china business guide 2010

8/7/2019 China Business Guide 2010

1/103

ChinaBusiness

GuideTHIRD EDITION

DEVELOPING YOUR INTERNATIONAL TRADE POTENTIAL


2/103

2

TRADE AND INVESTMENT SECTION DETAILS

AT THE BRITISH DIPLOMATIC POSTS IN CHINA

British Embassy Beijing

11 Guang Hua Lu

Jian Guo Men Wai

Beijing 100600

Tel: +86 (0)10 5192 4000

Fax: +86 (0)10 5192 4218/4441

British Consulate-General Shanghai

Suite 301, Shanghai Centre

1376 Nanjing Xi Lu

Shanghai 200040

Tel: +86 (0)21 3279 2000

Fax: +86 (0)21 6279 7388

British Consulate-General Guangzhou

7/F Guangdong International Hotel

339 Huanshi Dong Lu

Guangzhou 510098

Tel: +86 (0)20 8314 3000

Fax: +86 (0)20 8333 6485

British Consulate-General Chongqing

28/F Metropolitan Tower, Zourong Road

Yu Zhong District

Chongqing 400010

Tel: +86 (0)23 6369 1500Fax: +86 (0)23 6369 1525

Details o the provinces covered by each Trade and Investment sectionare provided on the old-out map at the back o this guide.


3/103

3

China

BusinessGuideTHIRD EDITION


4/103

4

This guide was produced by the UK Trade & Investment China Markets Unit in collaboration

with the British Posts in China, International Trade Teams and the China-Britain Business Council.

Disclaimer

Whereas every eort has been made to ensure that the inormation given in this document is accurate,

UK Trade & Investment accepts no liability or any errors, omissions or misleading statements. It is

written in general terms and should be used as a guide only not as a substitute or proessional advice.

Front cover image: Chongqing


5/103

5

CONTENTS

INTRODUCTION Why China? 6

About the China Business Guide 9

RESEARCHING THE MARKET Where to begin 13How we can help you 18

MARKET ENTRY Choosing the right location 21Wider opportunities in greater China 24Establishing a presence 27

GETTING STARTED Finding a customer or partner 39Due diligence 40Employing sta 43Language 48Marketing 50Branding 52Day-to-day communications 54Interpreters 56

BUSINESS ISSUES AND Introduction 61CONSIDERATIONS Intellectual property rights (IPR) 62

Certication and standards 66

Getting paid and nancial issues 69Insurance 72Management, control and quality assurance 73Bribery and corruption 74Scams: how to avoid them 75

BUSINESS CULTURE Relationship building 79Getting started 80Guanxi 81The role o the state 82Making conversation 83Entertainment 84Gits 87Meetings 88

Presentations 90Deal making 91Negotiating techniques 93


6/103

6

INTRODUCTION

WHY CHINA?

China is THE great economicsuccess story o the past30 years. Since the reormand opening-up policywas introduced in 1978,China has changed beyondrecognition. A Soviet-styledplanned economy hastransormed into a vibrantmarket-oriented economyand 400 million people havebeen lited out o poverty.

Well known or itsmanuacturing capability,

China is the largest globalproducer o toys, textiles,washing machines,cameras and computers(among hundreds o otherproducts). It is also theworlds largest consumero iron, steel, coal andcement, and Chinas

hunger or raw materialscontinues. Over a millionenterprises have fourished,and nearly 40 Chinesecompanies have entered theglobal Fortune 500 list.

With rapid and continuousindustrialisation andurbanisation, a vast andast-growing consumermarket has emerged.Bicycles and Mao suitshave been substituted by13 million cars (now thelargest car market in theworld), international labelsand luxury goods. Chinais also the worlds largestICT market, with over 600million mobile users andmore than 400 million

internet users. Privateconsumerism continuesto develop with greatersophistication.


7/103

7

Driving global economicrecoveryWhile many o the worldsmajor economies are stillstruggling to recover romeconomic contraction,Chinas growth has beensustained and the economygrew 8.7 per cent in 2009,the best perormance o allmajor economies.

There are signicantchanges in Chinas growthstrategy. Traditionally,

China has providedlow-cost manuacturingsolutions or the globalmarket, but exportsdeclined sharply aterthe global downturn andChinas manuacturingindustry has respondedby quickly moving up the

value chain.

The Government ispressing hard to improveinrastructure and socialwelare as well as targetingresources to developChinas vast rural andinterior regions, aimingto unleash domesticconsumption among thewider population. Industrialstructures are shitinginland with dozens onew cities emerging andcoastal areas developinginto sophisticated urban

clusters.

Seizing opportunitiesWhile the rise o Chinais easy to acknowledge,businesses constantly needto catch up with the speedand depth o change anddevelopment in Chinas

large and complexmarket space.

Whether selling, trading,investing or ranchising,China oers opportunitiesin abundance to UKcompanies, large or small.

Shanghai Expo 2010The Shanghai Expo isan excellent opportunityor British companies toraise their prole anddevelop networks in China.For more inormationplease visitwww.ukshanghaiexpo.com


8/103

8


9/103

9

INTRODUCTION

ABOUT THE CHINA BUSINESS GUIDE

Much o the inormationpresented in this bookletis contributed by expertsat UK Trade & Investment,British Diplomatic Postsand the China-BritainBusiness Council.

The China Business Guideis intended to providegeneral business adviceand should not be usedas a substitute or marketresearch, due diligenceor legal and proessional

services.

About UK Trade &InvestmentUK Trade & Investmentis the governmentorganisation thatcan help you achieve yourinternational businesspotential. We combine thenational resources o theDepartment or Business,Innovation and Skills(BIS) and the Foreign andCommonwealth Oces(FCO) global network oTrade Development Sta,

to help you successullywin business overseas.

We treat every businessas an individual thatswhy we provide a tailoredservice with specialistsupport covering a widerange o industries.

Our capacity-buildingservices can make a realdierence to your businessat a very reasonable price.To use our services yourrm may need to meetcertain eligibility criteria.Your International TradeAdviser (or equivalentperson in Scotland, Walesand Northern Ireland) willbe able to explain in moredetail what these criteriaare and advise you oncosts. In China, the China-

Britain Business Councildelivers the majority oUK Trade & Investmentsservices and also nowhandles general inquiries.


10/103

10

This publication aims toprovide an introduction tovarious aspects involvedin doing business withChina. This guide containsinormation on marketintelligence, overviews okey business considerationsand challenges, practicaladvice and best practices,as well as useul contacts.Readers can also urthertheir knowledge byaccessing a wealth obusiness inormation,

research reports andopportunities on thewebsites o UK Trade &Investment and theChina-Britain BusinessCouncil.

In China, the role o UKTrade & Investment is nowto support UK businessinterests through a rangeo activities with a longerterm, more strategic ocus.These include workingto remove barriers tomarket entry; raising theprole o UK strengths inpriority sectors; identiyingstrategic opportunities inthe market; produce highquality sector reports inpriority sectors or UK

industry; and deepeningrelations with key Chinesedecision makers.

UK Trade & Investmentand CBBC also employa number o BusinessAdvisers and maintainclose links with the Hong

Kong Trade DevelopmentCouncil.

INTRODUCTION

ABOUT THE CHINA BUSINESS GUIDE

(CONTINUED)


11/103

About the China-BritainBusiness CouncilThe China-Britain BusinessCouncil (CBBC) is theleading organisationhelping UK companies

grow and develop theirbusiness in China.

CBBC supports Britishcompanies o all sizes newentrants and establishedoperations providingbusiness services, practical

in-market assistanceand industry initiatives.These services providecompanies with supportto access the potentialo the China market

and to develop a soundbusiness strategy. Workingclosely with UK Trade &Investment, CBBCs servicesare delivered through anetwork o nine oces inthe UK and a presence in11 Chinese cities.

Membership oersurther benets includingdiscounted pricesor services, specialmember-only events andinormation. CBBCs status

allows it to play a vital rolein lobbying both UK andChinese ocials on mattersimportant to the success oBritish business in China.

For more inormation visit:www.cbbc.org

11


12/103

12

RESEARCHING THE MARKET


13/103

13


WHERE TO BEGIN

Doing business withChina can seem ratherdaunting or those new tothe market, but taking astrategic approach is thekey to making the processmanageable.

Companies should conductreliable research beoreventuring into business inChina. Good research savescosts and improves theeciency and impact romthe start o a project.

Desk researchGeneral introductorybusiness inormationconcerning China isincreasingly available andcompanies can obtaina reasonable amount opreliminary inormation

through desk research.

Economic researchand sector analysiscan oten be obtainedrom a large number oleading consultancies,research agencies andpublic sector trade

promotion organisations.

