This is why duty-free access did not jack up exports to China

When China granted duty-free access to 97% of Bangladeshi products last July, it was a cause for celebration for Bangladeshi exporters. Exports to China, the second-largest economy in the world, were expected to see a huge jump.

The dreams, however, fizzled out soon.

The numbers show that despite granted duty-free access and resumption of exports of crabs and eels after the pandemic, Bangladesh's export to China has made inconsequential rise in the last nine months, and have nearly halved compared to five years ago, when exports hit a high of $949 million.

Exports to China amounted to only $546 million in July-March of the current fiscal year. This is only 9.68% more than the same period of the previous financial year, when exports were $680 million.

At the same time, the trade deficit between the country has grown sharply.

Infographic: TBS

For instance, in FY17, Bangladesh exported goods worth $949 million to China. In the same period, its import bill from China was a staggering $10.7 billion. Fast forward to FY21, Bangladesh's exports fell to $680 million, while imports had shot to $12.93 billion.

About 20% of Bangladesh's total imports come from China, most of which are raw materials for the readymade garments and industrial sectors.

After a meeting with Chinese businessmen, the Bangladesh Embassy in Beijing mentioned that none of Bangladesh's exports made it to the list of top 20 imports.

The embassy also said that Bangladesh's exports to China were not increasing due to a lack of branded and high-end products, something also reflected in the exports of leather goods and footwear which are comparatively cheaper than Chinese manufacturers.

In addition, due to China's Zero-Covid policy, Bangladeshi traders have not been able to travel to the country since the outbreak of the pandemic, while Bangladeshi export-oriented companies lag behind in their online presence. The problems are further compounded by lack of aggressive marketing by Bangladeshi exporters.

Another cause for celebration, which has now turned into concern, has been the generous duty-free access still failing to yield any positive result.

Since 1 July last year, China implemented duty-free access for a total of 8,256 products, including all garment products, under the 97% duty-free facility. This was later changed to 98% and included leather products.

About the negligible increase in exports to China, Commerce Minister Tipu Munshi told The Business Standard that many factories were being relocated from China by different countries to reduce dependence on a single country. This resulted in less exports of various products, including readymade garments, and that has affected the increase in exports.

He said the ministry was taking various initiatives to increase Bangladesh's exports to China.

Speaking to TBS, Faruque Hasan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), highlighted other possible causes: the Zero-Covid policy and the quarantine period for Chinese businessmen after returning from abroad.

He said China was not issuing visas to any foreigners due to its Zero-Covid policy, while any Chinese businessman going abroad had to be quarantined for 21-days after returning home. This has reduced the number of businessmen travelling abroad, including to Bangladesh, and this has reduced China's overall imports as well.

He expressed hope that Bangladesh's exports to China would rise once the situation improved.

But it is not all doom and gloom.

In the current financial year, Bangladesh has seen high growth in all 15 of its major markets, except China. Despite the absence of duty-free access to the United States, export growth is over 50%. Exports to major European markets increased by 20% -30%.
Bangladesh's export growth rate in neighbouring India is about 59%.

Export goods that China doesn't want

Analysing the export picture with China over the last decade using data from the Bangladesh Embassy in Beijing and the Export Promotion Bureau, it can be seen that with the export growth of about 63%, the amount of Bangladesh's export to China stood at $746 million in FY2013-14, which gradually increased to close to $1 billion in FY2016-17. After that, Bangladesh's exports began to experience a steep decline, with one minor high in FY2019-20.

In the last two fiscal years, Bangladesh's exports to China have not touched the $700 million mark.

Against this backdrop, in the first week of April, the Ministry of Commerce sent a letter to the Bangladesh Embassy in China asking for a report on the reasons why Bangladesh's exports to the country did not increase despite the introduction of a duty-free export facility.

In a follow up report, Bangladesh's Commercial Counselor in Beijing, Mohammad Monsor Uddin, said Bangladesh had no export products on the list of major Chinese imports.

It seemed that Bangladesh was attempting to sell products China did not want.

So what is China looking for?

According to the same report, China is current starving for 20 products: electronic circuits, crude oil, motor cars, phone system devices, petroleum gas, soyabean, copper wires, data processing machines, semiconductors, refined copper, solar power diodes, polymers, beauty products, skincare products and low-voltage switches, among others.

The Bangladesh Embassy in Beijing stressed that the lack of any products in those categories had dented Bangladesh's export aspirations.

The RMG and leather conundrum

As much as Bangladesh has been successful in exporting ready-made garments to India after getting duty-free export facilities under the Saarc Preferential Trading Arrangement, it has not made a dent in the losses made in the $300-billion RMG market in China.

During July-March of the current financial year, Bangladesh's exports of woven and knitwear to India amounted to $523 million. At the same time, exports of these two products to China amounted to only $173 million.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, said the global readymade garments market was worth $750 billion, of which China's domestic market alone was worth $300 billion.

