The Ministry of Commerce and other departments have introduced 12 measures to improve the development level of processing trade-to create ＂2.0＂ of processing trade in China.

The processing trade of "two ends in the outside" and "borrowing chickens to lay eggs" once occupied half of China’s foreign trade, and it is still an important trade mode linking domestic and international double cycles. Recently, the Ministry of Commerce and other 10 departments issued the Opinions on Improving the Development Level of Processing Trade (hereinafter referred to as the Opinions), and put forward 12 policies and measures from six aspects, drawing a blueprint for creating the "2.0" version of China’s processing trade.

Over the past 40 years of reform and opening up, what role has processing trade played in China’s open economy? Under the background of falling scale and proportion, how can processing trade innovate and break through and win new advantages? The reporter conducted an interview.

Processing trade has developed into many forms.

What is processing trade? Compared with general trade, "two ends in the outside" is the most prominent feature of processing trade, that is, "raw materials are imported from the outside, and products are exported", which specifically includes processing with materials and processing with materials. Insiders pointed out that traditional processing trade usually lives at the bottom of the "smile curve" of the international value chain, and its main characteristics are labor-intensive, low added value and strong substitutability.

As an important part of China’s open economy and foreign trade, processing trade has played an important role in promoting opening up, promoting industrial upgrading and ensuring employment since the reform and opening up. According to the data of the General Administration of Customs, from 1981 to 2023, the average annual growth rate of import and export of processing trade in China was nearly 20%, with a cumulative increase of nearly 500 times.

Over the past 40 years, China’s processing trade has developed by leaps and bounds. Enterprises have participated in the global division of labor through processing trade, from "borrowing chickens to laying eggs" to "independent incubation", and their business models have gradually changed from OEM (OEM) to ODM (design on behalf of others) and OBM (brand marketing).

Take Guangdong Province, where processing trade is developed, as an example. Nowadays, the proportion of processing trade enterprises ODM and OBM in Guangdong Province has risen to about 2/3. Among them, in Dongguan, an important base of processing trade, about 30% of processing trade enterprises have set up R&D institutions, more than 500 have applied to become high-tech enterprises, and more than 2,000 processing trade enterprises have established their own brands, with a cumulative number of brands exceeding 13,000. The export proportion of ODM and OBM products has increased from 40.8% in 2009 to 75.3%.

"Processing trade has promoted the level of China’s processing and manufacturing industry as a whole, enhanced its innovation ability and promoted industrial transformation and upgrading." The relevant person in charge of the General Administration of Customs said.

At the same time, with the profound changes in the domestic and international environment, the scale and proportion of traditional processing trade in China’s foreign trade pattern are also declining.

According to the relevant person in charge of the General Administration of Customs, the "two-headed" development model of processing trade has been incompatible with the construction of a new development pattern with domestic large circulation as the main body and domestic and international double circulation promoting each other, and the proportion of foreign trade has also dropped from more than "half of the country" at the highest time to about one fifth. In the first three quarters of 2023, the total import and export value of processing trade in China was 5.57 trillion yuan, accounting for 18.1% of the total import and export value of foreign trade in China.

Nevertheless, it is of practical significance to improve the development level of processing trade. The relevant person in charge of the Ministry of Commerce said that the decline in scale and proportion does not mean that the role of processing trade has decreased. "Processing trade is still the main driving force for the growth of foreign trade in the central, western and northeastern regions, and it also plays a very important role in stabilizing foreign trade and foreign investment and stabilizing the industrial chain supply chain." The person in charge said.

According to the analysis of insiders, China’s processing trade has developed into various forms, such as goods processing trade with higher requirements for cross-border logistics, service processing trade with higher requirements for human resources, and digital processing trade with higher requirements for network openness and intelligence. The Opinions put forward targeted measures around strengthening transportation logistics and energy security, meeting multi-level employment needs, supporting the expansion of the domestic market, and promoting the transformation and upgrading of processing trade products from low value-added products to high value-added and high-tech products, which will help promote processing trade to better serve the high-quality development of the economy and society.

