China Business Guide 2012 200 China Business Guide

China business guide 2012 200 China Business Guide

This guide was produced by the Disclaimer UK Trade & Investment China Whereas every effort has been made Markets Unit in collaboration with to ensure that the information given the British Posts in China, Hong Kong, in this document is accurate, neither International Trade Teams and the UK Trade & Investment nor its parent China-Britain Business Council Departments (the Department for Business, Innovation and Skills, and the Foreign and Commonwealth Ofﬁce) accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, ﬁrm, company or other organisation mentioned.

Front cover image: Chongqing Contents China Business Guide 003

Contents

Introduction Why China? 6 About this guide 8 City of London Initiative with China 11

Researching the market Where to begin 12 How we can help you 18 Opportunities in Hong Kong 20

Market entry Choosing the right location 22 Regional cities 24 Wider opportunities in greater China 32 Establishing a presence 36

Getting started Finding a customer or partner 45 Due diligence 46 Employing staff 49 Language 54 Marketing 56 Branding 58 Day-to-day communications 59 Interpreters 61

Business issues and Introduction and Market access 65 considerations Intellectual property rights (IPR) 67 Certiﬁ cation and standards 70 Getting paid and ﬁ nancial issues 71 Insurance 74 Legal system 75 Management, control and quality assurance 76 Bribery and corruption 77 Scams: how to avoid them 78 400 China Business Guide Contents

Business culture Relationship building 80 Guanxi 82 The role of the state 83 Making conversation 84 Entertainment 86 Gifts 88 Meetings 89 Presentations 90 Deal making 91 Negotiating techniques 92 Payment terms 97 Visas 98 The concept of “hosting” 99 Basic Mandarin 100 Useful phrases 101

Where to get help UK Trade & Investment services 102 Contacts for strategic business advice 104 China Business Guide 005 600 China Business Guide Introduction

Introduction Why China?

China is the great economic success With rapid and continuous story of the past 30 years. Since the industrialisation and urbanisation, a “reform and opening-up” policy was vast and fast-growing consumer market introduced in 1978, China has changed has emerged. Bicycles and Mao suits beyond recognition. A Soviet-styled have been substituted by 13 million planned economy has transformed into cars (now the largest car market in the a vibrant market-oriented economy world), international labels and luxury and 400 million people have been lifted goods. China is also the world’s largest out of poverty. ICT market, with over 600 million mobile users and more than 400 million internet Well known for its manufacturing users. Private consumerism continues to capability, China is the largest global develop with greater sophistication. producer of toys, textiles, washing machines, cameras and computers Driving global economic recovery (among hundreds of other products). While many of the world’s major It is also the world’s largest consumer of economies are still struggling to recover iron, steel, coal and cement, and China’s from economic contraction, China’s hunger for raw materials continues. Over economy grew by 9.2% in 2011, down a million enterprises have ﬂ ourished, from 10.3% in 2010, and this economic and nearly 40 Chinese companies have slowdown is expected to continue in entered the global Fortune 500 list. 2012, to around 8.0%1. This is partly Introduction China Business Guide 007

China’s President Hu Jintao has promised to increase imports, in an effort to boost global trade.

Speaking on the 10th anniversary of China’s entry into the World Trade Organization, Mr Hu said “imports may exceed US$8 trillion (£5.1tn) over the next ﬁ ve years”.

due to suppressed demand in China’s develop China’s vast rural and interior largest export markets (Europe, USA) but regions, aiming to unleash domestic also to tightening of monetary policy in consumption among the wider late 2011. The Chinese government has population. Industrial structures are subsequently begun loosening monetary shifting inland with dozens of new cities policy and launched a major investment emerging and coastal areas developing programme to ensure growth does not into sophisticated urban clusters. slip below the ofﬁcial “target rate” of 7.5. Seizing opportunities There are signiﬁcant changes in China’s While the rise of China is easy to growth strategy. Traditionally, China acknowledge, businesses constantly has provided low-cost manufacturing need to catch up with the speed and solutions for the global market, depth of change and development in but exports declined sharply after China’s large and complex market space. the global downturn and China’s manufacturing industry has responded Whether selling, trading, investing or by quickly moving up the value chain. franchising, China offers opportunities in abundance to UK companies, large The Government is pressing hard to or small. improve infrastructure and social welfare as well as targeting resources to

1International Monetary Fund/Economist Intelligence Unit estimate 80 China Business Guide Introduction

About this guide

The China Business Guide is intended UK Trade & Investment services to provide general business advice and can make a real difference to your should not be used as a substitute for business at a very reasonable price. market research, due diligence or legal To use our services your fi rm may and professional services. need to meet certain eligibility criteria. Your International Trade Adviser (or About UK Trade & Investment equivalent person in Scotland, Wales UK Trade & Investment is the and Northern Ireland) will be able government department that can to explain in more detail what these help you achieve your international criteria are and advise you on costs. business potential. We combine the national resources of the Department Check out the latest political and for Business, Innovation and Skills (BIS) economic updates on China: and the Foreign and Commonwealth http://www.ukti.gov.uk/export/ Office’s (FCO) global network of countries/asiapacifi c/fareast/china/ Trade Development Staff, to help you fcoupdates.html successfully win business overseas.

We treat every business as an individual – that’s why we provide a tailored service with specialist support covering a wide range of industries. Introduction China Business Guide 09

If you are interested in doing business in China, please contact either your local UKTI International Trade Adviser (ITA) at www.ukti.gov.uk or your local CBBC China-Britain Business council business adviser at www.cbbc.org

In China, the China-Britain Business In China, the role of UK Trade & Council delivers the majority of Investment is now to support UK business UK Trade & Investment’s services and interests through a range of activities also now handles general enquiries. with a longer term, more strategic focus. These include working to remove barriers This publication aims to provide an to market entry; raising the proﬁle of UK introduction to various aspects involved strengths in priority sectors; identifying in doing business with China. This strategic opportunities in the market; guide contains information on market produce high quality sector reports in intelligence, overviews of key business priority sectors for UK industry; and considerations and challenges, practical deepening relations with key Chinese advice and best practices, as well as decision makers. useful contacts. Readers can also further their knowledge by accessing a wealth UK Trade & Investment and CBBC of business information, research reports also employ a number of Business and opportunities on the websites Advisers. And maintain close links with of UK Trade & Investment and the UKTI in Hong Kong in order to facilitate China-Britain Business Council. Hong Kong as a springboard into China. 100 China Business Guide Introduction

About the China-Britain reciprocal membership of both Business Council organisations and access to a network The China-Britain Business Council of nine offices in the UK and eleven (CBBC) is the leading organisation offices at key locations across China. helping UK companies grow and develop their business with China. CBBC’s business-led Board and professional team have extensive fi rst CBBC supports British companies of all hand experience of doing business in sizes and at every stage of market entry China, and with 60 years of engagement, with practical in-market assistance, CBBC has built up exceptional industry initiatives and a membership connections with government and programme offering support, access and business throughout the country. significant networking opportunities. CBBC works closely with UK Trade & Investment and has a strategic partnership with the British Chamber of Commerce in Beijing, providing www.cbbc.org Introduction China Business Guide 011

City of London Initiative with China

London as a centre for international The initiative supports the outcome of renminbi business the UK-China Economic and Financial The City of London initiative on London Dialogue and is closely associated as a centre for renminbi business was with the Hong Kong – London Forum, launched on 18 April 2012. established in January 2012 between the UK Chancellor of the Exchequer, The The role of the initiative is to consider Rt Hon. George Osborne and Norman practical measures to support the Chan, Chief Executive of the Hong development of London as a centre for Kong Monetary Authority to promote RMB business. It aims to: co-operation on the development of international RMB business. • Provide leadership to the wider financial markets on the technical, The initiative is working to build a long infrastructure and regulatory issues term sustainable market that supports relevant to the development of the the greater international use of the RMB product market in London; RMB – to make trade processing easier for European corporates and offer • Advise HM Treasury on maximising customers and investors the chance London's capacity to trade, clear and to invest, trade, bill and bank in RMB. settle RMB and articulate practical It also seeks to simplify and increase next steps and long term aims for access to RMB related products for the development of the RMB market a wide range of Western companies, in London. Additionally, the group including SMEs who do not necessarily advises HM Treasury and other UK have access to fi nancial services in authorities on any fi nancial stability Asia, and to create deeper liquidity and concerns the members may perceive; broaden the range of fi nancial services and available in the European time zone.

• Develop and maintain, as appropriate, a private sector dialogue on the international RMB market with regulators in Hong Kong and mainland China to complement that which is already maintained by the UK public sector. 120 China Business Guide Researching the market

Researching the market Where to begin

Doing business with China can seem A good place to start is the UK Trade & rather daunting for those new to the Investment website www.ukti.gov.uk market, but taking a strategic approach which provides detailed country and is the key to making the process sector information. Registration is free manageable. For instance, the Hong and offers additional beneﬁts such as Kong market can give companies an access to business opportunity alerts easier ﬁrst step to break into the market. and information updates.

Companies should conduct reliable There is also a substantial amount research before venturing into business of quality information on the in China. Good research saves costs and China-Britain Business Council improves the efﬁciency and impact website www.cbbc.org. from the start of a project. Another source of information is the Desk research Hong Kong Trade & Investment website: General introductory business information ukinhongkong.fco.gov.uk/en/business/ concerning China is increasingly which can assist UK companies wishing available and companies can obtain to do business with China via Hong Kong. a reasonable amount of preliminary information through desk research.

Economic research and sector analysis can often be obtained from a large number of leading consultancies, research agencies and public sector trade promotion organisations. The increasing use of e-commerce and B2B websites in China has made identiﬁcation of (and access to) potential business partners possible across the globe. Researching the market China Business Guide 013

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 a market for your product and services?

• Are there any legal barriers to your business model?

• Where in China would you start?

• Do you have sufﬁ cient resources (management time, project ﬁnance 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?

• Would Hong Kong be a safer place to start?

Rarely will one have answers to all the questions above, and this “knowledge gap” forms the basis of further research and investigation. 140 China Business Guide Researching the market

However, up-to-date and reliable Consultation and bespoke research business information to help guide Research based on secondary business strategies and decisions can information is often inadequate. be hard to find in China, especially Many websites and online materials given the pace and scale of the are written in Chinese; the quality and market’s development. Obtaining reliability of content varies greatly and dependable information and insights sometimes certain information is simply from secondary and publicly available unavailable. It is therefore essential to sources can often be more diffi cult verify the initial research fi ndings and than in Western markets. To gather conduct further investigation. intelligence, there is greater reliance on primary qualitative research Often this requires mapping out a (such as using in-depth interviews). bespoke research brief with the help of specialists, and exploring what additional information you might need to make an effective entry into the market, and how you can make the contacts vital to success. Researching the market China Business Guide 015

UK Trade & Investment and the In addition to the international trade China-Britain Business Council work teams across the country, CBBC has closely together to offer a range of a number of China Business Advisers support services to British businesses (CBAs) around the UK who have in the China market. extensive knowledge and practical experience of doing business in Speaking to an expert China across a range of industries. To UK Trade & Investment provides support arrange a consultation with one of the for UK companies through a network of China Business Advisers, please call international trade teams (ITTs) based +44 (0)20 7802 2000 or visit in the English regions. UK Trade & www.cbbc.org. Investment services are also available to companies in Scotland, Wales and Northern Ireland.

To arrange a consultation with your local International Trade Adviser, call +44 (0)20 7215 5000 or use the database at www.ukti.gov.uk. 160 China Business Guide Researching the market

The Overseas Market Introduction For more information about how Service (OMIS) is a UKTI service OMIS might be used to assist your delivered by CBBC in China and UKTI company’s strategy for China, please in Hong Kong. This service can assist contact the OMIS team at you by undertaking tailored research [email protected], or contact your using our extensive network of local UKTI International Trade Adviser. dedicated researchers across China. Events and seminars This can be used in a wide variety of UKTI and CBBC organise a large ways to help your business with its number of business events, seminars particular needs when entering the and workshops in the UK and in China, Chinese market. Possible ways in which covering a wide range of business OMIS can help your business include: interests and issues. Not only do these events inform companies of • Market research & analysis business opportunities and the latest - Sector reports information about the Chinese market, - Market initiatives they also provide a valuable platform for - Regulatory environment networking and sharing experience with - Market opportunities like-minded peers, not to mention regular access to visiting Chinese delegations. • Identiﬁcation of local contacts - Agents - Distributors - Suppliers - Potential partners

• In-market activities Sign up to a forthcoming event - Meeting arrangements by visiting: - Event organisation, such as www.ukti.gov.uk and workshops, seminars, promotional www.cbbc.org/cbbc_calendar/ activities and product launches. Researching the market China Business Guide 017

Market visits and trade missions The UKTI OMIS service can be Visiting China is an invaluable part of used to support visits providing the process of market entry. You will bespoke meeting arrangements with experience the marketplace ﬁ rst-hand, appropriate potential partners, agents and make the contacts necessary to and distributors or with relevant do business. This is essential, but will government ofﬁ cials. be much more effective with careful planning.

UKTI and CBBC organise regular trade missions to China, where you can beneﬁt from group activities in addition to your own programme. 180 China Business Guide Researching the market

How we can help you

In China, UK Trade & Investment (UKTI) works in partnership with the China-Britain Business Council (CBBC) to deliver trade services.

A partner network available through Trade development services provided and the British Embassy in Beijing, the delivered by UKTI and CBBC include a British Consulate-General in Hong Kong, wide range of services available to help Shanghai, Chongqing and Guangzhou, you develop your ambitions in China: and through CBBC’s presence in 11 cities, can assist UK companies by • Overseas Market providing advice and information on Introduction Service (OMIS): primary and regional cities. a chargeable UKTI-led tailored service to access market and industry information, identify potential contacts or assist in planning an event.

