Calling all clever business owners
So business is booming and you’re looking to expand, but you have no clue where to start. Unless you’ve been living under a rock for the past ten years, you’ll have heard about China’s olympian economic growth, where investment in Chinese businesses as well as consumer spending is reaching ever more dizzying heights. Setting up shop in China, where interest in foreign commodities has boomed in recent years, can be an extremely smart move for your business.
However, understanding the cultural, social and legal practices in China can seem like a gargantuan undertaking, while getting to grips with unknown regulations and new online platforms can be a mind-boggling task.
This is where we, the Chinese business gurus behind the Airwallex blog step in. Our short guide has got you covered on all the common questions surrounding exporting to China, from how to have dinner with your business partner to the legal regulations, so that you will be braced and ready to get it right the first time around. You can give us a “xiè xie” later.
1. Why do business in China?
The answer is simple: there is a huge market for it. China is Australia’s No 1 exporting market, and Chinese consumers import one-third of Australia’s exported products and one-seventh of our traded services.
The average middle-class Chinese consumer will purchase the majority of their supplements, dairy, honey, food, skincare and cosmetics and baby products from overseas, and Australia has become a priority destination for getting the goods. But why and how did it get this way?
China’s middle class expansion
China’s middle class is on fire, say the experts. The McKinsey Report anticipating that there will be 60 million affluent consumers in China by 2020 has been widely acknowledged, and due to decreased household debts, burgeoning consumption of the younger generations and more available employment, this prediction looks set to be on track.
Increased spending by the middle classes has bolstered the Chinese economy to the position of the second largest economy in the world (behind the USA), and it is forecasted to grow to a US $6.5 trillion by 2020.
China’s trust issues
Chinese consumers are not only bolstering their own economy, but creating a huge market overseas. In our post on China’s relationship with foreign products, we noted that foreign commodities are often preferred over local brands by Chinese consumers.
This is due to a lack of confidence harboured by China in its products created back home. A number of incidences occurred which brewed distrust in local commodities, including beansprouts tainted with growth hormones, cooking oil containing cancer-causing additives, and toxic baby powder resulting in the death of 6 infants and the hospitalisation of 54,000.
By contrast, products from North America, Europe and Australia are considered to be ‘natural, healthy and authentic’. As we discovered in our conversation with Lumin Wei, the Chinese middle-class consumer is less sensitive towards price in order to guarantee quality, and many are willing to spend a lot of money in order to import high-quality products from abroad.
Unless consumers are lucky enough to fly over to Australia to get their products, China’s cross-border sales have to take place online. Since Chinese officials lowered the duty tax on e-commerce goods, cross-border e-commerce has gripped the nation.
In our post on Cross-border e-commerce from the world to China, we discovered that 2016 saw an 86% increase in Chinese cross-border online sales, amounting to US $32 billion in total revenue.
This has manifested itself via a number of different online marketplaces such as Alibaba’s Tmall and Taobao, and there has been an increased availability by Chinese online shops to allow foreign retailers to sell their products. A number of third parties have emerged who serve as the intermediary between online store and consumer, charging a shipping fee to post the products back home.
The trend in foreign imports has also led to communities such as daigou, the name for a Chinese ex-pat living in Australia, who uses channels such as WeChat to get in touch with Chinese consumers and buy Australian goods on their behalf. There are approximately 40,000 daigous living in Australia, advertising to China through WeChat or C2C e-marketplaces.
2. What Chinese organisations are out there?
If you’re set on the idea of trading your goods in China, you should start by consulting one of the three main trade organisations. You can explore our Connecting Australia and China which describes the merits of the three in further detail.
Australian Trade and Investment Commission(Austrade)
Australian Trade and Investment Commission focus on helping businesses expand internationally and win foreign direct investment.
* You can set up dedicated landing pages for most countries Australian businesses are likely to do business with.
* You can access offers paid consulting services, including tailored business advice and financial assistance
* It holds a number of events during the year allowing for several networking opportunities.
Australia China Business Council(ACBC)
Also called ‘ACBC’, the Australia China Business Council is a membership-based, non-profit, non-governmental organisation.
*The council encourages two-way trade, investment, and economic cooperation between businesses in Australia and China.
* Paid membership gives you have access to a number of resources and connections
* Discounts to attend ACBC events across Australia and direct access to more than 1000 representatives of member companies
Ministry of Commerce of the People’s Republic of China (MOFCOM)
The Ministry of Commerce of the People’s Republic of China (or MOFCOM) was formerly known as the Ministry of Foreign Trade and Economic Cooperation. To put it simply, it is the Chinese version of Austrade.
* It is an executive agency of the State Council of China and is responsible for a lot of the policies regarding foreign trade, export and import regulations, foreign direct investments
*It holds several events throughout China, helping businesses create local communities across China and providing networking opportunities.
3. What are Chinese businesses like?
Chinese Business Culture
Succeeding in China not only depends on finding the right organisation, but also harbouring a strong understanding of local culture and practises. As our post 5 tips about Chinese Business Culture demonstrated, Chinese business culture has some particularly distinctive quirks, which it is beneficial to be aware of.
*Companies in China are more hierarchical It is important to make sure you make touchpoints with a person who holds influence in their enterprise.
*No question is considered too personal Don’t be surprised to be grilled on your marital status or to have a comment made about personal appearance.
*Business cards are common practice When you hand them over make sure you hand them over using both hands and read them before pocketing them.
*Get to know Guanxi The social system which fuels Chinese business. Exchanging of gifts, going on hikes or out to dinner is viewed as essential to furthering business relationships.
*Business Dinners if Leo DiCaprio thought he had it bad in Titanic, he had yet to come face-to-face with Chinese business dinner etiquette. Drinking what your boss drinks, and making a toast of thanks while holding your glass lower than your business associate is all a must to make in in Chinese business.
*Trust has to be earned through befriending your seniors, you can further your influence in the company.
Legal ins and outs
There are a number of regulations in China to facilitate easier trade from Australia, but it is important to understand their parameters before beginning your business there. All goods imported into China need to pass a series of inspections and meet certification requirements before they are issued.
In our piece on Australia-China Legal Know-How, we discussed the most important regulations presented by China, a few key pointers below. It is recommended you research further before getting started.
*The China Australia Free Trade Agreement (FTA) allows businesses unprecedented access to China due to decreased tariffs on trade with Australia, particularly in agriculture, manufacturing exports, services, investment, resources and energy. Before you can access these you must: 1) Ensure your product is included in the North Asia FTA through finding your product’s HS code on the DFAT’s FTA portal 2) Make sure your product meets the FTA’s Rules of Origin 3) Obtain a Certificate or Declaration of Origin for your products.
*Cross-border e-commerce (CBEC) is a special import channel which allows products to be sold directly to Chinese consumers through online sales. It is exempt from tariffs and enables you to sell merchandise on e-marketplaces such as JD.com and Tmall.
*Customs Law of the People’s Republic of China Controls articles entering or leaving the country.This includes the means of transport used to get the goods to the customs office, the rules applicable from the moment goods arrive at a customs office until all the customs formalities are completed, the rules surrounding customs duties and exemptions.
*Import and Export Duties Regulations The Regulations of the People’s Republic of China on Import and Export Duties consists of 67 articles which set the boundaries for the Chinese economy opening to the outside world and promoting the development of foreign economic relations and foreign trade. Customs will collect import or export duties on all goods imported into or exported out of China on the basis of these regulations. Find out more about them here.
This concludes part 1 of our Ultimate Guide. Next week we will be giving an overview of how to enter the market, the pitfalls of starting a business in China, and an exploration of Chinese Social Media. Watch this space.