Expand to both ends of the "smile curve"

Facing the new situation, where will China’s processing trade go? Under the "two-way squeeze" between the demand side and the supply side, actively exploring the domestic market has become the choice of many foreign trade enterprises.

Dongguan Shilong Kyocera Co., Ltd. mainly produces high-tech products such as car lenses and LCD modules. In recent years, due to the high cost of raw materials, fluctuations in the international market and other factors, the company’s export orders have decreased, and the development model that used to rely mainly on exports has encountered bottlenecks. "According to the changes in the situation, the company explored the channels of exporting to domestic sales, coupled with favorable policy support such as centralized domestic sales of customs processing trade goods, and seized the business opportunities in the domestic new energy automobile market, and the proportion of domestic sales business increased significantly." According to the person in charge of the company, the company has continuously participated in the 13th China Processing Trade Products Expo, and the sales value in processing trade has achieved rapid growth.

It is a big challenge for processing trade to "turn to domestic market". Zhuo Xian, a researcher at the State Council Development Research Center, analyzed that compared with enterprises engaged in general trade, it is more difficult for processing trade enterprises to "sell domestically". "No matter whether it is processing with imported materials or processing with imported materials, the processing trade enterprises are’ two heads out’, the brand is an international brand, the demand is in the international market, and the sales channels are also subject to the international distribution network. Order-to-order production makes it lack its own brands and patents, and the domestic market channels are not smooth, which does not meet the needs of domestic consumers. It is naturally difficult to turn to the domestic market. " Zhuo Xian said.

In the long run, the "breakthrough" of processing trade must get rid of the inherent impression of the "low end" of the industrial chain. By developing new formats such as bonded maintenance, China’s processing trade is expanding to both ends of the "smile curve" and climbing to a more favorable position in the international industrial chain and value chain.

Incorporate aircraft engine nacelle, marine diesel engine and other products into the catalogue of maintenance products in the comprehensive bonded area; Enterprises in the comprehensive bonded zone are allowed to carry out bonded maintenance business of self-produced products sold by the Group in China, and return to China after maintenance, which is not restricted by the catalogue of maintenance products; Allow domestic goods to be repaired to enter the comprehensive bonded zone for repair and directly export to overseas … In order to promote the development of bonded maintenance business in the comprehensive bonded zone and the Pilot Free Trade Zone, the Opinions released many positive signals.

In addition to the Comprehensive Bonded Zone and the Pilot Free Trade Zone, the Ministry of Commerce and other departments have also made it clear that they will speed up support for a number of pilot projects of bonded maintenance of self-produced export products such as medical devices and electronic information. At the same time, in Suzhou City, Jiangsu Province, Dongguan City, Guangdong Province, and Binhai New Area, Tianjin, where the transformation and upgrading of processing trade has achieved remarkable results, we will carry out "two-headed" bonded maintenance pilot projects to support enterprises to carry out related businesses.

Carry out more processing trade of high value-added products, promote the optimization of processing and manufacturing product structure, and enhance the irreplaceability of industrial clusters … New formats and new technologies will accelerate the incubation, and China’s processing trade is expected to achieve a butterfly change.

According to the data released by the General Administration of Customs, the technical content of China’s processing trade export products has been continuously improved, and the proportion of high-tech products has exceeded 60%. Among them, the import and export growth and growth rate of processing trade in six high-end industries, such as new materials, biomedicine and medical instruments, high-end equipment, electronic information, new energy vehicles, instruments and meters, have obviously accelerated, accounting for 8.6% of the total import and export value of processing trade from 2012 to 34.4% in 2022. Driven by the processing trade industry, the Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei, Chengdu-Chongqing and other regions have formed their own high-tech industrial clusters.

Guide the gradient transfer of processing trade

China’s processing trade "2.0" cannot be achieved without policy support.