• Passport to Export: a UKTI-led service that provides new Market information and sector reports and inexperienced exporters with the are available through www.ukti.gov.uk training, planning and ongoing support and www.cbbc.org they need to succeed overseas. Researching the market China Business Guide 019

• Gateway to Global Growth • High Value Opportunities: – Where Next?: UKTI’s High Value Opportunities a free service to experienced exporters programme is focusing on four which offers a strategic review, priority areas in key sectors in China, planning and support to help grow covering healthcare, transportation, your company’s business overseas. energy and sustainable urban development. These areas present • Events and seminars: signiﬁcant opportunities for UK including sector-based activities companies in China, and are linked addressed in events and seminars closely to the priorities in the ﬁ ve across China and the UK. year plan. The programme aims to identify a pipeline of major projects in each of these areas and provide targeted support that will help UK companies identify opportunities and win business. www.ukti.gov.uk/uktihome/ item/219720.html 200 China Business Guide Researching the market

The Hong Kong SAR Government is • Missions: investing heavily in infrastructure. Ten missions to China and Hong Kong help major projects are underway with a UK companies visit the market, while value of over £29 billion. Four projects visits from China allow UK companies are active priorities in UKTI’s High Value to meet with potential partners or Opportunities Programme: potential investors in the UK. • West Kowloon Cultural District project £1.75bn • Business opportunities: • Development of the former Kai Tak a free service providing sales leads, Airport site £8bn brought to you via UKTI’s huge global • Hong Kong-Zhuhai-Macao Bridge £6bn contacts network. Please register for • Major new railway projects to expand this service at www.ukti.gov.uk Hong Kong’s railway network, £12bn. • Fiscal Stimulus Initiative: Up to 80% of content from these UKTI can help UK companies of all projects is accessible for British sizes to identify the opportunities companies. The HVO programme is created by ﬁscal stimulus packages focusing on encouraging more UK and major spending programmes companies to approach the market, around the world. apply to be on Government tender lists to ensure they can bid. UK has For more information on any of these had considerable success in the past services please contact your local UKTI principally in design, consulting International Trade Team or the China- and project management. There is Britain Business Council. also a strong focus on supply chain opportunities that exist within these project life cycles. http://ukinhongkong.fco.gov.uk/ en/business/export-help-for-uk companies/business-opportunities/ high-value-projects/ Researching the market China Business Guide 021

Further useful links • British Diplomatic Posts in China: CBBC UK on +44 (0)20 7802 2000 or www.ukinchina.fco.gov.uk CBBC China on +86 (0)10 8525 1111.

• British Chamber of Commerce in • Practical support: translation, China: www.britishchamber.cn interpretation and logistics advice are all available from CBBC. • British Chamber of Commerce in Hong Kong: www.britcham.org • FCO Country Updates: Reports by UK embassies in key emerging markets, • Export Communications Review: providing authoritative analysis and assessment of your company’s drawing on high level government export communications followed and other contacts, providing timely by practical recommendations for assessment of key issues relevant improvement (managed by British to UK business. www.ukti.gov.uk Chambers of Commerce). • The Sustainable Cities Initiative: • Export Marketing Research Scheme: UK Trade & Investment’s Sustainable provides companies with the Cities Initiative currently encompasses facility to collect systematic and the three Chinese cities of Wuhan, objective market research to assist Chongqing and Changsha. The aim of in the development of a market the Initiative, which is underpinned entry strategy (managed by British by Memoranda of Understanding is Chambers of Commerce). to develop commercial opportunities www.britishchambers.org.uk/ for UK and Chinese companies to exportzone cooperate in the ﬁelds of sustainable urban planning and design, green • CBBC membership: to ﬁ nd out how buildings, and environmental CBBC membership could help technologies, and including urban your business succeed in China; new-build and regeneration, land please contact CBBC’s Membership reclamation, renewable energies, Director, Fenella Barber on urban transport, water and wastewater +44 (0)20 7802 2008 or by email management and treatment, at [email protected]. and leading the transition to low carbon. For more details on how the • Commercial enquiry service in Sustainable Cities Initiative can help China and the UK: please contact your company please contact [email protected] with your [email protected]. questions. Alternatively, please call 220 China Business Guide Researching the market

Market entry Choosing the right location

There are significant divides in China’s Opportunities for UK companies regional economies. Coastal provinces in China’s regional cities. in the Chinese eastern seaboard are the Traditionally, business interest from most economically advanced, benefi ting British companies has generally from historical trade links and better focused on a few business “hot infrastructure. These regions were spots”, first-tier cities such as Beijing, among the first to respond to the reform Shanghai, Guangzhou and Shenzhen. and opening-up policy and have enjoyed sustained growth spurred by export However, these established markets and investment. It is also noticeable are maturing; competition from both that the majority (70 per cent) of the international and Chinese players is Chinese population live in the eastern intensifying; and factor input costs, part of China. By contrast the vast inland especially the costs of land and labour, regions in China are more domestically are rising. oriented and more abundant in natural resources. However, many of these In addition, the Chinese economy regions are still developing to catch is increasingly seeking growth driven up with the coastal areas. by domestic dynamism, particularly consumption and development in There are a number of regional inland and rural areas. Often the rate economic hubs within China, where of development in the lower-tier cities several cities interact to create a wider is faster, and international competition economic area. The most signifi cant is often lower. are the Bohai Rim region, the Yangtze River Delta region and the Pearl River An alternative to plunging straight into Delta region. the Chinese market is to look closely at how Hong Kong might work as a fi rst The question of “where to start” is often step into the region. Hong Kong has asked by companies who are new to the very similar business practises to the market, and those who seek business UK and with English being one of the expansion. China offers a wide variety of primary languages spoken, it can be potential locations, and beyond the more a less daunting prospect. familiar established regions and cities it can be difficult for firms to choose. Market entry China Business Guide 023 240 China Business Guide Market entry

Opportunities in China’s Regional Cities

The original ‘Opportunities for UK This report presents the fi ndings of Businesses in China’s Regional Cities’ research conducted in 2011 by the CBBC report, published in September 2008, and the Centre for International Business received positive feedback from both at the University of Leeds (CIBUL) British and Chinese businesses and it for and on behalf of UKTI. The focus was warmly welcomed by the Chinese for many British companies in China Government. continues to be in a small number of large and familiar cities such as Beijing, UK Trade & Investment (UKTI) and the Guangzhou, Shanghai and Shenzhen. China-Britain Business Council (CBBC) have organised more than 200 regional However, business conditions in these activities in China since April 2009, and cities are evolving quickly. In particular, since 2008 a number of senior fi gures numerous British companies are have led numerous Regional Business experiencing mature and increasingly Missions to China’s regional cities, saturated markets in these locations, with including the British Ambassador and only niche opportunities for development, the Chairman of the CBBC, Sir David and growing competitive pressures from Brewer. These business missions have other foreign firms and increasingly enjoyed high levels of engagement sophisticated Chinese companies. from the Chinese Government, and the British companies involved have gained Moreover, factor input costs in China much from this access as well as from are at their highest in these cities. As a the introductions to local businesses consequence, many British companies they have received. There have been with a presence in these cities are numerous events, both in the UK and actively seeking fresh business China, that have sought to promote the opportunities in a variety of China’s opportunities in Chinese regional cities regional cities. identified in the 2008 study. Market entry China Business Guide 025

The report

Of the 274 cities in China with a To augment the quantitative analysis, population in excess of one million, the research team also collected 35 were shortlisted in our study on the primary data on the challenges and basis of their economic size, economic opportunities presented by China’s growth rate, population and level of regional cities using a questionnaire inward foreign direct investment. These survey of British companies that was cities were then ranked and grouped completed by 120 respondents. on the basis of a number of indices calculated using data published by The phenomenon of “City Clusters” China’s National Statistics Bureau, the was identiﬁed by the 2008 report. World Bank and other sources. These To develop this observation, a set of rankings and groupings capture the criteria has been developed to identify relative attractiveness of the shortlisted 12 “City Clusters” and an analysis cities as business locations for UK conducted, to list and compare these companies in terms of the general clusters particularly in relation to levels business environment they offer, and of foreign direct investment. Though not their attractiveness for three different a criterion of “City Clusters”, it became types of business activity, namely local evident through the research that sales, production to supply domestic one commonality is the geographical markets, and research and development. limitation to within a Province. Indices were also calculated to group cities in terms of their attractiveness The opportunities within themes for under each priority theme. the 35 Regional Cities have been taken from a review of the individual Finally, an overall index was calculated cities’ 12th Five Year Plans and these to rank the 35 cities in terms of their city plans are integrated within general attractiveness as business provincial Five Year Plans. Therefore, locations for British companies. an introduction to a further seven provincial capitals in relation to their development and thematic potential opportunities is also included in this report in order to present a wider view of the opportunities available to British companies across China. 260 China Business Guide Market entry

The key findings of this research • Although the eastern regions still are as follows: attract the highest level of FDI to • The rate of urbanisation and China, the regions which are gaining economic growth together with the share of FDI are all northern, western government supported development or central provinces including Hebei, initiatives in each of China’s cities Heilongjiang, Henan, Hubei, Hunan, offers considerable opportunities Inner Mongolia, Jilin, Liaoning and across all business themes for British Sichuan. Compared to the fi ndings companies. The more economically of the 2008 report these provinces advanced the city it follows that the now also have a higher number of demand and solutions become more cities which are more attractive by niche. The business opportunity business activity. These two factors tends to be higher up the value chain add to the ability to defi ne areas in those more economically advanced of China as “City Clusters”. This cities matching the skill set offered report identifi es 12 “City Clusters” by UK industry and commerce, which offer equivalent types of especially for SMEs. thematic opportunity and can also be defined by similar attractiveness • The 35 regional cities identifi ed in levels across a range of business this study account for 17 per cent activity, ease of business due to road of China’s population, 39 per cent of infrastructure and have equal levels China’s Gross Domestic Product (GDP) of government structure in order and 47 per cent of Foreign Direct to identify engagement. As such, Investment (FDI). The concentration recognition of these “City Clusters” of opportunity in these cities is will help firms adopt a progressive already known to competitors strategy to market entry and market bidding for the same engagement. development. Competition is not only coming from high profile international fi rms but also increasingly from nationally developed and regionally developing Chinese fi rms. Market entry China Business Guide 027

• The greatest challenges and barriers opportunities). It now appears that in to trade and investment relate to addition to this work UK Government government regulation, policies and TPOs need to be more active in and bureaucracy. UK companies disseminating information which are not formulating clear strategies aids understanding of Chinese in response to this. As in 2008, we government regulation at both have found that UK fi rms value a national and local level. the support they receive from UK Government and trade promotion UK Trade & Investment and the organisations (TPOs) in a number China-Britain Business Council can of areas including lobbying and help your company realise these representation (especially to raise the opportunities through our bespoke profile of UK businesses in regional business services and exploratory cities), access to city-level business missions to China’s regional cities. networks (including local government and businesses, TPOs and other UK To fi nd out more about the report companies), and access to general and to register for alerts tailored to city-level market intelligence and your interests please visit business information (especially www.ukti.gov.uk/chinacities about sector-specifi c business or www.cbbc.org

Key fact

By 2025, China will build TEN New York-sized cities. Forty billion square metres of ﬂ oor space will be built – in ﬁ ve million buildings. 50,000 of these buildings could be skyscrapers – the equivalent of ten New York Cities.” Source: Mckinsey, “Preparing for China’s urban billion” 280 China Business Guide Market entry

Choosing the right region

Almost the same size as Europe, with twice the population, China should NOT be regarded as a single national market, but as a varied region made up of over 30 different provinces and municipalities.

6 11

1 17 23 5 24 21 8 32 26 35 25 18 13

31 33

14 15 12 29 22 4 10 16 28 19

3 27 Yangtze River Delta Bohai Rim 30 Central 7 Pearl River Delta 9 34 Northeast Southwest Northwest

1 Baotou 10 Hangzhou 19 Shaoxing 28 Wuhan 2 Changchun 11 Harbin 20 Shenyang 29 Wuxi 3 Changsha 12 Hefei 21 Shijiazhuang 30 Xiamen 4 Chengdu 13 Jinan 22 Suzhou 31 Xi’an 5 Dalian 14 Nanjing 23 Tangshan 32 Yantai 6 Daqing 15 Nantong 24 Tianjin 33 Zhengzhou 7 Dongguan 16 Ningbo 25 Weifang 34 Zhuhai 8 Dongying 17 Ordos 26 Weihai 35 Zibo 9 Foshan 18 Qingdao 27 Wenzhou Market entry China Business Guide 029

Summary of the report

The majority of regional cities are This table indicates that, of the located on the east coast, particularly short-listed cities, those in the in the economically advanced regions coastal provinces generally offer the of the Bohai Rim, the Yangtze River most attractive domestic market Delta and the Pearl River Delta, and opportunities and – because of their a number of inter-connected “city good infrastructure, close proximity clusters” are developing. to international transport hubs and high-quality human capital – have The remaining cities are more widely strong locational advantages as export- distributed through the country. Each oriented manufacturing bases too. one of the 35 featured cities offers UK companies particular opportunities, However, companies looking to produce as well as challenges, in a wide range in China in order to serve local markets of sectors. They do, however, share or locate to conduct R&D activity certain key characteristics, including should also consider inland cities such rapid economic growth, lower input as Chengdu and Xi’an, which offer costs, large and developing consumer locational advantages in terms of and industrial markets, and strong labour-force quality and government local government support and policy support of education and science and momentum for regional economic technology-related initiatives. development. To access the full report, sector The relative attractiveness of a number summaries and city proﬁ les, please of these regional cities has been visit: www.ukti.gov.uk. calculated for four different types of generic business activity likely UKTI has also produced an to be conducted by UK companies “Opportunities in Shandong” report in China, namely: local sales of (URN 11/669), available from imported products, domestic-oriented www.bis.gov.uk/publications, which production, export-oriented production you may be interested in ordering. and research and development. See table on next page. 300 China Business Guide Market entry

City attractiveness by business activity

Business Activity City Proﬁ le Cities Highlighted

Local Sales • Higher-than-average • Dalian disposable income • Dongguan • Strong retail sales • Hangzhou • Good retail infrastructure • Qingdao • Lower-cost access to seaports • Suzhou • Tianjin

