China: an enormous emerging market
China is the second largest economy in the world, after the USA. The Chinese economy has been growing rapidly, presenting a very big and rare international business environment. The import market in China is around 25% of its GDP. It is a large market for exporters, who in most cases need a sales agent or local distributor.
Find your Chinese distributor or agent
The first question for China is where you want to start: In the more easily accessible cities like Beijing, Shenzhen and Shanghai, where there is more competition? Or in the second tier cities, where you may find more obstacles to overcome, but less foreign competition?
Working with local wholesale parties, agents or distribution companies is a prerequisite for exports to China. Setting up your own subsidiary often turns out to be troublesome due to the many regulations. Because of the size of the country, your China sales agent or China distributor may be much bigger than your own company and require a different approach than you are used to.
Alliance experts can find the right agent or distributor within 6 to 8 weeks
Alliance experts helps companies with entering new markets profitably. In China we work from Tianjin, Sjanghai and Hong Kong with experienced business development specialists who speak both English, Mandarin and Cantonese. We have an extensive network and good government contacts.
We have a clear and structured approach to find the best partner
We first want to know what kind of partner you are looking for. Based on your information, we make a long-list of 15-20 potential partners that fit your description. After your approval we find the right decision maker, approach him or her personally and share your business profile with them. This mostly leads to 3-5 companies who are suitable as your partner and interested in working with you. Once we have found these companies, we plan your meetings and accompany you during the first visits.
China main economic facts
China is the world’s most inhabited country with a population of over 1.4 billion and rising. The country’s disposable income per capita is around 9,000 USD. As costs of living are half of in the USA, the income corrected for buying power, the GPD ppp per capita, is around 14,000 USD. This is the point where people can afford more than basic necessities, and be aware that there is an uneven income distribution in China. People in the cities on the East cost have much higher incomes than the people more in the East.
Massive migration to urban sections has caused rapid and widespread expansion. More than 100 Chinese cities hold excess to a million people each. The three most inhabited cities in China are Shanghai, Beijing and Chongqing. 54% of China’s population lives in urbanised areas. Urban living quarters are packed with people living wherever they can, including basements and shacks while the traffic in urban China moves in half the time that it does in New York.
How to import into China?
Though China’s import regulations and rules have eased up over the years, it’s still a complicated process. Working with a local agent or distributor who can also arrange import is the best option.
Permitted products are monitored by an Automatic Licensing System administered by the Ministry of Commerce. Products that are restricted require permits or licenses while some others, such as wastes or toxins, are banned. Inspection and certification processes in China are detailed and rigorous.
What are the import tariffs and taxes in China?
Most imports are charged 9.8% of the value of the goods as tariff charge. Value added tax (13% to 17%) is payable on certain items while consumption tax (1% to 40%) is added for products such as tobacco, liquor and cosmetics. Lower tariffs are levied on certain agricultural products such as wheat, sugar, wool, corn and rice.
Another important aspect is packaging and labeling, in which China has a few highly specific requirements. China’s booming consumer base, financially stable market and innovative approach make it a viable import destination but with some tricky procedures.
The Chinese market place and distribution channels
The Chinese market is a complex one and many players utilize a multi-distribution route for wider and better consumer accessibility. Its industry is characterized by a prominent services sector that operates in both the wholesale and retail sectors. Some retail brands have developed a wholesale distribution method in order to reach their customers quickly and easily. Apart from directly operated stores and franchisee ones, the warehouse style supermarket is a popular option in China.
Selling in China requires effort. Your potential distributors also want to see your market research and promotion plans. A local intermediary will help you with this. Also see our article How to make your company visible online in China?
Business opportunities in China
Business opportunities in the consumer market are shifting from the East coast with major cities like Beijing and Shanghai more inland, where there is a strongly growing middle class. For more B2B related products and services, it is good to know that several regions in China have special focus on the various sub-sectors of equipment manufacturing industry.
The province of Liaoning focuses on machine tools, high-tech and automation equipment, petrochemical and electrical power equipment, energy and environment protection equipment, and metal processing.
Major engineering centers are found in Wuhan, including the following fields of equipment manufacturing: digitalization, laser processing, numeric control, optical telecommunication technology, industrial flue gas dust catcher, and satellite position systems.
A number of innovative and advanced equipment has been developed in Jiangsu, such as wide body subway cars, turbine generators using low temperature and recycled steam, and electronic control common rail injection systems. There have also been a few industrial clusters which concentrate on construction machinery, pressure vessels, and electric transmission equipment.
