China Trade

The Sino-German relationships – Part 2: Partner provinces

There’s a multitude of partnerships between the so called “Bundesländer” in Germany and Chinese provinces. In the following section, some of these partnerships are breifly introduced.

  • Bavaria and Shandong: Bavaria is the most important German trading partner for China with about 19% of the German-Chinese trading volume. An internet forum has been set up to support exchange and international trade between Bavaria and Shangdong: http://www.chinaforumbayern.de/chinaforum-bayern-ev/
  • Baden-Wuertemberg and Jiangsu: The most important trading goods between the two provinces are machinery and vehicle components. But also electro mobility plays an important role in this relationship.
  • Sachsen and Hubei: Their cooperation is especially strong in the field of environmental protection and water management.
  • Thüringen and Shaanxi: They have a special cooperation: Environement sensor technology (air quality sensors). The trading volume increased in recent years.
  • Hessen (Frankfurt) and Shanghai: They have a special relationship in the financial sector. Beyond this the relationship is more on the cultural and social level.
  • Brandenburg and Hebei: The economic cooperation is focused on new energies (including construction of a hybrid power plant in Hebei) as well as on systems engineering, energy efficiency, environmental protection, information and communication engineering, media, agricultural engineering and bio technology.

Sources and the full report is available on demand (mail to: contact@heighten-sh.com)

Opportunities for European pet food in the Chinese market

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China has become one of the most important pet markets in the world, having about 290 million pets in 2013 (number of European pets: ca. 270 million). Hand in hand with the rise in ownership rates (+35% since 2000), the expenditures for pet supply have risen: In 2013 the Chinese spent about 7.84 billion RMB and forecasts indicate that China will continue to rank among the eight fastest growing pet care markets in the world. Currently, the Chinese pet food market is dominated by Mars Petcare, having a market penetration of 37% in the dog food market (ca. 4 million RMB annually) and 45% into the cat food market (ca. 2 million RMB annually).

Looking at the distribution situation in China, the pet market is rather fragmented, i.e. there’s a multitude of small retailers, but only few specialized retail chains like e.g. the German retail chain “Fressnapf”. For the premium food segment, foreign owned chains and exclusive small pet supply boutiques are more relevant than other distribution channels.

Despite the relatively easy transportation requirements of pet food, its import into China is currently officially restricted due to meat quality problems in the past. Thus, the only way to import the products legally is by exceeding a long-lasting examination procedure by Chinese authorities. Therefore, pet supply manufacturers currently had to use other product areas to get a foot into the market, e.g. via pet fashion.

SWOT-Analysis of European high quality pet food suppliers in China:

Pet food report SWOT

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The full pet food report is available on request (mail to: contact@heighten.eu)

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Sources

http://en.gmw.cn/2015-01/02/content_14371457_3.htm (2015-1-4)

http://en.wikipedia.org/wiki/2007_pet_food_recalls (2014-12-30)

http://money.cnn.com/2014/10/23/luxury/china-pets (2014-12-30)

http://usa.chinadaily.com.cn (2014-11-5)

http://www.petfoodindustry.com (2014-12-31)

http://www.bio-tierkost.de/marken (2015-1-8)

http://www.mars.com (2015-1-5)

http://www.petfairasia.com/en/about?preid=114 (2014-10-25)

http://www.petfoodindustry.com (2014-12-31)

The Sino-German relationships – Part 1: Trade relationship

The trade volume between Germany and China has sharply risen since the beginning of the millenium and reached about 140 billion Euro in 2013 (2003: 44 billion Euro). After the economic and financial crisis arround 2007 to 2009, the trade relationship has become relatively balanced again, with a remaining, “small” trade surplus for China (+7.6 billion Euro in 2013 to +26.5 in 2007). The relationship between the two countries has also become equal important for one another: China has become one of the top 5 export countries for Germany and vice versa.

The most important trading goods between Germany and China are machines, mechanical devices, electronical devices, automobiles and photographical products, providing about 60% of the total trade volume between China and Germany. Other important trading goods for the two countries are chemical products, especially pharmaceutical products for Germany and organical chemicals for China, composing about 5% of the total trade volume. The same applies to steel, iron and other metals and their related products. One of the fastest growing, important product categories for both countries is plastic and related products. Other industries have minor importance for both countries or are only relevant for one country, like e.g. the textile export for China as well as the milk import for Germany.

With regard to the Chinese government’s 5 year plan and national trends, there are industries with high potential for trading relations between China and Germany:

  • New energy and sustainability sector,
  • Food and beverages sector (Germany has a good reputation for its high food safety standards)
  • Luxury products (upcoming middle class).
  • Medical industry (German SME are leading in this field).

