China's processing trade sector has enjoyed healthy development in recent years, witnessing volume increases and an improved utilization of foreign capital.

The processing trade volume hit US$550 billion in 2004, up about 36 per cent year-on-year, according to the Ministry of Commerce.

In terms of volume, it remains the backbone of China's imports and exports, accounting for about 50 per cent.

And the sector continues to be a major magnet for foreign investment. Foreign-invested companies achieved more than 80 per cent of last year's total processing trade volume.

China's inexpensive but good-quality labour force and an improving business environment are the major reasons that make foreign investors willing to move their manufacturing chains to China, said Fan Ying, a professor at China Foreign Affairs University.

"Currently, China still has labour advantages compared to its southeastern neighbours and some other developing countries," she said. "Its workers are comparatively skilled."

More importantly, China's continuous opening under its commitments to the World Trade Organization and the improvement of investment environment have been major attractions to foreign investors, Fan said.

And the processing trade will remain the backbone of the nation's foreign trade this year, as millions of its processors remain too weak to compete in the international market with their own brands and high-value-added products.

"We all know it's important to have our own, competitive brands, and indeed, we are trying to achieve that goal," said Wu Jiming, an official with Sainty Group, the largest trading company in East China's Jiangsu Province.

"But for the time being, we are not strong enough to compete with foreign giants," he said. "They are experienced in the world's market and have advantages in terms of technology and R&D."

Sainty is a processor for some of the world's major garment makers, which Wu declined to identify.

"I believe it will take years for Chinese processors and manufacturers like us to develop our own brands and sales networks before we can compete on an international basis," Wu said.

Fan echoed Wu's viewpoint, saying it will be difficult for China to become a strong trader boasting a host of world-famous brands.

However, she urged Chinese manufacturers and traders to strengthen their research and development (R& D) to increase the added value of their products, without which they will remain fragile in the global market.

Source: China Daily