The increasing use oe-commerce and B2Bwebsites in China hasmade identication o(and access to) potentialbusiness partners possibleacross the globe.A good place to startis the UK Trade &Investment websitewww.ukti.gov.uk whichprovides detailed countryand sector inormation.Registration is ree andoers additional benets

such as access to businessopportunity alerts andinormation updates.There is also a substantialamount o qualityinormation on theChina-Britain BusinessCouncil websitewww.cbbc.org

Another source oinormation is the HongKong Trade DevelopmentCouncil www.hktdc.comwhich can assist UKcompanies wishing to dobusiness with China viaHong Kong.

I AM THINKING

OF DOING

BUSINESS

WITH CHINA,

BUT DONTKNOW WHERE

TO BEGIN


14/103

WE PICKED OUT A FEW QUESTIONS OFTEN

RAISED BY COMPANIES AND ADVISERS.

ASK YOURSELF AND SEE IF YOU KNOW THE

ANSWERS BEFORE YOU START VENTURING

INTO CHINA.

What are the unique selling points to your

business proposition? Will there be amarket for your product and services?

Are there any legal barriers to your business model?

Where in China would you start?

Do you have sufcient resources

(management time, project nance and

expenses) to fund your China projects?

Who will be leading the project within your company?

Do you need to work with a partner in

China to succeed? Can you communicate

with them effectively?

Have you evaluated business risks (such

as protecting your IP) and conducted

research and due diligence?

Do you know how to secure payment and get the right quality products?

Rarely will one have answers to all the

questions above, and this knowledgegap forms the basis of further researchand investigation.

14


15/103

15

However, up-to-dateand reliable businessinormation to help guidebusiness strategies anddecisions can be hard tond in China, especiallygiven the pace and scale othe markets development.Obtaining dependableinormation and insightsrom secondary andpublicly available sourcescan oten be more dicultthan in Western markets.To gather intelligence,

there is greater reliance onprimary qualitative research(such as using in-depthinterviews).

Consultation andbespoke researchResearch based onsecondary inormation is

oten inadequate. Manywebsites and onlinematerials are written inChinese; the quality andreliability o content variesgreatly and sometimescertain inormation issimply unavailable. It isthereore essential to veriy

the initial research ndingsand conduct urtherinvestigation.

Oten this requiresmapping out a bespokeresearch brie with thehelp o specialists, andexploring what additionalinormation you mightneed to make an eectiveentry into the market, andhow you can make thecontacts vital to success.

UK Trade & Investment andthe China-Britain BusinessCouncil work closelytogether to oer a range o

support services to Britishbusinesses in the Chinamarket.

Speaking to an expertUK Trade & Investmentprovides support or UKcompanies through anetwork o international

trade teams (ITTs) basedin the English regions.UK Trade & Investmentservices are also availableto companies in Scotland,Wales and NorthernIreland.

To arrange a consultationwith your localInternational Trade Adviser,call +44 (0)20 7215 8000or use the database atwww.ukti.gov.uk

In addition to theinternational trade teamsacross the country, CBBChas a number o ChinaBusiness Advisers (CBAs)who have extensiveknowledge and practicalexperience o doing

business in China. Toarrange a consultation withone o the China BusinessAdvisers, please visitwww.cbbc.org/cba/


WHERE TO BEGIN (CONTINUED)


16/103

The Overseas MarketIntroduction Service(OMIS) is a UKTI servicedelivered by CBBC inChina. This service canassist you by undertakingtailored research usingour extensive network odedicated researchersacross China.

This can be used in a widevariety o ways to help yourbusiness with its particularneeds when entering the

Chinese market. Possibleways in which OMIS canhelp your business include:

Market research & analysis- Sector reports- Market initiatives- Regulatory environment- Market opportunities

Identication of localcontacts- Agents- Distributors- Suppliers- Potential partners

In-market activities

- Meeting arrangements- Event organisation, such

as workshops, seminars,promotional activities andproduct launches

For more inormationabout how OMIS might

be used to assist yourcompanys strategy orChina, please contactthe OMIS team on [email protected], orcontact your local UKTIInternational Trade Adviser.


WHERE TO BEGIN (CONTINUED)

16


17/103

17

Events and seminarsUKTI and CBBC organise alarge number o businessevents, seminars andworkshops in the UK andin China, covering a widerange o business interestsand issues. Not onlydo these events inormcompanies o businessopportunities and thelatest inormation aboutthe Chinese market, theyalso provide a valuableplatorm or networking

and sharing experiencewith like-minded peers,not to mention regularaccess to visiting Chinesedelegations.

Sign up to a orthcomingevent by visiting:www.ukti.gov.uk and

www.cbbc.org/events/

Market visits andtrade missionsVisiting China is aninvaluable part o theprocess o market entry.You will experience themarketplace rst-hand,and make the contactsnecessary to do business.This is essential, but will bemuch more eective withcareul planning.

UKTI and CBBC organiseregular trade missions

to China, where youcan benet rom groupactivities in addition toyour own programme.

The UKTI OMIS servicecan be used to supportvisits providing bespokemeeting arrangements

with appropriate potentialpartners, agents anddistributors or with relevantgovernment ocials.


18/103


19/103

For more information on any of these services please contact your localUKTI International Trade Team or the China-Britain Business Council

Further useful links:

British Diplomatic Posts in China: www.ukinchina.fco.gov.uk

British Chamber of Commerce in China: www.britcham.org

Export CommunicationsReview: assessment ofyour companys export

communications followed by

practical recommendations

for improvement (managed

by British Chambers ofCommerce).

Export Marketing ResearchScheme: providescompanies with the facility

to collect systematic and

objective market research

to assist in the development

of a market entry strategy(managed by British

Chambers of Commerce).

www.britishchambers.org.uk/exportzone

CBBC membership: couldhelp your business succeed

in China; please contact

CBBCs MembershipDirector Fenella Barber

on +44 (0)20 7802 2008 or by email at

[email protected]

Commercial enquiry servicein China and the UK:please contact [email protected]

with your questions.

Alternatively, please

call CBBC UK on +44 (0)20 7802 2000

or CBBC China on +86 (0)10 8525 3113.

Practical support:translation, interpretation

and logistics advice are all

available from CBBC.

FCO Country Updates:Reports by UK embassies

in key emerging markets,

providing authoritative

analysis and drawing on

high level government

and other contacts,

providing timely assessment

of key issues relevant to UK business.

www.ukti.gov.uk

The Sustainable CitiesInitiative: UK Trade &Investments Sustainable

Cities Initiative

encompasses the 3 Chinese

cities of Wuhan, Chongqing

and Changsha. The aimof the Initiative, which is

underpinned by Memoranda

of Understanding, is to

develop commercial

opportunities for UK and

Chinese companies in the

elds of sustainable and

environmental technologies,

ranging across industriesof urban regeneration, land

reclamation, renewable

energies, water, wastewater

management and treatment,

and emission reductions.

For more details on how the

Sustainable Cities Initiative

can help your companyplease contact peter.

[email protected]

19


20/103

20

MARKET ENTRY


21/103

21

YANGTZE RIVER DELTA

BOHAI RIM

CENTRAL

PEARL RIVER DELTA

NORTHEAST

SOUTHWEST

NORTHWEST

MARKET ENTRY

CHOOSING THE RIGHT LOCATION

Almost the same size as Europe, with twice the population, China shouldNOT be regarded as a single national market, but as a varied region madeup of over 30 different provinces and municipalities.


22/103

22

There are signicantdivides in Chinas regionaleconomies. Coastalprovinces in the Chineseeastern seaboard arethe most economicallyadvanced, beneting romhistorical trade links andbetter inrastructure. Theseregions were among therst to respond to thereorm and opening-uppolicy and have enjoyedsustained growth spurredby export and investment.

It is also noticeable thatthe majority (70 per cent)o the Chinese populationlive in the eastern part oChina. By contrast the vastinland regions in China aremore domestically orientedand more abundant innatural resources. However,

many o these regions arestill developing to catch upwith the coastal areas.

There are a number oregional economic hubswithin China, where severalcities interact to createa wider economic area.The most signicant arethe Bohai Rim region, theYangtze River Delta regionand the Pearl River Deltaregion.

The question o whereto start is oten asked bycompanies who are new tothe market, and those who

seek business expansion.China oers a wide varietyo potential locations, andbeyond the more amiliarestablished regions andcities it can be dicult orrms to choose.

MARKET ENTRY

CHOOSING THE RIGHT LOCATION

(CONTINUED)


23/103

23

Opportunities or UKcompanies in Chinasregional citiesTraditionally, businessinterest rom Britishcompanies has generallyocused on a ew businesshot spots, rst-tier citiessuch as Beijing, Shanghai,Guangzhou and Shenzhen.

However, these establishedmarkets are maturing;competition rom bothinternational and Chinese

players is intensiying;and actor input costs,especially the costs o landand labour, are rising.

In addition, the Chineseeconomy is increasinglyseeking growth drivenby domestic dynamism,

particularly consumptionand development in inlandand rural areas. Otenthe rate o developmentin the lower-tier cities isaster, and internationalcompetition is oten lower.

