Exporting Rubber products to China

The manufacture of rubber based products such as industrial tyres, tubes, auto parts and components has been a part of Sri Lanka’s economy since the early 1930’s. As one of the largest rubber producing countries, Sri Lanka produces different types, forms and grades of rubber as well as rubber based products for export markets.

China accounted 0.45% of total exports from Sri Lanka to the world, but on the current trend it’s optimistic that China will increase the potential items of exports from Sri Lanka such as rubber products, tea, spices and confectioneries and seafood. China’s demand for rubber was expected to rise 8.5 % tonnes in 2010 to reflect strong growth in the country’s auto sector. The development of the auto industry is the main driver for the development of market for rubber products in China. The development of highway construction and transportation industry will drive the demand for tyres, engineering rubber products and other rubber products.

China consumes 16% of the world’s natural rubber. China has already become the world’s largest rubber consumption than any other country, estimated statistics illustrate China’s top rubber consumer’s position will not be shaken in the period ahead. In recent years, the world’s major rubber companies such as Goodyear, Bridgestone, Michelin and other tire companies have entered China, mass production of export products.

As the emerging economic super power, China led solid foundation for the exporters of rubber products by creating potential market opportunities due to its sustained high growth in exports of rubber. Many opportunities are available on improving trade with China considering the strength of the cordial relationship maintained between the two countries by continuous dialogue and trade agreements on mutual understanding.

It is reasonably appropriate to commend the trade relationship between the two countries considering the fact its historical relationship and the monumental development in China who will indisputably become the giant in trade & industry during this century. China’s membership of Asia Pacific Trade Agreement (APTA) would provide Sri Lanka access to one of the largest markets in the world. It was becoming more important as it gave Sri Lankan exporters access to the emerging giant economies in the world such as China, India and South Korea.

Rates of utilization of key trade deals such as the Asia Pacific Trade Agreement (APTA) and South Asia Free Trade Agreement (SAFTA) were low by Sri Lankan rubber exporters. It might be due to exporters are not obtaining certificates of origin from the department of commerce, exporters are not aware of the Free Trade Agreements (FTA) or the importer is not presenting it and getting duty concessions. It’s important to improve exports to China because the potential market for the rubber based products is enormous. Sri Lankan exporters should make aware of the preferential trade terms between China and Sri Lanka and utilize them in the best possible way to develop the export of rubber products.

Recently, Sri Lankan Government has used trade policies which would further their foreign policy objectives such as building strong relations with China. Despite Sri Lanka rubber industry being adversely affected by this world crisis, Sri Lanka was able to recover the lost market share and offer its natural rubber at a highly competitive rate under these trade agreements. China commenced import of rubber from Sri Lanka in 1951 even before agreements became effective. China extended a remarkable sense of generosity to the people of Sri Lanka in becoming the principal importer of rubber from Sri Lanka.

Although exports under APTA have grown, it was still only about 50 million dollars worth of goods to China, Korea, India and Bangladesh with about 1,800 certificates of origin issued by the commerce department. Natural rubber and rubber products are one of the main products exported under South Asia Preferential Trading Agreement (SAPTA) and Asia Pacific Trade Agreement (APTA). Under SAPTA also total Sri Lankan exports remains modest. While the Free Trade Agreements do not eliminate import tariffs on rubber, it would facilitate to ensure stable cost and supply for China suppliers. The agreement can encourage Sri Lankan exporters to set up distribution offices in China and sell directly to downstream manufacturers in the country.

Southeast Asia is the largest source of rubber in the world, particularly Indonesia, Thailand, Vietnam and Malaysia. All of these countries are huge competitors from the Sri Lankan perspective. The quality of output from the region is good and stable as well. China, on the other hand, is the largest global manufacturer of tires and China requires at least 60% of natural rubber used for the industry is currently sourced overseas. There would be a potential market not only for rubber products but also for natural rubber for the exporters of Sri Lanka. China's rubber market has maintained rapid consumption growth and booming growth patterns remains unchanged.

