A Research On The Growing Dairy Products Trade Between EU And China:Reasons And Potential

In last few decades dairy industry of China has been rapidly developing and has gradually become one of the supporting industries of the Chinese economy.However,the industry is still facing some problems.For example,there is unbalance between supply and demand,lack of technical innovation ability,safety control is not strict enough,etc.Those are only few reasons why China is a major importer of dairy products.Currently,the major dairy importer of China is New Zealand.However,since the reform and opening up,China has signed many different trade agreements with ASEAN countries,Australia,European Union and others.Probably the most important agreement is a Free trade agreement which can also greatly influence China‘s dairy industrial structure.The paper focuses on the analysis of the present situation and development trend of trade between EU and China.Gravity model is applied to analyze an influence on dairy exports from EU to China of possibly changing import tariffs in the future.It is followed by an analysis of coping strategies and proposals for a better trend of development.The most important conclusions are the following:1)Even though China‘s dairy market maintains a rapid and stable growth and has a great development potential with its dairy products added value continuously increasing,China‘s local dairy market dairy supply and demand is unbalanced and its technological innovation capacity is deficient,safety control is not strict enough.Meanwhile,EU can offer high quality dairy products for a reasonable price.Therefore,conditions for EU dairy exports to China and its further growth are favorable.2)After analysing EU – China‘s dairy trade in two last decades conclusion can be drawn that the following internal and external reasons have most influence on the dairy products trade exports from EU to China: EU milk quota abolition;unstable milk prices in the European Union;2014 Russian food embargo;Chinese people changing life quality and milk consumption pattern;Chinese favorable dairy import conditions;Chinese Melamine scandal and its other milk quality issues;EU brand name importance.3)China has a great dairy products trade deficit and its degree of trade dependence is gradually increasing.There is a great growth potential for the EU dairy exports to China.However,it will remain competitive mainly because of the following reasons: other high quality dairy producers like New Zealand or US;rapidly growing dairy markets like India;Improving milk quality in China.Meanwhile,it is hard to expect that China could ever become a major milk exporter to the EU since the EU is largely self-sufficient in milk and dairy products,it also has huge import tariffs.4)The following are the findings of the Gravity model analysis: There is a significant positive correlation between EU‘s and China‘s GDP and dairy trade volume;There is a significant positive correlation between China‘s population and its dairy trade imports from the EU.However,there is no significant correlation between the dairy exports volume and population of EU member states;There is also no significant correlation between EU dairy exports to China and its countries distance to China;There is a significant negative correlation between China‘s import tariffs and dairy imports from the EU.Finally,there is a significant negative correlation between Euro – RMB exchange rate and dairy exports from EU to China.5)Analysis of the dairy import tariff reduction show that if China decreases the import tariff or,for example,signs a Free Trade Zone(FTA)agreement with the EU,the import volume of dairy products from the EU to China will increase substantially.6)Coping strategies for China are following: 1)Carefully deal with adverse affects and correctly handle all kind of problems 2)Make further efforts to accelerate trade liberalization 3)Pay close attention to the exchange rate of Euro in the future and make full use of innovative financial instruments in order to avoid the risks caused by of Euro-RMB exchange rate fluctuations.China has to emphasize dairy quality term,modify its industrial structure and make sure its economy is developing in persistent and healthy way.It should also continue working on trade liberalization with the EU.An establishment of a free trade zone between EU and China could benefit to the development of a fair competitive environment for the investors and trade partners.Thus,in case the free trade area agreement between EU and China was signed in the future,dairy imports from EU to China would certainly increase.This would allow Chinese people to enjoy a variety of high quality dairy products but,on the other hand,the local dairy market would be at risk.Therefore,China must take full account of the innovation and development of its dairy enterprises in the future.