Doing business

Current business situation

Current environment for foreign products imported into mainland China

Recent incidents involving tainted food products in China has brought attention to both domestically produced and imported food products and food ingredients. As a result Chinese authorities are increasing the monitoring of safety and quality of both imports and exports, and rigidly enforcing requirements and regulations.

Exporters should expect increased inspection and testing by Chinese authorities of products imported into China, and a more inflexible approach to regulatory issues by the local authorities. 

This applies to all imported product categories and is expected to continue well into 2009.

Exporters of products intended for human consumption (adult and infant, final processed product as well as ingredients) are particularly encouraged to pay extra attention to Chinese regulations on products/ product categories applicable to products allowed for import into China and ensure that all documentary requirements are met.   

In the event of a market entry issue incident occurring, exporters are advised to seek assistance from their appointed local importers to try resolve the issue with local authorities (i.e. CIQ) at the point (city/port) where the incident has occurred.

Exporters are strongly advised to ensure that their local importer/representative has applied for and been granted all relevant approvals and import permits from the relevant Chinese authorities prior to making any plans for product dispatch or order fulfilment for the China market.  

Once all relevant approvals and import permits have been granted by the Chinese authorities, Australia exporters can work with their official shipping and logistics contractor on ensuring all documentation is prepared and accurate.  Exporters can seek advice from the relevant Australian government representatives on specific product requirements for specific export markets.  

Advance manifesting rule to be enforced 1 January 2009

Exporters are advised to check with their logistics carriers regarding China Customs upcoming introduction of a new rule on advance manifest reporting (Decree No. 172), effective as of 1st January 2009.

Decree No 172 has been published by China Customs on its official website (Chinese language only) since March 2008.  International shipping and logistics companies should have information available and be able to advise their customers on how to meet requirements of this new rule.

The new measure will require shippers and carriers to file shipping manifests up to 24 hours prior to lading onto carriers departing and destined for China. This may entail significant changes to shipment process for all cargo that are loaded on vessels at foreign ports destined for ports in China, as well as cargo that are loaded at ports in China for exports.

The rule requires that shippers and carriers, freight forwarding agencies and logistics organisers to be responsible for manifest reporting process at both foreign ports and ports in China to ensure timely process of shipments. Where pre-load data is not transmitted, China customs may suspend the clearance of goods for movement in or out of China. The rule, however, does not apply in Hong Kong, which as a Special Administration Region of China, is outside the jurisdiction of this rule.  

Australian meat product exports to mainland China

All Australian meat for export to mainland China is required to be from one of the 50 fully integrated slaughtering establishments in Australia that have been inspected and approved by Chinese authorities.  A list of these is available on the AQSIQ website. Non-integrated establishments (e.g. independent boning rooms) including those which previously exported to China are not eligible to export meat to China.

Any meat that does not come directly from one of the approved facilities will be rejected by Chinese authorities. This ruling is already effective and will remain until further notice by the Chinese authorities.  AQIS will continue to pursue this matter to improve market access for all establishments.

Exporters of highly processed meat products (e.g. canned meats, meat flavours, etc) are advised to ensure that their local importer/representative has applied for and been granted a local import permit for the specific product and to work closely with AQIS to ensure that the import conditions specified on the permit can be met and appropriate export health certification can be issued.

Tips for doing business in China

Research:

• Firstly, consider what your company’s objectives are in China and carefully research your target market before developing a formal business plan. Discuss your strategy with a local representative who understands the market and economic conditions.
  
   
• Consider the unique selling points of your product or service and whether there is actually a market for that product or service in China. If there is, you need to ensure you can be competitive in China and, more importantly, whether you have the time, resources and stamina to handle the demands of communications, frequent travel, product delivery and after-sales service.
   
  
• All foreign investments need to be registered with the appropriate local and state authorities, which can be time-consuming and bureaucratic. Exporters will also need to deal with Chinese tax, accountancy and employment law, and China’s transport infrastructure and commercial legal system.
  
  
• Understand the basic Chinese regulations which govern your industry or investment in China. Companies are often constrained in how flexible they can be due to the regulatory environment.
  
  
• It is recommended that you have a website including product description, indicative FOB price, and unique selling points for your product or service.
  
  
• It may be helpful to talk to other Australians with business experience in China, for example, Australia China Business Council members in Australia; China Australia Chamber of Commerce members in China and Austrade’s network of export advisers in both Australia and China.
  
  
• The Internet can be an invaluable tool when it comes to researching country and market information before you even begin to formulate your strategy. 

Market entry strategy:

• When determining your market entry strategy, consider recent market trends and keep in mind your long-term and short-term requirements for infrastructure, labour and your customer base. Remember China is changing at a rapid pace and it is essential your research and market information is up-to-date. 
  
  
• Don’t automatically assume Beijing or Shanghai should be your target markets. Many other regions of China are substantial markets in themselves and competition can be less intense. It is therefore advisable to treat China as a global region in its own right and focus your initial market entry approach on a particular region or city. 
  
