Processing Trade Volume

Processing Trade

Processing trade is the form of foreign economic activities in which an enterprise located in one country manufactures products in accordance with the buyer committing another country or regions import processing instructions, and then exports its products to the buyer in that country or region. Generally speaking, the processing enterprise bears risks such as technological processes, procurement and use of materials, personnel, quality inspection and so on.

Processing trade adopts two patterns of customs clearance: one is that the purchaser in the foreign country is responsible for it, imported materials are directly exported after being processed; the other is that the purchaser in the foreign country is responsible for the whole process. In terms of the variety of products, it mainly includes textile, clothing, furniture, toys, household items, electronics and other industrial products.

Considering the processing on demand directly from foreign customers, the processing enterprises should possess some necessary conditions. Firstly, the enterprise should have a sound organization, effective management, rational layout and smooth flow of production process and other management systems, which are conducive to meet the market demand on quality and delivery time. Secondly, in terms of the product technology, the technology of the processing enterprise should be mature, advanced and reliable to achieve good processing and manufacturing results. Thirdly, the enterprise must have a quality management system, which can ensure the quality of the products through precise supervision and control during the production process.

Processing trade has the advantages of diversified products, low labor costs, wide coverage of industry, no need to establish after-sales service and so on. The drawbacks mainly include inadequate control of the engineering cycle, limited guarantee on the product quality, difficulty in supervising the after-sale service quality, difficulty in leading activities and so on.

Processing trade has become an important part of China’s foreign trade. Its rapid development has benefited from Chinas accession to the WTO, the rapid development of relatively complete processing trade industry chain in coastal areas, the opening of domestic and foreign markets and the development of related services. According to statistics, in the first three quarters of 2019, Chinas processing trades exports volume reached 69.3 billion USD, accounting for 12.2% of the total foreign trade volume. In order to strengthen the development of processing trade, China launched a series of policy measures such as processing trade tax refund and processing trade negative list, which further promoted the development of processing trade.

Processing trade is an important way for economic and technological transformation, which can effectively adjust industrial structure, absorb foreign investment and absorb advanced technology. At the same time, processing trade provides an important platform for China to open up the international market and promote economic growth. In the future, it is expected that China will continue to optimize processing trade policies and accelerate the construction of a complete processing trade industry chain to further explore the potential of processing trade.

Processing trade refers to the processing and manufacturing of products in the recipient country based on imported raw materials and parts provided by the importer. Processing trade is typically conducted between multinational companies, with raw materials and parts supplied by one of its subsidiaries operating in the importers country, and the completed product retuned to the suppliers country after processing.

The term is most often used to refer to the practice in China, which first emerged in the early 1980s and saw a marked rise after Chinas accession to the World Trade Organization (WTO) in 2001. Since then, processing trade has become increasingly important in Chinas export industry, accounting for over one-third of total exports in 2003.

Processing trade has enabled China to maintain its comparative advantage in the production and export of labor-intensive goods. It has been credited with helping to drive not only employment growth in China, but also economic and industrial diversification. The export of processed goods has enabled many small and medium-sized enterprises to enter the market, generate employment and become competitive in the international arena.

As a consequence of processing trade, imports of raw materials and components destined for processing and re-export have substantially increased. As a result, Chinas foreign trade surplus has grown significantly, particularly with certain developed countries. Consequently, China has come under increasing pressures to further open its economy to foreign companies, who can take advantage of the low costs of production and benefit from the relatively large domestic market.

On the other hand, processing trade has been criticized by some as having been a main cause of China’s trade surplus. It has been argued that this trade feature has had a negative impact on the global trading environment, leading to a decline in the prices of international commodities and making it difficult for domestic producers to compete in the global market.

In spite of these criticisms, overall processing trade has been beneficial to Chinas economy. It has helped to establish strong relationships between multinational companies, stimulate employment rates and diversify the economy.