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Tariff cut not cause for concern
2005-03-16
China Daily
The tariffs have been cut, and the foreign "wolves" are coming. That could apply to many industries in China since the country joined the WTO (World Trade Organization) in December 2001. This time, it applies to Chinese furniture manufacturers.
And they don't seem to be overly concerned.
"We do not have a change in strategy due to the tariff cut. Our operation will continue as normal," said an employee, surnamed Liu, at Xinjiang-based Markor International Furniture Co Ltd.
Wang Maoqi, manager of Shanghai Shinemen Architectural Material Co Ltd's furniture division, had a similar reaction to news of the tariff cut.
"We do not have a special strategy," Wang said.
China on January 1 slashed tariffs on imported furniture from 7 per cent to zero in accordance with its WTO commitments.
A spokesman for an association of furniture manufacturers said Chinese furniture makers are not too concerned the tariffs have been slashed because they are stronger and more competitive, and, therefore, feel confident they can fend off foreign rivals.
"The nation's furniture industry has grown dramatically since China joined the WTO Their competitiveness has been largely improved," said Zhu Changling, director of the China National Furniture Association (CNFA).
The influx of overseas-made furniture has forced Chinese furniture producers to improve their manufacturing methods, equipment, designs and materials, Zhu said.
China's real estate industry has grown substantially, which has spurred the growth of the country's furniture sector.
In more developed cities, such as Beijing, Shanghai and Guangzhou, there has been greater demand for unique furniture. Manufacturers have improved their capability to meet that demand.
Zhu added it is unlikely to see a large growth in furniture imports.
Why? Because, he said, there are three characteristics of furniture that will slow imports: Furniture is large, low in value, and not technology-intensive.
Also, customers prefer unique products, Zhu added.
Transportation is an obstacle, he said.
"Transportation costs worldwide have grown, due to price rises of natural resources, such as oil and gas. Costs immediately add to the prices of imported furniture," Zhu said.
In addition, China lacks a complete wholesale and retail system. Normally, producers are also the vendors. Manufacturers of overseas furniture will have a hard time establishing distribution channels, he said.
Wang said overseas furniture holds a very small share of the Chinese market.
Overseas furniture makers tend to target high-income earners while domestic manufacturers take aim at low- and medium-income families.
For example, an Italian sofa normally costs 30,000 to 40,000 yuan (US$3,600 to 4,900), compared with 10,000 yuan (US$1,200) for luxurious sofa made by a Chinese firm.
"The 7-per-cent tariff cut will not result in large changes to the already-high prices of imported products," Wang said.
"Those high-income earners care more about design and quality, rather than slightly reduced prices."
Also, it is unlikely the number of high-income earners will expand in such a short period of time, Wang said.
"Lower tariffs will not necessarily drive down prices of imported products," said Zhan Xi, marketing manager of Illinoiscasa, a high-quality Chinese furniture producer and importer.
The firm mainly imports products from Europe. That region's common currency, the euro, has soared against the US dollar in recent years, which has affected exports of European goods.
"The costs of such products have not been reduced," Zhan said.
Zhu predicts small growth in furniture imports this year, especially high-end furniture, as a growing number of expatriates prefer furniture from their own countries.
"China lacks the skills needed to produce European-style furniture, such as carving and painting," he said.
Exports rocket
Due to outstanding quality and low labour costs, China's furniture exports have rocketed in recent years.
CNFA statistics indicate, in the first 11 months of last year, the export volume of China-made furniture hit US$9.1 billion, up 38.23 per cent year-on-year. Meanwhile, imports of furniture reached US$680 million, up 32 per cent.
In 2001, when China entered the WTO, the nation exported US$3.6 billion worth of furniture.
Many of those exports, were medium-range or low-end furniture, and many of the items were OEM (original equipment manufacture) products, Zhu said.
China has too many small-scale, fragile furniture producers, and they might have a hard time coping with intense competition, he added.
"Poor management and lack of branding strategies are the basic disadvantages," Zhu said.
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