PEOPLE'S REPUBLIC OF China COUNTRY STARTER PACK Country starter pack 2 Introduction to China China at a glance

POPULATION - 2018 GDP PER CAPITA (PPP) - 2018* SURFACE AREA USD$18,110 Contents 1.415 INCOME LEVEL 9.6 1. Introduction 4 1.1 Why China? Opportunities for Australian businesses 5 Upper middle million 1.2 China at a glance 9 1.3 China and Australia: The bilateral relationship 21 billion *Gross Domestic Product (Purchasing Power Parity) IMF square kmS 2. Getting started in China 24 GDP GROWTH 2018 CAPITAL CITY GDP 2018 2.1 What you need to consider 26 2.2 Researching China 38 2.3 Possible Business Structures 43 US$13.41 trillion 2.4 Manufacturing in China 48

POLITICAL STRUCTURE 3. Sales and marketing in China 52 3.1 Agents and Distributors 54 6.6% 3.2 Online Sales 57 3.3 Direct selling 67 GDP GROWTH FORECAST (IMF) Communist State 3.4 Franchising 68 6.3% (2019), 6.1% (2020), 6.0% (2021) 3.5 Marketing 68 Beijing GENERAL BANKING HOURS 3.6 Labelling requirements 71 4. Conducting business in China 72 RELIGION CLIMATE CURRENCY FISCAL YEAR 4.1 Chinese Culture and Business Etiquette 73 Monday to Friday 4.2 Building Relationships with the Chinese 77 8AM to 5PM 4.3 Negotiations and Meetings 82 4.4 Due diligence and avoiding scams 86 jan-dec 5. Business practicalities in China 92 INTERNATIONAL DIALLING CODE 5.1 Laws and regulations 93 5.2 Import Duties, Tariffs and Regulations 98 5.3 Taxation 103 BUDDHIST 18%, CHRISTIAN 5%, 5.4 Audit and Accountancy 107 MUSLIM 2%, FOLK RELIGION Extremely diverse Renminbi (RMB) Calendar year 22%, UNAFFILIATED 52% TROPICAL IN THE SOUTH TO 5.5 Employing Workers 108 SUB-ARCTIC IN THE NORTH 5.6 Banking in China 115 +86 5.7 Repatriating Profits and Getting Paid 117 > STOCK EXCHANGE 6. Visiting China 120 SHANGHAI STOCK EXCHANGE (SSE) 6.1 Visas 121 6.2 Currency 122 TIME DIFFERENCE AUSTRALIAN IMPORTS AUSTRALIAN EXPORTS EXCHANGE RATE SHENZHEN STOCK EXCHANGE (SZSE) 6.3 Air travel and Airports 123 TO BEIJING FROM CHINA (2018) TO CHINA (2018) (2018 AVERAGE) 6.4 Ground transport 124 OFFICIAL LANGUAGE 6.5 Hotels and Dining 126 2 hours A$74.9 A$118.4 (RMB/AUD) 6.6 Health and Welfare 127 behind (AEST) Billion Billion A$1 = RMB 4.94 Mandarin (Chinese) 7. Engage with us 132 Pǔ tōng huà 普通话 Country starter pack Country starter pack 4 5 Introduction to China Introduction to China

1.1 WHY CHINA? OPPORTUNITIES FOR AUSTRALIAN BUSINESSES 1. Introduction Is there any label that can do justice to modern China? Asian giant, global powerhouse, economic phenomenon – all are true, but somehow inadequate descriptions for the extraordinarily powerful position that the People’s Republic of China has come to occupy in the world economic order. Forty years ago, after a long period of economic stagnation, China was not in the world’s top eight economies. Today, thanks to a breathtaking social and economic transformation that began in the late 1970s, China is on track to overtake the United States as the world’s number one economy within a few decades, if not sooner. By some measures, it has already done so. We are living in what many are now calling ‘The Chinese Century’.

The irresistible rise of China has implications and consequences for us all on so many levels. But for the purposes of this guide, it largely comes down to one word: opportunity. For Australia, and Australian businesses in particular, has there ever been an opportunity like China?