 

Sources and the full report is available on request (mail to: contact@heighten.eu)

EUTR & China trade. Will it effect your business?

EUTR – European Timber Regulations, came in to effect as of March 3rd 2013. How do they effect your China timber and wood business?

Whether you exporting raw material to China or importing finished products such as furniture, flooring or even paper to the EU you should be aware of the new legislations.

This article seeks to combine some key resources whilst giving you a brief overview of some of the requirements.

 

Requirements: Suppliers of wood/timber products into the EU must record and be able supply information including:

  • description (including the trade name, type of product and common name/full scientific name of species);
  • country of harvest (and, if applicable, region of harvest, as well as the concession of harvest – i.e. any arrangement conferring the right to harvest timber in a defined area);
  • quantity (expressed in volume, weight or number of units);
  • name and address of the supplier to the operator;
  • name and address of the buyer (trader) who purchases the timber;
  • documents or other information indicating compliance of the timber and timber products with the applicable legislation.

 

Risk assessment: You must analyse and evaluate the risk that the timber you are dealing in is illegally harvested. When making this assessment, investigate the wood you are dealing in using the following criteria:

  • assurance of compliance with applicable legislation, which may include certification or other third-party-verified schemes which cover compliance with applicable legislation;
  • prevalence of illegal harvesting of specific tree species;
  • prevalence of illegal harvesting or practices in the country of harvest and/or sub-national region where the timber was harvested, including consideration of the prevalence of armed conflict;
  • sanctions imposed by the UN Security Council or the Council of the European Union on timber imports or exports;
  • complexity of the supply chain of timber and timber products.

The regulation is EU wide.  Each member state has a nominated responsible authority, for reference you take a look at the following link to find your local authority: EU member state responsible authorities.

 

Exporting Timber to China

Earlier we mentioned that this EUTR could impact companies exporting wood to China. Why is this, has China partnered with the EU? No, but many Chinese factories sourcing wood internationally are processing the raw material into products that will be sold to the EU, as such these factories will be required to maintain audit trails of the raw materials to ensure they can demonstrate to their customers due diligence. Failure to do so could mean difficulties exporting to the EU and certainly could cause delays & issues with EU customs.

 

VPA – Volunterary Partnership Agreements

As of 2013 there are currently six countries developing the systems agreed under a Voluntary Partnership Agreement (VPA) and six countries that are negotiating with the EU. Furthermore, there are around 15 countries from Africa, Asia and Central and South America that have expressed interest in VPAs.  More information on the individual countries can be found at: http://www.euflegt.efi.int/portal/home/vpa_countries/

Indonesia and Malaysia are both early adopters of agreement and are developing systems at the time of writing. This is significant for the China timber trade as these two countries are major suppliers of wood material. By signing up to the VPA, countries implement a strict set of policies and systems to certify and audit exporters. This in-turn means that the supply chain becomes much more clearly documented. These documents can then be used by the Chinese producers when selling finished products to the EU.

 

Are you involved in the wood and timber trade? Heighten International has a wide range of experience in both importing wood and timber products from around the world as well as helping companies export wood based products to the EU and the rest of the world. If you have any questions, we are here to help.

 

Additional resources:

FLEGT – Forest Law Enforcement Governance & Trade

Due diligence, certification and enforcement of the EUTR FAQ (English)

Importing and exporting under EUTR FAQ (English)

https://ic.fsc.org/eu-timber-regulation.46.htm

http://www.cpet.org.uk/eutr

Settlement in RMB/CNY. What could it do for your business?

Since 2009 the PBOC Peoples Bank Of China has been experimenting with direct settlement in RMB. Up until then, wherever you were in the world you would have deal in USD.

Dealing in USD meant that countries not using USD would have to take on multiple exchange rate risk. For example an European company would have EUR-USD-RMB (RMB-USD-EUR) risk involved in any transaction.

Initially there were controls via the Mainland Designated Enterprise (MDE) list, however for most Chinese enterprises in most regions this has been scraped from March 2012. There are still limitations from a practical perspective on the ground in China, however there is the potential for most medium sized Chinese companies now to accept overseas payments in RMB.

From the Chinese enterprise’s perspective directly receiving RMB also reduces exchange rate risk. Another factor is that obtaining USD is not as convenient as it should be in China, with additional administration to deal with.

Looking to the future, it is certain that direct RMB-RMB settlement will become the norm. Take a look at your China business and see where there can be advantages for your and your trading partners. Not only will it reduce risk, there could be scope for additional cost savings and also speeding up payment times.

RMB – Ren Min Bi 人民币. The official Chinese abbreviation.
CNY – Chinese Yuan. Common overseas term used for the Chinese currency.