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News from China
Escalation of US-China bilateral tariffs to shave off US$1t from US GDP in 10 years: study
19th March 2019
An escalation of US-China bilateral tariffs will shave off US$1 trillion from the US economy in a decade and inflict a particular damage on the information and communications technology (ICT) sector, according to a recent study released by the US Chamber of Commerce.
"Escalation of bilateral tariffs results in lower GDP, lower employment, lower investment, and lower trade flows for the United States," said the study titled "Assessing the Costs of Tariffs on the US ICT Industry."
The collaborative work of the chamber and the research firm Rhodium Group was published on Friday. It found that the tariff measures would cost the US GDP from US$45 billion to US$60 billion in the first year following the imposition, and the figure grows to range from US$89 billion to US$125 billion annually five years later.
Cumulatively, the study said, the US economy stands to come up US$1 trillion short of its baseline potential within 10 years of tariff implementation. The US GDP in 2018 was approximately US$20.5 trillion.
Tariffs are also expected to "shave up to one-third of a percentage point" in total factor productivity from real US GDP growth, "threatening a key channel for transmission of the benefits of an open ICT sector to the economy," said the study.
Furthermore, the Chamber contends that US tariffs on Chinese goods linked to Beijing's high-tech industrial policies "would not result in meaningful onshoring of US ICT production." It said US domestic ICT production must meet a 3 to 4 percent annual rise in demand as higher prices lead to reduced imports.
ICT manufacturing, the study said, is one of the industries that are built on globalized trade and production networks. These industries, according to the study, "are most exposed to negative impacts."
Due to the tariffs, US ICT goods exports would reduce by 14.2 percent to 20 percent in the five years ahead, the study said, adding that the country's ICT imports would fall by 9 percent to 10 percent during the same period.
The study said higher US import tariffs would not only "disproportionately hit US manufacturers who rely on lower-cost inputs shipped from China," but also compel ICT-related businesses to reroute global supply chains to regional supply chains. The options, the study suggests, are limited given the uneven spread of ICT merchandise production capacity globally.
"In all scenarios, ICT merchandise production falls in China and grows in Canada and Mexico," the study said. "While East Asian countries would experience a boost in ICT merchandise production, other Asian countries see lower-than-baseline output."
The tariffs' impact on the US ICT services sector, albeit insignificant for the time being, "grows more severe over time and equates to a significant missed opportunity," the study said.
"Because both the United States and China are highly integrated into global value chains -- and are the most integrated in ICT industries -- they stand to lose the most in investment, trade, and welfare from the imposition of bilateral tariffs," said the study.
The study predicts that global growth will be US$151.4 billion, or 0.2 percent, lower than projected in 2025 if US tariffs on Chinese exports worth US$200 billion are increased to 25 percent and China retaliates.
Source: Shanghai Daily, March 19, 2019
Henkel: the new foreign investment law positive for future growth
18th March 2019

 Q: What do you think of the new Foreign Investment Law that will be adopted this year? 

A: The stated objective of the Foreign Investment Law is to improve market access, IP protection and treatment of foreign investors, thus further opening up the China market and creating a healthier competitive business environment with new opportunities for multinational companies such as Henkel.
As one of our top three markets globally, China’s continuing opening-up as well as its rapidly developing manufacturing sector and growing middle-class are driving demand for Henkel’s products and technologies, enabling us to diversify our portfolio and extend further our reach to customers and consumers.
We are happy to see the Foreign Investment Law being realized this year and look forward to further opening-up and deeper market reforms.
Q: 2019 marks the 70th anniversary of the People’s Republic of China. What about Henkel’s biggest accomplishment thus far?
A: China’s rapid development over the past 40 years has amazed the world, with huge advances in a range of sectors from manufacturing to consumer electronics, and automotive industries. What particularly impresses me now is China’s rise as a leading player in digitalization.
Since entering the market more than 30 years ago, Henkel has grown together with China, building a business of significant size. We have around 5,000 employees at 25 sites across China, delivering advanced solutions to support industrial upgrading. We are recognized as the market leader in the adhesives industry and an innovation leader in the consumer goods industry.
China is one of Henkel’s top three global markets and will continue to be our priority.
Q: How do you look upon China's economic moderation?
A: China is shifting its focus to high-quality growth, which will require further industrial upgrading, innovation and sustainable development. We are confident that our China strategy is aligned to support the government’s economic priorities.
As part of Henkel’s strategy, we are actively shaping our future by increasing investment by around 300 million euros per year (US$340 million) across the globe in products, technologies and innovation, and China will be one of the focused markets. We are driving digital transformation and leveraging Industry 4.0 across the supply chain. China is also prioritizing sustainable growth and Henkel, as a leader in sustainability, is doing its part by rethinking plastics and packaging and leveraging high-performing solutions in strategic emerging industries such as electric vehicles and solar.
Q: China is encouraging high-quality manufacturing and technological innovation. How does Henkel's strategy capitalize on this transition?
A: Chinese companies have greatly contributed to high-quality manufacturing and technological innovation in recent decades. As a recognition of the country’s achievements, last year China gained a Top 20 spot on the Global Innovation Index for the first time ever.
As a company, we see collaboration as fundamental to accelerating innovation. Inside Henkel we encourage knowledge sharing and collaboration across business teams and R&D centers to develop solutions for our customers. Externally, we co-create innovations with customers and through our broad network of experts. We are thrilled to see more and more Chinese partners and customers investing in long-term growth by tapping into the power of innovation, and we look forward to more collaborations and partnerships to drive technological advancement in China.
Q: What do you think of the government’s ongoing efforts to improve administrative environment?
A: In light of the current challenges within the global economy, such measures will significantly streamline working processes, reduce costs and energize the market.
For multinationals like Henkel, further simplifying administrative processes and beneficial tax policies will increase market openness, enabling us to deliver more with lower cost and higher efficiency. Since entering China, the country’s policies and development have played a critical role in our development. Looking forward, we hope to give back by contributing more to China’s industrial upgrading and future growth and prosperity.
Source: Shanghai Daily, March 18, 2019
China adopts foreign investment law
15th March 2019

