Home ›› 04 Dec 2021 ›› Opinion
We consider China one of our closest allies in industrial, economic, finance, military, and infrastructure development. Some believe Chinese investing in our country is part of Chinese diplomacy and try to give belittle China’s contribution. The business community needs to put such thoughts aside. What China is doing is that they are slowly shifting towards producing more high-end technological advanced products. According to experts, they are and will move their small industries to lesser developed nations including Bangladesh. Well, that is like striking gold in a sense. We must embrace such opportunities with open arms. At a recent webinar jointly organised by the Export Promotion Bureau (EPB) and Bangladesh China Chamber of Commerce & Industry (BCCCI), experts discussed the untapped potential of exports to China. The online programme further suggested that we are yet to understand the positive impact of our duty-free privileges given by China. China extended the duty-free market access for 97 per cent of Bangladeshi products effective from July 1, 2020. Still, the latter is yet to realise the potentials of the preferential treatment due to lack of a diversified product basket, readiness avail of the opportunities presented by the duty-free product list and disruption in the global supply chain due to the ongoing Covid pandemic.
Now let us focus our attention on imports from China. China has endured one of its worst power crises in decades since September due to thermal coal shortages and Beijing’s carbon emissions targets, which prompted the government to impose sudden electricity cuts to meet the goals. This move has triggered several changes in the world of trade. Beijing wishes to solve this emergency without harming the world economy. Reports in different media suggest that the Chinese government has ordered augmentation in coal production on an emergency basis. Regardless of how big the company is, all Chinese companies are ordered to follow this new regulation and adjust accordingly. In some provinces they Chinese manufactures can only operate from 1 day to 3 days per week. This agenda has come under scrutiny from the beginning, from the left, right, straight, and rear. Some Western experts are looking at this as a Chinese means of tackling the recent outbreak of Covid-19 in some of its cities. Others believe it is simply a counter strike to slow down the damages caused by the US sanctions. Again there are factors like how Australia has stopped exporting coal to China. Reports in different media outlets suggest that the Chinese government has decided to increase coal production on an emergency basis to counter that.
What does this change mean for Bangladeshi businesses? First of all, the price of the commodities that we import from China has already increased significantly. We should not complain about this price increase issue as this is not happening only for one particular country. Instead, it is happening all over the world. We should find solutions to minimise the cost and ensure that the prices do not increase too much. It might come as a shock to some, but there is a tendency among some Bangladeshi importers that they never speak about the profit margin. For example, the steel importers who used to sell, say, a tonne of their product at a price of, let us say 1 lakh taka, during the peak of the Covid-19 pandemic, and after the announcement of price hike, they were able to sell that same amount of product nearly at twice the price. The same thing is happening for most of the imported commodities.
One of the significant challenges that Bangladesh face is that there is no accurate market monitoring. It might come as a surprise, but dealers or wholesalers profit more than the exporters and importers combined, according to pertinent observers. It might sound ridiculous, but it’s an open secret that those who take upon the distributor’s role keep at least 15 per cent of the profit before it reaches the end-user.
At the moment, the lead time (production time) of the products will and have surged considerably. The best option for a solution is to take quick business decisions and place orders in time. The lead time or the production time for SKD (semi knock-down), CKD (complete knock-down) even finished products will take more time. For example, let us say that the production time for a particular product used to take 15 days previously. Currently, though, a Chinese company now might take up to a month or even more to produce the same product.
The whole situation will depend on how many days the factories will remain open or allowed to operate. The small Chinese companies are facing severe problems due to power shortage. To save the business or keep up the profit margin, small Bangladeshi importers will have to sell at a high price or bow down and start selling at lower prices. There have been reports from the market suggesting, big companies are increasing the line of credit among the dealers and wholesalers.
This particular situation might cause the quantity of the products to decline. Simply put, the Bangladeshi business community will have to adjust and decide about their profit margin. Yes, considering all the genuine aspects like higher lead time, increasing raw material prices will eventually result in the cost of the product going up.
Nonetheless, there has always been a tendency in our country that once the price of something increases, it hardly ever comes down. Another serious issue is the artificial dilation of prices. For example, if a product price has increased 2 taka, the merchants instantaneously start increasing that price to 10 taka. The typical mentality of some traders, especially importers of Bangladesh, is that product prices should be low with time and advancement of technology. However, that may not be the case all the time. We have to realise the present situation and act accordingly. For example, in the recent months, businesses with more information and good relations with Chinese suppliers placed their orders as soon as they heard about price hikes and limited power consumption of the Chinese companies. Those who didn’t follow the information or pay any heed despite their suppliers’ warnings now feel they missed out on the opportunity to receive goods at a competitive price. The authorities concerned here need to take bold steps to deal with such a situation. The Export Promotion Bureau, NBR, the port authority, all the trade bodies associated must find the solution together. They can approach specific ministries like the Ministry of Trade and Commerce and officially request to decrease the import duties of certain raw materials and commodities. Looking out for only the big manufacturers will only bring misery for the small importers and exporters.
The writer is Editorial Assistant at The Business Post