Local • Good logistics network • Changchun Production • Low labour costs • Shenyang for Domestic • Good labour availability • Tangshan Markets • Comparatively low energy costs • Weifang • Preferential government policies • Weihai • Wuxi • Xi’an

Local • Easy access to seaports • Dalian Production • Strong concentration of multinational • Dongguan for Export manufacturers • Hangzhou Markets • Large pool of educated workers • Ningbo • Good manufacturing infrastructure • Qingdao and facilities • Suzhou • Reliable energy and transportation • Tianjin infrastructure • Weifang

Research and • Large pool of university-educated • Chengdu Development workers • Dalian (R&D) • Reputable universities and science • Hangzhou and technology facilities • Harbin • High government spending • Suzhou on science and education • Tianjin • Concentration of high-technology • Wuhan development zones • Xi’anw Market entry China Business Guide 031 320 China Business Guide Market entry

Wider opportunities in greater China

Greater China is a term often used to destination and there are ever-closer refer to the collective regions of mainland ties with the economic development China, Hong Kong, Macao and Taiwan, of the mainland. A quarter of China’s as these regions share close business, trade passes through Hong Kong, ethnic, political and cultural connections. which is also the largest investor in every province in China. Hong Kong Business opportunities in these regions companies were the first to move their should not be overlooked, and while manufacturing operations to the Pearl companies should really treat these River Delta region of China, and there markets as separate, Hong Kong, Macao are over 70,000 Hong Kong companies and Taiwan may also provide a gateway in Guangdong Province alone, to business success in mainland China, as employing 11 million people. well as in the wider Asia-Pacifi c region. There is also a trade agreement between Hong Kong and Macao China and Hong Kong – the Closer UK companies find Hong Kong a Economic Partnership Agreement (CEPA) traditional gateway to business in – which gives Hong Kong preferential mainland China. There are signifi cant access to China’s markets. historical and cultural links between Hong Kong and Britain, and it remains Hong Kong is an international city with the UK’s second-largest market in Asia. a population of just over seven million. It is the world’s 10th largest trading As one of the world’s most free economy and one of Asia’s leading economies, Hong Kong offers a great financial and business centres. business environment. It benefi ts from a transparent legal system, English is Hong Kong’s total land area is only spoken as an official language and it 1,104 square kilometres (about 420 is a global centre for trade, services, square miles) and the vast majority of finance and innovation. businesses are located in the densely populated urban areas. The urban areas Since the 1997 handover Hong Kong can all be reached within an hour or has remained a prosperous business less of each other by public transport. Market entry China Business Guide 033 340 China Business Guide Market entry

Hong Kong’s government and the most the agenda. These projects offer solid prestigious business offices are located opportunities not just to UK firms in the on the northern edge of Hong Kong construction sector, but also to those in Island. Other major business areas are creative industries, leisure and tourism Kowloon, and the new town of Shatin in and environmental services. the New Territories. In parallel with the expansion of the Opportunities exist for UK companies in gaming and tourism sectors, the many business sectors in Hong Kong, construction and retail sectors in Macao ranging from construction to consumer have also experienced strong growth. goods, education and training to Due to open late 2015 or early 2016, advanced engineering. You can fi nd Wynn Macau Ltd will be home to the further details of opportunities specifi c gaming operator’s first Cotai property with sector based opportunities on the UK investment of around US$4 billion. Galaxy Trade & Investment Hong Kong pages. Entertainment Group announced recently that they will invest US$2.1 billion into Similarly to Hong Kong, Macao is phase two of Galaxy Macau, Cotai, with a also administrated under the “one scheduled completion for mid 2015. In country, two systems” rule and the addition to enlarging the gaming space, city-region offers opportunities in the retail boulevard with be expanded to sectors such as gaming/leisure, more than 100,000 square metres. tourism and infrastructure. A number of Major Infrastructure Projects are As well as construction and retail, currently underway in Hong Kong, with other significant areas of opportunity £29 billion of investment scheduled for UK companies in Macao are in the up to 2015–16. Infrastructure projects education and training, transport, ICT include the massive West Kowloon and environment sectors. Cultural District (WKCD) project; a new cruise terminal and other developments at the former Kai Tak Airport site; and construction of a Hong Kong-Zhuhai- Macao Bridge. Building a greener city, improving the quality of urban space, harbour front enhancement and heritage adaptation are also high on Market entry China Business Guide 035

Taiwan the Taiwanese share with the mainland Taiwan rose to global economic and other Asian countries. recognition in the 1980s as one of the “Asian Tigers”. Having a stable Taiwan is a major investor in China with legal system and fi nancial industry, more than 70,000 Taiwanese companies Taiwan has specifi c strength in operating on the mainland. Up to 70 offering competitive and innovative per cent of Chinese electronics are manufacturing solutions to global produced by Taiwanese-invested fi rms companies. With a high degree of global and some 500,000 Taiwanese live in supply chain integration, UK companies Shanghai alone. Cross-straits relations may fi nd Taiwan an attractive have improved signifi cantly since 2008, destination to provide value-added direct fl ights are now permitted and products and services. Chinese investment is allowed to enter the Taiwan market. There is potential to leverage the considerable common ground on UKTI has produced a Taiwan business business, culture and language that guide (URN 12/728) which is available from www.ukti.gov.uk

Useful contacts in Hong Kong and Taiwan

HK British Consulate General Taiwan British Trade and No 1 Supreme Court Road, Cultural Ofﬁ ce Admiralty, Hong Kong, President International Tower, Tel: (852) 2901 3182 26th Floor, 9-11 Song Kao Road, Fax: (852) 2901 3066 Taipei, 100, Taiwan Email: [email protected] Email: [email protected] Website: www.britishconsulate.org.hk Website: http://ukintaiwan.fco.gov.uk 360 China Business Guide Market entry

Establishing a presence

Given China’s sheer size, complex and changing business environment, as well as culture and language barriers, it is not an easy market to enter and exit with a quick win. To succeed in China requires careful business planning and execution. Foreign companies need to take time to build up their business network and credentials and to demonstrate their commitment. Often this requires some sort of presence in the marketplace, whether directly through your own business operation, or indirectly, working through a strategic partnership such as an agent or distributor.

Agents and distributors However, there are some drawbacks An agent is a company’s direct to this approach. Employing a third representative in a market and is paid party results in an additional cost to commission, while a distributor sells your products and you may also lose products on to customers after buying some control and visibility over sales/ them from the manufacturer – their marketing. It also has implications for income comes from the proﬁ ts they intellectual property rights protection, make on the difference. increasing the risk of your product being copied or counterfeited. Market entry through working with an agent or distributor can have several Given the above considerations, advantages, such as reducing time and companies need to select agents and costs to market entry as well as gaining distributors carefully. Some of the the local knowledge and network of frequently asked questions are in the the agent. following checklist. You should also conduct due diligence to verify this information. Market entry China Business Guide 037

Background Are they right for you? • Company size, history and ownership • Does the agent/distributor have (private or state owned) a genuine interest in representing • Quality and quantity of the your product? sales force • Can they beneﬁ t from actively • Customer feedback and trade/bank promoting your interests references (is it a win-win)? • Do they also represent any competing Distribution channels companies/products? • Regional coverage • Can you communicate effectively • Types of outlets covered and with your counterpart? frequency of calling • Transportation and warehousing facilities 380 China Business Guide Market entry

Once a working relationship is Establishing a permanent presence established, the agent/ distributor Although it is possible to be represented needs to be managed actively; this may through agents or distributors, many be achieved by the following: foreign companies progress to the establishment of a permanent presence • Visiting as regularly as is practicable in China, as their experience and at a senior management level – this confi dence grow. Having a permanent shows interest in, and commitment presence in-market can provide several to, the agent and the market. This will possible benefi ts, including: also provide you with an opportunity to learn about conditions in the • Market presence – showing market and see how your products commitment. are faring. • Cutting out the “middle man” – direct • Working closely with the agent to access to the end customer/supplier. show them how they can profi t from your products. • Direct control over corporate strategy and activities. • Helping to prepare marketing and sales plans for the agent. • Enables trading in local currency and eases the conduct of business • Provide regular training for the sales transactions. staff and after-sales training for the technical staff in the UK. • Fulfi ls a legal requirement to have a permanent presence (relevant • Linking performance to incentives in certain business activities and and agreeing milestone targets. sectors).

There is additional guidance on working with Chinese partners in later sections of this China Business Guide. Market entry China Business Guide 039

There are a number of structures that Companies that desire a permanent allow foreign invested enterprises (FIEs) presence have to set up operations as to conduct various business activities. an appropriate legal entity, depending These include representative offi ces, on the intended business scope, and joint ventures, wholly foreign-owned be compliant with Chinese legal and enterprises, and foreign invested tax requirements. It is usually more commercial enterprises. Each of these difficult to alter a business structure structures has unique advantages, once a legal entity is incorporated or restrictions and drawbacks, and it is established, so it is vitally important essential to choose the option best to seek professional advice on your suited to your business aims. investment structure during the early stages of planning. You must The rules and regulations regarding fully understand your intended foreign direct investment and FIEs have business activities in China (for the evolved gradually since China began short and long term), whether they opening up to foreign business are practicable, any legal and sector activities. Since China’s accession to barriers to entry, and in turn what the the World Trade Organisation there suitable vehicle is for you. have been a number of amendments to regulations, easing market entry for UK Trade & Investment and the China- international companies across a range Britain Business Council can offer of sectors. dedicated one-to-one consulting and incorporation services to assist UK companies establishing various kinds of permanent presence in China. Please contact one of our offices for more details. Key fact

Chongqing’s total volume of exports and imports reached US$25 billion in the ﬁ rst half of 2012, up 170 per cent year-on-year, the largest ﬁ gure among all of the country’s provinces and municipalities. Source: China Daily 400 China Business Guide Market entry

Representative offi ces Joint Ventures Representative offices are often the fi rst A joint venture (JV) is an organisation step taken by foreign companies when jointly owned by one or several Chinese establishing a permanent presence and foreign partners. A JV can be in China. They provide a vehicle formed by way of equity contribution, through which the foreign investor where ownership, risk and profi t are can undertake activities such as shared based on each party’s monetary market research, customer liaison and contribution. Alternatively, a JV can support. Representative offices can also also be incorporated with liabilities and organise business visits from company profit distribution being decided by headquarters, which can make the contractual agreement. obtaining of business visas for visitors much easier. Public relations work and Joint ventures may be beneficial in a local administration are also permitted. number of ways. A good local partner may contribute market knowledge However, a representative offi ce cannot and strong marketing and distribution conduct sales activities. This means channels, and they may help reduce they cannot sign contracts, receive the costs and risk of market entry. income, or issue invoices and business In certain restricted sectors, such as tax receipts. automotive and insurance, forming a JV with a Chinese company is still the only permitted route for establishing a permanent presence in China. Market entry China Business Guide 041

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. CBBC’s Launchpad Scheme enables UK companies to establish a presence in China by having a local CBBC project manager based in one of CBBC’s ofﬁ ces, 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/what_we_do/services/launchpad 420 China Business Guide Market entry

The challenge of establishing and Foreign Invested Partnerships (FIP) running a successful joint venture On 1st March 2010, rules came into is finding and nurturing the right effect allowing foreign individuals partnership. Partners have to or organisations to participate in overcome issues such as mismatched partnership enterprises, offering a expectations and differences in further alternative to representative business culture and practices. offices, joint ventures, Wholly foreign- owned enterprises or Foreign-invested The ability to maintain effective commercial enterprises. communication, and control where necessary, is also crucial. It is essential FIPs allow for partnerships between that you carry out corporate and two or more foreign parties (with all financial due diligence before you sign organisations or individuals being up to any partnership. from outside China), or a combination of foreign and Chinese organisations Companies should also plan an exit or individuals. FIPs also allow for foreign strategy. Like a marriage, it is better partners to join an existing partnership to have a pre-nuptial agreement than set up wholly by Chinese partners a messy divorce. (including the transfer of a partnership stake to a foreign entrant). Investment Market entry China Business Guide 043

capital can be in foreign currency or in Wholly foreign-owned RMB. It is essential that the liabilities enterprises (WFOE) of all partners are carefully addressed A wholly foreign-owned enterprise before entering into the partnership. (WFOE) is a company incorporated in China that is 100 per cent owned FIPs do not need to be registered by a foreign organisation(s). through the Ministry of Commerce, they only require registration through Where permitted, WFOEs are now a the Administration for Industry and popular option for foreign businesses, Commerce. However, businesses in as it gives the investor complete certain sectors will need to comply with control over their business entity as other speciﬁc regulations when applying well as enjoying the full proﬁt from its for registration. FIPs are bound by China’s operation. Generally, WFOEs also give industrial policies regarding foreign greater protection to the investor’s investment, and are only permitted if the intellectual property rights, compared Catalogue for the Guidance of Foreign to a joint venture. Invested Industries allows 100 percent foreign ownership. In some restricted WFOEs are the appropriate structure sectors JVs are the mandatory vehicle for for companies whose main activities investment, and FIPs will not be allowed. in China are to manufacture and sell 440 China Business Guide Market entry

products, or provide services such as Incorporating in China R&D or business consultancy. A WFOE In the UK, incorporating a company allows the foreign investor to issue takes a few days, whereas establishing invoices and receive revenues in RMB a permanent presence in China, (the Chinese currency) that can then be whether a WFOE, a FICE or even a converted and repatriated out of China. representative office, may take a few months and involves a complex process Foreign-invested commercial through which the foreign investor will enterprises (FICE) obtain the various required approvals. Since 2004, foreign-invested enterprises It is likely that the foreign company will have been allowed to engage in require professional support on various business activities such as wholesale, aspects of business incorporation, retail, logistic services, agency services, including tax planning, legal advice and franchising and direct importing project management. In some regions in and exporting. To achieve this, new China, foreign companies are required to and existing investors can apply to use a government certified “Filing Agent” incorporate a business entity under to handle the application process. a special category of foreign-owned enterprise, known as a “foreign invested CBBC provides detailed guidance on commercial enterprise” (FICE). various issues regarding business incorporation in China and offers a managed incorporation service. There are also many professional services firms in the private sector that can help with this process.

