Business moved on to the next level (generation). The business environment was just vulnerable. Production was accelerated with a view to picking up the market share that the failures left behind. The company that I work for is one of the more bullish ones. Competition and the ups and downs are facts of life, there to make us stronger. Be positive, hold on, and things will work out. This is the core value of Hongkongers.

 

In Shenzhen, the minimum wage will be raised effective 1st of February. As a result, we would see a better labour force and more quality workers who would be attracted to Shenzhen and result in a boost to our production capacity. Labour costs have increased year-by-year and accounted for more than 40% of the total ex-factory costs. I work for a traditional garment manufacturer which is labour intensive and low tech in nature. These types of traditional production are labeled as sunset industries. However, more than half of our sewing workers earned RMB50,000 last year.

 

Our factory is no different to those factories that have already closed down. We have the same sewing machines, same sources of fabrics and accessories, and manufacture for the similar brandname buyers. All of our factories and workers are actually making good money, better than the 'newer' industries.

 

This assumption, that certain types of manufactuirng are 'sunset industries' is worthy of vigorous analysis. I believe and it is my motto, that "yesterday is like fragrance, it is no more than a talking topic. We should get on with life and move faster and harder."  

 

A year before last, I took up a job to manage an 'old-fashioned' factory. Most of our sewing workers earned RMB20,000 that year. With this income package, it was tough to keep workers, let alone to recruit new ones. It was Mission Impossible! The more elderly employees worried about the factory's prospect and demanded the factory exercise discretionary duty in Labour Laws to redeem their length of service. Management disagreed and the conflicting view made the relationship between employer and employee very tense. Even worse, Customs Department came for an inspection. We were ordered to pay back the import tax and fined for the shortage of bonded goods. The company was downgraded to Category C by Customs. We lost most of our more capable employees.

 

I had experienced this type of adverse situation a few times, and it has been my career to try and turnaround such situations. I have actually found it enjoyable–if you are in this type of difficult environment, stay calm and ask yourself a fundamental question. Could the company re-gain competitiveness and become profitable again if ex-factory costs could be lowered by 20%?

 

If the answer is positive, then you have no reason to worry. Get on with it--re-engineer the company and operational model. If they see your intent, then your customers would be coming back for bargain hunting. Take a serious look at the different areas to spot inefficiency, wastage, recurring mistakes—you should be able to see the way to cost control, efficiency and eventually, competitiveness. It's all very simple, and it's all in the implementation! I wish you all the best for the new initiative.

 

In the past two years, I have run more than 50 seminars about good governance in Customs affairs. I always advocated the notion that bad material control and bad corporate governance are at the root of Customs affair management issues. Fix these issues in material control and you immediately realize a 5% savings from the elimination of wastage and cost control, and at the same time, put your Customs affairs back on track.

 

At these seminars, participants have been amazed that Customs inspections to a few of my factories had found no irregularities. The seminars not only prescribed how to manage Customs inspection situations, but also proved to them that good material control and corporate governance were simply the ultimate solution. It is not a game theory. Let's face it, Customs inspection is not a threat—it happens for real!

 

According to Customs statistics, around 70% of inspections have led to penalties. So I advise you to take the right approach. Be persistent in fixing your Customs affairs and you will be alright. You will land in the 'clean' 30%.

 

Please note that the National Safety Bureau has asked Customs to check enterprises importing or exporting chemical materials or products that might have safety hazards. This is a nationwide inspection and will cover large and small enterprises. So far, the standing order has been in execution for more than a month and will continue until the middle or even till the end of the year. No specific sample percentage has yet been announced, but it should be in the region of 20-40%. It has been reported that some enterprises were checked for glue or solvent.

 

Food processing or related enterprises, chemicals industry should be the target with a more than 40% chance of being checked. The scope of checking includes country of origin of the goods, supplier's qualification, validity of MSDS, past 3 year's import/export records and ledger. This Customs inspection does not aim at import tax for Customs Ledger imbalances. Enterprises should strengthen the management and control of such chemical materials or products. This Customs inspection is driven by the state with no money business involved or any leniencies allowed.

 

Last year, the most remarkable performance of Customs has been the efficiency of its inspections. Different Customs branches in Guangdong achieved record high efficiency and exceeded 5% checking of enterprises portfolio. This is far higher than the national average. The reason for this is that Customs have added resources for conducting inspections, and accountability system is down to the individual level. The other measure has been outsourcing Customs inspections to third party accounting or audit firms so that more Customs inspection resources are left available.

 

Disciplinary or legal proceedings on bribery and abuse of power have reached record highs. (Data is too sensitive to be disclosed here.) However, many enterprises linked to this kind of irregularities were tracked down. Cases of officers, high or middle rank, being reported and convicted for malpractice also reached record highs. Leveraging government officers' abuse of power is no more a reliable solution to non-statutory compliance. Enterprises should also stand up to their respective legal rights.

 

Last year, the growth rate of Customs BOM inspection has been the highest, growing by 140%. There is speculation that the Central government's fiscal position might not be too stable, and the budget for Customs inspections have increased drastically. (Budget information is too sensitive to be disclosed publicly.)

 

In addition, Customs will track down company mixing up Customs category and Customs Ledger when filing Customs declaration form. Customs has set up a computer-based program to analyse enterprise import/export data so that Customs officers can regulate enterprises' non-compliance to statutory duty.

 

In the past, customer-supply processing trade enterprises that applied to transform into wholly-owned processing trade enterprises, were usually exempted from Customs inspection. This practice was recently breached and many such transformation enterprises have experience their first ever Customs inspection.

 

In 2012, Customs intends to further increase public transparency. One major step is to open up the Customs Ledger database to enterprise through enhanced China ePort online services. This service used to be privileged to EDI and e-Customs Ledger end user enterprises, but now will be available to all. The objectives of this online service are:

 

1. Ensure data synchronization and integrity between Customs' and enterprise's Customs Ledger, Customs declaration and clearance information;

 

2. Enhance transparency and governance in Customs affairs of the enterprise;

 

3. Alert on the imbalance between Customs' and enterprise Customs Ledger to make timely rectification;

 

4. Alert the enterprise on the potential risk and hurdles when the Customs Ledger on filing for closure.

 

Customs will put in more efforts to track down the accuracy of import/export values so as to reduce the loss of import tax and increase the reliability of the Customs statistics.

 

Customs has made good progress in raising the service levels. One example is "Fully managed by local Customs Authority Scheme". The scheme was fully tested in Dongguan and Guangzhou. Enterprises with track record of US$30 mn value in export in last 12 months, good corporate governance, ready to transform to high value-added industry is qualified to apply for the scheme. Under the scheme, enterprises will enjoy the same Customs privilege as AA enterprises. Such as,

 

1. Depends on specific circumstances, enterprise can apply for or amend Customs BOM anytime before Customs Ledger is reconciled for closing. This privilege will reduce administration efforts, transaction costs and tackle the issue of structural Customs BOM shortage or overage, and effectively eliminate the possibility of Customs Ledger discrepancy.

 

2. In event of application for domestic sale of processing trade products, Customs would grant approval automatically. With the approval documentation, enterprise can enjoy 12 concessions or privilege. This particular provision can facilitate enterprise's initiative to capitalize the opportunity of growing domestic market.

 

"Fully managed by local Customs Authority Scheme" increases the efficiency of Customs declaration and clearance by 30%. The scheme is no different from the Shenzhen Customs clearance model that customs declaration does not need physical paperwork submission.

 

Those qualified for the application for "Fully managed by local Customs Authority Scheme" should apply as soon as practical to enhance the competitive advantage in logistics flow.