"We expected a lot of export orders from China after the duty-free facility came into effect, but we were disappointed," he said.

He cited the decline in Chinese-made garment exports to the United States as the main reason why exports to China did not increase despite the introduction of duty-free facilities. Chinese ready-made garments exporters are now focusing on the domestic market.

Faruque Hasan, president of the BGMEA, told TBS that China was reducing its own garment exports and aiming to meet domestic demand, which is why Bangladesh's exports to the country had not increased.

The same scenario in terms of exports can be seen for leather and footwear.

Despite the demand for Bangladeshi leather and leather products in the Chinese market, exports are not growing due to lack of quality and high prices of Bangladeshi leather products and footwear, the Bangladesh Embassy in Beijing said in a separate report on April 27.

The average export of footwear from Bangladesh to China in the last decade was $16.70 million dollars.

The amount of footwear export from Bangladesh has remained almost the same in the last nine months even after it was declared duty-free with exports reaching $13.19 million, but this is still a high.

In the 2018-19 fiscal year, exports reached a low of $2.24 million.

The poor show continued as last fiscal year, exports reached $1.80 million.

For leather goods, five years ago, exports amounted to more than $76 million. Since then, the amount has been declining. Leather exports stood at $58.29 million, despite a 100 percent growth in the last fiscal year. As of March of the current fiscal year, the amount is $53.68 million.

Bangladesh Tanners Association President Md Shaheen Ahmed told TBS that despite the duty-free facility, after exports, China has to pay 15% VAT, provincial tax and a total tax of 26% -30%.

"This is why we are not able to export more to China. We request the ministry to take necessary steps to remove these obstacles."

According to the report of the Commercial Counsel of Bangladesh in China, the country imports large quantities of hides and skins from the United States, Brazil, Italy, Australia, Thailand and Korea. These skins are separated mechanically from carcasses and are larger in size. Chinese buyers consider importing such leather as more profitable.

False hopes for food

Exports of crabs and eel to China resumed in July after the ban was lifted.

For Bangladeshi exporters, this was an important moment as the country earns around $50 million a year by exporting these two products.

The duty-free access further raised hopes of boosting sales by exporting to the country of 1.5 billion people. Again, this boost has been falsely based.

Furthermore, the export of various agricultural products and frozen food products remains suspended due to failure to ensure standards.

According to the embassy, the export of Bangladesh's edible aquatic animals to the Chinese market was suspended for one year from June 2020 due to non-compliance with Chinese standards and health certificate complications. This hampered Bangladesh's export earnings of more than $50 million.

Since July last year, six listed companies in Bangladesh have started exporting crabs and eel on a limited basis, while eight more companies are waiting to be listed.

According to the embassy report, China has been cautious in importing food products because of Covid-19. This trend is especially evident in the case of imports of frozen food products.

Since January, online registration of Chinese customs has been made mandatory for 18 types of food exporters. Of these, only two products (Sesame and Sesame Oil) are being exported from Bangladesh so far.

Last July, the embassy sent a letter to the Chinese customs authorities asking for export facilities for six agricultural products from Bangladesh, including mango, jackfruit, and guava and potato paste. The risk analysis has been sent to the Chinese customs authorities and there are hopes the exports will begin once the products are approved.

Al Mamun Mridha, acting general secretary of the Bangladesh-China Chamber of Commerce and Industry, told TBS that Bangladesh needs to undertake a holistic approach to take advantage of the duty-free facility, but so far the government hasn't taken any initiative.

Mridha, also managing director of Mridha Business Limited, an exporter of shrimp to China, said developing countries are taking various initiatives, including organising single country fairs, to increase exports to China.

"I have asked the Ministry of Commerce for assistance in showcasing Bangladeshi products in China throughout the year. The Bangladesh government needs to take various initiatives to increase exports to China," he said.

Recommendations

The Bangladesh Embassy in Beijing has recommended the appointment of dealers or agents in China and aggressive marketing to increase the export of high quality products of Bangladesh, including leather products.

It said local Chinese companies are constantly competing with foreign and multinational companies, but Bangladeshi companies were lagging behind in this regard.

It also said that the well-known brands of Bangladesh were missing in action, as they had no agents or dealers in China. Plus, it was not possible to capture the Chinese market with moderate quality products or those without advanced packaging.

"Bangladesh hasn't generated a brand image among the consumers of China. In order to enhance the brand image, the big brands of Bangladesh need to open their outlets and offices in China and invest in marketing, promotion, advertisement, cultural exchange, both online and onsite," said the embassy report.

It further said that the demand for world class branded products in China is increasing day by day. There are no outlets or sales of Bangladeshi brands in China. Therefore, by setting up outlets of high quality leather goods and footwear brands of Bangladesh in China, the opportunities for export of leather products can be further increased through marketing, promotion and advertisement through agents.

In addition, the embassy has recommended that urgent steps be taken to arrange visas for Bangladeshi businessmen to China.