On behal o UKTI, acomprehensive researchreport was published inSeptember 2008 by CBBCand the University o Leeds.The study ound signicantopportunities or UKbusinesses in many citiesoutside o the traditionalinternational businesscentres.

Over 270 cities with apopulation o over onemillion were examined and

the report identies 35as most attractive or UKbusiness. Combined, these35 regional cities accountor around 16 per cent oChinas population and 36per cent o Chinas grossdomestic product (GDP).The majority o regional

cities are located on theeast coast, particularly inthe economically advancedregions o the Bohai Rim,the Yangtze River Deltaand the Pearl River Delta,and a number o inter-connected city clustersare developing.

The remaining cities aremore widely distributedthrough the country. Eachone o the 35 eaturedcities oers UK companiesparticular opportunities,as well as challenges, ina wide range o sectors.They do, however, sharecertain key characteristics,including rapid economicgrowth, lower input costs,large and developingconsumer and industrialmarkets, and strong local

government supportand policy momentumor regional economicdevelopment.

To access this report, sectorsummaries and city proles,please visit:www.ukti.gov.uk


24/103

24

MARKET ENTRY

WIDER OPPORTUNITIES IN GREATER CHINA

Greater China is a termoten used to reer tothe collective regions omainland China, HongKong, Macao and Taiwan,as these regions share closebusiness, ethnic, politicaland cultural connections.

Business opportunitiesin these regions shouldnot be overlooked, andwhile companies shouldreally treat these marketsas separate, Hong Kong,

Macao and Taiwan mayalso provide a gatewayto business success inmainland China, aswell as in the widerAsia-Pacic region.

Hong Kong and MacaoUK companies nd Hong

Kong a traditional gatewayto business in mainlandChina. There are signicanthistorical and cultural linksbetween Hong Kong andBritain, and it remainsthe UKs second-largestmarket in Asia.

As one o the worlds mostree economies, Hong Kongoers a great businessenvironment. It benetsrom a transparent legalsystem, English is spokenas an ocial language andit is a global centre ortrade, services, nance andinnovation.

Since the 1997 handoverHong Kong has remaineda prosperous businessdestination and there are

ever-closer ties with theeconomic development othe mainland. A quartero Chinas trade passesthrough Hong Kong, whichis also the largest investorin every province in China.Hong Kong companieswere the rst to move their

manuacturing operationsto the Pearl River Deltaregion o China, and thereare over 70,000 Hong Kongcompanies in GuangdongProvince alone, employing11 million people.


25/103

25

There is also a tradeagreement betweenChina and Hong Kong the Closer EconomicPartnership Agreement(CEPA) which gives HongKong preerential access toChinas markets.

Similarly to Hong Kong,Macao is also administratedunder the one country,two systems rule andthe city-region oersopportunities in sectors

such as gaming/leisure,tourism and inrastructure.

TaiwanTaiwan rose to globaleconomic recognition in the1980s as one o the AsianTigers. Having a stablelegal system and nancialindustry, Taiwan hasspecic strength in oeringcompetitive and innovativemanuacturing solutionsto global companies. Witha high degree o globalsupply chain integration, UKcompanies may nd Taiwanan attractive destination

to provide value-addedproducts and services.There is potential toleverage the considerablecommon ground onbusiness, culture andlanguage that theTaiwanese share with themainland and other Asian

countries.

Taiwan is a major investorin China with morethan 70,000 Taiwanesecompanies operatingon the mainland. Up to70 per cent o Chineseelectronics are producedby Taiwanese-investedrms and some 500,000Taiwanese live in Shanghaialone. Cross-straitsrelations have improvedsignicantly since 2008,direct fights are nowpermitted and Chinese

investment is allowed toenter the Taiwan market.


26/103

Hong Kong(covering Macao)British Consulate-General

No1 Supreme Court Road,Central, Hong Kong,

(P O Box 528)

Tel: (852) 2901 3182

Fax: (852) 2901 3066

Email:

[email protected]

Website: www.britishconsulate.org.hk

Hong Kong TradeDevelopment Council16 Upper Grosvenor Street,

London W1K 7PLTel: +44 (0)20 7616 9500

Fax: +44 (0)20 7616 9510

Email:

[email protected]

Website:

www.uk.hktdc.com

TaiwanBritish Trade and

Cultural Ofce

President InternationalTower,

26th Floor, 9-11

Song Kao Road,

Taipei, 100, Taiwan

Email: [email protected]

Website: www.btco.org.tw

USEFUL CONTACTS IN HONG KONG AND TAIWAN

26


27/103

27

MARKET ENTRY

ESTABLISHING A PRESENCE

IntroductionGiven Chinas sheer size,complex and changingbusiness environment,as well as culture andlanguage barriers, it is notan easy market to enterand exit with a quickwin. To succeed in Chinarequires careul businessplanning and execution.Foreign companies needto take time to build uptheir business networkand credentials and

to demonstrate theircommitment. Otenthis requires somesort o presence in themarketplace, whetherdirectly through your ownbusiness operation, orindirectly, working througha strategic partnership such

as an agent or distributor.

Agents and distributorsAn agent is a companysdirect representative ina market and is paidcommission, while adistributor sells products onto customers ater buyingthem rom the manuacturer their income comes romthe prots they make onthe dierence.

Market entry throughworking with an agentor distributor can have

several advantages, suchas reducing time andcosts to market entry aswell as gaining the localknowledge and network othe agent.

However, there are somedrawbacks to this approach.Employing a third partyresults in an additional cost toyour products and you mayalso lose some control andvisibility over sales/marketing.It also has implications orintellectual property rightsprotection, increasing the risko your product being copiedor countereited.

Given the aboveconsiderations, companies

need to select agentsand distributors careully.Some o the requentlyasked questions are in theollowing checklist. Youshould also conduct duediligence to veriy thisinormation.


28/103

28

Background Company size, history

and ownership (private orstate owned)

Quality and quantity ofthe sales orce

Customer feedback andtrade/bank reerences

Distribution channels Regional coverage

Types of outlets covered

and requency o calling

Transportation andwarehousing acilities

Are they right or you? Does the agent/distributor

have a genuine interestin representing yourproduct?

Can they benet fromactively promoting yourinterests (is it a win-win)?

Do they also representany competingcompanies/products?

Can you communicate

eectively with yourcounterpart?

Once a working relationshipis established, the agent/distributor needs to bemanaged actively; this maybe achieved by the ollowing:

MARKET ENTRY

ESTABLISHING A PRESENCE (CONTINUED)


29/103

29


30/103

30

Visiting as regularly asis practicable at a seniormanagement level thisshows interest in, andcommitment to, theagent and the market.This will also provide youwith an opportunity tolearn about conditions inthe market and see howyour products are aring.

Working closely with theagent to show them howthey can prot rom your

products.

Helping to preparemarketing and sales plansor the agent.

Providing regular training or the salessta and ater-sales

training or the technicalsta in the UK.

Linking performance toincentives and agreeingmilestone targets.

There is additionalguidance on workingwith Chinese partnersin later sections o thisChina Business Guide.

Establishing apermanent presenceAlthough it is possibleto be representedthrough agents ordistributors, many oreigncompanies progress tothe establishment o apermanent presence in

China, as their experienceand condence grow.Having a permanentpresence in-market canprovide several possiblebenets, including:

MARKET ENTRY



31/103

31

Market presence showing commitment.

Cutting out the middleman direct accessto the end customer/supplier.

Direct control overcorporate strategy andactivities.

Enables trading in localcurrency and eases theconduct o business

transactions.

Fulls a legal requirementto have a permanentpresence (relevant incertain business activitiesand sectors).

There are a number ostructures that alloworeign invested enterprises(FIEs) to conduct variousbusiness activities. Theseinclude representativeofces, joint ventures,wholly oreign-ownedenterprises, and oreigninvested commercialenterprises. Each o thesestructures has uniqueadvantages, restrictionsand drawbacks, and it isessential to choose the

option best suited to yourbusiness aims.

The rules and regulationsregarding oreign directinvestment and FIEs haveevolved gradually sinceChina began opening up tooreign business activities.

Since Chinas accession tothe WTO there have been anumber o amendments toregulations, easing marketentry or internationalcompanies across a rangeo sectors.


32/103

32

Companies that desire apermanent presence haveto set up operations as anappropriate legal entity,depending on the intendedbusiness scope, and becompliant with Chineselegal and tax requirements.It is usually more dicultto alter a business structureonce a legal entity isincorporated or established,so it is vitally important toseek proessional advice onyour investment structure

during the early stages oplanning. You must ullyunderstand your intendedbusiness activities in China(or the short and longterm), whether they arepracticable, any legal andsector barriers to entry, andin turn what the suitable

vehicle is or you.

UK Trade & Investment andthe China-Britain BusinessCouncil can oer dedicatedone-to-one consultingand incorporation servicesto assist UK companiesestablishing various kindso permanent presence inChina. Please contact oneo our oces or moredetails.

