A new EU directive is expected to affect US$56 billion worth of annual exports from more than 5,000 Chinese home appliance companies.

 

Small and medium-sized companies, which account for 30 percent of China's electronic product lines and already face pressure from multinational companies and larger domestic enterprises, are expected to feel the directive's effects first, warn experts.

 

At a forum themed on countermeasures to the EU's Restriction of Hazardous Substances (RoHS) directive held over the weekend in Qingdao in East China's Shangdong Province, Huang Jianzhong, a senior official from the Ministry of Information Industry (MII), said Chinese manufacturers needed to increase production standards to seize a bigger share of the world market.

 

"Safe, healthy and environmentally-friendly have become key qualities in the home appliance market," he said.

 

"As Chinese brands are gradually recognized on the world market, we ought to further optimize our production to take a bigger stake."

 

Under the new EU directive, which took effect on July 1, electronic products containing six hazardous substances will not be allowed on the EU market.

 

The regulation allows a maximum concentration of only 0.1 percent by weight of environmentally hazardous substances such as lead and mercury, which are necessary in the production of electrical products.

 

Guangzhou AC Panasonic recently announced that a quarter of its 208 suppliers, which provide a total of 7,268 different assembly parts, would be unable to meet the standards imposed by the EU directives. Unless they can upgrade their technologies in time, these suppliers stand to lose their market share.

 

"Manufacturers have to both upgrade their own production equipment and ensure the new standards are met by their parts suppliers, which will bring an average rise of 10 percent in production costs," said Liu Wanshan, an official with the State Administration of Quality Supervision, Inspection and Quarantine.

 

The increased costs will bring many challenges to Chinese companies, which largely owe their success on the international market to low-price strategies.

 

"Chinese enterprises must substitute these substances with environmentally friendly materials in their exports to the EU," Liu added.

 

"The trend towards green products is not a fashion anymore and the pressure to adhere to environmentally friendly standards is rapidly increasing and getting more and more sophisticated and complicated," said Oliver Butler, vice-president of France's Bureau Veritas, a global leader in conformity assessment for quality, health, safety, environment and social responsibility.

 

"It will become the hot topic for all electrical and electronics manufacturers. We strongly recommend companies establish a profound RoHS management system.

 

"With improved management and control in the whole production chain, including raw materials, design, production, packaging and even distribution, their products can meet the RoHS directive much easier," Butler added.

 

Statistics from China's Ministry of Commerce show that joint ventures and large domestic enterprises produce 75 percent of the country's electronics exports.

 

Since many of these companies have already begun integrating environmental and health considerations into their operations, they will have an easier time complying.

 

Many firms, including Sony, Haier, Hisense and TCL, are already making full preparations for the new directives.

 

On the legislative side, China has begun participating in international standards discussions. To date, it has developed 6,500 national product standards in line with international standards, or 40 percent of the national total.

 

"Such regulations will have a growing effect on our export trade, and the participation will have our voices heard globally," said MII official Huang Jianzhong.

 

Moreover, following the EU's RoHS directive, the Chinese version of RoHS, jointly regulated by seven ministries, is to take effect on March 1 next year.

 

The regulation is likely to be broader in scope and even more comprehensive than the EU directive.

 

It will apply to every participant in the electronics supply chain, from manufacturers and distributors to importers and retailers. The new law will require every product to be tested before it is allowed entry into China, according to Huang.

 

"The Chinese version of RoHS will work as a barrier to foreign products that have been turned down by the EU market but manufacturers hope to dump into our country.

 

"It will provide protection for mainland consumers' benefits as well, as it will ban companies from selling quality products to the EU, while marketing inferior ones on the domestic market," Huang continued.

 

"Despite current costs increasing and exports decreasing, in the long-run the new EU electronics standards will play an active role in encouraging Chinese companies to pursue more sustainable product development," said Wang Ning, vice-president of Chinese Electronic Chamber of Commerce.

 

(China Daily July 11, 2006)