"China is taking over the world.” The statement, only a decade ago considered far-fetched, has become reality. In the last few years, Lebanon has grown more aware of China’s potential as a major trading partner, with the Asian country moving from fourth place in 2003 to second in 2007.
Lebanon’s trading story with the People’s Republic of China started in 1971 when both countries established diplomatic relations. Since then, the ties grew stronger, with visits of senior Lebanese officials like former Prime Minister Rafik Hariri and former Foreign Minister Fares Boueiz to China. On the other side, Lebanon has caught Chinese attention with deputy ministers of foreign affairs, transportation, trade and economic cooperation all visiting China.
Volume of trade up significantly
From such ties, numerous trade agreements have sprung, for example on investment protection and economic, trade and technological cooperation. According to the Chinese Embassy in Beirut, total trade volume between the two countries in 2001 stood at $238 million, almost 99% accounted for by Chinese exports. In the last few years, the volume of trade between Lebanon and China has risen significantly. Figures provided by Information International show the value of merchandise imported from China to have reached $751 million in 2006, and already $541 million in the first half of 2007, indicating a further surge.
The majority of Lebanese imports from China are electrical equipment and machinery, which account for 32% of the total import value, followed by textiles (17%), while plastic products accounted for around 5%. “Some 20% of total imported equipment in Lebanon comes from China,”said Information International’s Jawad Adra at a recent conference at Louaize Notre Dame University. He added that these figures may not accurately reflect trade relations between China and Lebanon, as real figures might further exceed values provided by Lebanese customs. “Traders are known to dress down invoice values of imported merchandise. In addition, they sometimes also resort to rerouting their merchandise to the Gulf before re-exporting it to Lebanon, in order to benefit from the Greater Arab Free Trade Area tax breaks.”
On the other hand, exports to China have been significantly lower. In July of 2007, they were estimated at merely $39 million, of which jewelry accounted for most sales. As Adra pointed out, “Today, Lebanese exports represent only 5% of total trade imports from China. This deficit can be attributed to our current poor economic situation.”
Today, China and Lebanon stand at opposite sides of the economic spectrum. China is the fourth-biggest global economy in terms of GDP — after the USA, Japan and Germany — and in 2008 it will jump to third place. Lebanon meanwhile is struggling to maintain its position as a lower middle income country.
According to Dr. Peter Bai, who attended the conference, the Chinese economy has moved away from its initial socialist organization. “In the recent period, China adopted a socialist market economy. This has translated into total trade balance of $1.76 trillion, of which exports account for $969 billion, hence leading to an export surplus of $177.5 billion.”
This shift provides Lebanon with numerous opportunities in China. The Asian country’s mere size and the world’s largest population — currently at 1.4 billion — make it into a giant-size market. It has been able to beef up its international position thanks to its resources, cheap labor, and a huge local consumer market.
FDI to promote national growth
According to Dr. Yang Hang, China has relied heavily on foreign direct investment (FDI) to promote its national growth, and is currently the fourth economy in terms of FDI. “To improve foreign investment and avoid the problem of double taxation, China has signed more than 90 agreements with many countries. Taxes applied to special economic zones are also significantly lower than in industrial cities along the shore, with tax levels varying between 3% to 15% in economic zones, against 3% to 24% in industrial cities,” he underlined. Industries where investment opportunities are ripe reside in the agricultural technology, energy, and telecommunication sectors. The country includes six special economic zones and 14 industrial cities on the shore. China has invested around $1.1 billion in the Arab region, with a focus on “light” industry and real estate. Exporters to China could expect tariffs of 12% with its accession to the World Trade Organization in 2001 the Asian country lowered its tax levels.
Fadi Aboud, President of the Association of Lebanese Industrialists, holds a skeptical view on the impact of exports to Asia on the Lebanese industrial sector. “As figures clearly show, exports to China are very minimal, and are mainly consisting of precious metal, gold and precious stones. The amounts are unsubstantial, and I do not see the future holding much hope.” He firmly believes that in the coming years China will become Lebanon’s No. 1 trading partner in terms of imports, attributing this state of affairs to Lebanon’s lax anti-dumping policy, which has badly damaged Lebanese low to medium-cost industries. “Turkey provides a good example of how to protect one’s economy,” he said, “as it has established a fixed price for goods it produces locally, which is applied on imports whatever the actual value, thus hiking up the value of imported merchandise and protecting local industries in specific sectors.” If Lebanon does not apply anti-dumping measures aligned with WTO standards, the industry’s current hemorrhage will continue.