Key fact

There are over 270 cities in China with a population of over one million. Getting started China Business Guide 045

Getting started Finding a customer or partner

Once you have identifi ed where you Attend trade shows and exhibitions: would like to start and the best market Numerous trade shows and exhibitions entry option for your company, the next take place in mainland China and Hong step is to find potential customers or Kong throughout the year and these can partners for your company. be an excellent way to meet potential customers face to face. However, The following are all effective ways arranging appointments in advance to of finding potential customers, agents, meet pre-identified contacts at niche distributors or partners: industry events is essential if you want to make effective use of your time. UK Trade & Investment’s Through OMIS, the UKTI Hong Kong team Overseas Market Introduction is able to connect you to a wide range of Service (OMIS): opportunities to break in the Hong Kong, This can be used to tailor-make a and potentially China, markets. list of potential customers, agents, distributors or partners and arrange Take part in a UK Trade a programme of meetings with them & Investment-supported for when you visit China. In China, trade mission: CBBC provides OMIS services on UK Trade & Investment supports a large behalf of UK Trade & Investment. number of trade missions to mainland China and Hong Kong organised by OMIS can also be used to engage CBBC CBBC, trade associations and local to arrange a technical seminar or chambers of commerce. product introduction event in China, which can be an effective way of getting your message across to a number of potential customers. 460 China Business Guide Getting started

Due diligence

The vast majority of problems that One simple piece of due diligence foreign companies encounter when you can conduct is to get a copy of a engaging in business transactions company’s business licence which will in China could have been avoided by tell you the following: carrying out some due diligence at the start of proceedings. • The legal representative of the company There are different levels of due • The name and address of the diligence that are appropriate for company different situations. If your sole interest • The amount of registered capital is in exporting, the best proof of a which is also its limited liability Chinese company’s ability to pay is • The type of company whether it is able to raise a letter of • The business scope credit from the bank. If so, you do not • The date it was established and the need to check the company’s fi nancial period of its business licence standing as the bank will have already done so. At the end of 2008 China’s You should check that the information credit database contained the personal contained in the business licence records of 640 million individuals and matches what you already know 14.47 million companies and is the and if it doesn’t then find out why. largest credit information pool in the If you want to verify the information world. The database includes loan, externally you can do so through the credit card use, insurance and bill State Administration of Industry and payment information of individuals Commerce (SAIC). The local AIC bureau and companies and is used by fi nancial is the Chinese equivalent of the UK’s institutions in China to make personal “Companies House”. All companies in credit checks on loan applicants and China are legally required to register carry out due diligence on registered with their AIC bureau at the municipal Chinese companies. level to obtain their business licence. Getting started China Business Guide 047

You will have more security if you know The shareholders of the company are who the legally responsible person is, responsible for that amount of liability so find out who you are dealing with. listed as registered capital on the If problems occur, it will be much company’s business licence. You can easier to address issues with the legally check whether or not the registered responsible person, rather than a capital has been paid up by using a middle man, who may go missing firm of accountants to get a Capital when problems arise. Verifi cation Report. 480 China Business Guide Getting started

If you want to establish a business A particular obstacle that British relationship that goes beyond exporting, companies must overcome is the you will need to carry out further reluctance of many Chinese business research. A thorough evaluation of partners to agree to thorough due your potential partner may be time- diligence investigations. Failure to gain consuming and expensive, but doing a full understanding of a potential so will greatly reduce the risk of serious partner’s credit history and professional problems in the future. However, it is not background can spell serious trouble enough to obtain a copy of a company’s and financial loss. It is possible to reduce accounts, as they may not be accurate. local concerns over due diligence checks Accounts are unlikely to be audited to the through a patient and polite business standards routinely expected in the UK, approach and by stressing the reciprocal and companies may have different sets of nature of the arrangement, but you accounts for different audiences, so it is should expect this stage of negotiations advisable to use such data in conjunction to be lengthy and at times diffi cult. with information obtained elsewhere. Good quality consultancy and assistance is available from experienced fi rms There are a number of private resident in China. consultancies that specialise in carrying out operational, fi nancial, Finally, do as the Chinese do. Expect legal and technical due diligence to spend a lot of time at meetings and checks on Chinese companies, typically banquets with your potential Chinese by looking at the actual operation partners. You might think this is a slow of the business, and building up a progress, but the Chinese are using this more accurate picture by carefully time to establish whether you will make interviewing people who work in and a suitable and trustworthy partner with the company. and whether they want to enter into a long-term business relationship with you. It is wise to do the same.

UKTI and CBBC have lists of consultancies based in the UK and China, many of which provide due diligence services. Getting started China Business Guide 049

Employing staff

Finding the people you need to run your Local and foreign companies are business in China is not signifi cantly recruiting from the same pool of different to recruitment in the UK. employees who have the right There are several recruitment agencies technical and language skills as well currently operating in China, and most as managerial experience. Candidates operate under the same standards with the requisite skills and experience that you would expect of a fi rm in will be in demand and command high the West. They will do the sourcing, salaries. If you are not prepared to offer pre-interviewing of candidates and appropriate remuneration, you will have charge you a percentage of the placed great difficulty hiring people with these staff’s first year earnings or a one-off fee. skills. Many employees will leave their current companies for ones that are In addition, there are a number of offering better remuneration packages. recruitment websites advertising for both jobseekers and employers, which You will need to determine what you can be highly effective. Another option are willing to pay at the beginning is to recruit from the huge Chinese of the recruitment process. It is population at UK universities. Visa important to note that salaries in regulations allow Chinese graduates to China have increased over the last few undertake training and work experience years and will continue to do so. It in the UK, before moving to China to would be advisable to conduct some take up positions. market research to get a clear idea of appropriate salary levels for the One challenge that companies positions you wish to fill so that you recruiting in China will face is the can make an offer that is in line with increasing competition for experienced current market rates. managers and high-calibre individuals, and as China’s economy continues to When you are recruiting in China make grow this will only intensify. Skills levels sure that you carry out all the normal of employees can be an issue at all steps that you would if recruiting levels; in many locations demand for in the UK. skilled workers outstrips supply. Local education establishments will often assist with collaborative programmes, but this can have signifi cant lead time. 500 China Business Guide Getting started

Ensure that candidates’ technical Offer appropriate compensation: and linguistic capabilities match Once you have found the right staff you their claims: will need to give them good reason to It is essential to hire staff with the right stay with your company. You will need language skills. Common mistakes to provide suffi cient compensation include hiring Chinese staff from to ensure that you recruit and retain the outside mainland China who do not best employees. Offering employees speak Mandarin to the level required, the opportunity to train overseas is also or alternatively hiring staff whose very attractive at all levels, although business English is not suffi ciently make sure that in return for providing fluent for their role. such training they make a commitment to stay with your company. In addition, Ensure that you hire staff at the be sure to invest in the mentoring of right level for the role: Chinese management-level talent; this A recent MBA graduate returning from can be done by giving them experience overseas may not have the experience of working around the organisation and to navigate the complexities of setting grooming them for global corporate up a company in China without seeking positions. A clearly defi ned career professional advice, and they may progression route is also attractive and not have the capabilities to develop will help to retain staff. business at a senior level. A lot of smaller companies setting up Carry out due diligence: an office in China may well just employ To ensure that the staff you are one person to deal with all aspects of hiring are right for your company, it running the business. Although this is essential to ensure thorough due may be convenient and cost effective, diligence in recruitment, especially for it might not be the best way to run senior managers, including conducting your China operation. Staff selection personal background checks and will prove vital, although the individual checking all references before offering may be very willing, honest and them the position. capable, they may not be competent or experienced in international business practices. Also, foreign companies in China are at the top of offi cial radar screens. If your employee is not Getting started China Business Guide 051

familiar with the relevant Chinese It is also very important that, in rules and regulations pertaining addition to the contract, all employees to the running of an international are given (and sign to say they have office or business in China, then you received) a company rulebook detailing may soon have to deal with issues of all aspects of your company policy and noncompliance, which can be very what behaviour is and isn’t acceptable. costly. In addition, having one person If there are any cases of misconduct in control of all financial and legal you will find it almost impossible to aspects of the business is obviously terminate staff employment without risky. An attractive solution to this written evidence, so make sure that problem would be to use a service such such evidence is documented. as CBBC’s Launchpad Scheme where companies can have a presence by There is additional information on having a local CBBC project manager employing staff on the CBBC website located in one of CBBC’s China offi ces www.cbbc.org and many international and benefit from the support of CBBC’s law fi rms have guides to the new management and local team. employment laws on their websites.

If you are employing staff in China you will need to make sure that you comply with China’s Labour Law, which came into effect on 1 January 2008. According to this law all employees must have a written contract. If this is not signed within one month, then you will have to pay the employee double their salary for every month they are without a contract. If they are still without a contract after a year then they are automatically deemed to be on an open-ended contract. It is important that the employee receives an original copy of the contract signed by the employer and that the employer gets the employee to sign that they have received the contract. 520 China Business Guide Getting started

Foreigner Participation in Social Security Law China’s Social Insurance System The changes will add extra costs to On 15th October 2011, the ‘Interim all businesses employing foreigners Measures for Participation in Social as they are now required to make Insurance System by Foreigners’ contributions on their behalf. This will came into effect. The Measures mean hit schools and SMEs that hire a large that foreigners employed in China amount of foreigners particularly hard, who have obtained a Permanent and may result in employers turning Residence Certificate for Foreigners, away from hiring foreign workers. or employment certificates such as There is, however, a cap for the amount the Employment Permit for Foreigner, of contributions made, based on the Certificate of Foreign Experts, or three times the local average salary. the Certificate of Permanent Foreign Although, this is not universal and the Correspondent are now required to city of Dalian has already removed this participate in the country’s social cap (which could mean that employers security system. Five kinds of insurance have to pay up to 37% of an entire contributions are to be made: basic monthly salary paid to their foreign pension insurance for employees; basic employees). medical insurance for employees; work-related injury insurance; Foreign employees are also required unemployment insurance; and to make contributions and despite the maternity insurance. Social insurance cap this is still a substantial cost for fees are to be paid by both employers lower paid foreign workers. and foreign employees in accordance with the regulations. The Measures Although the new tax requiring state that employers must undertake foreign workers to pay social security social insurance registration for foreign contributions is currently in effect, employees within 30 days of applying the system for registration and for their employment permits. Failure implementation of the tax is not yet to conduct registration and payment for operational. Businesses have not yet social insurance may mean employers been able to register foreigners with are subject to fi nancial penalties. their relevant social security bureaus or make payments (although a target has been set for 2012). Getting started China Business Guide 53

The only situation in which foreigners • Pension. How to reclaim the lump will be able to avoid making sum? In the event of death how will contributions is where they meet the payment to a relative be organised? requirements specified in bilateral or • Medical insurance. At which clinics multilateral agreements, of which there can medical insurance be claimed are currently only two (Germany and at- International sections of domestic Korea). Even these agreements only hospitals or international clinics? allow citizens of these countries to opt • Maternity insurance. Foreign women out under certain circumstances.2 are not restricted to having one baby. There is still a lot that remains unclear, Can they use the policy multiple and there are some outstanding issues times or just with their fi rst-born? that still need to be clarifi ed: • Unemployment insurance. If a foreigner loses their job, they are not allowed to reside in China, thus they cannot take advantage of this insurance.

2 Workers from Germany are exempt from pension insurance and unemployment insurance in China for the ﬁrst 48 calendar months, while those from South Korea are exempt from pension insurance. 540 China Business Guide Getting started

Language

In order to communicate effectively in China it is essential to communicate in Chinese.

Communication is crucial to the known in the UK as Mandarin Chinese success of any company, yet business and the characters used to write it is all too often lost through simple are known as Simpliﬁed Chinese. This misunderstandings that could have was introduced by the Government in been easily avoided. When working the 1950s and is increasingly used by across different time zones, cultures Chinese communities abroad, although and languages the chances for traditional characters are still used in misunderstanding are multiplied Hong Kong and Taiwan. considerably. It is therefore essential to ensure that you have an appropriate If you are working in southern China, communications strategy for China. in the area between Guangzhou (formerly Canton) and Hong Kong, In order to communicate effectively do not assume that the business in China it is essential to communicate language is Cantonese. This region in Chinese. Your translator or interpreter has a vast population of immigrants is therefore one of your key assets from non-Cantonese speaking parts and should be selected with care, as of China working at all levels. For the without them you are effectively deaf majority of contacts in southern China, and dumb. The national language Mandarin is the language of business. of China, Putonghua, is commonly If in doubt, ask ﬁrst. If you are going to Getting started China Business Guide 055

Hong Kong, Cantonese is the preferred Business cards are essential. It is wise to Chinese dialect, although Mandarin have your business card translated into is increasingly spoken in business Chinese, and to bring plenty with you. circles. English is also commonly used for business and remains an ofﬁ cial Ensure that all your translation is language in Hong Kong. done professionally. For names it is important to use characters which not While an increasing number of Chinese only represent the word phonetically companies – particularly those with an but also have a symbolic or auspicious international outlook – have English meaning, it is worth talking through the speakers on their staff, don’t assume choice for names with your translator. that everyone in the company speaks There are numerous translation and English – especially decision-makers. At interpreting agencies which can carry the very least, get a Chinese name for out suitable translations of personal your company and prepare a one-page names as well as general translation company proﬁle in Chinese for insertion work. Many of them will also be able into your company brochure and to help you address the branding issues website. A Chinese translation of your detailed on page 58. brochure would be even better. 560 China Business Guide Getting started

Marketing

The Chinese market is constantly For example, a lot of Chinese consumers changing, but as income levels rise attach much more importance to the across China there will be an increasing functional aspect of many products than number of new consumers and ﬁ rst-time we do in the UK, so Chinese marketing buyers who will wish to purchase and campaigns may focus on these features experience new products and services. rather than on what the product says However, the Chinese market is evolving about you as an individual. rapidly and to win these new consumers over you will need to continually Also, the concept of auspicious and reassess your marketing strategy. inauspicious symbols, is emotionally important to many people in China. Tradeshows and exhibitions have Many companies make use of positive already been mentioned as ways of symbols and avoid those with negative meeting potential customers, but you connotations in order to maximise the still need to persuade them to buy success of their products. For example, your product. You will need to ensure the number 4 is regarded as unlucky, as that your sales literature is effective in the word “four” in Chinese sounds similar English and Chinese and decide what to the word for death, but 8 is regarded kind of advertising is appropriate. as lucky, as “eight” sounds similar to the words for prosperity and wealth. You may need to adapt your product to meet Chinese preferences or We recommend that you involve a requirements in order to be able specialist consultancy that can develop to sell it. Ignoring local regulations, a marketing strategy appropriate to tastes and cultural preferences is a your product and to the areas of China recipe for failure. where it will be sold. Getting started China Business Guide 057

Cultural issues relating to marketing The concepts of good and bad luck, or auspicious and inauspicious symbols, are emotionally important to many people in China. Therefore, in order to maximise the success of your products, make use of positive symbols and avoid those with negative connotations.