Consider some key facts:

• China is home to more than 1.42 billion people – or about 56 times the population of Australia • China is the world’s number one trading nation and manufacturer by output • In 2018, Chinese GDP is estimated to be USD 13.41 trillion, second only to the United States • China’s GDP growth rate over the past three decades has often bypassed 10 per cent, and consistently exceeded 7 per cent • As the Chinese economy matures, annual GDP growth is still tipped to exceed 6 per cent • Household incomes in China are soaring, with more than 400 million people now considered middle class. By 2022, over 550 million people in China will be considered middle class. • China’s urban middle class is expected to reach 70 per cent of its population by 2030. • China is Australia’s biggest trading partner by a huge margin.

The stats say it all: when it comes to business and trade, China is the main game on the planet. On almost every measure, it is now bigger than the rest, and getting bigger every year. As such, China can scarcely be ignored by any business looking to expand operations beyond its own domestic market. Country starter pack Country starter pack 6 7 Introduction to China Introduction to China

For Australian businesses, opportunities in China have Australian businesses in China. Years before the landmark Education: China is Australia’s largest source of Legal services: ChAFTA benefits Australian law firms by sprouted across a huge – some might even say bewildering agreement was signed, China had already taken over international students with the services export market permitting them to be the first foreign entrants able to – range of industries, market sectors and geographic from Japan as Australia’s largest trading partner. worth AUD 11.7 billion in 2018. In 2018, there were establish commercial associations with Chinese law firms locations. Rapidly rising income levels in China and mass 255,364 Chinese students enrolled in Australian education in China. This specifically occurs in the Shanghai Free migration from rural to urban areas have created an In 2018, annual two-way trade between China and institutions (including schools), representing 29 per cent Trade Zone (SFTZ). Australian law firms are allowed to abundantly large class of urban consumers demanding Australia reached almost AUD 215 billion. Iron ore, of all international enrolments. Over 153,000 of these offer Australian, Chinese and international legal services improved housing, a cleaner environment, overseas travel, gas and coal make up the bulk of Australian exports were in higher education institutions, including universities, through a commercial presence, without restrictions on better education, a higher protein diet and an enhanced to China (more than AUD 79 billion), but Australian while 22,000 were in vocational education. As levels of the location of clients. choice of financial services. From the sophisticated service industries – led by education and tourism – are disposable income continue to increase in China, Chinese consumers of developed cities such as Beijing, Guangzhou a growing part of the trade relationship. China is also parents are increasingly choosing to send their children Information communication technology (ICT): Huge and Shanghai, to the growing middle classes in lesser- the largest foreign buyer of Australian agriculture, abroad for secondary education in preparation for foreign growth in e-commerce in China has resulted in significant known inland cities, the newly industrialised China is a forestry and fisheries products, with imports totalling university. In 2018, there were 13,600 Chinese students opportunities for innovative Australian businesses across veritable smorgasbord of opportunity. around AUD 13.5 billion in 2017-18. Australia’s main enrolled in Australian schools. In contrast, only 4,796 the IT and communications sectors. The annual value of imports from China are manufactured goods, which were Australian students went to China to study in 2016. Chinese e-commerce totaled USD 1.33 trillion in 2018, an This is not to say that doing business in China is without worth more than AUD 21 billion in 2018 and is led by increase of 23.9% from USD 1.03 trillion in 2017 and, by unique challenges and complications. Apart from language telecommunication equipment, IT products, furniture and Tourism: China is Australia’s second largest inbound 2020, is forecast to exceed the combined e-commerce and cultural barriers, which can be considerable, foreign homewares. tourist market (as measured by arrivals), and the largest of the United States, Britain, Japan, Germany and France. businesses must navigate issues ranging from complex when measured by tourism expenditure. More than The e-commerce boom is directly linked to the explosion bureaucracies, challenges in intellectual property (IP) The entry into force of the free trade agreement in 2015 1.4 million Chinese visited Australia in the year ending in internet connections across China, both via computers law enforcement, to quality control and the sheer, was set to broaden and deepen the trade relationship. September 2018 and were the largest source of tourism and smartphones – at the last count there were around 1.3 overwhelming size and diversity of the country. There is also New service sector opportunities are already opening expenditures (AUD 10.9 billion) into the Australian billion internet users, including 800 million mobile internet the overarching challenge of the different way that business up, with Australian financial and legal firms now able to economy. These numbers appear likely to continue users. The Chinese Government’s target is to connect 1.2 is conducted in China compared with other countries, the do business in China for the first time, and many other growing, particularly after the introduction of provisions in