  
• It may be highly beneficial to employ an agent or distributor with marketing skills who has excellent knowledge of local market conditions and preferably speaks English. A good agent can greatly reduce set-up costs and time taken to enter the market. As well as having someone on the ground to look after your interests, you will have access to good local knowledge and contacts.
  
  
• It may be highly beneficial to have your own well-briefed interpreter available to assist with discussions, formal presentations and explanation of technical issues. 
  
  
• Potential Chinese business partners are often more interested in the cost-effectiveness of the product rather than the product itself, so it’s important to be able to demonstrate how the product can save money.
  
  
• Choose the right partners. In-market contacts are often more important than product and price.

Negotiations:

• Always seek good quality independent legal, tax, and professional advice before signing anything that could have implications for your company. If you are setting up in China, it is important to get the business and tax structure right from the start.
  
  
• Use a qualified legal firm with a presence in China to review all contracts. Failure to gain full information about a potential partner’s credit and professional background could lead to serious problems further down the road. 
  
  
• If you are concerned that your product is in danger of being copied, seek legal advice on how best to protect your intellectual property (IP).
  
  
• Halve your expectations, and double your time and budget. Chinese business people prefer to establish a strong relationship before closing a deal.
  
  
• Be prepared for tough negotiations and to deal with grey issues. Be firm, polite, and creative, but be prepared to say no. 

Etiquette:

• Building up good business relationships and trust is very important in China, so expect to spend a lot of time at meetings and banquets with your potential business partners. 
  
  
• Business meetings always start promptly, so it’s important to arrive early for the standard formal introductions. It is usual to be introduced to the most senior person at the meeting first, followed by the others in descending order of seniority.
  
  
• A handshake is the standard way to greet men and women, whatever their age or seniority. Note that the Chinese respect their elders, so an extra show of courtesy in the presence of an older person will reflect well on you.
  
  
• Business cards (ming pian) are essential in China, and it’s a good idea to have your card translated into Chinese on the reverse side. Present your card with both hands with the Chinese side face up. It’s a sign a respect to spend a few moments examining the business cards you receive rather than putting them away immediately.
  
  
• When meeting potential business partners, it is helpful to know some Mandarin. Simple phrases such as ‘Ni hao’ (hello) ‘Zao shang hao (good morning) and Xia wu hao (good afternoon) can go a long way. Note that surnames are placed first, eg. Mr Yao Ming should therefore be addressed as ‘Mr Yao’. 
  
  
• A great deal of business in China is conducted over dinner, where very senior people may attend who were not at previous negotiations, but are key to the approval of a business deal. However, business dinners or lunches can also indicate a general warming of a relationship, and in this case, their role should not be over-stated.
  
  
• Never begin eating or drinking until you host does. It is polite to try all dishes that are offered to you, but you can discreetly leave anything you don’t like at the edge of your plate. Don’t place your chopsticks pointing into the bowl – always place them horizontally on the hold provided. 
  
  
• Dinner speeches and frequent toasts are standard, with locally produced wines or ‘bai jiu’ spirit the usual drinks for toasts. It is customary for toasts to be made by both sides during the meal.
  
  
• The Chinese generally like to give small and inexpensive gifts. It’s a good idea to bring small gifts with an Australian theme for your hosts and wrap them in colours such as red, yellow or gold, which are regarded as lucky in China. It is not customary for your hosts to open the gifts in front of you, unless you encourage them to do so.
  
  
• Chinese negotiators are shrewd and know that foreigners will be reluctant to travel home from China empty-handed. They are willing to stretch out discussions, which can wear their foreign counterparts down. Be sure that your interpretations of any business deal are consistent with theirs and that everyone understands their duties and obligations.
  
  
• Expect to encounter delays or frustration during your business dealings in China, but it’s important to remain patient and polite. The Chinese don’t like to ‘lose face’ so losing your temper or showing frustration will only set you back.
  
  
• If you are beckoning to someone, motion towards you using your hand and palm pointed downwards – never palm up. Furthermore, don’t use your index finger or point when speaking.
  
  
• Try to speak with your counterparts in short, simple, and jargon-free sentences. 
  
  
• Be aware that business in China slows down during the Chinese New Year – usually from late January to early February, and for periods such as National Day (1 October) and May Day (1 May). It’s best to avoid arranging meetings during these times. 

Please also note:

Bribery of foreign public officials is a crime. Australian individuals and companies can be prosecuted in Australia for bribing foreign officials when overseas. For more information, go to the Attorney General's Department on foreign bribery.

Multinational enterprises should be aware of the OECD Guidelines for Multinational Enterprises that provide voluntary principles and standards for responsible business behaviour in a variety of areas, consistent with applicable domestic laws. These Guidelines are endorsed and promoted by the Australian Government. For more information, go to the ANCP website.