If Sri Lankan rubber producers seek the markets available in the world such as China and build international competitiveness in the industrial rubber products, it would help Sri Lanka to raise national income and create jobs in the particular sector. Rubber industry helps to utilize underemployed labour resources because it needs intensive labour resource and it is also kind of forest rehabilitation. Sri Lanka could shift from exporting of long lived forest products to relatively short lived forest products such as rubber.

Sri Lankan rubber products manufacturing industry could achieve remarkable progress with the use of novel technology and sophisticated production facilities. In tandem with the increase in rubber consumption in China, the corresponding increase in the volume and value of exported rubber products has grown significantly. Factors of rapid growth of China’s rubber consumption

* Rapid economic expansion As China is at present stage of heavy industrialization there’s a vast need of rubber based products for the appliance manufacturers, automobile companies and various other industries. Major economic indicators such as Gross Domestic Product (GDP), Industrial Production annual growth rate, Fixed Asset Investment Growth Rate and annual growth rate of China demonstrate the potential opportunities available in China. * Automakers have been strong. There’s a rapid growth in vehicle production with the improvement of people’s income levels, middle class expansion of automobile consumption.

* Dramatic increase in the road traffic Expansion of the economic output, the acceleration of urbanization, domestic and foreign trade and enhanced standard of living has increased the road traffic significantly in China. Considerable increase in road traffic is a direct stimulus to the major rubber product, industrial tyres.

RECOMMENDATIONS AND CONCLUTION 1. It ‘s necessary for private sector to develop and add more value on their rubber based products so as to improve their competitiveness in the Chinese markets as well as to make the best use from the abundant natural rubber in Sri Lanka. * In order to improve their competitiveness, producers of rubber products should develop and enhance their human resources skills, improve their production process to be more efficient and produce higher quality rubber products.

* In addition, Sri Lankan firms should focus more attention on research and development (R&D) to enhance and upgrade their products to be a higher quality in order to meet product standards and requirements in China. * The most important fact is that producers, suppliers and related institutes (Research Institutes, Testing laboratories and so on) should hold hands to form a cluster in order to help and support each other in the integrated supply chain.

2. To improve the quality of rubber products to export to China, the producers should study and possess good understanding on China’s compulsory standards and recommended standards. 3. Before exporting to China, the exporters should study and have a good understanding of the current situation in the Chinese rubber markets, the transportation and logistics system in China, regulations and other related policies of the Chinese Government and China’s commitment in the WTO as well as China’s FTA agreements with Sri Lanka.

4. Be cautious of selecting business or trade partners, and select one with potential and credibility. The exporters should emphasize on building close relationships with their Chinese partner to allow for smooth business operations. Connections are one of the most important business customs in China and other social and cultural aspects include joining a meal together and gift giving using two hands as it demonstrates sincerity and intention between two parties.

The system of Chinese networking is heavily focused on personal relationships. 5. The Government of Sri Lanka should encourage public and private sector to add more value on natural rubber, which are abundant in Sri Lanka in order to produce processed rubber products by financially supporting the rubber industry, providing technical and other assistance, developing the human resources, conducting more researches on rubber products as well as encouraging rubber producers to improve the quality of Sri Lankan rubber products to meet the required standards in foreign markets, particularly in China and other foreign countries.

6. The Sri Lankan Government should financially support and establish the research and testing laboratories as well as Sri Lankan researchers and specialists to improve the production processes and upgrade higher standards of Sri Lankan products, including the equipment, machinery and innovation to produce new hi end products. 7. When taking into consideration fundamental factors such as size of economy, size of population and size of domestic market, it seems that Sri Lanka is not in a position to compete with China. Therefore, its necessary to adapt strategic approaches to co exist with China, particularly to be part of China’s economic growth rather than to explicitly compete with China.

Therefore, we suggest the Sri Lankan Government to implement the “Rise with the Dragon” strategy, in terms of trade and investment in order to be part of China’s production and consumption processes. The export of rubber products to China would be economic growth driven international business to Sri Lanka. As Rubber fall under the main export categories of Sri Lanka, we have a potential of developing the quality of rubber products and there’s a vast opportunity exists in China for Sri Lankan Rubber Products.