billion people (85 per cent of the population) to 3G or 4G large and highly competitive market for both domestic and services industries permitted to set up wholly-owned ChAFTA for easier visa access for Chinese visitors. These mobile internet by 2020. To meet these targets, China foreign businesses, and the complexity of understanding Australian subsidiaries there. Australian agricultural provisions include working holiday visas for 5,000 young is expected to engage foreign companies to assist with and selling to the Chinese customer. produce exporters will also reap competitive benefits Chinese aimed at assisting Australian rural areas. infrastructure and services. from a number of tariff reductions. Tariffs were removed The rewards can be immense for Australian businesses on 85 per cent of Australian goods imported into China Aged care: China’s ageing population and underdeveloped Agriculture and processed food: China buys more willing to put in the necessary preparation and hard work when the agreement was implemented, rising to 98 aged-care sector represent a potentially big opportunity Australian agricultural produce than any other country. In to address these challenges and successfully establish per cent once it is fully enforced. for Australian businesses. By the end of 2017, China the 2017-2018 financial year, Australian farmers and in China. The Chinese Government has continued had more than 241 million people aged over 60, with the broader agricultural sector sold more than AUD to introduce policies aimed at raising standards and There is no reason to think that the resources sector won’t an old-age dependency ratio of 17.3 per cent and it is 11.8 billion of produce to China, around a quarter of encouraging more trade and investment, both inbound continue to dominate Australia’s trade relationship with expected to peak at 487 million, or nearly 35 per cent, all agricultural exports. Trade is growing strongly, but and outbound. In this context, China Australia Free Trade China for a long time to come. But opportunities outside the around 2050. In 2016, the Government identified untapped opportunities still abound. The Australian Agreement (ChAFTA) which entered into force on 20 traditional export areas are booming. Australian businesses improving the aged care industry as a key priority and Department of Agriculture predicts China will account December 2015, provides major new opportunities for should particularly consider some of the following sectors: took five-year plan. It plans to provide 35 to 40 aged for 43 per cent of global growth in demand for care beds per thousand elderly people (which would agricultural products to 2050. The primary increase in amount to seven to eight million beds) and an aged care demand is predicted to be for foods such as beef, lamb, workforce of 10 million by 2020. ChAFTA permits wholly dairy, fruit and vegetables. Australian products have Australian-owned hospitals and aged-care institutions to an enviable reputation for being clean, safe and high- be established in China. This potentially opens the way for quality – which positions Australian exporters strongly Considering doing business in China? Australia’s private health sector to significantly expand its to take advantage of China’s growing demand for quality provision of services in East Asia. produce and its need for food security. There are also big opportunities for agribusinesses supplying inputs 1. Do your research • Be flexible & open to difference Financial services and investment: A key prospect for such as animal feeds and genetics, as well as productivity Australian business is the provision of financial services to enhancing services including education and technology. • Speak to industry experts • Understand the local culture and China’s burgeoning middle class population. As Chinese • Connect with Australian businesses prepare before meeting with local incomes rise, more people will need banking, insurance, Infrastructure development: Infrastructure investment operating in China business partners investment products, financial planning and various other in China has increased significantly in recent decades, consultancy services. Increasing numbers of Chinese becoming a significant driver of economic growth and • Go to industry events & information • Practice Chinese business etiquette. will be employed in the financial services sector, rather improved standards of living. China’s plans for further seminars than in manufacturing or agriculture, as the economy rapid urbanisation over the next decade will have a massive 3. Building relationships is crucial in transitions. Australian financial services providers have impact socially, environmentally and economically. A • Seek professional advice. Chinese culture, but it can take time both experience and expertise, and are well placed to more urbanised China presents substantial environmental • Be patient with developing relationships become significant players in China’s financial services challenges – and opportunities for businesses with 2. Become aware of cultural differences sector, particularly with the implementation of ChAFTA. experience and expertise in environmental technology and ways of doing business in China • Follow up and maintain contact with Market access has been enhanced in the banking, and urban development management. China’s need for • Gain an understanding of your customer your networks. insurance, funds management, securities, securitisation more efficient buildings, more sustainable energy use, the and futures sectors. With recent growth, banking and transition from fossil fuels to less environmentally harmful & local business partners wealth management have now become the biggest areas of Australian direct investment in China. Country starter pack Country starter pack 8 9 Introduction to China Introduction to China