• 4 is regarded as unlucky, as “four” it sounds similar to the word for death. 7 also has negative connotations.

• 8 is regarded as very lucky, as “eight” sounds similar to the words for prosperity and wealth. 3 is also lucky, as it sounds similar to the word for “life” in Cantonese.

• 9 is also positive as it sounds like the word for “eternity” or “long term”, while 6 sounds similar to “good progress.”

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

• Use images of auspicious animals: dragon, phoenix, unicorn, tortoise (the Buddhist symbol of learning), crane and ﬁ sh.

• Images of the Great Wall indicate stability and reliability.

• Avoid name plaques for opening ceremonies, as these are equivalent to you standing next to your tomb!

• Also avoid black borders around names or photos of people, since this is also associated with death. 580 China Business Guide Getting started

Branding

Conventional marketing wisdom says that Another good example would be B&Q, global brand consistency is important, whose Chinese name is “Bai An Ju” but the Chinese language presents some and can be approximately translated very speciﬁc branding issues. In order to as “Hundred Peaceful Homes”. create a favourable impression of your company and your brand in China, it is A translation of a Western company essential to have a name that Chinese name that is perhaps not quite as good consumers can remember. as it could be is the translation of Google into “Gu Ge” which, although sounding If a product name can’t be remembered, similar, means “Song of Millet”! it is unlikely that many people will buy it. It is therefore essential to have a It’s advisable to spend some time on suitable Chinese company and product getting this right. The name is, after all, names in order to sell your products. the ﬁrst thing your potential customers If your target market is mainland will see. There is no right or wrong way China (as opposed to Hong Kong), it when translating into Chinese: the is not advisable to have a Cantonese name you will ultimately end up with translation of your company name, will be a combination of the translator’s as this will not be readily understood recommendations and your own outside Hong Kong. preferences.

The Chinese translation of Coca-Cola A list of Chinese translators and is an example of best practice and interpreters can be downloaded from highlights the issues involved in creating www.ukti.gov.uk. a suitable name. Coca-Cola in Chinese is “Kekou-Kele” which not only sounds like the English but can also be translated as “Tasty and Joyful”, thus creating a name that is easily memorable for Chinese speakers while retaining some degree of global consistency. Getting started China Business Guide 059

Day-to-day communications

Once you have made contact with If China is likely to become a signifi cant a Chinese company it is likely that part of your business, you should your day-to-day phone and email consider hiring a Chinese-speaking communications will be in English with member of staff. There is a rich pool of one of the company’s English-speaking talent in the huge number of Chinese members of staff. students graduating from British universities, who are keen to have If you do not think the standard of internships or short-term employment English in the Chinese company is up in the UK before returning to China. to scratch, you might wish to ask for These students can also be recruited parallel Chinese texts and get them through specialist recruitment agencies. translated; this could be a valuable investment. An important part of You may also wish to take up the setting up arrangements in China is challenge of learning Chinese to ensure that communication issues yourself – even having a basic level of are covered in detail. communication will create a positive impression and will have the added If you are going to sign anything – benefit of making your trips to China as obvious as it sounds – make sure more enjoyable. you get it translated first, and by an independent translator. Do not rely However, even if you do attain a on your customers’ or suppliers’ reasonable level of fluency (which can translation and do not be pressured take over two years with dedicated into signing anything that you do study), an interpreter – or a Chinese- not fully understand. speaking member of staff – is still an essential in business meetings. Most failures occur in relationships because of fractured communications and mutual misunderstandings. 600 China Business Guide Getting started

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. Getting started China Business Guide 061

Interpreters

A growing number of younger Chinese There are two forms of interpreting. managers and government ofﬁ cials Consecutive interpreting means speak English to a good standard, you speak and then your interpreter particularly in advanced sectors such speaks; this is the usual form for as ICT. But you will usually need to meetings, discussions and negotiations. use an interpreter for formal meetings Simultaneous interpreting involves the and negotiations in China to prevent immediate translation of your words as the discussions being hampered by you speak them. This requires special misunderstandings. A good interpreter equipment and can be expensive. It is is the key to successful communication. generally used only for large seminars If they have not understood what you and conferences. Interpreting is a skill have said, your message will be lost on requiring professional training. Bear your audience. in mind that just because someone is ﬂuent in English and Chinese it does not necessarily mean that they will make a good interpreter. 620 China Business Guide Getting started Getting started China Business Guide 063

A good interpreter is the key to successful communication.

If you are giving a speech or To get the best out of your interpreter: presentation, remember that the Hiring a well-briefed professional need to interpret everything will cut interpreter is the best policy. Though your speaking time approximately this is likely to be expensive, it will be in half (unless using simultaneous money well spent. interpreting). It is essential to make sure that the interpreter can cope with The Chinese will usually, but not any technical or specialist terms in the always, provide one interpreter for presentation. It is better to be slightly their side. It is advisable to have your restricted and speak close to a script own interpreter available to assist than to fail to sell yourself. If you are with discussions, when possible. One giving a speech, give the interpreter the interpreter working for both sides text well in advance and forewarn them may become tired and start missing of any changes. the meaning or detail of what is being said. Chinese partners often If you decide to bring an interpreter spring interpreting on junior staff with you (for example an overseas who have studied English but are Chinese from Hong Kong or Singapore), neither experienced at interpreting nor ensure that they speak clear and pre-briefed on the topic of the meeting. comprehensible Mandarin. If you are With your own interpreter, you should travelling to an area where there is a also have some feedback afterwards on regional dialect, it is also essential to the nuances behind what was said (and check whether your interpreter can – just as importantly – not said) during also speak and understand this. the meeting. 640 China Business Guide Getting started

Try to involve your interpreter at every China has no single number for stage of your pre-meeting arrangements. “million” or “billion” which are translated The quality of interpretation will respectively as “one hundred ten improve greatly if you provide adequate thousand” and “ten hundred million”. briefing on the subject matter. Ensure However, it does have unique numbers your interpreter understands what you for “ten thousand” and “one hundred are aiming to achieve. million” – “wàn” and “yì”. Therefore, the chance of mistranslation of large Speak clearly and evenly with regular numbers is high, so make sure you breaks for interpretation. Don’t ramble clarify numbers by writing them down. on for several paragraphs without pause. Your interpreter will find it hard Listen to how your interpreter interprets to remember everything you have said, what you have just said. If you have let alone interpret all your points. given a lengthy explanation but the interpreter translates it into only a few Conversely, don’t speak in short Chinese words, it may be that they have phrases and unfi nished sentences. not fully understood. Or they may be Your interpreter may find it impossible wary of passing on a message that is to translate the meaning if you have too blunt and will not be well received left a sentence hanging. by the audience.

Avoid jargon, unless you know your Make sure your message is getting interpreter is familiar with the terminology. through clearly and in a tone that will not cause resentment. But be prepared in the response for the propensity of the Chinese language to be ambiguous.

Key fact

Hong Kong has more Rolls Royces per person than any other city in the world. Business issues and considerations China Business Guide 065

Business issues and considerations Introduction

The Chinese market can be more company to operate in China varies complex for uninitiated companies in line with these, so in some sectors than other international markets. it is possible to set up a 100 per cent The challenges of a huge market with a foreign-owned company, but in others different business culture and language entry is possible only through a local are compounded by a controlled partner, and in some it is not possible at currency and relative newness of all. With some professions, for example international trading in modern China. legal, it is possible to enter the market, but operation is severely restricted. Whether buying, selling or investing, whether dealing in physical products or It is important to understand your knowledge, it is important to be aware freedom to enter the market. Refer to the of the complexities and risks. None are official “Catalogue for the Guidance of insurmountable, but they do require Foreign Investment Industries”, published time and resources. by the Chinese Ministry of Commerce (MOFCOM), and seek advice from UKTI, The main points are covered below, and CBBC or professional services companies. there is a wealth of information on both the UK Trade & Investment and China- Whilst the size and growth rate of the Britain Business Council websites: Mainland China market offers excellent www.ukti.gov.uk and www.cbbc.org. opportunities for UK businesses looking to internationalise, approaching the Market access Mainland China market directly can Before attempting to enter the Chinese be a daunting prospect. As a major market it is important to identify services centre and gateway into whether the market is open to you and China, Hong Kong is an attractive whether restrictions apply. Certain indirect route, offering the signifi cant sectors, for example military, are advantages of: subject to UK controls and these can be identified from the “UK Strategic Export • Easy Access – the Closer Economic Control Lists”. Partnership Agreement (CEPA) between China and Hong Kong gives The Chinese Government classifi es the Hong Kong preferential access to market for foreign investment or entry into China’s markets. UK can, in certain three categories: encouraged, restricted cases, take advantage of this. and prohibited. The ability of a foreign 660 China Business Guide Business issues and considerations

• Similar Business Systems – • Knowledge – Hong Kong agents With similar legal and international and distributors with their existing business support services, excellent business links, extensive experience, communication infrastructure, and common language and culture English as the business language, are excellent partners for UK ﬁ rms doing business in Hong Kong is very wanting to access China. similar to doing business in the UK.

• Intellectual Property Protection – IPR laws in Hong Kong are based on UK law and their enforcement is more attractive for companies with high- value intellectual property.

• Proximity – The Pearl River Delta (PRD), one of the key economic regions of China often cited as “the workshop of the world”, is easily accessible by excellent rail, road and air transport links. Business issues and considerations China Business Guide 067

Intellectual property rights (IPR)

China is now a signatory to most major “Trademark squatting” is a particularly international IP agreements and has common problem. China operates a legislative framework broadly in line a fi rst-to-fi le system, with the fi rst with international norms. UK companies person to register a trademark in China are increasingly indicating support on becoming the legal owner. If you fi nd IP issues from local Chinese authorities. you have been pre-empted, different However, problems persist in the options are available to recover your implementation and interpretation brand. Unfortunately, most of these of IP legislation, and its interaction processes are lengthy and expensive, with other policies. It remains vitally with no guarantee of success. It is important to consider the threat of important to consider this before IP infringement before embarking entering the market – whether you are on market entry, or other business selling or buying. You should register ventures in China. your trademark in both English and Chinese as early as possible. As part of your market entry strategy you will need to establish how you can Other problems include diffi culties protect your rights, how much it will bringing effective enforcement action cost and what other steps you could against infringers. China operates take, such as including IPR in due different enforcement systems to diligence checks and monitoring the other countries. These can take time market for possible infringements. to understand and utilise properly. 680 China Business Guide Business issues and considerations

UKTI can help UK companies build UK Trade & Investment and the China- effective protection and enforcement Britain Business Council provide strategies in China. detailed guidance on protecting intellectual property and this can It is wise to take a practical, as well be accessed via www.cbbc.org and as a legal view, on IP protection. www.ukti.gov.uk. The UK government Consider how to structure commercial has also posted an IP attaché to China agreements to minimise the risk of to work to improve the IP environment IP infringement. China can be a very for UK companies. An experienced competitive market, with a different independent IPR lawyer is invaluable business culture to the UK. Assess in helping you to establish the best the opportunities on offer against the strategy for your company. risks to your competitiveness if things go wrong. IP registration in China is The UK’s first ever Intellectual Property significantly cheaper than in other (IP) Attaché has been appointed and countries, but spending time and started work in China in December money doing things thoroughly can 2011. The position is an important part save a lot of trouble in the future. of the Government’s plans to strengthen trade relations and unlock the growth Practical steps include choosing potential of UK businesses abroad. partners carefully; developing business relationships that are of mutual benefi t UK SMEs can also obtain free and hence a deterrent to infringement; advice from an EU-funded project, retaining key elements of IP; and the “China SME IPR Helpdesk” via working with several partners, rather www.china-iprhelpdesk.eu. than “putting all the eggs in one basket”.

