(MENAFN - Arab News) Chinese Premier Wen Jiabao promised to stop the manufacturing of fake products of reputable world brands in his speech to the leaders of German firms at the recent international industrial exhibition in Hanover, Germany.
The decision, if implemented, is expected to adversely impact the Saudi market, especially when Saudi imports have increased since the nation joined the World Trade Organization (WTO) in December 2005.
As Saudi Arabia is the world's largest producer and exporter of petroleum products, its trade remains heavily dependent on oil and petroleum-related industries, including petrochemicals and petroleum refining. It does not produce consumer goods like textiles, clothing and accessories. Saudi traders are therefore forced to import goods of international brands. These brands are generally believed to be of two types - original and fake or counterfeit. The original items of well-known world brands cost high, while the fake ones coming from China cost less, according to traders.
Experts and economists say that stopping the manufacturing of fake products of international brands will have its negative impact on the Saudi market.
Mohammed Shams, head of an economic consultancy, says that China is defying WTO's requirements in order to earn profits. "China has a special strategy and environment that allows it to manufacture products of low quality at low prices. China is able to do that because of low labor costs, low taxes on products and factories, and the cost of raw materials is also low," he told Arab News.
"Management systems and rules also facilitate the establishment of factories in China. On the other hand, banks give loans to encourage small and medium enterprises as well as local investments."
Such a Chinese measure will affect the Saudi economy at a time when it is estimated that Saudi Arabia's trade with China could exceed 60 billion by 2015, given that the target of 40 billion by 2010 was reached in 2008. During 2003-2008, the Saudi-China trade registered annual growth rates of 30 to 50 percent. China exports textiles, and mechanical and electrical products to Saudi Arabia, and imports oil.
He added: "Saudi market will not be able to fill the gap in the demand and supply if fake products stop coming in, as the Kingdom does not produce consumer goods like textiles, clothes, accessories, and electronic products. Actually, the dumping strategy that China always follows with countries is absent in the Kingdom due to the Kingdom's low productivity in the matter of consumer goods."
According to Shams, 90 percent of Saudi citizens prefer to buy fake brands that are made in China because of the price advantage.
"Under such circumstances, Saudi businessmen should start creating local brands with good features and at low prices. Unfortunately, this will not happen in the Saudi market for several reasons. For example, the labor cost is high, raw materials are costly, and there are no incentives to facilitate the establishment of factories for manufacturing consumer goods. Furthermore, Saudi businessmen prefer trading rather than manufacturing, as trading gives faster returns," he said.
He added, "I would rather advice the chambers of commerce and industry to start searching ways to facilitate factory openings, and to encourage business to take the risk and start making Saudi products that could compete with brands."
According to Shams, if the Saudi industrial market grows, the rate of unemployment and inflation can fall.
Turki Fada'aq, head of research at Al Bilad Investment, confirmed that such steps would affect the Chinese products positively, but it will affect the Saudi customer negatively.
"Saudi customers find fake products the perfect solution to show off with low cost. When China stops the manufacturing of such products, many Saudi small shops will shut down, as customers will not find products to buy. However, such a step will also affect the citizens financially, as they will be forced to buy expensively brands," he said.
He added, "The supply-demand gap in the market can be filled by Saudi businessmen when they start manufacturing local products with acceptable standards and prices," he said.