ChAFTA Overview of Benefits for Australian Businesses

Australia and China signed the China Australia Free Key outcomes include: sources of energy, and new transport infrastructure all YEARLY AVERAGE TEMPERATURES IN OC trade Agreement (ChAFTA) on June 17 2015 with it • China providing Australia with its best ever services offer good partnership opportunities. Some Australian Beijing Shanghai Guangzhou entering into force on 20 December 2015. The trade commitments companies are already working in these areas; numerous negotiations secured numerous future gains for Australian prospects exist for others. • Reduced labour mobility barriers and improved January -3.9 4.1 14.1 business with Australia’s largest trading partner – China. temporary entry access February -1.5 5.1 14.9 Those engaged in agriculture, manufacturing, services, Another reason to consider China: Apart from the investment, and resources and energy particularly benefit. • Duty-free entry on 96 per cent of Australia’s goods intrinsic merits of doing business with China, there is March 5.4 8.9 18.3 China has also agreed to a special clause recognising exports on full implementation of the Agreement another important reason to consider making it your April 13.6 14.6 22.3 Australia as a ‘most favoured nation’ (MFN). This first port of call in Asia. China in recent decades has • Within four years of the Agreement (by 2019), almost May 19.8 19.6 26.1 provides Australian businesses access to the same deals all of Australia’s manufacturing, energy and resources become a global business hub: it provides access to some that China strikes in free trade agreements with other exports will enter China duty free. of the largest markets in the world. It has 16 free trade June 24.3 23.8 27.9 agreements in force, including with Australia, ASEAN, nations (such as the USA) that may offer better access to July 26.2 28.2 29 the Chinese market. Switzerland, Iceland, Pakistan, Chile and Singapore. eight more are under negotiation. Its geographically central August 25 28.1 28.9 position has also made it a global transport hub. It houses September 20 23.9 27.6 ChAFTA – benefits for Australian services firms: Tariffs/Import duties under ChAFTA: six of the world’s 10 leading seaports, and has freight rail October 13.2 18.5 24.6 links to Russia, the Middle East and Western Europe. China is already Australia’s largest offshore market for BEEF The removal of tariffs of November 4.9 12.7 20.1 services. In 2018 our services exports to China were 1.2 CHINA AT A GLANCE December -1.8 6.5 15.8 valued at AUD 17.9 billion, a 13% increase on 2017. With 12-25% the signing of the China Australia Free Trade Agreement by 2024 Geography (ChAFTA), opportunities for Australian service providers China is the world’s fourth largest country by land area Greater China includes a number of other high-profile were set to grow in coming years. Specific areas of (after Russia, Canada and the US, followed by Australia regions in addition to the mainland, notably the delicate, opportunity in China include: SHEEP MEAT The removal of tariffs of as fifth) covering about 9.6 million square kilometres. political matter of Taiwan, and the areas of Hong Kong 1. Improved market access for Australian banks, East to west it measures more than 5,200 kilometres, and Macau, which were formerly European colonies and 12-23% have operated with varying degrees of autonomy since insurers, securities and futures companies, law firms, by 2023. and from north to south more than 5,500 kilometres. education services exporters, health-care providers, Its geography is highly diverse, with hills, plains and being returned to Chinese rule. aged-care providers, construction firms and river deltas in the east, and deserts, high plateaus and HORTICULTURE The removal of tariffs ranging telecommunications businesses. mountains in the west. Two-thirds of China is covered by Hong Kong and Macau PRODUCTS mountains, hills and plateaus. Of the world’s 12 highest Hong Kong and Macau are classified by Beijing as Special 2. Increased business and skilled worker mobility. up to 30% peaks, China has seven. Its two major rivers, the Yellow Administrative Regions (SARs). Hong Kong Island was The Chinese Government is reducing barriers to most by 2019. and the Yangtze, both in the southeast, track through acquired by the British in 1842 as part of the Treaty of Australians working in China. Nanking at the end of the First Opium War, followed BARLEY The elimination of the tariff of much of China’s main population and agricultural regions. 3. Wholly Australian-owned companies are now allowed by the Kowloon peninsula in 1860. The entire area, now Because of the huge differences in latitude, longitude to establish in China. This will benefit firms in areas 3% immediately. known as Hong Kong, was leased to Britain from 1898 such as telecommunications, tourism and hotels, and altitude across the country, China has an extremely to 1997, when ownership returned to China. Under the health and aged care, manufacturing, maritime diverse climate, ranging from tropical in the far south 'one country, two systems' agreement between Beijing to sub-arctic in the far north and alpine in the higher transport, real estate, and research and development. SEAFOOD The removal of tariffs and Hong Kong, which extends to at least 2047, Hong elevations of the Tibetan Plateau. Southern regions Kong’s Chief Executive and legislature are able to make 4. Australian architectural and urban planning firms are upto 15% experience a monsoon season between April and independent decisions for the region. Hong Kong has its allowed to obtain more expansive business licences to October, with severe rainstorms that can bring flooding own currency, government, separate customs territory undertake higher-value projects in China. by 2019. and mudslides – and interruption to essential services. and an independent legal system that continues to follow Typhoons can occur along the southern and eastern British law. However, there have been recent tensions ChAFTA is discussed in more detail in Chapter 5. coasts between May and November. More northern in regards to Chinese control of Hong Kong particularly LEATHER The removal of tariffs of regions experience four distinct seasons – spring from with the Chinese Government introducing electoral March to May, summer from June to August, autumn reforms associated with the Communist Party of China 5 to 14% from September to November, and winter from in the democratic Hong Kong. Concerns of Hong Kong on hides, skins and leather by December to February. Within China, the warmest city is citizens in regards to their civil rights and liberties resulted 2022. Haikou on the southern island of Hainan, which averages in the 2014 peaceful but extensive protests known as the 24.4°C for the year. The coldest city is Changchun in the ‘Umbrella Revolution’ (in reference to umbrellas used to PROCESSED The removal of tariffs across northeast, near the Russian and North Korean border, defend against tear gas). This brought international focus FOODS a range of processed foods which averages 5.5°C for the year. on the future of Hong Kong and the approach Beijing has including fruit juice and honey. taken to address it.