Representative ofcesRepresentative oces areoten the rst step taken

by oreign companies whenestablishing a permanentpresence in China. Theyprovide a vehicle throughwhich the oreign investorcan undertake activitiessuch as market research,customer liaison andsupport. Representative

oces can also organisebusiness visits romcompany headquarters,which can make theobtaining o business visasor visitors much easier.Public relations work andlocal administration arealso permitted.

MARKET ENTRY



33/103

However, a representativeoce cannot conductsales activities. This meansthey cannot sign contracts,receive income, or issueinvoices and business taxreceipts.

Joint VenturesA joint venture (JV) is anorganisation jointly ownedby one or several Chineseand oreign partners. AJV can be ormed by wayo equity contribution,

where ownership, risk

and prot are sharedbased on each partysmonetary contribution.Alternatively, a JV canalso be incorporatedwith liabilities and protdistribution being decidedby contractual agreement.

33


34/103

Joint ventures may bebenecial in a number oways. A good local partnermay contribute marketknowledge and strongmarketing and distributionchannels, and they mayhelp reduce the costs andrisk o market entry. Incertain restricted sectors,such as automotive andinsurance, orming a JVwith a Chinese companyis still the only permittedroute or establishing a

permanent presence inChina.

MARKET ENTRY


ESTABLISHING A PRESENCE THROUGH

THE CBBC LAUNCHPAD SCHEME

Under current regulations foreign companies are

unable to employ Chinese staff legally unless the

company is registered in China. CBBCs Launchpad

Scheme enables UK companies to establish a

presence in China by having a local CBBC project

manager based in one of CBBCs ofces and

working exclusively on their behalf. The scheme is a

fast and cost-effective way of enabling companies

to try out the China market before committing to a

permanent presence. More details of this service

can be found on the CBBC website:

www.cbbc.org

34


35/103

35

The challenge oestablishing and runninga successul joint ventureis nding and nurturingthe right partnership.Partners have to overcomeissues such as mismatchedexpectations anddierences in businessculture and practices.The ability to maintaineective communication,and control wherenecessary, is also crucial. Itis essential that you carry

out corporate and nancialdue diligence beore yousign up to any partnership.Companies should alsoplan an exit strategy. Likea marriage, it is betterto have a pre-nuptialagreement than a messydivorce.

Foreign InvestedPartnerships (FIP)On 1st March 2010, rulescame into eect allowingoreign individuals ororganisations to participatein partnership enterprises,oering a urtheralternative to representativeoces, joint ventures,WOFEs or FICEs.

FIPs allow or partnershipsbetween two or moreoreign parties (with all

organisations or individualsbeing rom outsideChina), or a combinationo oreign and Chineseorganisations or individuals.FIPs also allow ororeign partners to joinan existing partnershipset up wholly by Chinese

partners (including thetranser o a partnershipstake to a oreign entrant).Investment capital can bein oreign currency or inRMB. It is essential thatthe liabilities o all partners

are careully addressedbeore entering into the

partnership.

FIPs do not need to beregistered through theMinistry o Commerce, theyonly require registrationthrough the Administrationor Industry and Commerce.However, businesses incertain sectors will need tocomply with other specicregulations when applyingor registration. FIPs arebound by Chinas industrialpolicies regarding oreigninvestment, and are onlypermitted i the Catalogue

or the Guidance oForeign Invested Industriesallows 100 percent oreignownership. In somerestricted sectors JVs arethe mandatory vehicle orinvestment, and FIPs willnot be allowed.


36/103

36

Wholly oreign-ownedenterprises (WFOE)A wholly oreign-ownedenterprise (WFOE) is acompany incorporatedin China that is 100 percent owned by a oreignorganisation(s).

Where permitted, WFOEsare now a popular optionor oreign businesses, as itgives the investor completecontrol over their businessentity as well as enjoying

the ull prot rom itsoperation. Generally, WFOEsalso give greater protectionto the investors intellectualproperty rights, compared toa joint venture.

WFOEs are the appropriatestructure or companieswhose main activities inChina are to manuactureand sell products, orprovide services suchas R&D or businessconsultancy. A WFOEallows the oreign investorto issue invoices andreceive revenues in RMB(the Chinese currency) thatcan then be converted andrepatriated out o China.

Foreign-invested commercialenterprises (FICE)Since 2004, oreign-investedenterprises have been allowedto engage in businessactivities such as wholesale,retail, logistic services,agency services, ranchisingand direct importing and

exporting. To achieve this,new and existing investorscan apply to incorporatea business entity under aspecial category ooreign-owned enterprise,known as a oreign investedcommercial enterprise (FICE).

MARKET ENTRY



37/103

37

Incorporating in ChinaIn the UK, incorporatinga company takes a ewdays, whereas establishinga permanent presencein China, whether aWFOE, a FICE or evena representative oce,may take a ew monthsand involves a complexprocess through whichthe oreign investor willobtain the various requiredapprovals. It is likely thatthe oreign company

will require proessionalsupport on various aspectso business incorporation,including tax planning,legal advice and projectmanagement. In someregions in China, oreigncompanies are required touse a government certied

Filing Agent to handlethe application process.

CBBC provides detailedguidance on variousissues regarding businessincorporation in Chinaand oers a managedincorporation service. Thereare also many proessionalservices rms in the privatesector who can help withthis process.


38/103

38

GETTING STARTED


39/103

39

GETTING STARTED

FINDING A CUSTOMER OR PARTNER

Once you have identiedwhere you would like tostart and the best marketentry option or yourcompany, the next step isto nd potential customersor partners or yourcompany.

The ollowing are alleective ways o ndingpotential customers,agents, distributors orpartners:

UK Trade & InvestmentsOverseas MarketIntroduction Service(OMIS):This can be used to tailor-make a list o potentialcustomers, agents,distributors or partnersand arrange a programme

o meetings with them orwhen you visit China. InChina, CBBC provides OMISservices on behal o UKTrade & Investment.

OMIS can also be used toengage CBBC to arrangea technical seminar orproduct introduction eventin China, which can be aneective way o gettingyour message across toa number o potentialcustomers.

Attend trade shows andexhibitions:Numerous trade showsand exhibitions take placein mainland China and

Hong Kong throughoutthe year and these can bean excellent way to meetpotential customers ace toace. However, arrangingappointments in advanceto meet pre-identiedcontacts at niche industryevents is essential i you

want to make eective useo your time.

Take part in a UK Trade& Investment-supportedtrade mission:UK Trade & Investmentsupports a large number otrade missions to mainlandChina and Hong Kongorganised by CBBC, tradeassociations and localchambers o commerce.


40/103

40

GETTING STARTED

DUE DILIGENCE

The vast majority oproblems that oreigncompanies encounterwhen engaging in businesstransactions in Chinacould have been avoidedby carrying out some duediligence at the start oproceedings.

There are dierent levelso due diligence that areappropriate or dierentsituations. I your soleinterest is in exporting, the

best proo o a Chinesecompanys ability to payis whether it is able toraise a letter o creditrom the bank. I so, youdo not need to checkthe companys nancialstanding as the bank willhave already done so. At

the end o 2008 Chinascredit database containedthe personal records o640 million individuals and14.47 million companiesand is the largest creditinormation pool in theworld. The databaseincludes loan, credit card

use, insurance and billpayment inormation o

individuals and companiesand is used by nancialinstitutions in China tomake personal credit checkson loan applicants andcarry out due diligenceon registered Chinesecompanies.

One simple piece o duediligence you can conductis to get a copy o acompanys business licencewhich will tell you theollowing:

The legal representativeo the company

The name and address o the company

The amount of registeredcapital which is also its

limited liability

The type of company

The business scope

The date it wasestablished and theperiod o its business

licence


41/103

41

You should check that theinormation containedin the business licencematches what you alreadyknow and i it doesnt thennd out why. I you wantto veriy the inormationexternally you can doso through the StateAdministration o Industryand Commerce (SAIC). Thelocal AIC bureau is theChinese equivalent o theUKs Companies House.All companies in China are

legally required to registerwith their AIC bureauat the municipal levelto obtain their businesslicence.

You will have more securityi you know who thelegally responsible personis, so nd out who you aredealing with. I problemsoccur, it will be much easierto address issues with thelegally responsible person,rather than a middle man,who may go missing whenproblems arise.

The shareholders o thecompany are responsibleor that amount o

liability listed as registeredcapital on the companysbusiness licence. You cancheck whether or not theregistered capital has beenpaid up by using a rmo accountants to get aCapital Verication Report.

I you want to establish abusiness relationship thatgoes beyond exporting,you will need to carryout urther research. Athorough evaluation oyour potential partnermay be time-consumingand expensive, but doingso will greatly reduce therisk o serious problemsin the uture. However, itis not enough to obtaina copy o a companysaccounts, as they may not

be accurate. Accounts areunlikely to be audited tothe standards routinelyexpected in the UK, andcompanies may havedierent sets o accountsor dierent audiences,so it is advisable to usesuch data in conjunction

with inormation obtainedelsewhere.