Key fact

Chinese internet users are ﬁ ve times as likely to have blogs as American internet users. Source: Business Insider, The Guardian. Business issues and considerations China Business Guide 069 700 China Business Guide Business issues and considerations

Certiﬁ cation and standards

All overseas products imported into Chinese standards are divided into China are checked and certifi ed by Mandatory Standards and Voluntary the domestic and overseas arm of Standards. Mandatory Standards are the General Administration of Quality those concerning the protection of Supervision, Inspection and Quarantine human health, personal property and of the People’s Republic of China safety and those enforced by laws and (AQSIQ). Two agencies of AQSIQ, administrative regulations. Standards the Certification and Accreditation that fall outside the above criteria Administration of the People’s are known as Voluntary Standards. Republic of China (CNCA) and the Certain market sectors, such as medical Standardisation Administration of China products and food, require extensive (SAC) are responsible for certifi cation registration (and possibly testing) and and standardisation in China. certification. Here it is important to seek advice from UKTI or CBBC. Generally, but not exclusively, Chinese standards match ISO, ANSI or BS/EN. The China Compulsory Certifi cate (CCC) When importing into China, Chinese is a compulsory quality and safety standards take precedence over foreign mark that is required for a range of standards, so it is essential that your manufactured goods before they can products adhere to the applicable be exported to or sold in China. CCC Chinese laws, regulations, standards certification is required for a wide and certifi cation requirements. range of products that could impact on human life and health, animals, plants, environmental protection and national security. Goods imported into China that require the CCC mark and do not have it may be held at the border by Chinese Customs and may be subject to other penalties. Both the CNCA and the SAC have English language websites providing comprehensive information on certification and standardisation: www.cnca.gov.cn/cnca/ and www.sac.gov.cn/templet/english/ Business issues and considerations China Business Guide 071

Getting paid and ﬁ nancial issues

Currency exchange Contracts and payment and transfer of funds As covered under “Business Culture” Many Chinese companies prefer to be below, contracts as operated in the invoiced in US dollars, particularly if UK are relatively new in China. They they are already doing business with are, however, essential for successful the USA, although it is sometimes business there, for the same reasons as possible to negotiate contracts in in any other market. They also ensure euros or even sterling. Conversion of smooth transactions of payments the Chinese RMB to foreign exchange through the Chinese banking system. is strictly controlled by the “State If payments do not match the contract Administration of Foreign Exchange” they may be delayed, or conversion (SAFE), a government department, into foreign exchange may be blocked. which regulates transfer through the banking system. This affects all It is common for negotiation to financial transactions, from the ability continue after a contract is signed in to purchase Chinese RMB before China, so it is wise to build into the fi nal travelling, to contractual payments and figure some provision for concessions. dividends. Small transactions, such Substantial additions to the contract as the use of ATMs and credit cards, need extra care as, if they do not match are straightforward, but the controlled the original contract, payments may currency means that you need to be be held up in the banking system. more careful in setting up contracts and investing in the market. Company As elsewhere with large contracts dividends may only be paid annually, involving stage payments, the fi nal following audit of accounts by an stage, which often depends on “sign approved accountancy fi rm. off”, may be difficult to realise, and this needs consideration when agreeing terms. 720 China Business Guide Business issues and considerations

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

• Make it similar to other international • Agree and stipulate how agency contracts, but be very explicit and payments are to be handled. avoid legal jargon, which may not be understood. • Ensure the contract is fully understood and agreed with the • Include an arbitration clause, as legal Chinese organisation. The contract action can be very expensive and should be accurately translated and difﬁ cult to pursue. both versions signed.

• Take care with milestones and • Consider the law applying to the related payments – this is especially contract. Contracts under foreign law important with royalties contracts, are permitted and may offer easier for which payments can attract prosecution in the ruling country if particular attention. something goes wrong, but this will need enforcement in a Chinese court. • Agree and stipulate who is Contracts under Hong Kong law, which responsible for taxes. is based on English law, may be a suitable compromise. Business issues and considerations China Business Guide 073

Short-term fi nance Open Account and Bills for Collection When exporting to China normal are other payment methods commonly commercial rules should be used between UK exporters and followed, and you should discuss the Chinese importers when a trustworthy arrangements for security of payment relationship between the two parties has with the international department of been developed. Major exports and those your UK bank, the UK offices of Chinese requiring long-term finance will require banks or UK-based banks that have specialist payment and fi nancing. offices in China. If you are a fi rst-time exporter to China, the standard method Further information on securing of receiving payment for your goods is payment can be obtained from by documentary letter of credit. www.cbbc.org.

The Chinese bank will make Pricing the payment provided that the Margins achievable in Chinese markets requirements of the letter of credit are likely to be lower than in Western are met. However, be aware that a letter ones. This situation is changing rapidly, of credit is a form of contract between and increasingly Chinese companies are two banks. A bank will make payment prepared to pay more for demonstrable provided that the documents submitted beneﬁts, and it is occasionally possible to it are in strict compliance with the to command a premium for a unique conditions of the letter of credit. This product or service. is regardless of the purchase contract. To prevent the possibility of a payment being made if the terms of the purchase contract are not met, the seller should check the letter of credit against the terms of the purchase contract, ensure that they match, and build in any necessary safeguards. 740 China Business Guide Business issues and considerations

Insurance

The private sector provides credit UK Export Finance insurance for exports of consumer UK Export Finance is the UK’s export products, raw materials and other credit agency. As a government similar goods. Speak to your banker department (formally named the Export or insurance broker for more Credits Guarantee Department) that information or contact the British operates under an act of parliament, Insurance Brokers’ Association for we complement the private market impartial advice: by providing government assistance to exporters and investors, principally British Insurance Brokers’ in the form of insurance policies and Association guarantees on bank loans. Tel: +44 (0)870 950 1790 (Consumer Helpline) Contact Export Credits Guarantee Email: [email protected] Department: www.biba.org.uk Tel: +44 (0)20 7512 7887 Email: [email protected] Private sector insurance has some www.ukexportﬁ nance.gov.uk limitations, particularly for sales of capital goods, major services and construction projects that require longer credit packages or are in riskier markets. The Export Credits Guarantee Department (ECGD), a separate government department that reports to the Secretary of State for Business, Innovation and Skills provides a range of products for exporters of such goods and services: Business issues and considerations China Business Guide 075

Legal system

China has created what is ofﬁ cially In addition, the Supreme People’s Court termed a “socialist legal system with issues judicial interpretations from Chinese characteristics”. Technically, time to time, which all lower courts are the legal system is based on both required to follow in adjudicating cases. statutory law and custom. The National Apart from this, there is no general People’s Congress (or its Standing system of precedent followed in China’s Committee) enacts national laws while courts. After a period of intensive the State Council (effectively the Chinese statutory development over the past government’s cabinet) implements and 20 years, China now has a relatively enforces administrative regulations and complete basic legal system in place. rules nationwide.

The ministries under the State Council put into effect speciﬁ c national administrative regulations and rules and can be authorised to issue interpretative implementing rules. Provincial representative bodies known as people’s congresses may also enact local rules and regulations where these are not contradictory to laws, regulations and policies enacted at the national level. 760 China Business Guide Business issues and considerations

Management, control and quality assurance

With the challenges of distance, Sourcing products from China, language and culture, many UK especially from a supplier companies are tempted to take a inexperienced in dealing with foreign “hands-off” approach to transactions companies, requires particular attention and operations in China. In fact, these to detail. Speciﬁcations are sometimes challenges increase the need for not understood and need to be very proactive engagement. A “hands-off” clearly explained and agreed, and a approach allows problems to develop, quality management system needs often to the point where they become to be agreed and put in place with the major issues. Chinese company. Many consultancies will offer to undertake all or part There is no simple solution, and (eg the quality management aspects) successful UK companies use a variety of this process on your behalf. A list of of techniques. These can include consultants can be found on the CBBC’s extensive travelling by UK personnel, a China Business Services Directory at controlling or liaison presence in China www.cbbc.org. (such as using CBBC Launchpad), or providing extensive training and good management of Chinese staff. It is important not to allow milestones to slip by, whether these are attending a board meeting in a joint venture or arranging a quality audit at a supplier.

Key fact

By 2030, China will add more new city-dwellers than the entire U.S. population. China’s cities will have added 350 million people – more than the entire population of the United States today. Source: Mckinsey, “Preparing for China’s urban billion” Business issues and considerations China Business Guide 077

Bribery and corruption

Anyone doing business in China is illegal. Invariably corruption is related likely to encounter or hear of corruption to lack of professionalism, transparency in one form or another. Historically, and control, all of which are damaging practices such as facilitation payments, to long-term business. bribes and giving and receiving expensive gifts in order to develop The Chinese Government is keen to relationships were often regarded as crack down on corruption, and the a part of doing business. This is still penalties can be severe. In addition, the case in some areas, although the under the Anti-Terrorism, Crime and problems vary according to sector, Security Act 2001, UK companies and type of business and region. nationals can now be prosecuted in the UK for acts of bribery or other illegal However, the general perception is that activity committed wholly overseas. the situation is improving. Our advice to companies encountering corruption is simple – don’t get involved. Not only are there issues of business integrity to bear in mind, but it is also, of course, 780 China Business Guide Business issues and considerations

Scams: how to avoid them

Fraudsters and scammers exist all over “The contract scam” – Fraudulent the world, and China is no exception. companies in China make unsolicited There have been a number of instances enquiries to foreign companies, making of British and other foreign businesses orders in large quantities with very being targeted by fraudulent benefi cial fi nancial terms. The foreign companies and individuals operating company is often then invited out to from various locations in China. China to sign the “contract”. When The most common scams are: they arrive, they are asked to pay for expensive “gifts” or meals for “offi cials”, in order to move things forward. When the foreign representative fl ies back home the fraudsters vanish without trace. Companies should also be alerted when they are asked to pay for any “administration”, notarisation or foreign exchange control charges. Business issues and considerations China Business Guide 079

“The visa invitation scam” – Too good to be true? A fictitious Chinese company may Once you know the basics, it is randomly request letters of invitation relatively easy to prevent yourself for visas from UK organisations, from becoming a victim of scams. so their delegates can visit the UK If you receive an apparently very factory/site with a view to developing attractive order from China (or indeed, business. In reality these individuals anywhere else), or see a website have no interest in your company or offering goods at unrealistically your product – they are looking for the low prices, ask yourself: is this too opportunity to enter the UK. If you are good to be true? If it looks too good approached by a Chinese company to be true it almost always is. in this manner, ensure that you carry out basic due diligence checks before Don’t get on the plane, or send issuing a letter of invitation. money, without seeking advice from either UKTI and CBBC, or carrying out “The domain name scam” – A foreign appropriate due diligence checks. company receives an email from a A guidance document on various fictitious “internet database company”, business scams is available from CBBC. claiming a Chinese company has fi led a request to register your domain name, and with a fee they can block that request. Once you have parted with the cash, the scammer disappears.

Like any other market, operating in China poses certain risks. Our Overseas Business Risk website is an essential read: http://www.ukti.gov.uk/export/ countries/asiapaciﬁ c/fareast/china/ overseasbusinessrisk.html 800 China Business Guide Business culture

Business culture Relationship building

In a highly competitive business worry if you find the complexities of environment, it is more important Chinese business culture daunting. than ever for us to understand the business culture of our target markets. Just behaving modestly, patiently Understanding business culture helps and politely, while not suspending us understand, anticipate and respond one’s business judgement, is certain to unexpected behaviour. It also enables to provide a good foundation for us to behave in an acceptable way and successful business in China. avoid misunderstandings. As the Chinese saying goes: ru jing sui su – “When you In China, getting to know someone face enter a region, follow its customs”. to face is often regarded as the only way of finding out whether a person However, knowledge of business culture is trustworthy. In general, the Chinese – especially in a country as vast as set great store on building personal China, where sub-cultures and practices relationships before entering into a differ from place to place and where business partnership, often saying, “Let’s every Chinese person is an individual first become friends, then do business”. shaped by different experiences – must be exercised with caution. A little You can expect your first, and possibly knowledge is dangerous. But do not your second, visit to China to achieve Business culture China Business Guide 081

nothing other than getting to know situation, it is best to err on the side several possible candidates for business of patience and politeness. Do not be partnerships. This may seem a slow and afraid to ask a Chinese colleague for costly way of getting started, but it is advice on how to handle matters. worth remembering that taking time to cultivate personal connections as the Westerners normally build transactions Chinese do is an excellent opportunity and, if they are successful, a to get to know the people you will be relationship will ensue. However, working with. Introductions via a trusted the Chinese believe that prospective intermediary can play a valuable role business partners should build in opening doors, but there are no short a relationship and, if successful, cuts to relationship building. commercial transactions will follow.

You will undoubtedly encounter delays This difference underlies many and frustrations when doing business in misunderstandings arising from China. Keeping your temper (equated business negotiations. Virtually all in Chinese terms with maintaining successful transactions in China result “face”), even when things go wrong, can from careful cultivation of the Chinese pay disproportionate dividends. If you partner by the foreign one, until a are not sure what to do in any given relationship of trust evolves. 820 China Business Guide Business culture

Guanxi

Both Chinese and foreign companies will often attribute their business success to having good guanxi.

The objective of developing close cease with the second scratch, and relationships is to build what the the other side will have expectations Chinese call guanxi (pronounced gwan that the relationship will continue. shee), which are essentially social or It is not about making fair-weather business connections based on mutual friends. If you expect guanxi to deliver, interest and beneﬁ t. relationships must be maintained through regular contact. In a centralised and bureaucratic state, reliance on personal contacts is often Both Chinese and foreign companies seen as the only way to get things done. will often attribute their business And in a place like China where the legal success to having good guanxi. But the system is still relatively weak, the need obligations of guanxi are very real. In to rely on guanxi remains strong. the wrong place, at an inappropriate time, with unsuitable people, the In business, guanxi must be regarded obligations can become a trap which as a two-way relationship. We are is hard to escape. all familiar with the expression “You scratch my back, and I’ll scratch yours”. But in guanxi, the obligation does not Business culture China Business Guide 083

The role of the state

It is easy to underestimate the role that On a related point, government the State continues to play in Chinese officials such as city mayors and party business. Despite the rapid expansion of secretaries, in China often wield far the private sector, many large Chinese more power than their counterparts in businesses in strategic sectors remain the UK do. Good personal relationships state-owned and, in addition, apparently are key to successful business in China, private fi rms also often turn out to have and taking the time to get to know key an element of state control. The state offi cials is likely to make doing business factor can have a signifi cant infl uence much smoother. However, a change of on the way a company does business, local government officials might affect so you should make yourself aware of the incentives or agreements offered by the wider political (in both the small the previous administration. Offi cials are and large “p” senses of the word) milieu also occasionally arrested for corruption. that your Chinese partner or customer operates in. This knowledge will give you a greater understanding of where the Chinese side is “coming from”. 840 China Business Guide Business culture

Making conversation

Most people should be addressed by a title and their last name. You can address people by professional titles such as “General Manager Wang” or “Director Zhao” or, alternatively, if a person does not have a professional title, use Mr, Madame or Miss, plus the last name.