WOOL An Australia-only duty free quota for wool in addition to continued access to China’s WTO wool quota. Country starter pack Country starter pack 10 11 Introduction to China Introduction to China

By the mid-19th century China had fallen into serious Each ethnic group has its own specific cultural decline due to a combination of military defeats (by influences and values. However, the primary core value countries looking to open China up) and corrupt and of Chinese culture is founded on Confucianism – the incompetent feudal rule. In 1911, the last dynasty was social teachings and ways of thinking of the philosopher overturned, bringing an end to imperial China with the Confucius, who lived some 2,500 years ago. The strong abdication of the Qing child Emperor Puyi. Hopes for emphasis in China placed on relationships, family, stability with the subsequent formation of the Republic of hierarchy, nationalism and the importance of ‘face’ China were short-lived, with years of civil war and invasion stems from Confucian teachings. A particular element of by Japan in 1931. At the end of the civil war in 1949, the Confucianism that has arguably had the largest impact on Communist People’s Republic of China was created by modern China is the Five Great Relationships: Mao Zedong, otherwise known as Chairman Mao, who led China until his death in 1976. 1. Ruler to subject 2. Father to son As Mao and the other Communist Party of China leaders 3. Elder brother to younger brother set out to unite China and improve living standards, all opposition was suppressed. In 1958, under the banner 4. Husband to wife ‘The Great Leap Forward’, Mao introduced a series 5. Friend to friend of reforms aimed at mass mobilisation of labour to improve agricultural and industrial production. Despite In each of the first four relationships, the first person initial success, it ultimately led to a significant decline mentioned is in an implied position of authority over in agricultural output, which in turn created a national the second, while the fifth relationship denotes equality famine and weakened Mao’s position. This led to the between friends. This conceptual framework, also evident fateful Cultural Revolution from 1966 to 1976, which in other Asian cultures, gives rise to hierarchical social aimed to revive the nation’s revolutionary spirit and during roles within households, workplaces and society generally, which capitalist and traditional elements were purged with the hierarchies based on the seniority of age, social from Chinese society. The movement came at great obligation, care for the elderly, and the strong value Macau became a defacto colony of Portugal in 1557 but History economic and social cost, with much of the country's placed on respect and loyalty. remained under official Chinese authority and sovereignty China has a very long and illustrious history with major cultural heritage destroyed, as many as 1.5 million people Relationships are everything in China. While you are until 1887, when the Sino-Portuguese Treaty of Peking achievements in which present day Chinese take great killed, and the nation largely closed off to trade and other building and nurturing your business relationships, you gave sovereignty to Portugal. Macau returned to official pride. China has been one of the world’s major centres contact with foreign non-communist nations. may be asked to share stories and information of a Chinese control in 1999. The constitution of Macau of trade for more than 2,000 years, dating back to the surprisingly personal nature. Don’t be concerned when stipulates that its social and economic systems, lifestyle, establishment of the historical ‘Silk Road’ in around Following the death of Mao in 1976, the 11th National a Chinese person you are meeting for the first time rights and freedoms are to remain unchanged until at 200 BC, when Asia was connected with Europe and Congress of the Communist Party in 1977 set China on asks, for example, "how much money do you