China wary of exploitation

29 Aug, 2001 10:00 PM
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THERE was a desire for high quality wool products in China, however the safest way for small foreign companies wanting to do business there would be through supply chain arrangements.

This was the view of Esperance Wool Exporters executive director Wendy Duncan who recently travelled to China as part of her MBA studies at Curtin University.

In her subsequent report, she said supply chain arrangements would be preferable due to the risky business environment in China and the capital costs involved in going it alone or embarking in joint ventures.

Some of the risks included endemic corruption, that the government was having problems combatting, international property rights conventions not always being adhered to and violence sometimes used to take assets from foreign owners.

China's past victimisation and exploitation by foreigners had not been forgotten and was believed to be why some Chinese had little compunction in enriching themselves at the expense of foreigners.

China was also wary of exploitation by developed nations in joining the World Trade Organisation.

Mrs Duncan said "official" responses to inquiries about exporting wool to China were generally negative.

One response was that China already had a good wool growing industry that needed to be developed while the wool textile industry was also full.

She said the Chinese government preferred multinational companies because they could make significant contributions to infrastructure development and bring in advanced management expertise and high technology.

This was in line with their concern about long-term stability and success, as well as benefits being available for all taking part in the venture, not just management or the foreign partner.

Volkswagen was used as an example, with the company having made a loss in the first 10 years of its venture in China but remained committed to long-term gains.

The company now had an unassailable position in the Chinese motor vehicle market.

One Chinese textile company chairman interviewed said that his company was interested in buying more high quality wool from Australia but was restrained by a licence and quota system controlled by Beijing.

His company, keen to cut the cost of raw wool by bypassing the auction system, also placed greatest importance on staple strength and fibre diameter and wanted at least 50t shipments which would be difficult to supply, according to Mrs Duncan.

She said most Australian woolgrower groups could not match the demand from processing plants, which based their businesses on high throughput and small margins.

Mrs Duncan said that since the 1997 financial crises, the Chinese Government had been making it more difficult to import and was tightening controls on foreign currency exchange.

She said that in 1999, the Chinese Government set a target to eliminate one million obsolete wool spindles within three years.

Then in January 2001, State Economic Trade Commission vice minister Shi Wanpeng reiterated China's determination to restrict the development of further wool processing capacity and encourage mergers, acquisitions and upgrades of plant and machinery.

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