Exporting to China
Exporting to China for the First TimeHow the Department of State and Regional Development Can AssistChina - Key FactsDoing Business in ChinaChina Overview
China has experienced substantial economic growth over the last decade. According to the International Monetary Fund (IMF), China is now the sixth largest economy in the world and the second largest economy in Asia.
The population of China is over 1.3 billion people with increasing disposable incomes and consumer sophistication. Since the mid-1990s Chinese real incomes have risen by 50% and in 2005 retail sales are expected to rise by 12.7%.
In 2003/04 exports from New South Wales to China were A$1.2 billion. China is now the fifth largest merchandise export market for New South Wales, presenting opportunities in a wide range of sectors..
The Department has prepared a special market briefing on China for NSW companies interested in the China market. Click on the links below for further details.
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Exporting to China for the First Time
China is a large, diverse and complex market that is going through rapid change and reform to move to a morre open economy and trading environment. While there are many opportunities in China, there are also many factors to consider before entering the market.
As a general rule, companies which wish to expand to China should gain experience from other markets in the region first and be prepared for the long-term commitment to enter the Chinese market.
The following are some tips for exporting to China for the first time.
Research the Market
It is important that you get key market information to evaluate whether it is worthwhile for your company to do business in China. Some things to consider are:
Places where you can get information on China include: Department of Foreign Affairs and Trade, Austrade, China Council for Promotion of International Trade (CCPIT) and Ministry of Commerce, China.
The new Ministry of Commerce was established in March 2003 based on the merging of the State Economic and Trade Commission (SETC) and the Ministry of Foreign Trade Economic Co-operation (MOFTEC).
The new Ministry combines MOFTEC with departments in charge of domestic and foreign trade in the SETC and the State Development Planning Commission (SDPC), which is also to be renamed as State Development and Reform Commission (SDRC). The new system is part of the Chinese Government's reform plan to upgrade the administration of trade, banking, State-owned companies and other key sectors.
Further information on the Ministry of Commerce is available at www.mofcom.gov.cn/.
If you have identified opportunities relevant to your company, you may want to visit China and make your own assessment of the country and its people. Read about China and its history before you leave - history is of immense importance to the Chinese and some knowledge of it will help explain how the Chinese perceive themselves and you.
If you have a potential business partner in China, your initial visit can be an opportunity to size up their company and assess their level of technological know-how. Chinese hosts are often happy to show visitors around production facilities. You should ask about the size and scope of the operation, its business plans, whether it has access to foreign exchange and how much experience it has in dealing with foreign companies.
Don’t see your visit to China as a one-off approach, which will automatically lead to instant orders. Instead, regard it as stage one in a long-term strategy of Guanxi cultivation.
Commitment and Resources
Think twice before you commit to China and be prepared to double the amount of time you invest. China is a complex market, which requires considerable money and time.
Negotiating a deal with a Chinese business partner or getting a licence could be complicated and time consuming. For a foreign or joint venture company, the minimum registered capital could range from USD$62,000 to USD$37 million.
You may need funds for airfares, accommodation, legal services, advertising, sales promotion, interpreting and translating, setting up joint ventures or establishing representative offices in China.
Before you commit, make sure your company has the capacity to meet the costs and can invest the time. Look at your products or services and determine if they are suitable for the current China market. China is looking for products tailored to its market. Companies which examine the obstacles to technology in China and adapt their products to overcome them, will impress Chinese officials and help establish strong relationships.
Know Your Customer/Buyer
Locating a suitable Chinese partner is one of the most important steps towards your successful business in China. A good partner will not only make your first step into China a pleasant experience, but also help you build up the right connections for your company’s future development in China.
Check the reliability and credibility of the data on your customers from independent sources. Avoid talking only to those people to whom your Chinese partner or buyer directs you. Bear in mind that a contract with an insolvent customer is worthless.
Each of the main investment centres in China will have a local Foreign Trade and Economic Co-operation Commission. This is an agency of China's Central Foreign Investment Regulatory Ministry known as the Ministry of Commerce (MOFCOM). It can provide information and advice on available, approved projects and details on potential local partners.
The Australian Trade Commission (Austrade), an Australian Federal agency that helps Australian companies win overseas business for their products and services, is another source worth exploring.