make?", least 2049. This includes the legal operation of casinos, Africa through trade routes. Since that time, great a new path that ultimately led to its current economic "what is your partner’s Eastern astrology symbol?" or which are banned in China. Like Hong Kong, Macau’s ‘one Chinese inventions – including the compass, gunpowder, boom. New leader Deng Xiaoping combined socialist "what are your religious beliefs" – it is all about building a country, two systems’ agreement provides a high degree fireworks, silk, noodles, various spices, moveable type ideology with a more pragmatic adoption of market relationship, an essential part of doing business in China. of autonomy. Macau also maintains a separate currency, printing and papermaking – have been introduced to principles and practices, reopening China to the world The Chinese call it guanxi (关系). This refers to having legal system and customs territory. the rest of the world. The Chinese were also the first to and allowing limited private competition. His reforms are personal trust and a strong relationship with someone, document astronomical phenomena such as comets, largely credited with setting China on the course that has and can involve moral obligations and exchanging favours. Taiwan sunspots and new stars. Before Europe’s industrial led to its preeminent position today. Sometimes incorrectly perceived in Western business The status of Taiwan is somewhat sensitive in China. revolution, Chinese agriculture was more advanced as bordering on unethical behaviour associated with Australia adheres to a one-China policy, and does not and productive than the West’s, and its craftsmen were Culture corruption (i.e. awarding projects to a friend’s company have formal diplomatic relations with Taiwan. Australia at least the equal of Europe’s. China was considered a Chinese civilisation is among the oldest in the world, with rather than the most qualified firm), it is a core part does maintain unofficial contacts with Taiwan promoting dominant world power in trade and technology. a rich cultural tradition that has influenced much of Asia of doing business in China (see Chapter 4 for further economic, trade and cultural interests and encourages for at least 3,000 years. The writing system, estimated information). Australian businesses to pursue investment and trade Recorded Chinese history began about 3,600 years to be around 4,000 years old, is a major unifying force opportunities in both the People’s Republic of China ago, and the imperial dynastic system of government was for dozens of different ethnic groups and 250 language and Taiwan. established as early as 221 BC. Imperial China is divided groups and dialects that exist across China. The Han into two periods, beginning with early imperial China people, who number under 1.3 billion, are by far the *Due to their differing government systems, economic that spans the Qin Dynasty (221-207 BC) through the largest ethnic group, with the others accounting for profiles and business opportunities, Hong Kong and Taiwan Tang Dynasty (AD 618-907) and later imperial China approximately 100 million people combined. The largest will be examined separately in individual guides. This guide from the Song Dynasty (AD 960-1279) through the minority groups are the Tibetans (Tibet Autonomous specifically focuses on mainland China, including the island Qing Dynasty (AD 1644-1911). Despite the rise and fall Region), Mongolians (Inner Mongolia Autonomous of Hainan. of many dynasties and occasional periods of disunity, Region), Uighurs (Xinjiang Uighur Autonomous Region) the imperial age was remarkably stable and marked by a and the Zhuang (Guangxi Zhuang Autonomous Region). sophisticated governing system. Each dynasty had its own distinct characteristics which encountered various foreign cultural and political influences as a result of ongoing territorial expansion and immigration. Country starter pack Country starter pack 12 13 Introduction to China Introduction to China

