The Chinese furniture industry should be able to withstand the pressures of foreign competition when furniture import tariffs end next year as a result of World Trade Organization requirements, industry analysts say.

The tariff cancellation is in accordance with China's commitment as a member of the WTO.

But competition in higher-end products will likely become more fierce, according to Xu Meiqi, a professor in Nanjing Forestry University. Most of China's furniture is in low- and middle-end products, and the lack of tariffs will propel foreign furniture manufacturers into China's luxury furniture market.

In addition, foreign rivals may impair China's competitiveness by contracting furniture manufacturing and management here.

Many European furniture companies are setting up factories on the mainland, taking advantage of cheap Chinese labor costs. That has made them more competitive in terms of design, quality and pricing.

B&Q Property Development Co Ltd is one such example. The world's third largest building materials shopping mall has 21 chain stores in China, and has become a bellwether in the industry. It plans to further magnify its presence by setting up another 17 stores next year.

"By means of Original Equipment Manufacturing, most of our products have achieved local manufacturing." said Dan Wen, general manager of B&Q.

Quite a number of Chinese also think highly of imported furniture.

Many people with medium-range incomes or above prefer such furniture.

"I like foreign furniture even if the prices are a bit more expensive than homemade pieces," said Meng, a lawyer at the Beijing Seafront Law Office. "Generally, the quality of foreign furniture is more reliable while the designs are more fashionable."

In any case, China still has a competitive edge due to its cheap labor costs and low investment in R&D, said Yu Yi, a manager with the China Foreign Trade Guangzhou Exhibition Corporation. The corporation is sponsoring the Guangzhou International Furniture Expo, the largest one in Asia.

Moreover, as the tariff was gradually lowered from over 10 percent since 2001, China's manufacturers have had enough time to prepare for the imminent cancellation, Yu added.

"The zero tariff will have no influence on my business," said Liu, a manager of Beijing Jinghuilong Furniture Co. "Thanks to low costs, our price of the same kinds of products is still much more attractive than our foreign rivals."

China's furniture industry has seen rapid growth in exports over the past three years, ballooning from 10.7 billion yuan (US$1.29 billion) in 1997 to 60.8 billion yuan (US$7.33 billion) last year.

Jia Qingwen, director of the China National Furniture Association, predicts exports this year are expected to exceed 74.7 billion yuan (US$9 billion), making China the second largest global furniture exporter.

Customs' statistics for the first half year also show a brisk business in furniture. China imported 3.8 billion yuan (US$460 million) worth of such goods, a 50.9 percent increase compared to the same period last year.

However, China's furniture industry has been dogged by US dumping charges.

The United States imposed a preliminary tariff of as much as 198 percent on some imported Chinese wooden bedroom furniture earlier this year, resulting in a loss of 3.3 billion yuan (US$400 million) for Chinese.

Achilles' heel

Market economy status is the Achilles' heel for Chinese manufacturers suffering from dumping charges, according to Cao Yingchao, an official with the China National Furniture Association.

The US Government does not take Chinese costs as proof when calculating dumping margins because it views China as a non-market economy. They apply statistics from other countries where costs are higher, which easily leads to conclusions of dumping.

Diversifying export destinations and optimizing product structures help strengthen Chinese furniture manufacturers' competitiveness, said Jia Qingwen.

About 52 percent of China's furniture exports target the United States, which leaves the industry at the mercy of the ups and downs of that market. Therefore, Chinese furniture manufacturers should endeavor to diversity their businesses by tapping into additional overseas markets.

And since most of China's furniture products fall into the low- and middle-range market, price wars can take a particularly unmerciful toll, triggering a vicious backlash. Taking effort to develop higher-end products unique to the Chinese culture should ease such pressures.

(China Daily November 19, 2004)