Be Aware of Legal and Regulatory Issues
Differences in Chinese law from that in Australia will have an impact on your business. Some of the differences you need to become familiar with are in:
Seek advice from a reputable legal firm with experience and a presence in China and ask them to review all contracts before finalisation. Information on legal firms and solicitors in New South Wales is available from the Law Society of New South Wales' website at www.lawsociety.com.au.
Manage Risks
Do a thorough risk analysis and make sure you use reliable sources for this assessment. Find out who are your local competitors and the potential foreign investors who would invest in the project your company is interested in, what impact will ongoing government reforms have on any plans you have to develop, and what the official and regulatory barriers are in your target market.
Some of the risks you may need to manage include:
Protection of Intellectual Property (IP)
"The best protection is prevention." Though China is a party to international agreements to protect intellectual property, it is strongly recommended that you register any copyrights, patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China.
Corruption
The Chinese Government is cracking down on corruption. If an official demands a payment, he/she is committing a criminal offence. Consider reporting the matter to the Public Security Bureau (PSB), and seek legal advice under such circumstances.
Business Disputes
Due to the existence of informal codes based largely on personal connections and relationships, problems in law enforcement can occur and the possibility of a costly legal dispute between foreign and Chinese parties remains a risk.
Due diligence is the only effective precaution. Thorough investigation of the Chinese company's solvency, ownership, track record, and key personnel should be a part of any international business courtship. This investigation should include not only conventional financial and legal checks carried out by accountants and lawyers, but also verification of the Chinese partner's political connections and how these connections could possibly affect a serious dispute.
Physical Conditions
The physical conditions of doing business in China can be challenging. In some cases you will need to ensure that any business travel or distribution chains can cope with harsh weather conditions, pollution, long distances between locations and large crowds of people.
Assess Your Capacity to Supply the Market
Do not underestimate the regional nature of the Chinese market, which has a number of geographically, economically and even culturally diverse regions.
After you have chosen the region which your company will target, you need to make sure that your company has the capacity to supply the market within expected timeframes and the capacity to support product/service distribution.
Have the Right Marketing Materials
Make sure that your company information, brochures and business cards are in Chinese and send company and product information well in advance of scheduled meetings. In mainland China simplified Chinese characters are used.
To find out about your export capacity, you can use the "Export Capacity Tool" on Austrade's website at www.austrade.gov.au.
This tool is designed to assist non-exporters understand their “capability” to export rather than “readiness” to export. Export capability refers to the extent to which a company is both willing and able to export generally, whereas export readiness refers to a company that is export capable and has progressed to a stage where they are ready to enter and compete in a specific export market.
Source: Austrade; “Doing Business in China” by Hunt & Hunt Lawyers; British Embassy in China; China Business.
How the Department of State and Regional Development Can Assist
The NSW Department of State and Regional Development (DSRD) is the first point of contact within Government for companies wishing to do business in Sydney and regional NSW. The Department also offers support to NSW firms taking steps to enter or expand overseas markets.
The assistance provided by the Department includes:
Trade Missions to China
Trade Missions are organised to high-potential and emerging markets for NSW goods and services. The Missions Program caters for a broad range of products, services and companies.
Joining a DSRD Trade Mission to China holds many advantages for companies considering business with China for the first time, as well as for more experienced firms. More information is available here.
Export Advisers and Exporters Network
The NSW Exporters Network is a DSRD export assistance program. It has a dedicated, interactive website where members can communicate with each other and with the Department's Trade Services staff and Export Advisers. This service provides practical, reliable and up-to-date information and advice on markets to exporters in NSW. The Network also provides access to a host of export-related and service provider sites around the world.
The Network is supplemented by a schedule of informal meetings and seminars to provide export information and guidance and to enable members to meet for personal discussions.
Sydney-Beijing Olympics Secretariat (SBOS)
DSRD has established (in association with Premier’s Department and Sydney Olympic Park Authority) the Sydney-Beijing Olympics Secretariat (SBOS). With the Australia China Business Council and Austrade, SBOS is managing a co-ordinated program of Beijing 2008 Olympics-related activities. 2008 Olympics projects and forthcoming events organised by DSRD are available on the Department’s website at www.business.nsw.gov.au.
