance procedures will be optimized to encourage cross-border electronic payment and to support for-eign trade companies to provide such services as customs clearance， storage and financing. Such marketing plat-forms as commodity experience stores are to be built at qualified places and consumer goods imports are to be in-creased from multiple channels. Due to such factors as language and customs， the current overseas online shopping group is mainly made up by the individ-ual operators such as overseas Chinese and overseas students. Apart from en-couraging the electronic platforms like Tmall to develop cross-border e-com-merce imports， the large foreign trade enterprises should also be supported to engage in cross-border e-commerce im-ports via overseas agencies.

Third， the import business is to be expanded for the domestic small commodity wholesale market. Over the years， lots of small commodity wholesale markets have emerged. These wholesale markets possess mature and smooth sales network as well as convenient lo-gistics system. These wholesale markets can serve as carrier to bridge for_the production and sales enterprises of the overseas third- and fourth-tier consumer goods. The wholesale markets should be developed into the distributing center for imported consumer goods and more im-portantly， general agent of the domestic market or reginal agent has to be culti-vated in the market operation. Mutual benefits are helpfulto expand imports of consumer goods. After the opening of \"Yiwu-Xinjiang-Europe\" freight train， Yiwu small commodity market is mak-ing endeavor at this aspect.

Fourth， the parallelimport policy is to be improved. Parallel import is aneffective international practice to break operation monopoly among the foreign merchants. At the current stage， Shang-hai free trade area has tried automobile parallelimport pilot， allowing importing enterprises to purchase vehicles from the manufacturing countries or the third-party countries and then sell them in the designated markets. Guangdong and Tianjin free trade areas are also try-ing such pilots. According to informa-tion provided by the Asian Division of the Commerce Ministry， Korea began to implement parallel import policy start-ing from 1995 and in 2014 it issued Pro-gram for Improving Consumer Goods Import Mix based on lessons learned. The Program aims to tackle such issues as too much barriers and low utilization ratio for parallelimport， to break import monopoly of some consumer goods and to cut prices ofimported consumer goods. The Program includes the follow-ing contents: simplify customs clearance procedures for parallelimport， improve credibility of the parallel imported commodities' authenticity; establish a common after-sales service system for parallelimport and direct import; facili-tate the small- and medium-sized enter-prises to participate in parallel import. From the Shanghai free trade area pilot， we can see that the measures taken by Korea are quite targeted and exemplary， which is suitable to serve as a reference.

To facilitate trade

The management measures mainly for capital goods and intermediate goods imports are not suitable for the vulnera-ble and perishable daily consumer goods in a great variety. Considering the commodity features， it needs to research special policies in terms of customs clearance， inspection quarantine and labelling management in a bid to facil-itate import trade. The State Council supports Yiwu of Zhejiang to innovate small commodity export policies and initially launches \"market procurement trade approach\" to simplify customs clearance procedures of goods exports， which has yielded favorable effect in terms of benefiting the exporting en-terprises and supporting goods exports. Such experience can be taken as refer-ence for improving import environment.

To cultivate Chinese brands

China is the world's largest man-ufacturing nation. \"Made in China\" commodities have entered into the glob-al market， which have also to become the leading actor in the Chinese market and imported consumer goods can only serve as a supplement. With a long his-tory， unique traditional techniques and profound cultural connotation， China boasts many special commodities and has the potential to develop well-known international brands. In the long run， China has to adopt comprehensive measures to combine consumer goods imports with development of national high-end brands. In this way， more and more \"innovated in China\" high-end commodities will not only meet the consumption demands in the domestic market， but also sold to the world.