China - Market Challenges China-Market Challenges
China is a challenging place to do business. In its 2019 American Business in China White Paper, the American Chamber of Commerce in China (AmCham) noted that the business outlook of their companies shifted from one of cautious optimism to cautious pessimism. AmCham reports that American businesses in China faced headwinds arising from inconsistent and generally unfavorable interpretation of regulations, rising costs of doing business, increased competition from Chinese competitors, and regulatory compliance risks. AmCham’s 2019 survey found that over half of its member companies experienced an increase in non-tariff barriers in 2018.
Day-to-day business operations present a variety of obstacles. The World Bank in its 2019 Ease of Doing Business Report ranks China 46th out of 190 countries in ease of doing business. Despite significant Chinese government efforts to streamline bureaucracy and reduce red tape, foreign companies continue to complain about lengthy and opaque administrative procedures, especially with respect to permits, registration, and licensing.
China also continues to pursue industrial policies that limit market access for imported goods, foreign manufacturers, and foreign services providers, while offering substantial government guidance, resources, and regulatory support to Chinese industries. The principal beneficiaries of these policies are state-owned enterprises, as well as other favored domestic companies attempting to move up the economic value chain. Provincial and local governments often have an ownership stake in private companies, incentivizing support of these enterprises.
Foreign enterprises continue to report that Chinese government officials may condition approvals on a foreign enterprise’s agreement to transfer technology, conduct research and development in China, satisfy performance requirements relating to exportation or the use of local content, or make valuable, deal-specific commercial concessions.
While foreign firms largely continue to report profitability in China, their profit margins are shrinking. This reflects increasing competition, rising costs, heightened regulatory impediments, a shrinking labor pool, and—in many sectors—overcapacity.
As of June 1, 2019, China has announced several rounds of retaliatory tariffs on U.S. imports, ranging from 5% to 25% on a total of $110 billion in goods. The list of applicable tariffs is available here: $50 billion tariff list: List 1- $34 billion, List 2- $16 billion; $60 billion Tariff list: List 1- 25% tariff, List 2- 20% tariff,List 3- 10% tariff, List 4- 5% tariff. On May 13, 2019, China’s State Council Customs Tariff Commission (SCCTC) announced that China would implement a trial exclusion process for imports from the United States that are subject to additional tariffs in retaliation for Section 301 tariffs. The process will be administered in two batches. The first batch applies to products on China's $50 billion list announced June 2018 and $16 billion list announced 2018. Applications will be accepted from June 30 - July 5, 2019. Batch 2 applies to products on China’s $60 billion list which was initially announced on August 2018. Exclusion Applications for Batch 2 will be accepted from September 2, 2019 until October 18, 2019. To qualify for the exclusion an applicant must explain whether any of the following factors are applicable:
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Difficulties the applicant faces in seeking an alternative source for good:
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Whether the tariffs cause serious economic harm to the applicant; and
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Whether tariffs will have a major negative structural impact on the relative industries (including, inter alia, impact on industry development, technological progress, employment, and environmental protection) or lead to serious social consequences/
Products included on the exclusion list in principle will be entitled to exclusion from additional tariffs going forward and refunds on additional tariffs that have already been collected. This process is in the trail stage and many factors ranging from the application criteria to the application determination are unclear.
Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.