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Economics Indices

Processing for Overseas Orders

"Three supply's and one compensation" refers to processing with supplied materials, processing with supplied examples and assembling with supply parts, and compensation trade. They represent a form of foreign trade developed after China launched the reform and opening-up policy.

Processing with supplied materials means that the foreign businessmen supply the necessary raw materials, spare parts or component elements and Chinese enterprises do the processing or assembly job and give the finished products to the foreign businessmen. In order to encourage the localities and enterprises to develop processing with supplied materials, in 1988 the Ministry of Foreign Trade and Economic Relations issued the "Regulations on Loosening Restrictions Regarding Processing and Assembly with Supplied Materials and Relevant Issues." Moreover, a series of encouraging measures were also adopted, which greatly aroused the enthusiasm of the localities and enterprises.

Compensation trade means that foreigners supply the technology, equipment and services while the Chinese enterprises repay them with products or labor service in the same amount of value. In order to bring into full play China's advantage in rich labor resources and low labor cost to make up for its shortage of funds and inferiority in technology, the government has adopted an encouraging attitude towards compensation trade.

"Three supply's and one compensation" ushered in for China a new form of trade, promoted the production of export commodities, improved the structure of export commodities, expanded export, increased income in foreign exchange, made use of large amount of foreign capital and imported for the country internationally advanced technology and equipment. As most of the enterprises engaging in "Three supply's and one compensation" are labor-intensive, they have helped increase employment and improve people's living standard.

From 1978, when China's first enterprise undertaking processing with supplied materials -- Zhuhai Xiangzhou Wool Mill -- was set up, to 1998, "Three supply's and one compensation" enterprises have expanded from garment processing to a whole range of industries that process different varieties of products, such as plastic, electronics, chemical, machinery, metal ware, toys and handicraft articles. In terms of geological area, they have extended from Guangdong and Fujian, witch are close to Hongkong and Macao, to most inland provinces and cities. And the business contacts have expanded from Hongkong and Macao to Japan, Western Europe, North America and other parts of the world.