• Stick to safe subjects such as hobbies, when speaking to a group. Also, be family, your hometown, the Chinese aware that cross-cultural jokes are landscape and Chinese culture. The hard to find, and often the point of Chinese often ask apparently intrusive a joke will be lost in translation. questions about your age, income or marital status. These questions are not • The Chinese do not like to say no. meant to offend, but if you don’t want Doing so causes embarrassment to answer, remain polite and give an and loss of face. If a request cannot unspecifi c response. be met, you might be told that it is inconvenient or under consideration. • Avoid talking politics unless you know Alternatively, you might be told “Yes, the person very well. Chinese people but it will be difficult”. This might are more nervous having political seem like a positive response, but in debates openly. In any case, do not reality means “No” or “probably not”. criticise China or Chinese leaders. Do not refer to Hong Kong as if it was • Gestures in conversation can have still run by another administration or different meanings in China. Nodding Taiwan or Tibet as a separate entity. means “I hear what you are saying”, not necessarily “I agree with you”. Laughing • It is fine to tell jokes in informal can be from embarrassment rather situations, but they are best avoided than because something is funny. Business culture China Business Guide 085 860 China Business Guide Business culture

Entertainment

Work and social life tend to remain • If you are the host at a Chinese separate in the West, whereas much restaurant, at the customary round of a Chinese person’s social life will be table, your seat should face the door, used to further personal and business with the Chinese guest of honour on relationships. In China some three- your right. Guests are seated further quarters of business deals are sealed away from the host in descending outside of working hours. Tea houses, order of seniority, with the most Karaoke bars and restaurants can all be junior having their back to the door. locations where discussions and deals Thought should be given to placing are made. interpreters between guests who cannot speak each other’s languages. Banquets have traditionally been an essential part of doing business in • If in doubt about the placement of China, although the practice varies your guests, a friendly invitation for depending on where you are and assistance when they arrive often who you are dealing with. Very senior solves the problem. people who have not previously made an appearance may be present at • It is traditional (but now less a banquet. They may be key to the common) for the host to serve food approval of the business in hand but to the guest. If you are the host and be too senior to be involved in the offer a guest a second helping, do not actual negotiations. The banquet is an automatically take no for an answer. opportunity to impress them and get They may just be being polite. a feel for how things are going. • It is polite to try a little of each dish • Most Chinese are unenthusiastic about if it is offered to you. Otherwise, you Western food, and prefer Chinese can discreetly leave any dishes that food. Typical ofﬁ cial entertainment do not appeal to you. for a foreign visitor will take the form of a banquet with several courses, often consisting of exotic delicacies not usually eaten in the West – or in China, for that matter! Business culture China Business Guide 087

• Frequent toasts, to good health, • Table manners are a matter of fi tting Sino-British friendship and so on are in. If in doubt, follow your host’s standard. Locally produced wines or example. One gaffe to avoid – do baijiu (a strong spirit) are the usual not leave your chopsticks pointing drinks for toasts. However, many into the bowl, as this resembles an people in China have a low capacity offering of incense to the ancestors for alcohol. If you host a meal, plenty or the funerary flags on a recently of soft drinks should be available. dug grave. Place them horizontally on the rest provided. • Never arrive late for a Chinese meal. It is common for people to arrive up • If you are invited to a banquet, it is to 15 minutes early. They also tend polite to reciprocate. A good time to to leave en masse as soon as the last have a return banquet is on the eve of dish has been eaten. Chinese hosts your departure or at the conclusion make it quite clear when the meeting of the business in hand. Many senior is over and you will not be expected officials in southern China are moving to linger. away from the typical banquet scenario and are now more likely to • The Chinese eat earlier than we be found playing tennis (with a top do. Lunch is served from 11.30am coach) or golf. Find out what form onwards, and dinner from about of entertainment your key contacts 6.00pm. Most official banquets run prefer, as this can help you decide from 6.00pm to 8.00pm. how best to build your relationship with them.

Key fact

China had more than 900 million mobile phone subscribers at the end of April 2011. Source: China Today 880 China Business Guide Business culture

Gifts

The Chinese like to give gifts, which There are few rules on what gifts not to are used to express friendship, the give, but the Chinese expression for “To successful conclusion of an endeavour give a clock” sounds like the phrase for or appreciation for a favour done. Often, “To attend to a dying parent”, so clocks the symbolic value of the gift is of more are not popular gifts. Similarly, cut importance than the material value. ﬂowers are associated with funerals.

It is a good idea to bring along small Gift giving is inﬂuenced by hierarchy. gifts for your hosts (souvenirs from your The most senior person should receive region, books, pens, ties, or a memento the most valuable gift. If other gifts of your company). Wrap them in a are also given, they can be smaller colour traditionally regarded as lucky, and given to other members of the such as gold or red. It is not customary Chinese team. to open presents in front of the giver, unless encouraged to do so. Business culture China Business Guide 089

Meetings

When arranging a meeting it is advisable • Business cards are essential. At the to provide the Chinese company in beginning of meetings where those advance with details of the objectives present have not met before, it is of the meeting, names and ranks of customary to exchange business participants and specific areas of interest. cards when being introduced. It’s Otherwise, it is likely that the Chinese advisable to take a good supply. side will issue a long and general report which is unlikely to provide you with • It is a sign of courtesy to have your the information you require. card translated into Chinese. Many Chinese do not read English. • Business meetings start on time and it is good practice to arrive at the • Present your card with both hands location early. Formal introductions with the Chinese side face up. Spend are standard and it is usual to be a few seconds examining the cards introduced to the most senior person you receive. This shows respect for fi rst, followed by the rest of the group the card’s owner. However, whatever in descending order of seniority. you do, don’t write on the card, as this shows disrespect to the owner. • There may be people from several When exchanging business cards, organisations present at the business greeting your Chinese counterparts meeting. If it is not immediately with simple phrases such as “Ni apparent who is the most senior Hao” (hello), “Zao Shang Hao” (Good person in the room, it is a good idea morning) and “Xia Wu Hao” (Good to try to discover this by asking about afternoon) can help to break the ice. the relative roles of those present in the organisation and then to address • Chinese green tea is normally remarks to that person. offered at business meetings. This is usually served boiling hot in a Another pointer is that the person porcelain mug with a lid. To avoid the opposite you at the meeting table will tea leaves, which will sink eventually, normally be the most senior Chinese blow them out of the way or push person present. them out of the way with the lid. The cup will be refi lled periodically, but there is no need to take more than a couple of sips. 900 China Business Guide Business culture

Presentations

• Sophisticated PowerPoint and • Audience reactions vary. The Chinese video presentations with multiple applaud themselves when they illustrations are the norm for many have spoken, as well as clapping in forward-looking Chinese companies, response to others. But do not be and it is advisable to take the same put off if your audience is extremely approach to create a good impression. passive. Throwing questions to the Dual-language presentations and audience, inviting group discussion handouts in Chinese are essential. and asking for questions may not elicit much reaction, although • Chinese audiences are often more younger participants are often more interested in the cost-effectiveness willing to ask questions. Often, of the product rather than the product audiences are happier writing down itself. Therefore it is vital during their questions rather than asking the presentation to show how your them in front of others. product can save money.

• Chinese audiences also like to see case studies of operational projects using your product, preferably in China or a neighbouring country where conditions are similar. Client lists featuring major players will create good reference points for the Chinese side. Business culture China Business Guide 091

Deal making

Historically, China has witnessed But Chinese negotiators can move with foreign deal making which was not in lightning speed on other occasions the interests of the Chinese people. and exhaust Western business visitors The period in the 19th century where and local partners in consecutive foreign powers forced open the Chinese midnight meetings when a deadline is market and occupied Chinese territory looming. Chinese negotiators use time is still referred to as the “Hundred Years constraints more strategically than of Shame”. No wonder then, that China their Western counterparts, who should can be suspicious of foreign intent. be aware that speedy conclusion of China’s recent re-emergence as an business can result in extremely tight economic power is accompanied by equipment/service delivery dates. a great sense of national pride, and a desire to be treated on equal terms. Another different approach to doing At the same time, international issues business is that in a buying decision and how they are reported in the Westerners tend to look for clear Chinese press can inﬂuence the mood alternatives, while Easterners may of everyday interactions with foreigners examine ways to combine both options. in China. Foreign technology and know-how are highly respected, but the For example, a Chinese panel may feel starting point for today’s deal making that a supplier who combines claims of can occasionally carry some historical, best quality with a low price may either political or cultural baggage. raise the price during the contract or fail to implement the contract. They Western business visitors are often will therefore often prefer to choose deadline-driven and unwilling to a supplier whose price is neither the slow down to the Chinese pace cheapest nor the most expensive. In when discussing business. But in addition, a Chinese panel may avoid China the pace can be fast and slow awarding each supplier more than simultaneously. Those involved in one contract, in order to minimise negotiations know how long they dependence on a single supplier. Such can drag on when the Chinese side an approach may make a Westerner is consulting internally or has other think that a Chinese negotiator is being reasons for delay. illogical, evasive or devious, when he himself believes he is being quite straightforward. 920 China Business Guide Business culture

Negotiating techniques

Mobilise local assets Face to face The challenge of learning to speak Face is an essential component of Chinese ﬂuently, the complexities of the the Chinese national psyche. Having Chinese way of doing business, and a face means having a high status in strong sense of national pride mean that the eyes of one’s peers, and is a mark a foreigner will only extremely rarely of personal dignity. The Chinese be accepted by Chinese interlocutors are acutely sensitive to gaining and on equal terms. The solution is to ﬁ nd a maintaining face in all aspects of social reliable Chinese ally to work with you. and business life. An effective Chinese colleague will often be able to analyse body language at Face is a prized commodity, which can meetings, work out who in the other be given, lost, taken away or earned. negotiating team holds real power (not always the boss), and help smooth out Causing someone to lose face could any inadvertent wrinkles. ruin business prospects or even invite recrimination. The easiest way to cause someone to lose face is to insult an individual or criticise them in front of others. Business culture China Business Guide 093

Westerners can unintentionally offend Conversely, the presence of a Westerner Chinese people by making fun of them should be exploited to the full. Chinese in a good-natured way. Another error can interlocutors will often see a visit by a be to treat someone as a subordinate foreigner as an indication of sincerity when their status in an organisation is and commitment by the Western high. Just as face can be lost, it can also company. Perversely, they often do not be given by praising someone for good accord mainland Chinese or Hong Kong work before their colleagues. representatives the same status as a foreigner. The ideal sales team, therefore, Giving face earns respect and loyalty. is often a Chinese to take care of the But praise should be used sparingly. working level contacts and a foreigner Over-use suggests insincerity on the to do honour to the higher echelons. part of the giver. 940 China Business Guide Business culture

The pecking order Tricks of the trade Mao Zedong’s thoughts on discipline, Chinese negotiators are shrewd and published in 1966, provide a valuable use a wide variety of bargaining tactics. insight into structures which persist The following are just a few of the more in Chinese organisations even to this common stratagems: day: “The individual is subordinate to the organisation. The minority is Controlling the meeting place subordinate to the majority. The lower and schedule level is subordinate to the higher The Chinese know that foreigners who level.” This quotation, which conforms have travelled all the way to China will with long-standing traditional social be reluctant to journey home empty- values, indicates why Chinese society handed. Putting pressure on foreigners and companies are very hierarchically just before their scheduled return organised, and why Chinese people can often bring useful beneﬁts to the seem to be more group-oriented than Chinese side. individualistic and often do not like to take responsibility. Similarly, people are Threatening to do business seldom willing to give an opinion before elsewhere their peers as it might cause loss of face Foreign negotiators may be pressured with a valued ally. into making concessions when the Chinese side threatens to approach rival ﬁrms if their demands are not met.

Using friendship to extract concessions Once both sides have met, the Chinese side may remind the foreigners that true friends would reach an agreement of maximum mutual beneﬁt. Make sure that the beneﬁt is genuinely mutual and not just one-way. Business culture China Business Guide 095

Showing anger Cover every detail of a contract Despite the Confucian aversion to before you sign it displays of anger, the Chinese side may Talk over the entire contract with put on a display of calculated anger to the Chinese side. Be sure that your put pressure on the foreign party, who interpretations are consistent and may be afraid of losing the contract. that everyone understands their duties and obligations. Attrition Chinese negotiators are patient and Make sure that you get professional can stretch out discussions in order legal advice from someone who to wear their interlocutors down. understands the law (and the language) Excessive hospitality the evening before under which the contract was written. discussions can be another variation on this theme. Be patient It is generally believed in China that Counterplay Westerners are always in a hurry, and Here are some useful tactics that may the Chinese party may try to get you help foreign negotiators dealing with to sign an agreement before you have the Chinese: had adequate time to review the details.

Be absolutely prepared Contracts At least one member of the foreign Chinese and Westerners often approach team must have a thorough knowledge a deal from opposite ends. To a of every aspect of the business deal. Be Westerner, starting with a standard prepared to give a lengthy and detailed contract, altering it to ﬁt the different presentation, taking care not to release circumstances, and signing the revised sensitive technological information version, seems straightforward. before you reach full agreement.

Be willing to cut your losses and go home Let the Chinese side know that failure to agree is an acceptable alternative to making a bad deal. 960 China Business Guide Business culture

Commercial law is ingrained in our Key terms and conditions in an thinking. But traditionally, commercial import contract law scarcely existed in China and Chinese importers tend to use standard certainly indicated bad faith. The early form contracts in their transactions. appearance of a draft legal contract was Foreign contracts are seldom accepted seen as inappropriate or, more likely, for fear of being trapped by unfamiliar irrelevant, because it carried no sense contract stipulations. Adding special of commitment. The business clauses provisions to the contract form is might form a useful agenda. But normally acceptable. You can expect obligations came from relationships, to see the following key terms and not pieces of paper. conditions in a Chinese import contract:

Nowadays, business contracts are Terms of price and shipment accepted as the norm. But returning Chinese import businesses often home with a signed piece of paper conduct transactions at Free on Board is not the end of the matter. It is not (FOB) prices in consideration for using unknown for the Chinese side to view a Chinese shipping companies. Cost and contract as a snapshot of an agreement Freight (CFR) and Cost, Insurance and that was made at a particular time, and Freight (CIF) terms are accepted only if under particular circumstances. Further the freight is proved to be cost-effective. concessions may then be requested – a difﬁcult prospect for the Westerner who has shaved his margin down to the bone.

