Protection No More

　　China’s traditional manufacturing industries are facing a desperate situation after the government slashed import taxes on some consumer goods， including skincare products and Western suits， by more than 50 percent on average from June 1. Ye Tan， a financial commentator， believes it’s bound to deal a heavy blow to domestic manufacturers reliant on low-price strategies. Excerpts of her arguments follow：

　　This round of tariff reduction is mainly for imports from traditional manufacturing industries. Taxes on Western-style suits and fur garments were reduced to 7 to 10 percent from 14 to 23 percent. Import tariffs on ankle-high boots and sports shoes were halved to 12 percent from 22 to 24 percent， while import taxes on diapers and skincare products dropped to 2 percent from 7.5 percent and 5 percent， respectively.

　　The tariff cut is evidence of the Chinese Government’s determination to adjust its economic structure toward one that is more consumption-based. However， it’s bound to deal a heavy blow to domestic traditional manufacturing products reliant on low-price strategies.

　　Although the number of products affected by the tariff cut accounts for only a small proportion of all imported goods， it’s a clear signal that the days ahead of the low-end manufacturing industries will get tougher.

　　China’s excessive capacity in low-end manufacturing industries is being gradually transferred to Southeast Asian and South Asian countries， and any policy change would determine the viability of those businesses. For instance， the average price for plastic shoes exported from China dropped 5.5 percent year on year to $2.3 a pair in April 2010， the lowest level since 2009. Those low-end manufacturing businesses used to count on tax rebates in the face of price declines. Now the tax rebate policy has been changed and import tariffs for foreign products have been lowered. Those businesses need to find a new way to survive.

　　But as painful as the process may be， it’s an opportunity to be reborn. Any traditional business that fails to catch up will be eliminated from the market， giving way to new businesses that are in possession of new technology and brand.

　　Slashing tariffs is part of China’s opening-up process. Since it’s an inevitable trend for the decline of China’s comparatively low-cost advantage， the country might as well open up the market wider to let indigenous businesses get used to severe competition with their foreign counterparts.

　　China levies three types of tariffs on imports from different countries - 90 percent tariff on imports from countries that have signed bilateral free-trade agreements (FTAs) with China， such as Switzerland and New Zealand， which will be gradually pared down to zero； most-favored-nation treatment for World Trade Organization (WTO) member countries exporting to China； ordinary tariffs for non-WTO member countries that haven’t signed FTAs with it. Take the electric cooker， for instance. The import tariff rate is 15 percent for most favored nations but ordinary tariffs for non-WTO members could go up to as high as 130 percent.

　　But tariffs can hardly protect industries doomed to decline. Exorbitant tariffs on imports have driven cash-rich Chinese to splurge during their overseas travel trips or to buy foreign products online through e-commerce platforms.

　　Another challenge faced by domestic manufacturing industries is the appreciation of the Chinese currency along its globalization process. Despite outcries from these manufacturing companies， it’s highly unlikely that China would let the yuan depreciate sharply for the survival of traditional manufacturing industries.

　　The manufacturing industry is mired in more difficulties than ever. Small changes can hardly make a difference. An all-round revolution in technology and branding is required to do the job. It’s a test for those businesses as well as the government.

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