42/103


43/103

43

GETTING STARTED

EMPLOYING STAFF

Finding the people youneed to run your businessin China is not signicantlydierent to recruitment inthe UK. There are severalrecruitment agenciescurrently operating in China,and most operate under thesame standards that youwould expect o a rm inthe West. They will do thesourcing, pre-interviewing ocandidates and charge youa percentage o the placedstas rst year earnings or a

one-o ee.

In addition, there are anumber o recruitmentwebsites advertisingor both jobseekersand employers, whichcan be highly eective.Another option is torecruit rom the hugeChinese population at UKuniversities. Visa regulationsallow Chinese graduatesto undertake training andwork experience in the UK,beore moving to China totake up positions.

One challenge thatcompanies recruitingin China will ace is theincreasing competition orexperienced managers andhigh-calibre individuals,and as Chinas economycontinues to grow thiswill only intensiy. Skills

levels o employees canbe an issue at all levels; inmany locations demand orskilled workers outstripssupply. Local educationestablishments will otenassist with collaborativeprogrammes, but this canhave signicant lead time.


44/103

44

Local and oreigncompanies are recruitingrom the same pool oemployees who havethe right technical andlanguage skills as well asmanagerial experience.Candidates with therequisite skills andexperience will be indemand and commandhigh salaries. I you arenot prepared to oerappropriate remuneration,you will have great

diculty hiring peoplewith these skills. Manyemployees will leave theircurrent companies or onesthat are oering betterremuneration packages.

You will need to determinewhat you are willing topay at the beginning othe recruitment process.It is important to notethat salaries in China haveincreased over the last ewyears and will continueto do so. It would beadvisable to conduct somemarket research to get aclear idea o appropriatesalary levels or thepositions you wish to ll sothat you can make an oer

that is in line with currentmarket rates.

When you are recruiting inChina make sure that youcarry out all the normalsteps that you would irecruiting in the UK.

Ensure that candidatestechnical and linguisticcapabilities matchtheir claims:It is essential to hire stawith the right languageskills. Common mistakesinclude hiring Chinese starom outside mainlandChina who do not speakMandarin to the levelrequired, or alternativelyhiring sta whose businessEnglish is not sucientlyfuent or their role.

GETTING STARTED

EMPLOYING STAFF (CONTINUED)


45/103

45


46/103

46

Ensure that you hiresta at the right levelor the role:A recent MBA graduatereturning rom overseasmay not have theexperience to navigate thecomplexities o setting up acompany in China withoutseeking proessional advice,and they may not havethe capabilities to developbusiness at a senior level.

Carry out due diligence:

To ensure that the stayou are hiring are rightor your company, itis essential to ensurethorough due diligence inrecruitment, especially orsenior managers, includingconducting personalbackground checks and

checking all reerencesbeore oering them theposition.

Oer appropriatecompensation:Once you have ound theright sta you will need togive them good reason tostay with your company.You will need to providesucient compensationto ensure that yourecruit and retain thebest employees. Oeringemployees the opportunityto train overseas is alsovery attractive at all levels,although make sure that

in return or providingsuch training they makea commitment to staywith your company. Inaddition, be sure to investin the mentoring oChinese management-leveltalent; this can be doneby giving them experience

o working around theorganisation and groomingthem or global corporatepositions. A clearly denedcareer progression route isalso attractive and will helpto retain sta.

GETTING STARTED

EMPLOYING STAFF (CONTINUED)


47/103

47

A lot o smaller companiessetting up an oce inChina may well just employone person to deal withall aspects o running thebusiness. Although thismay be convenient andcost eective, it might notbe the best way to runyour China operation. Staselection will prove vital,although the individualmay be very willing,honest and capable, theymay not be competent or

experienced in internationalbusiness practices. Also,oreign companies in Chinaare at the top o ocialradar screens. I youremployee is not amiliarwith the relevant Chineserules and regulationspertaining to the running

o an international oce orbusiness in China, then youmay soon have to deal withissues o noncompliance,which can be very costly.In addition, having oneperson in control o allnancial and legal aspectso the business is obviously

risky. An attractive solution

to this problem would beto use a service such asCBBCs Launchpad Schemewhere companies can havea representative locatedin one o CBBCs Chinaoces and benet romthe support o CBBCsmanagement and localteam.

I you are employingsta in China you willneed to make sure thatyou comply with Chinas

Labour Law, which cameinto eect on 1 January2008. According to thislaw all employees musthave a written contract. Ithis is not signed withinone month, then you willhave to pay the employeedouble their salary or every

month they are withouta contract. I they arestill without a contractater a year then they areautomatically deemedto be on an open-endedcontract. It is importantthat the employee receivesan original copy o the

contract signed by the

employer and that theemployer gets the employeeto sign that they havereceived the contract.It is also very importantthat, in addition to thecontract, all employees aregiven (and sign to say theyhave received) a companyrulebook detailing allaspects o your companypolicy and what behaviouris and isnt acceptable.I there are any cases omisconduct you will nd

it almost impossible toterminate sta employmentwithout written evidence,so make sure that suchevidence is documented.

There is additionalinormation on employingsta on the CBBC website

www.cbbc.org and manyinternational law rmshave guides to the newemployment laws on theirwebsites.


48/103


49/103

While an increasing numbero Chinese companies particularly those with aninternational outlook haveEnglish speakers on theirsta, dont assume thateveryone in the companyspeaks English especiallydecision-makers. Atthe very least, get aChinese name or yourcompany and prepare aone-page company prolein Chinese or insertion intoyour company brochure

and website. A Chinesetranslation o your brochurewould be even better.

Business cards are essential.It is wise to have yourbusiness card translatedinto Chinese, and to bringplenty with you.

Ensure that all yourtranslation is doneproessionally. For namesit is important to usecharacters which notonly represent the wordphonetically but also havea symbolic or auspiciousmeaning, it is worth talking

through the choice ornames with your translator.There are numerous

translation and interpretingagencies which can carryout suitable translations opersonal names as well asgeneral translation work.Many o them will also beable to help you addressthe branding issues detailedbelow.

49


50/103

50

GETTING STARTED

MARKETING

The Chinese market isconstantly changing, butas income levels rise acrossChina there will be anincreasing number o newconsumers and rst-timebuyers who will wish topurchase and experiencenew products and services.However, the Chinesemarket is evolving rapidlyand to win these newconsumers over you willneed to continually reassessyour marketing strategy.

Tradeshows andexhibitions have alreadybeen mentioned as wayso meeting potentialcustomers, but you stillneed to persuade them tobuy your product. You willneed to ensure that your

sales literature is eectivein English and Chineseand decide what kind oadvertising is appropriate.

You may need to adaptyour product to meetChinese preerences orrequirements in order tobe able to sell it. Ignoringlocal regulations, tastes andcultural preerences is arecipe or ailure.

For example, a lot oChinese consumers attachmuch more importance tothe unctional aspect omany products than wedo in the UK, so Chinese

marketing campaigns mayocus on these eaturesrather than on what theproduct says about you asan individual.

Also, the concept oauspicious and inauspicioussymbols, is emotionallyimportant to many peoplein China. Many companiesmake use o positivesymbols and avoid thosewith negative connotationsin order to maximise thesuccess o their products.For example, the number 4is regarded as unlucky, asthe word our in Chinesesounds similar to the wordor death, but 8 is regarded

as lucky, as eight soundssimilar to the to words orprosperity and wealth.

We recommend thatyou involve a specialistconsultancy that candevelop a marketingstrategy appropriate to

your product and to theareas o China where it willbe sold.


51/103

Cultural issues relatingto marketing

The concepts o good and bad luck, or

auspicious and inauspicious symbols, areemotionally important to many peoplein China. Thereore, in order to maximisethe success o your products, make useo positive symbols and avoid those withnegative connotations.

4 is regarded as unlucky, as four itsounds similar to the word or death.

7 also has negative connotations.

8 is regarded as very lucky, as eightsounds similar to the words or prosperityand wealth. 3 is also lucky, as it soundssimilar to the word or liein Cantonese.

9 is also positive as it sounds like

the word or eternity or long term,while 6 sounds similar to good progress.

Red and yellow/gold are regarded as lucky, but avoid white, whichis associated with mourning.

Use images of auspicious animals: dragon,phoenix, unicorn, tortoise (the Buddhistsymbol o learning), crane and sh.

Images of the Great Wall indicate stabilityand reliability.

Avoid name plaques for openingceremonies, as these are equivalentto your standing next to your tomb!

Also avoid black borders around names

or photos o people, since this is alsoassociated with death.

51


52/103

52

GETTING STARTED

BRANDING

Conventional marketingwisdom says that globalbrand consistency isimportant, but the Chineselanguage presents somevery specic brandingissues. In order to createa avourable impressiono your company andyour brand in China, it isessential to have a namethat Chinese consumers canremember.