The processing value-added tax policy of Hainan Free Trade Port is one of the representatives. 30% value-added goods are sold at home free of duty, and the pilot covers qualified enterprises in key parks outside the special customs supervision area, which is mainly applicable to the processing trade of commodities with high tax rate on raw materials or finished products … Since the implementation of the policy, Haikou Customs has supervised and supervised the sales value of value-added goods in processing for a total of 4.52 billion yuan, exempted from duty for 380 million yuan, which has effectively promoted the development of processing trade in Hainan Free Trade Port.

In Zhejiang, a major foreign trade province, Ningbo Customs has helped the processing trade enterprises in the customs area to improve quality and efficiency through the form of "sending policies to the door by the customs chief", expert interpretation meetings and policy presentations. Xu Linhua, executive vice president of Ningbo Silicon Electronics (Ningbo) Co., Ltd. introduced that the company is mainly engaged in the packaging and testing of high-end chips in integrated circuits, and adopts the processing trade mode to carry out import and export business. "By optimizing the management of export return of finished products in processing trade and the reform of’ short overflow zone’, a series of facilitation measures introduced by the Customs meet the needs of production and operation of processing trade enterprises and help us explore the international market." Xu Linhua said.

From the overall perspective, it is the only way to create a "2.0" processing trade by guiding the gradient transfer from east to west and from coastal to inland.

Yang Danhui, director of the Emerging Industries Research Office of the Institute of Industrial Economics of China Academy of Social Sciences, said that due to the characteristics of processing trade "two ends are outside" and the coastal areas have freight advantages, the traditional processing trade industries are mainly concentrated in the eastern coastal areas. However, with the improvement of economic development level in coastal areas, the cost of labor and land has risen, and processing trade, as a labor-intensive industry, is facing cost pressure.

Yang Danhui analyzed that with the gradual improvement of infrastructure and industrial system construction in various developing countries, more and more foreign trade markets with high growth space began to appear, "it is necessary to promote the industrial gradient transfer and undertaking in the eastern, central and western regions according to local conditions".

In recent years, the growth rate of processing trade in the central and western regions has been consistently higher than the national average. In the first three quarters of 2023, the proportion of processing trade in the central and western regions increased from 2.8% in 2008 to 24.8%, among which Henan, Sichuan, Chongqing, Shaanxi and other provinces rapidly developed into important bases for foreign trade import and export.

However, the problem arises-the processing trade industry resources and market are "at two ends", which are very sensitive to logistics costs and lose the maritime advantage. How to find a new comparative advantage?

To create new advantages, we need corresponding supporting capabilities. With the continuous promotion of the "One Belt, One Road" initiative, the transportation logistics and energy security in the central, western and northeastern regions have been continuously improved, and the ability to undertake the transfer of processing trade industries has been strengthened.

In Alashankou, Xinjiang, there are more than 110 China-Europe trains leaving the country through Alashankou Port, reaching more than 20 countries and regions, allowing processing trade to catch the "express train". Alashankou Xinbo Oil and Gas Pipeline Manufacturing Co., Ltd., which was put into production last year, completed the order for 15,000 tons of welded pipes signed with Uzbek customers that year. "Alashankou is close to the Central Asian market, with wide-gauge quasi-rail reloading facilities, fast delivery and low freight. The company also enjoys preferential tariffs on imported steel raw materials, which reduces production costs. " Zhou Shanzheng, deputy general manager of the company, said.

High-quality transfer carriers are also indispensable. According to the relevant person in charge of the Ministry of Commerce, China will cultivate carriers such as key undertaking sites for gradient transfer of processing trade, demonstration sites for undertaking transfer of processing trade, and national processing trade industrial parks, and support eligible gradient transfer carrier projects through local government special bonds; At the same time, improve the docking cooperation mechanism of processing trade gradient transfer, give priority to supporting the establishment of bonded supervision places in qualified places in the central and western regions and northeast regions, and guide and support the gradient transfer of processing trade industries to the above regions. (Reporter Wang Wenzheng)