Buyers sourcing in China can expect marginally shorter delivery lead times and perhaps more competitive prices from suppliers as fresh government measures to stimulate growth take effect.
Announced by the State Council on July 24, 2013, the measures are targeted at SMEs, which are most impacted by the slowdown in manufacturing and exports. Dubbed as "mini stimulus" for the tight focus, the package has a three-prong approach. The state-owned Xinhua news agency said two of these measures are "designed to provide small businesses with a badly needed liquidity lifeline."
Under the first measure, micro firms, or businesses making less than 20,000 yuan ($3,260) monthly in sales, will be exempt from value-added tax starting August 2013. About 6 million companies will be covered by the tax break, which aims to encourage hiring among these businesses, consequently reinvigorating production.
The government is also pushing for an increase in lending to exporters and a steadier yuan. With these in place, buyers will find their suppliers more open to accepting orders with delivery lead times than can reach 60 or 90 days.
Most China exporters currently prefer smaller volume and simpler products that can be shipped out within 30 days to stay ahead of the appreciating currency and keep margins healthy.
"A stable, if not slightly depreciated, yuan is important as this allows exporters to offer more favorable ordering and delivery terms," said Cherry Zhang, export manager of Autoline International Trading Co. Ltd.
Backed by better or additional funding, suppliers may also be more amenable to accepting buyer-oriented payment terms such as L/C. At present, bank transfer is the most favored method among China exporters. TT in particular is popular among SMEs with operations that rely heavily on a steady inflow of funds.
For the second key measure, the government said it will reduce exports red tape by streamlining customs inspections of goods. Administrative costs for exporting companies will also be lowered via the temporary cancellation of inspection fees for commodities exports.
Easier customs clearance and simplified export formalities are in line with the Paperless Customs Clearance Pilot Reform launched August 1, 2012 by China's General Administration of Customs. The program currently applies to certain activities in 12 customs ports, including Beijing, Tianjin, Shanghai, Nanjing and Hangzhou Customs.
Lastly, the government said it will accelerate railway construction and investment, with construction primarily in the western and mostly rural areas in China. A railway investment fund that aims to attract private investment was also announced. The government said it will also issue new bonds to help fund railway construction as well.
Xinhua reported that this measure opens completely China's railway construction market. "Multiple reforms are being made in the sector following the separation of the Ministry of Railways in March into administrative and commercial arms, a move that was made to reduce bureaucracy and improve efficiency."
The growth stimulus measures were announced amid slowing exports.
Export value between January and March 2013 rose 18 percent from the same period in 2012. YoY second quarter figures, however, show just 3.8 percent growth.
HSBC's initial Purchasing Manager's Index for July fell for a third straight month to an 11-month low of 47.7 from 48.2 in June.
China's economic growth in April to June also slowed to 7.5 percent YoY from 7.7 percent in the first quarter.
Nevertheless, suppliers appear to be more confident of export growth in the second half of 2013 than they were a year ago. This is according to a survey of 500 exporters by Global Sources.
The survey shows manufacturers continue to focus on emerging markets, a move that has been supported and backed by the China government in the form of subsidies.
Some exporters, however, noted that the annual export volume threshold for the subsidy is now higher. They suggested authorities should increase the subsidy while lowering the threshold in order to further support exports to emerging markets.
All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.