I a product name cant be

remembered, it is unlikelythat many people will buyit. It is thereore essentialto have a suitable Chinesecompany and productnames in order to sell yourproducts. I your targetmarket is mainland China(as opposed to Hong

Kong), it is not advisableto have a Cantonesetranslation o yourcompany name, as this willnot be readily understoodoutside Hong Kong.

The Chinese translation oCoca-Cola is an example obest practice and highlightsthe issues involved increating a suitable name.Coca-Cola in Chineseis Kekou-Kele whichnot only sounds like theEnglish but can also betranslated as Tasty andJoyul, thus creatinga name that is easilymemorable or Chinesespeakers while retainingsome degree o global

consistency.

Another good examplewould be B&Q, whoseChinese is name ispronounced Bai An Juand can be approximatelytranslated as HundredPeaceul Homes.

A translation o a Westerncompany name that isperhaps not quite asgood as it could be is thetranslation o Google intoGu Ge which, althoughsounding similar, meansSong o Millet!

Its advisable to spendsome time on getting thisright. The name is, aterall, the rst thing yourpotential customers willsee. There is no right or

wrong when translatinginto Chinese: the nameyou will ultimately end upwith will be a combinationo the translatorsrecommendations and yourown preerences.

A list o Chinese translators

and interpreters can bedownloaded romwww.ukti.gov.uk


53/103

53


54/103

54

GETTING STARTED

DAY-TO-DAY COMMUNICATIONS

Once you have madecontact with a Chinesecompany it is likely thatyour day-to-day phone andemail communications willbe in English withone o the companysEnglish-speakingmembers o sta.

I you do not think thestandard o English inthe Chinese company isup to scratch, you mightwish to ask or parallel

Chinese texts and get themtranslated; this could bea valuable investment.An important part osetting up arrangementsin China is to ensure thatcommunication issues arecovered in detail.

I you are going to signanything as obviousas it sounds make sureyou get it translated rst,and by an independenttranslator. Do not rely

on your customers orsuppliers translation anddo not be pressured intosigning anything that youdo not ully understand.

Most ailures occur inrelationships because oractured communicationsand mutualmisunderstandings.

I China is likely to becomea signicant part o yourbusiness, you should

consider hiring a Chinese-speaking member o sta.There is a rich pool otalent in the huge numbero Chinese studentsgraduating rom Britishuniversities, who are keento have internships orshort-term employment in

the UK beore returning toChina. These students canalso be recruited throughspecialist recruitmentagencies.


55/103

You may also wish totake up the challenge olearning Chinese yoursel even having a basic level ocommunication will createa positive impression andwill have the added beneto making your trips toChina more enjoyable.

However, even i youdo attain a reasonablelevel o fuency (whichcan take over two yearswith dedicated study),

an interpreter ora Chinese-speakingmember o sta is stillan essential in businessmeetings.

A NOTE ON NUMBERS

Large numbers are

particularly tricky and

often interpreted wrongly,sometimes leading to a

mistake between millions

and billions. For example,

10 million translates into

Chinese as 1,000 ten

thousands; 100 million has

its own character as ;and 1,000 million or one

billion translates as

. There is plenty of

scope for confusion. Get

numbers written down in

Arabic numerals.

55


56/103

56

GETTING STARTED

INTERPRETERS

A growing number oyounger Chinese managersand government ocialsspeak English to a goodstandard, particularly inadvanced sectors such asICT. But you will usuallyneed to use an interpreteror ormal meetings andnegotiations in China toprevent the discussionsbeing hampered bymisunderstandings. A goodinterpreter is the key tosuccessul communication.

I they have not understoodwhat you have said, yourmessage will be lost onyour audience.

There are two orms ointerpreting. Consecutiveinterpreting means youspeak and then yourinterpreter speaks; thisis the usual orm ormeetings, discussions andnegotiations. Simultaneousinterpreting involves theimmediate translation oyour words as you speakthem. This requires specialequipment and can beexpensive. It is generallyused only or large

seminars and conerences.Interpreting is a skillrequiring proessionaltraining. Bear in mindthat just because someoneis fuent in English andChinese it does notnecessarily mean thatthey will make a good

interpreter.

A GOOD

INTERPRETER IS

THE KEY TO

SUCCESSFUL

COMMUNICATION.


57/103


58/103

58

GETTING STARTED

INTERPRETERS (CONTINUED)

Try to involve yourinterpreter at every stageo your pre-meetingarrangements. The qualityo interpretation willimprove greatly i youprovide adequate briengon the subject matter.Ensure your interpreterunderstands what you areaiming to achieve.

Speak clearly and evenlywith regular breaks orinterpretation. Dont ramble

on or several paragraphswithout pause. Yourinterpreter will nd it hardto remember everything youhave said, let alone interpretall your points.Conversely, dont speakin short phrases andunnished sentences. Your

interpreter may nd itimpossible to translate themeaning i you have let asentence hanging.

Avoid jargon, unless youknow your interpreteris amiliar with theterminology.

China has no single numberor million or billionwhich are translatedrespectively as one hundredten thousand and tenhundred million. However, itdoes have unique numbersor ten thousand and onehundred million - wnand y. Thereore, the

chance o mistranslationo large numbers is high,so make sure you clariynumbers by writing themdown.

Listen to how yourinterpreter interprets whatyou have just said. I youhave given a lengthyexplanation but theinterpreter translates itinto only a ew Chinesewords, it may be that theyhave not ully understood.Or they may be wary opassing on a message thatis too blunt and will notbe well received by theaudience.

Make sure your messageis getting through clearlyand in a tone that will notcause resentment. But beprepared in the responseor the propensity o theChinese language to beambiguous.


59/103

59


60/103

60

BUSINESS ISSUES AND CONSIDERATIONS


61/103


INTRODUCTION

Market access

Beore attempting toenter the Chinese marketit is important to identiywhether the market isopen to you and whetherrestrictions apply. Certainsectors, or examplemilitary, are subject to UKcontrols and these can be

identied rom theUK Strategic ExportControl Lists.

The Chinese Governmentclassies the market ororeign investment or

entry into three categories:

encouraged, restricted andprohibited. The abilityo a oreign company tooperate in China varies inline with these, so in somesectors it is possible to setup a 100 per cent oreign-owned company, but inothers entry is possible only

through a local partner,and in some it is notpossible at all. With someproessions, or examplelegal, it is possible to enterthe market, but operationis severely restricted.

It is important to

understand your reedomto enter the market. Reerto the ocial Catalogueor the Guidance o ForeignInvestment Industries,published by the ChineseMinistry o Commerce(MOFCOM), and seekadvice rom UKTI, CBBC

or proessional servicescompanies.

The Chinese market can be more complex for uninitiated companies than other

international markets. The challenges of a huge market with a different business

culture and language are compounded by a controlled currency and relative newness

of international trading in modern China.

Whether buying, selling or investing, whether dealing in physical products or

knowledge, it is important to be aware of the complexities and risks. None are

insurmountable, but they do require time and resources.

The main points are covered below, and there is a wealth of information on both

the UK Trade & Investment and China-Britain Business Council websites:

www.ukti.gov.uk and www.cbbc.org.

61


62/103

The risk o IPR abuse iscommonly cited by UKcompanies as one o themain deterrents to doingbusiness in China. In realitythe situation is complexand in a recent surveyUK companies activelyinvolved in the Chinesemarket placed IPR ninth ina list o challenges. Fromhaving no IP protection lawin the late 1970s, Chinahas progressively enactedlegislation to the point

where it broadly matchesor exceeds our own.However, enorcementhas been an issue. Chinais a large country with astrong regional governmentsystem (regional andlocal authorities maynot be as committed to

protecting IPR as centralgovernment, particularlyi a actory producingcountereit goods is amajor employer in an areao high unemployment)and a very young IPRhistory. Substantialprogress in enorcementhas been made in recentyears, partly driven by therise o home grown IPRdeveloped and ownedby Chinese companiesthemselves. The number

o patents being led byChinese organisations israpidly increasing, and alarge number o Chinesecompanies are using thelegal system, successully,or redress where they haveaced inringements.


INTELLECTUAL PROPERTY RIGHTS (IPR)

FROM HAVING NO

IP PROTECTION

LAW IN THE LATE

1970s, CHINA HASPROGRESSIVELY

ENACTED

LEGISLATION

TO THE POINT

WHERE IT BROADLY

MATCHES OR

EXCEEDS OUR OWN

62


63/103

63


64/103

64

UK companies areincreasingly indicatingsupport on IP issues romlocal Chinese authorities.However, it is stillimportant to consider thethreat o IPR abuse o yourproducts or services. Aspart o your market entrystrategy you will need toestablish how you canprotect your rights, howmuch it will cost and whatother steps you could take,such as including IPR in

due diligence checks andmonitoring the market orpossible inringements.