Key fact

The number of US$ billionaires in China has more than doubled in just over two years – from 130 in 2009 to 271 at the end of 2011. Source: Daily Telegraph Business culture China Business Guide 097

Insurance In the case of equipment imports, Chinese importers generally have “open Chinese companies often insert a insurance” for their import cargoes clause in the contract withholding a – i.e. importing companies submit portion of the payment – normally notiﬁcations of import cargo shipments 5 to 10 per cent of the total contract and other relevant documents which are value – which will be paid only when then acknowledged by the insurance the equipment is installed and company as insurance orders, and commissioned. This retention sum against which the insurance premium tends to become a permanent rebate, will be settled with the insured. so beware of allowing too high a ﬁ gure.

Terms of payment Dispute resolution This is normally by letter of credit (L/C). In cases of dispute, the formal contract See the ‘Getting paid’ section for more has a provision that a solution must be information. sought through friendly consultation. If this does not work, arbitration is then Inspection adopted to settle the dispute. Litigation Certiﬁcates of quality, quantity or is used only as a last resort. weight issued by manufacturers or public assessors are normally required as part of the process of setting up a letter of credit. However, if the goods are discovered not to be in conformity with the certiﬁcates after re-inspection by Chinese inspection authorities, the buyer will either return the goods to the seller or lodge claims against the seller for compensation on losses on the strength of inspection at the port of destination. 98 China Business Guide Business culture

Return visits While the majority of visas are granted, Inviting the Chinese side for a return some common problems arise which visit to your company in the UK will may prevent or delay the granting demonstrate your intent to reciprocate of visas to the UK. Some Chinese the hospitality of the Chinese side, and companies may rely on local agents will also strengthen the relationship. for advice, rather than the Embassy website (www.uk.cn). The quality UK visas of these agents varies and they are The UK visa service has been often more of a hindrance than a help; complimented by major Chinese recommend your visitors use offi cial investors such as Huawei for its channels. On top of this, assistants or efficiency. Biometric data (fi ngerprints secretaries may miss or incorrectly and photographs) is now required enter vital information, so forms for all visa applications and this can should be checked personally by the be done at Visa Application Centres applicant. If assistants or colleagues across China. Full details on the visa are also applying, a cover letter to application process can be found at the visa section explaining that the www.vfs-uk-cn.com applications are linked can help. Finally, visitors should allow plenty of time for their application, especially if they require several visas to visit multiple destinations. Business culture China Business Guide 99

The concept of “hosting”

The Chinese take the concept of being However, showing you care is not host (and you being in the role of a expensive. Making sure your visitors guest) very seriously. are greeted at the airport and making an effort to see them off when they Companies doing business in China leave is seen as basic hospitality in are often treated to a wide range of China. Organising some sightseeing or assistance, including hotels, transport, shopping for your guests and treating meals and evening entertainment. them to a meal in a good Chinese Chinese companies can often lean on restaurant will also be well received. an extensive network of relationships to provide these without incurring direct costs, or at a substantial discount.

Unfortunately, when they are visiting the UK they expect the same, and most UK companies do not have the budget to handle two weeks of all-in travel for contacts they have never done business with and are not sure they ever will do business with. Therefore, it is best to be cautious about the extent to which hospitality is expected. Don’t be rude, but do take the trouble to explain that things are different in the UK.

Key fact

Hong Kong has the most skyscrapers in the world. Classiﬁed as buildings with more than 14 ﬂoors, Hong Kong has around 8,000, almost double that of New York, its nearest rival. 100 China Business Guide Business culture

Basic Mandarin

The written language is uniform of business and if you would like to throughout China, however, as in any learn some Chinese, Putonghua is the other country, Chinese dialects vary language to study. There are numerous from region to region*. The standard free-to-access websites designed to language, Putonghua (often called help you learn Putonghua, and some Mandarin), is based on the Beijing simple phrases are below. dialect and is spoken by most people across the country. This is the language

*Hong Kong and Taiwan use traditional Chinese script whereas mainland China uses a simpliﬁ ed version Business culture China Business Guide 101

Useful phrases

English Characters Pinyin Phonetic Hello Ni hao Nee how How are you? Ni hao ma? Nee how ma? Goodbye Zaijian Sigh jyen Thank you Xiexie Share share You’re welcome Bukeqi Boo ke chee Sorry Duibuqi Dway boo chee No problem (it’s okay) Mei guanxi May gwan shee I would like to go to… Wo xiang qu... Wor sheang choo Hotel Fandian Fan d-yen How much is… Duo shao qian Dwo shao chee-yen Too expensive Tai guile Tie gway-la Toilet Sir swor Ladies/Gents Nu/nan Noo/Nan 102 China Business Guide

The current services offered by UK Trade & Investment

Advice and support offered by your Export Marketing Research local International Trade Advisor Scheme (EMRS) Successful exporters consider their Passport to Export entry into new markets with care, New and inexperienced exporters free carry out export marketing research capability assessments, support in to obtain market intelligence. visiting potential markets, mentoring from a local export professional, Export Communications Review free action plans, customised and In the review, a company learns where subsidised training, and ongoing they are strong, where they are weak and support once you’re up and running. where they can improve their current systems for dealing with the issues Overseas Market Introduction that arise (letters, faxes, phone calls, Service (OMIS) packaging, exhibitions, representation, Tailored Market Research. literature, websites, etc).

Gateway to Global Growth Market Visit Support Scheme This is a free service to experienced UKTI Trade Missions exporters which offers a 12 month programme of strategic support Business Opportunities tailored to your needs to help grow A free service providing sales leads, your company’s business overseas. brought to you via UKTI’s huge global contacts network. Please register for Market Selection Research this service at www.ukti.gov.uk Report (MSSR) For companies on UKTI Passport to For more information contact CBBC Export and for New to Export. One at [email protected] or call CBBC UK hour of free time to review a Market on +44 (0)20 7802 2000, or CBBC China Selection Service Request (MSSR). on +86 (0)10 8525 1111.

Trade Show Access Programme (TAP) Or UK Trade & Investment for China Grant support for eligible SMEs to Markets Unit on 020 7215 8446 exhibit at trade shows overseas. www.ukti.gov.uk China Business Guide 103

CBBC Services

• CBBC Hot Desk: CBBC Hot Desk is • Translating & Interpreting Services: an instant, fl exible, cost- effective Documents, Company Profi les and and low risk means of using CBBC’s Business Cards can all be translated extensive China offi ce network to into Chinese through this service explore business potential in new and we will also arrange qualifi ed locations. interpreters for companies visiting China. • Launchpad: A fl exible, fast, cost- effective and low risk means for you • Visa Letters of Invitation: CBBC to explore the opportunities across secures a visa notifi cation form which China working from CBBC offi ces. will enable you to apply for a single or CBBC will employ a ‘project manager’ double entry Business Visa for entry dedicated to helping you take your into the People’s Republic of China. business forward in China. • Company Check Services: CBBC • Representative Offi ce: CBBC can will carry out a company check on streamline the process of establishing your behalf through the local branch a representative offi ce in China and of SAIC (State Administration of provide you with support at every step. Industry and Commerce). This will provide basic key information about a • CBBC Employment Services: company. Helping you plan for and identify key management staff for your business • Request for Proposal Service: links in China. Includes both a selection the professional service requirements and advisory service. of CBBC members to the offerings of CBBC’s professional service provider • Chinese Business Culture Training members, enabling the client to Programme: provides your team with compare offers and choose the most an awareness of Chinese culture and suitable vendor. guidance on how misunderstandings can arise and be overcome. 104 China Business Guide

• Market Research & Analysis: • In - market Activities: from meeting including sector reports, market arrangements, to event organisations initiatives, regulatory environment from workshops and seminars to and market opportunities promotional activities and product launches • Identifi cation of local contacts: from agents, distributors, suppliers • Sourcing Training: gives an and potential partners understanding of the purchasing process, from fi nding and approaching suppliers to receiving the fi nished goods. China Business Guide 105

If you want strategic advice about doing business in China then contact the following:

In China: British diplomatic posts – UKTI based staff British Embassy Beijing British Consulate-General Guangzhou 11 Guang Hua Lu 7/F Guangdong International Hotel Jian Guo Men Wai 339 Huanshi Dong Lu Beijing 100600 Guangzhou 510098 Tel: +86 (0)10 5192 4000 Tel: +86 (0)20 8314 3000 Fax: +86 (0)10 5192 4218/4441 Fax: +86 (0)20 8333 6485 British Consulate-General Shanghai British Consulate-General Chongqing Suite 301, Shanghai 28/F Metropolitan Tower, Zourong Road Centre Yu Zhong District 1376 Nanjing Xi Lu Chongqing 400010 Shanghai 200040 Tel: +86 (0)23 6369 1500 Tel: +86 (0)21 3279 2000 Fax: +86 (0)23 6369 1525 Fax: +86 (0)21 6279 7388

In the UK: To ﬁ nd your local UKTI International Trade Adviser please go to www.ukti.gov.uk Or call 020 7215 5000 For your China Business Adviser please go to www.cbbc.org or call 020 7802 2000 email:[email protected]

CBBC in China Below is a list of our regional CBBC Shanghai CBBC Guangzhou offi ces in China and a Unit 1701- 2, Westgate Tower, C/O CBBC Shenzhen Offi ce, Room number of direct contacts. 1038 Nanjing Road West, 1121, Tower A, International Our main switchboard is Shanghai 200041 Chamber of Commerce, +86 (0)10 8525 1111. T: +86 (0)21 6218 5183 Fuhua Yi Lu, Futian District, F: +86 (0)21 6218 5193 Shenzhen 518048 Membership: Contact Anne T:+86 20 83143086 Zheng on +86(0)10 8525 1111 CBBC Chengdu F:+86 20 83336485 ext 700 1705B, 17/F, Block A, Times Plaza, Research No.2, Zongfu Road, Chengdu, CBBC Hangzhou Sichuan 610016 Room 410, Xihu Minglou CBBC Beijing T: +86 (0)28 86656302 Building, No.296, Qingchun Road, The British Centre,Room F: +86 (0)28 86657296 Hangzhou, Zhejiang, 310003. 1001, China Life Tower, 16 T: +86 (0)571 8763 1069 Chaoyangmenwai Avenue, CBBC Chongqing F: +86 (0)571 8763 0961 Beijing 100020 C/O CBBC Chengdu Offi ce, 1705B, T: +86 (0)10 8525 1111 17/F, Block A, Times Plaza, CBBC Nanjing F: +86 (0)10 8525 1001 No.2, Zongfu Road, Chengdu, Rm 2514 -2515, No. 50 Zhong Hua Sichuan 610016 Road, Nanjing 210001 T: +86 23 6787 7011 T: +86 (0)25 5231 1740 F: +86 23 6772 0468 F: +86 (0)25 5223 3773 106 China Business Guide

CBBC Qingdao CBBC Shenzhen CBBC Wuhan Room A -2603, Yihe International Room1121, Tower A, International Room 1203, Tower A, New World Plaza, 10 Hong Kong Middle Road, Chamber of Commerce, Fuhua International Trade Center, 568 Qingdao 266071, P.R.CHINA Yi Lu, Futian District, Shenzhen, Jianshe Avenue, Wuhan 430022 T: +86 (0)532 83869772 518048 T: +86 (0)27- 8577 0989 F: +86 (0)532 66888151 T:+86 (0)755 8293 1247 F: +86 (0)27- 8577 0991 F:+86 (0)755 8219 3159 CBBC Shenyang Room 901, Tower 2, Shenyang City Plaza, No.206 Nanjing North Street, Heping District, Shenyang 110001 T: +86 (0)24 23341600 F: +86 (0)24 23341858

CBBC in the UK Below is a list of our regional ofﬁ ces Glasgow CBBC North West in the UK and a number of direct 1st Floor, 30 George Square, Warren Bruce Court, Warren contacts. Our main switchboard is Glasgow G2 1EQ Bruce Road, Trafford Park, +44 (0)20 7802 2000. T: +44 (0)141 204 8322 Manchester M17 1LB F: +44 (0)141 221 2336 T: +44 (0)161 875 2332 Membership: Contact Lily Yang on E: [email protected] F: +44 (0)161 236 1341 +44 (0)20 7802 2010 E: [email protected] Research CBBC Wales Events QED Centre, Main Avenue, CBBC South West China Business Advisers Treforest Industrial Estate, UK Trade & Investment, Leigh Court Pontypridd CF37 5YR Business Centre, Abbots Leigh, China-Britain Business Council M: +44 (0)7507 869 224 Bristol BS8 3RA (head ofﬁ ce) E: [email protected] T: +44 (0) 7984 175 318 3rd Floor, Portland E: [email protected] House, Bressenden Place, CBBC East Midlands London SW1E 5BH The International Trade Centre, CBBC West Midlands T: +44 (0)20 7802 2000 Innovation House, Riverside Park, C/O 3rd Floor, Portland F: +44 (0)20 7802 2029 Raynesway, Derby, DE21 7BF House, Bressenden Place, E: [email protected] T: +44 (0)1332 826394 London SW1E 5BH F: +44 (0)20 7802 2029 T: +44(0)1788 570 929 CBBC Scotland E: [email protected] E: [email protected] Edinburgh Capital House, 2 Festival Square, CBBC East of England CBBC Yorkshire & Humber Edinburgh EH3 9SU C/O 3rd Floor, Portland White Rose House, 28a York Place, T: +44 (0)131 221 2973 House, Bressenden Place, Leeds LS1 2EZ E: [email protected] London SW1E 5BH T: +44 (0)113 247 1584 T: +44 (0)178 731 0245 F: +44 (0)113 247 1111 F: +44 (0)20 7802 2029 E: [email protected] E: [email protected]

Details of the provinces covered by each Trade and Investment section are provided on the fold-out map included with this guide. China Business Guide 107

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