Asia Business Advisory Council (ABAC)
The Council is part of the Government’s strategy to link with the State’s multicultural Business Community to increase trade and investment for NSW. Council members are drawn from various sectors of the NSW business community and are appointed by the NSW Government. Four members of the Council are of Chinese origin and provide advice to the NSW Government on promoting trade and investment opportunities for NSW in Greater China.
Some Key Links
Australia-China Trade
Austrade – www.austrade.gov.auDepartment of Foreign Affairs and Trade – www.dfat.gov.auAustralia China Business Council – www.acbc.com.auChina-Australia Chamber of Commerce – www.austcham.org
Market Information on China
Ministry of Commerce, China – www.mofcom.gov.cnChina Council for Promotion of International Trade – http://english.ccpit.org/
Government Agencies in China
State Intellectual Property Office, PR China (SIPO) – www.sipo.gov.cn (Chinese/English)National Copyright Administration of China (NCAC) – www.ncac.gov.cn (Chinese/English)General Administration of Customs (GAC) – http://english.customs.gov.cn/default.aspx (Chinese language only)
Doing Business in China
Understand the Culture
Understanding some of the cultural differences between China and western countries is one of the most important aspects of doing business in China. Here are some tips on culture and business protocols.
Guanxi - (interpersonal relationship), pronounced "Gwahn She", is one of the major dynamics of Chinese society. "Mutual Trust" is the basis for Chinese commerce and it has been a crucial part of the Chinese business world for thousands of years. Introductions should be arranged through the right channels and efforts made to build up long-term personal relationships - this is a key to successful business in China.
Face - is an essential part of the Chinese national psyche. Having face is a mark of personal dignity. Face is a prized commodity which can be given, lost, taken away or earned. Causing someone to lose face could ruin business prospects.
The easiest way to cause someone to lose face is to insult an individual or criticise them in front of others. Westerners can unintentionally offend Chinese by making fun of them in a good-natured way. Another error can be to treat someone as a subordinate when their status in an organisation is high. Just as face can be lost, it can also be given by praising someone for good work before their colleagues.
Language - unless you speak fluent Mandarin, using interpreters and translators with technology know-how will be an inevitable part of doing business in China. Beware that there are big differrences between Mandarin and Cantonese. Make sure your interpreter is fluent in the language desired.
Written material must be translated. Be sure your translator uses the appropriate written style for your destination (simplified Chinese characters for mainland China; full Chinese characters for Hong Kong, Macau, Taiwan and overseas Chinese).
Negotiation - ways of negotiating business contracts can differ between companies. In general, Chinese people prefer to establish relationships before considering negotiations. It is helpful to invite business people to dinner before entering into any negotiations and find out their particular strategy.
When entering into negotiations it is important that you state your commitment to working toward a fair deal and approach negotiations from the standpoint of long-term business involvement. Be prepared, polite and patient, remain calm and impersonal and be willing to cut your losses and go home should the deal not be in your business interests.
Also be mindufl of some of the following tactics used by Chinese business negotiators:
If you use an interpreter, brief him/her before the negotiation. If the meeting will involve technical expressions, ensure that the interpreter is given a chance to become familiar with it beforehand. At a meeting, make sure you speak clearly and at a normal volume. Look at the person with whom you are meeting. Address them, not the interpreter.
It may be impossible to interpret jokes, puns, proverbs or slang. So try to use plain English. Rephrase a term if your Chinese counterpart doesn't understand it.
The Chinese system of numbering is based on groups of 10,000 rather than 1,000 as in English. It may be worthwhile writing numbers down to avoid misunderstanding.
Gift Giving
Why - What you expect from gift giving is to build trust, which is a necessary ingredient for ongoing communidcation and long-lasting business relations in Chinese society.
When to give - Gifts should be presented on appropriate occasions as a demonstration of courtesy. Major gift-giving occasions are related to business, festivals and family events (eg birth, death, marriage).
What to give - Chinese business people are fond of receiving small gifts as souvenirs of company visits and sales calls. These gifts tend to be functional and include pens, key-rings, calendars and scarves (to ladies). Souvenirs that will remind them of Australia later on are also popular. These may include Aboriginal arts, soft toy koalas/kangaroos, boomerangs and Australian chocolates.