Trademarks and logos canbe a particular issue. Unlikemany other countries, therst person to register atrademark in China is thelegal owner, and i youhave been pre-empted,then lengthy cancellationand court proceedingswill be necessary, with noguarantee o success.It is important to considerthis beore entering themarket whether you areselling or buying as it has

been known or Chinesemanuacturers to registerthe trademarks o oreigncustomers.


INTELLECTUAL PROPERTY RIGHTS (IPR)

(CONTINUED)


65/103

65

It is wise to take apractical, as well as a legalview, on IP protection. Insome cases, or examplewhere existing patents areseveral years old, patentregistration in China isnot possible; also, smallercompanies may strugglewith the costs involved.Practical steps includechoosing partners careully;developing businessrelationships that are omutual benet and hence a

deterrent to inringement;retaining key elementso IP; and working withseveral partners, rather thanputting all the eggs in onebasket.

UK Trade & Investment andthe China-Britain BusinessCouncil provide detailedguidance on protectingintellectual property andthis can be accessed viawww.cbbc.org andwww.ukti.gov.uk. Anexperienced independentIPR lawyer is invaluable inhelping you to establishthe best strategy or yourcompany.

Companies can also

obtain ree adviceand assistance rom ajoint EU and Chinesegovernment-undedproject EU-China IPR2via www.ipr2.org, whichaims at supporting rights-holders and improving IPenorcement in China.


66/103

66

All overseas productsimported into China arechecked and certied bythe domestic and overseasarm o the GeneralAdministration of QualitySupervision, Inspectionand Quarantine of thePeoples Republic o China(AQSIQ). Two agencies ofAQSIQ, the Certicationand AccreditationAdministration o thePeoples Republic oChina (CNCA) and

the StandardisationAdministration o China(SAC) are responsibleor certication andstandardisation in China.

Generally, but notexclusively, Chinesestandards match ISO, ANSI

or BS/EN. When importinginto China, Chinesestandards take precedenceover oreign standards,so it is essential that yourproducts adhere to theapplicable Chinese laws,regulations, standards andcertication requirements.


CERTIFICATION AND STANDARDS


67/103

Chinese standards aredivided into MandatoryStandards and VoluntaryStandards. MandatoryStandards are thoseconcerning the protectiono human health, personalproperty and saety andthose enorced by laws andadministrative regulations.Standards that all outsidethe above criteria areknown as VoluntaryStandards. Certain marketsectors, such as medical

products and ood, requireextensive registration(and possibly testing) andcertication. Here it isimportant to seek advicerom UKTI or CBBC.

The China Compulsory Certicate (CCC) is acompulsory quality and safety mark that isrequired for a range of manufactured goodsbefore they can be exported to or sold inChina. CCC certication is required for a wide

range of products that could impact on humanlife and health, animals, plants, environmentalprotection and national security. Goodsimported into China that require the CCC markand do not have it may be held at the borderby Chinese Customs and may be subject toother penalties. Both the CNCA and the SAChave English language websites providing

comprehensive information on certicationand standardisation: www.cnca.gov.cn/cnca/and http://www.sac.gov.cn/templet/english/

67


68/103

68


69/103

69

Currency exchange andtranser o unds Many Chinese companiespreer to be invoiced in USdollars, particularly i theyare already doing businesswith the USA, althoughit is sometimes possibleto negotiate contracts ineuros or even sterling.Conversion o the ChineseRMB to oreign exchangeis strictly controlled by theState Administration oForeign Exchange (SAFE),

a government department,which regulates transerthrough the bankingsystem. This aects allnancial transactions, romthe ability to purchaseChinese RMB beoretravelling, to contractualpayments and dividends.

Small transactions, such asthe use o ATMs and creditcards, are straightorward,but the controlled currencymeans that you need tobe more careul in setting

up contracts and investingin the market. Companydividends may only be paidannually, ollowing audito accounts by an approvedaccountancy rm.

Contracts and payment. As covered under BusinessCulture below, contractsas operated in the UKare relatively new inChina. They are, however,essential or successulbusiness there, or the

same reasons as in anyother market. They alsoensure smooth transactionso payments through theChinese banking system.I payments do not matchthe contract they may bedelayed, or conversion intooreign exchange may be

blocked.


GETTING PAID AND FINANCIAL ISSUES


70/103

It is common ornegotiation to continueater a contract is signed inChina, so it is wise to buildinto the nal gure someprovision or concessions.Substantial additions to thecontract need extra care as,i they do not match theoriginal contract, paymentsmay be held up in thebanking system.

As elsewhere with largecontracts involving stage

payments, the nal stage,which oten dependson sign o, may bedicult to realise, and thisneeds consideration whenagreeing terms.

When drawing up a contract with a Chineseorganisation you should observe the following:

Make it similar to other internationalcontracts, but be very explicit and avoid legal

jargon, which may not be understood. Include an arbitration clause, as legal action

can be very expensive and difcult to pursue. Take care with milestones and related

payments this is especially important withroyalties contracts, for which payments canattract particular attention.

Agree and stipulate who is responsible for taxes. Agree and stipulate how agency payments

are to be handled. Ensure the contract is fully understood and

agreed with the Chinese organisation. Thecontract should be accurately translated and both versions signed.

Consider the law applying to the contract.Contracts under foreign law are permittedand may offer easier prosecution in the rulingcountry if something goes wrong, but thiswill need enforcement in a Chinese court.Contracts under Hong Kong law, which isbased on English law, may be a suitable

compromise.


GETTING PAID AND FINANCIAL ISSUES

(CONTINUED)

70


71/103

71

Short-term fnanceWhen exporting to Chinanormal commercial rulesshould be ollowed, andyou should discuss the

arrangements or securityo payment with theinternational departmento your UK bank, the UKoces o Chinese banks orUK-based banks that haveoces in China. I you are arst-time exporter to China,the standard method o

receiving payment or yourgoods is by documentaryletter o credit.

The Chinese bank willmake payment providedthat the requirements othe letter o credit are met.However, be aware that aletter o credit is a ormo contract between two

banks. A bank will makepayment provided that thedocuments submitted toit are in strict compliancewith the conditions o

the letter o credit. This isregardless o the purchasecontract. To prevent thepossibility o a paymentbeing made i the termso the purchase contractare not met, the sellershould check the letter ocredit against the terms

o the purchase contract,ensure that they match,and build in any necessarysaeguards.

Open Account andBills or Collection areother payment methodscommonly used betweenUK exporters and Chineseimporters when a

trustworthy relationshipbetween the two partieshas been developed. Majorexports and those requiringlong-term nance will

require specialist paymentand nancing.

Further inormation onsecuring payment can beobtained rom www.cbbc.org.

PricingMargins achievable in

Chinese markets arelikely to be lower thanin Western ones. Thissituation is changingrapidly, and increasinglyChinese companies areprepared to pay more ordemonstrable benets, andit is occasionally possible tocommand a premium or aunique product or service.


72/103

72


INSURANCE

The private sectorprovides credit insuranceor exports o consumerproducts, raw materialsand other similar goods.Speak to your banker orinsurance broker or moreinormation or contact theBritish Insurance BrokersAssociation or impartialadvice:

British InsuranceBrokers AssociationTel: +44 (0)870 950 1790

(Consumer Helpline)Email: [email protected]

Private sector insurancehas some limitations,particularly or sales ocapital goods, majorservices and constructionprojects that requirelonger credit packages orare in riskier markets. TheExport Credits GuaranteeDepartment (ECGD), aseparate governmentdepartment that reports tothe Secretary o State orBusiness, Innovation andSkills provides a range o

products or exporters osuch goods and services:

Export Credits GuaranteeDepartmentTel: +44 (0)20 7512 7000Email: [email protected]


73/103

73


MANAGEMENT, CONTROL AND QUALITY

ASSURANCE

With the challengeso distance, languageand culture, many UKcompanies are temptedto take a hands-oapproach to transactionsand operations in China.In act, these challengesincrease the need orproactive engagement.A hands-o approachallows problems to develop,oten to the point wherethey become major issues.

There is no simplesolution, and successulUK companies use a varietyo techniques. Thesecan include extensivetravelling by UK personnel,a controlling or liaisonpresence in China (such asusing CBBC Launchpad),or providing extensivetraining and goodmanagement o Chinesesta. It is important notto allow milestones toslip by, whether these are

attending a board meetingin a joint venture orarranging a quality auditat a supplier.

Sourcing products romChina, especially rom asupplier inexperiencedin dealing with oreigncompanies, requiresparticular attention todetail. Specications aresometimes not understoodand need to be very clearlyexplained and agreed, anda quality managementsystem needs to be agreedand put in place with theChinese company. Manyconsultancies will oer to

undertake all or part (egthe quality managementaspects) o this processon your behal. A list oconsultants can be oundon the CBBCs ChinaBusiness Services Directoryat www.cbbc.org.