 China's national legislature on Friday passed the foreign investment law, a landmark legislation that will provide stronger protection and a better business environment for overseas investors.

At around 9 a.m. Friday, an overwhelming majority of the deputies voted in favor of it at the closing meeting of the second session of the 13th National People's Congress. The law will become effective on January 1, 2020.
With unified provisions for the entry, promotion, protection, and management of foreign investment, it is a new and fundamental law for foreign investment in China.
It aims to improve the transparency of foreign investment policies and ensure that foreign-invested enterprises participate in market competition on an equal basis.
The state shall manage foreign investment according to the system of pre-establishment national treatment plus a negative list, the law stipulates.
Foreign-invested enterprises will equally enjoy government policies supporting enterprise development, and be able to participate in standard-setting on an equal footing and in government procurement through fair competition, according to the law.
The state shall protect the intellectual property rights of foreign investors and foreign-invested enterprises, it reads.
The law sends the signal of greater transparency, and will boost Chinese market's appeal to foreign capital, said Vivian Jiang, vice chair of Deloitte China.
With the new law, China will be able to better protect foreign investors' legitimate rights and interests, and create a law-based business environment that is internationalized and enabling.
After taking effect, the unified law will replace the three existing laws on Chinese-foreign equity joint ventures, wholly foreign-owned enterprises and Chinese-foreign contractual joint ventures.
The law on equity joint ventures was put into effect in 1979, soon after the country started to implement the reform and opening up policy. The latter two were enacted in the 1980s. Over the past decades, they have provided effective legal safeguards for foreign firms, but are no longer commensurate with the needs of reform and opening up in the new era.
By the end of 2018, about 960,000 foreign-invested enterprises had been set up in China, with the accumulated foreign direct investment exceeding 2.1 trillion U.S. dollars. Foreign direct investment into China has ranked first among developing countries for 27 consecutive years, according to the United Nations Conference on Trade and Development.
The new law shows China's will and determination to follow through with reform and opening up in a new historical context, said Wang Chen, vice chairman of the NPC Standing Committee. "It is a full testament to China's determination and confidence in opening wider to the outside world and promoting foreign investment in the new era."
"For foreign companies in China, I think everyone is waiting for the law to be passed, as it will create a level playing field," said Harley Seyedin, president of the American Chamber of Commerce in South China.
According to a survey of 240 companies by the chamber, the respondents plan to increase their reinvestment budgets from profits in China this year to an estimated total of 19.4 billion U.S. dollars, up nearly 40 percent from 2018.
"The law will give more people confidence in China," said Adam Dunnett, secretary general of the EU Chamber of Commerce in China.
Source: Shanghai Daily, March 15, 2019
China's industrial output expands 5.3% in Jan-Feb
14th March 2019

 China's industrial output expanded 5.3 percent year on year in the first two months, narrowing from 5.7 percent growth in December 2018, the National Bureau of Statistics said Thursday.

Deducting the Spring Festival factor, China's industrial output expanded 6.1 percent year on year in the first two months, according to the NBS.
The industrial production was generally stable in the first two months with fast growth in emerging industries and new products, the NBS said in a statement.
Production in strategic emerging industries expanded by 10.1 percent, 4.8 percentage points higher than the general industrial output growth.
The output of new energy vehicles saw a surge of 53.3 percent year on year during the period, while solar cell production rose by 13.5 percent, NBS data showed.
Industrial output, officially called industrial value added, is used to measure the activity of designated large enterprises with an annual turnover of at least 20 million yuan (US$3 million).
Source: Shanghai Daily, March 14, 2019

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