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Exporting to China? What Thai SMEs need to know

Global trade growth has been slack in recent years, mainly because of the slowdown in giant economies such as China, the European Union and the United States. Slower growth is widely perceived as the "new normal", and Thailand is no exception. The country's exports, the main engine of GDP growth, have also been sluggish. After double-digit annual expansion every year from 2003-11 (except 2009 after fallout from the subprime crisis), Thai exports slowed sharply and actually contracted in value for three years from 2013-15 before staging a modest revival last year.

China, as our main trade partner, has a trade situation similar to ours, mainly due to the Chinese government's policies for reducing domestic overcapacity and shifting its economic structure to a service-based economy. Historically, Thailand has had a tight relationship with China in aspects of trade and social relations since Beijing first adopted its open-door policy back in 1978. Bilateral trade between the two countries has grown significantly in the last 15 years, with a compound annual growth rate (CAGR) of 14.5% between 2002 and 2016.

Socially, Thais of Chinese origin have assimilated well into Thai society and culture, and their good business acumen and relationship with the land of their ancestors has helped contribute greatly to high trade growth with China.

Small and medium enterprises (SMEs), while playing a crucial role in the Thai economy, still play only a small role in national exports. Overseas shipments by SMEs accounted for only 24.4% of total exports in May 2017, with a high dependence on Asean markets.

The Department of International Trade Promotion (DITP) has been working hard to help Thai SME exporters go global by increasing their readiness and organising roadshows. The latest successful event was Thaifex – World of Food Asia, Asean's largest food and beverage trade show held in early June. The event attracted 55,111 visitors and representatives from 130 countries, a 30% increase from 2016, and is seen as a great way to promote Thai SMEs in the food business and make Thailand the innovative and sustainable kitchen of the world.

With the highest export growth (8.5% year-to-date as of May 31), the Chinese market for food has high potential for Thai entrepreneurs. Thai players have unbeatable advantages of quality and affordable raw materials as well as worldwide recognition of Thai food. These are the main strengths that enhance the country's competitiveness. For example, our best-selling products in China are fresh and processed fruits such as durians, coconuts and more. Therefore, a great opportunity is here to be grabbed by Thai exporters, particularly SMEs.

However, challenges always come with opportunities, as SMEs naturally have a limited ability to access resources such as market data, sales channels and funding. Many SMEs are well aware of the great opportunities that exist but they have no idea where and how to start. Before getting started, it is important to know basic information about Chinese import procedures, including rules and regulations, such as prohibited, restricted and permitted import products, customs procedures and document preparation (see full details at www.thaibizchina.com).

Furthermore, it is highly recommended that beginners contact reliable shipping companies that can help sort things out from beginning to end. They can be found through the Customs Broker and Transportation Association of Thailand (CTAT).

Exporting pre-packaged food to China offers a good illustration. Exporters must contact the right state agencies with control over food standards and safety, such as the China Food and Drug Administration (CFDA), the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), and the Certification and Accreditation Administration (CNCA). The process starts from import licence registration and proceeds to import document preparation, standard quality checks, and goods release. It is worth noting that there are Thai consulate offices located in main business cities such as Shanghai, Chengdu and Guangzhou, which help facilitate Thai investors and traders (see full details and contacts on www.ditp.go.th).

Thai exporters looking to ship to China must determine whether or not their products are prohibited, permitted, or quota-restricted. Then, they must know the HS Code for each export product to determine what types of import documentation and criteria apply to the product (HS stands for Harmonised System, an internationally standardised system of names and numbers to classify traded products).

Due to complicated import procedures and language barriers, some entrepreneurs might find Chinese partners helpful in establishing successful businesses. Thai consulate offices can help business operators that want to find partners.

Another thing that Thai traders should not overlook is the rising importance of using renminbi for trade transactions. Using renminbi is a good option for traders who wish to diversify the risk of using US dollars or euros, which are normally more volatile than the Chinese currency.

Moreover, some Chinese counterparties might find renminbi less costly than other currencies, possibly giving Thai traders more bargaining power. Chinese traders in China are required to register with the RMB Cross-border Payment Management Information System (RCPMIS) before using renminbi for international transactions.

At present, the large banks in Thailand have comprehensive renminbi services, including foreign currency deposit (FCD) accounts, foreign exchange, remittance, trade finance and currency exchange. To minimise currency risk, it is strongly recommended that Thai traders take advantage of forward contracts to ensure revenue streams and manage future costs. For those with both payments and receipts in renminbi, it is better to have an FCD account for a natural hedge and fee-saving purposes.

EIC, a unit of Siam Commercial Bank Public Company Limited, offers in-depth macroeconomic outlook and sectoral impact analyses. For more information, please visit www.scbeic.com or contact eic@scb.co.th

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