When presenting flowers, consider Australian nattive flowers. Rarely seen in China, these hardy flowers can always impress your Chinese visitors.
How to give and receive gifts - When giving gifts to a delegation, start with the most senior person in the group. Present the gift with both of your hands.
Traditionally, gifts are placed in another room once accepted and are not opened in the presence of the giver. This practice has evolved to save face for the giver in case the gift is broken or inappropriate.
However, today's (young) business people in China are influenced by the Western practice and will usually unwrap gifts in front of the giver and expect their counterparts to do the same.
Business Protocols – Some Do’s and Don'ts
Do’s
Don’ts
Source: Export Development Corporation, Canada; British Embassy in China; "When in China", John Graham, Mark Lam, 2003; China Business.
China Overview
Trade Between New South Wales and China
In 2003/04 China was NSW's fifth largest export market (after the USA) and is worth $1.2 billion and growing.
NSW's top five merchandise exports to China were:
Major opportunities in key sectors for NSW and Australian companies include:
Wool, barley, canola seeds, agribusiness, food and beverages
Petroleum, gas, copper and iron ores
Construction and building materials, motor vehicles, vehicle engines and parts, optical fibre, medical and scientific equipment
Financial services, health, education and training, tourism, professional services, modern logistics and project management, ICT, environmental management and protection
Market Features
Economic Growth
Between 1995 and 2001, China’s per capita GDP grew by over 7% per annum. Assuming the Government maintains its reform commitment, the economy should continue to grow by 7% per year over the next five to 10 years.
The population of China is over 1.3 billion people with increasing disposable incomes and consumer sophistication. Since the mid 1990’s, Chinese real incomes have risen by 50% and in 2001 retail sales grew by 10%.
Within China itself, there are many large regional markets such as Greater Shanghai, Greater Guangzhou, Sichuan, Beijing, central and northern provinces. While the coastal provinces are the most prosperous regions in the country, the Central Government aims at addressing this imbalance with its Western Development Strategy.
Economic Reforms
China has made impressive progress on its transitionary path to a market-based economy since economic reform began in 1978. Private sector activity is gradually replacing the state sector and collective activity and manufacturing and services are growing further at the expense of agriculture.
China’s entry to the World Trade Organisation (WTO) marks an important step in China’s integration with the world economy. WTO entry commits China to further cutting trade barriers and improving access for foreign investors and exporters.
These reforms are expected to deliver a significant dividend to foreign investors and traders, including those from New South Wales. This is particularly the case in the manufacturing and services sectors.
Key Drivers of Growth – Next 10 Years
WTO – Implementing the full WTO reform package has been estimated to add one percentage point to China’s growth potential per year over the next 10 years. A more open trade and investment environment in China will make it easier for firms to enter the China market.
China’s Western Development Strategy – This strategy is to develop the western provinces in China to help catch up with economic growth of the coastal provinces. The Strategy will stimulate investment in tourism, minerals and energy, telecommunications, environmental protection and transport infrastructure.
2008 Beijing Olympic Games - In preparation for the Games, the Beijing Government has launched a US$14 billion investment strategy for stadiums, gyms and related facilities, new transportation and telecommunications infrastructure and creating a clean environment.
Source: "China Embraces the World Market" by Department of Foreign Affairs and Trade.
Australia-China Free Trade Agreement (FTA)
Australia and China signed the Trade and Economic Framework in October 2003 and the joint feasibility study was completed in March 2005. China's emergence as a major industrial powerhouse is one of the most significant and positive global developments in the world today and Australia is well-placed to take advantage of this enormous opportunity.
Following the finalisation of the feasibility study that showed there would be substantial economic and trade benefits to each side from an FTA, the Prime Minister, together with China's Premier Wen Jiabao, agreed on 18 April in Beijing to launch negotiations on an FTA between both countries.
Given the impressive growth of the Chinese economy, closer economic ties between our countries are inevitable. Negotiation of an FTA provides Australia with the opportunity to shape our future economic and trade relationship with China. It gives us a chance to protect and promote Australia's competitive position in the Chinese market, especially as China also negotiates FTAs with other countries.