The strategic inland location of Chongqing has allowed it to develop its advanced equipment manufacturing industry. Equipment includes conventional weapons, which is biggest in China. Its manufacturing industry also includes transformers, machine tools, environmental equipment, heavy transportation equipment, and instrumentation. The region offers investment opportunities in the outsourcing of equipment manufacturing, engineering consultancy, and sales of complicated production machinery.
The machinery industry in Shandong province is strongest in agricultural machinery industry, including agricultural transportation vehicles and tractors; the engineering machinery industry, including large metal forging equipment and papermaking equipment; the car industry, including heavy duty trucks, light trucks, and tires; the machine tool industry; the electric and apparatus industry; and the ship and marine and engineering equipment industry.
The region is giving priority to high-end equipment in areas such as civil aviation, automotive, ship building, offshore engineering, nuclear and offshore wind power, etc. Leading companies like Shanghai Automotive Industry Corporation, Shanghai Electric, and Commercial Aircraft Corporation of China are participating. The region offers investment opportunities in key technologies, core components, high precision components, and the electronic automation systems from foreign suppliers.
The Provincial Government of Guangzhou issued the “Planning of Guangdong Equipment Manufacturing Development 2009 – 2013” to achieve an industrial added value for equipment manufacturing at EUR 166.4 billion (RMB 1.45 trillion) by the end of 2013. The focus is in the advanced fields of communication and electronics, nuclear power, wind power, shipping, marine engineering etc. Moreover, the improvement of industrial chains has become a provincial development direction for equipment manufacturing as well.
Tianjin is home to some of the most important industries for equipment manufacturing companies. These industries include aviation and aerospace, transportation, shipbuilding and maintenance, oil and petrochemical, wind power, nuclear power, water power, super high pressure electric transmission and transformation, engineering, port machineries and agricultural machineries.
The following sub-sectors have experienced significant growth: general equipment manufacturing, transportation equipment manufacturing industry, and the electrical equipment manufacturing industry. Also, Hebei has competitive edge in the fields of large power transmission equipment, wind power equipment, Train Multiple Units, pickup trucks, roll metallurgy, mechanical engineering and plumbing equipment.
Doing business with the Chinese and Chinese business culture
China is known for its huge international business potential and numerous business opportunities.
In order to strike a fine balance between trust and business security, local expertise and representation can go a long way, as Chinese businesses normally work through mutual acquaintances.
Chinese business people normally request for a discount or additional activities for the same price so prepare yourself for some bargaining. In fact, any preparation or consulting activity is in general not valued financially, in contrast to a tangible product.
What are negotiation tactics in China?
- Be Patient; negotiations can be drawn out and complex
- Expect negotiations in advance and have a clear negotiation strategy in place
- You would be speaking to several people; the trick is to identify the real decision makers
- Have your own China team with local business experience
- Always behave worthy of respect; the concept of face in China means the projection of your reputation and capabilities
- It is not just a meal in China; business relationships are made over a meal. Knowing your table manners can go a long way in forging new business ventures
- Be formal. Overt display of emotion could send a message of being aggressive. Maintain calm and professionalism
- Think carefully before putting your arm around someone or hugging in a business environment
- Business cards are exchanged and at least one side of the card should have your business information in Chinese
- Do not show impatience; do not over dress
How much is the contract worth in China?
Business is done on trust and mutual understanding in China, and the contract is a mere reflection of the discussions that the two parties engaged in to take forward a business proposal. The typical western contracts do not work in China, as each business relationship can be unique, and the contracts reflect that.
Though most business is transacted on trust, and can grow as trust between trading partners grows, it is a good practice to have a written commercial contract when doing business in China.
In China, lawfully concluded contracts are protected by law. The Chinese contract laws have kept up with the times providing the necessary flexibility and safeguards worthy of professional international trade. While government intervention is minimal, the contract law champions the cause of fair arbitration and settlement if a dispute arises.
If it comes to litigation…
The Chinese law reflects both traditions and western influences. It is a mix of Confucius philosophies, socialist law, and civil law.
The China International Economic and Trade Arbitration Commission (CIETAC), a dedicated body to resolve trade disputes, works efficiently and impartially to settle disputes within reasonable time frames.
The Chinese Judiciary has special considerations for disputes involving foreign entities; this is in addition to the arbitration safeguards that foreign business entities enjoy. Therefore, disputes involving foreign business entities receive a special scrutiny of the judiciary, and are given the necessary legal space to arrive at a settlement within reasonable time frames.
The world’s second largest economy offers several rewarding business opportunities for foreign businesses. Local knowledge is key to opening doors. Doing business deals in China with an agent or distributor, or with an end customer, can be like traversing a maze without local know-how and professional support.