74/103


BRIBERY AND CORRUPTION

Anyone doing business inChina is likely to encounteror hear o corruptionin one orm or another.Historically, practices suchas acilitation payments,bribes and giving andreceiving expensivegits in order to developrelationships were otenregarded as a part odoing business. This is stillthe case in some areas,although the problems varyaccording to sector, type o

business and region.

However, the generalperception is that thesituation is improving.Our advice to companiesencountering corruption issimple dont get involved.Not only are there issues obusiness integrity to bearin mind, but it is also, ocourse, illegal. Invariablycorruption is related tolack o proessionalism,transparency and control,all o which are damagingto long-term business.

The Chinese Governmentis keen to crack down oncorruption, and penaltiescan be severe. In addition,under the Anti-Terrorism,Crime and Security Act2001, UK companies andnationals can now beprosecuted in the UK oracts o bribery or otherillegal activity committedwholly overseas.

74


75/103


SCAMS: HOW TO AVOID THEM

Fraudsters and scammersexist all over the world,and China is no exception.There have been a numbero instances o British andother oreign businessesbeing targeted by raudulentcompanies and individualsoperating rom variouslocations in China. The mostcommon scams are:

The contract scam Fraudulent companies inChina make unsolicitedenquiries to oreigncompanies, making ordersin large quantities withvery benecial nancialterms. The oreigncompany is oten theninvited out to China to signthe contract. When theyarrive, they are asked topay or expensive gits

or meals or ocials,in order to move thingsorward. When the oreignrepresentative fies backhome the raudsters vanishwithout trace. Companiesshould also be alertedwhen they are asked to payor any administration,notarisation or oreignexchange control charges.

75


76/103

TOO GOOD TO BE TRUE?

Once you know the basics,

it is relatively easy toprevent yourself from

becoming a victim of

scams. If you receive an

apparently very attractive

order from China (or indeed,

anywhere else), or see a

website offering goods at

unrealistically low prices,

ask yourself: is this too

good to be true? If it looks

too good to be true it almost

always is.

Dont get on the plane,

or send money, withoutseeking advice from

either UKTI and CBBC, or

carrying out appropriate

due diligence checks. A

guidance document on

various business scams is

available from CBBC.

76


77/103

77


SCAMS: HOW TO AVOID THEM (CONTINUED)

77

The visa invitationscam A ctitiousChinese company mayrandomly request letterso invitation or visasrom UK organisations,so their delegates canvisit the UK actory/sitewith a view to developingbusiness. In reality theseindividuals have no interestin your company or yourproduct they are lookingor the opportunity toenter the UK. I you are

approached by a Chinesecompany in this manner,ensure that you carry outbasic due diligence checksbeore issuing a letter oinvitation.

The domain name scam A oreign companyreceives an email rom actitious internet databasecompany, claiming aChinese company has leda request to register yourdomain name, and witha ee they can block thatrequest. Once you haveparted with the cash, thescammer disappears.


78/103

78

BUSINESS CULTURE


79/103

79

BUSINESS CULTURE

RELATIONSHIP BUILDING AND DEAL MAKING

In a highly competitive business environment, it is more important than ever

for us to understand the business culture of our target markets. Understanding

business culture helps us understand, anticipate and respond to unexpected

behaviour. It also enables us to behave in an acceptable way and avoid

misunderstandings. As the Chinese saying goes: ru jing sui su When you enter

a region, follow its customs.

However, knowledge of business culture especially in a country as vast asChina, where sub-cultures and practices differ from place to place and where

every Chinese person is an individual shaped by different experiences must

be exercised with caution. A little knowledge is dangerous. But do not worry if

you nd the complexities of Chinese business culture daunting. Just behaving

modestly, patiently and politely, while not suspending ones business judgement,

is certain to provide a good foundation for successful business in China.


80/103

80

In China, getting to knowsomeone ace to ace isoten regarded as the onlyway o nding out whethera person is trustworthy. Ingeneral, the Chinese setgreat store on buildingpersonal relationshipsbeore entering into abusiness partnership, otensaying, Lets rst becomeriends, then do business.

You can expect your rst,and possibly your second,

visit to China to achievenothing other than getting

to know several possiblecandidates or businesspartnerships. This mayseem a slow and costly wayo getting started, but itis worth remembering thattaking time to cultivatepersonal connections as theChinese do is an excellentopportunity to get to knowthe people you will beworking with. Introductionsvia a trusted intermediarycan play a valuable rolein opening doors, but

there are no short cuts torelationship building.

You will undoubtedlyencounter delays andrustrations when doingbusiness in China. Keepingyour temper (equatedin Chinese terms withmaintaining ace), evenwhen things go wrong,can pay disproportionatedividends. I you are notsure what to do in anygiven situation, it is best toerr on the side o patienceand politeness. Do not bearaid to ask a Chinese

colleague or advice onhow to handle matters.

BUSINESS CULTURE

GETTING STARTED

Westerners normally build transactions and, if they are successful, a relationshipwill ensue. However, the Chinese believe that prospective business partners

should build a relationship and, if successful, commercial transactions will follow.

This difference underlies many misunderstandings arising from business

negotiations. Virtually all successful transactions in China result from careful

cultivation of the Chinese partner by the foreign one, until a relationship of

trust evolves.

RELATIONSHIP BUILDING


81/103

81

BUSINESS CULTURE

GUANXI

The objective o developingclose relationships is tobuild what the Chinesecall guanxi(pronouncedgwan shee), which areessentially social orbusiness connections basedon mutual interest andbenet.

In a centralised andbureaucratic state, relianceon personal contacts isoten seen as the only wayto get things done. And in

a place like China wherethe legal system is stillrelatively weak, the needto rely on guanxi remainsstrong.

In business, guanximustbe regarded as a two-way relationship. We

are all amiliar with theexpression You scratchmy back, and Ill scratch

yours. But in guanxi, theobligation does not ceasewith the second scratch,and the other side willhave expectations that therelationship will continue.It is not about makingair-weather riends. I youexpect guanxi to deliver,relationships must bemaintained through regularcontact.

Both Chinese and oreigncompanies will oten

attribute their businesssuccess to having goodguanxi. But the obligationso guanxi are very real.In the wrong place, at aninappropriate time, withunsuitable people, theobligations can becomea trap which is hard to

escape.

BOTH CHINESE

AND FOREIGN

COMPANIES

WILL OFTEN

ATTRIBUTETHEIR BUSINESS

SUCCESS TO

HAVING GOOD

GUANXI


82/103

BUSINESS CULTURE

THE ROLE OF THE STATE

It is easy to underestimate the role that the State continues to play in Chinese

business. Despite the rapid expansion of the private sector, many large Chinese

businesses in strategic sectors remain state-owned and, in addition, apparently

private rms also often turn out to have an element of state control. The state factor

can have a signicant inuence on the way a company does business, so you should

make yourself aware of the wider political (in both the small and large p senses ofthe word) milieu that your Chinese partner or customer operates in. This knowledge

will give you a greater understanding of where the Chinese side is coming from.

On a related point, government ofcials such as city mayors and party secretaries,

in China often wield far more power than their counterparts in the UK do. Good

personal relationships are key to successful business in China, and taking the time to

get to know key ofcials is likely to make doing business much smoother. However,

a change of local government ofcials might affect the incentives or agreementsoffered by the previous administration. Ofcials are also occasionally arrested

for corruption.

82


83/103

83

BUSINESS CULTURE

MAKING CONVERSATION

Most people should beaddressed by a title andtheir last name. Youcan address people byproessional titles suchas General ManagerWang or Director Zhaoor, alternatively, i aperson does not have aproessional title, use Mr,Madame or Miss, plus thelast name.

Stick to safe subjectssuch as hobbies, amily,

your hometown, theChinese landscapeand Chinese culture.The Chinese oten askapparently intrusivequestions about yourage, income or maritalstatus. These questionsare not meant to oend,

but i you dont wantto answer, remain politeand give an unspecicresponse.

Avoid talking politicsunless you know theperson very well. Chinesepeople are more nervoushaving political debatesopenly. In any case, donot criticise China orChinese leaders. Do notreer to Hong Kong as iit was still run by anotheradministration or Taiwanor Tibet as a separateentity.

It is ne to tell jokes in

inormal situations, butthey are best avoidedwhen speaking to agroup. Also, be awarethat cross-cultural jokesare hard to nd, andoten the point o a jokewill be lost in translation.

The Chinese do notlike to say no. Doing socauses embarrassmentand loss o ace. I arequest cannot be met,you might be told thatit is inconvenient orunder consideration.Alternatively, you mightbe told Yes, but it willbe dicult. This mightseem like a positiveresponse, but in realitymeans No or probablynot.

Gestures in conversationcan have dierentmeanings in China.Nodding means I hearwhat you are saying,not necessarily I agreewith you. Laughing canbe rom embarrassment

rather than becausesomething is unny.


84/103

84

BUSINESS CULTURE

ENTERTAINMENT

Work and social lie tendto remain separate in theW

china business guide 2010

Documents