Chinese culture value system

As in other Asian societies, face is central in the children in the care of grandparents is now stronger CHINESE VALUE EMPHASIS WITHIN MODERN CHINESE SOCIETY Chinese business environment and plays an important due to increasingly high living costs in urban areas and role in inter/intra company communication, business a growing focus on providing high quality education for CONFUCIANISM HARMONY FAMILY CONFLICT IMPORTANCE OF MORAL negotiations, and the development and maintenance of 'only-children'. Although the one-child policy has helped OBLIGATION AVOIDANCE RELATIONSHIPS VALUES social relationships. Everyone is aware and respectful of to stem population growth, it has had its downsides Foundation of Chinese cultural each other’s position and role. With more senior people – including widespread concern about generations of value system. placed on a ‘higher pedestal’ than in Western contexts, "indulged" single children, the pressures on those children Consists of core values: more respect and acceptance is expected. Through to care for their parents and grandparents when grown • Etiquette & politeness social etiquette and behavioural norms, Chinese people and a significant gender imbalance with 1.17 boys for aim to preserve a harmonious environment in which a every girl due to a traditional bias for sons. It's low birth • Respect & care for elderly person’s miànzi (面子)– face – along with their social rate threatens long term economic growth, with China's & parents HIERARCHY ORDER IN COMPASSION RESPECT & HONOUR & standing and reputation can be upheld. The best way total workforce expected to decline by as much as eight • Honesty & trustworthiness SOCIETY LOYALTY FACE to manage miànzi is not to demand ‘yes’ or ‘no’ answers million people per year from 2023 onwards as a result of • Humanity towards others in business meetings, but to accept the need for slow, an ageing population. To counter this, the Government • Loyalty to state & authority. consensual decision-making and relationship-building. announced in October 2015 a change in the one-child 1.2.3. Contradicting someone openly, criticising them in front policy to allow married couples to have two children for of others or patronising them will all result in diūliǎn (丢脸) the first time in more than three decades. However, only – loss of face – and are sure ways to lose business and 50 to 60 per cent of the one-child generation say they employees, as well as ruin relationships. Always be mindful want second children because of the high cost of raising PATERNALISM RESPECT FOR HIGH REGARD STRONG MORAL NATIONALISM of maintaining face and harmony with Chinese people them and the desire for a higher living standard. AUTHORITY FOR SENIORITY DISCIPLINE INTEGRITY through sincere compliments, showing respect, or other • Stems from Confucianism: actions that tend to raise the self-esteem of others. You Globalisation and the introduction of foreign values in ‘Five Great Relationships’ should particularly show respect to older people and to recent decades have brought profound change in some • Focuses on patriarchal those in more senior positions than you. aspects of Chinese business and employment culture. family-like relationships. One notable example of this is the decline of the ‘iron Social change and its influence on rice bowl’ – a term that refers to how communist state- Chinese culture owned enterprises would provide for the broad life needs of their employees. The enterprise would provide meals, Significant social and cultural changes that have uniforms, often schooling for employees’ children and PERSONALISM HIGHER IMPORTANCE SENIORITY & COLLECTIVE LOYALTY FACE occurred in China over the past 70 years should not be even housing (although typically in dormitories). The PLACED ON PERSONAL HIERARCHY SOCIETY • Ruling by a person rather underestimated when doing business there. In particular, system included lifelong employment, with promotion RELATIONSHIPS THAN socialism and communism have resulted in a more unified than law THE LAW based on seniority rather than performance, and strong China and a much bigger emphasis on gender equality. Confucian values reflected in strict hierarchies, top- • Derived from Confucianism Contradicting the Confucian-influenced patriarchal emphasis down management styles and sometime authoritarian model, Mao pushed for greater social acceptance of discipline in the workplace. This system survived well • Founded on importance of women in the workplace from the 1950s. Today, females into the 1990s, but has been in decline since foreign relationships and doing the make up 44 per cent of the Chinese workforce – the multinational businesses started entering China right thing by others. 1 highest rate in Asia. And around a quarter of China’s and bringing with them Western management and business entrepreneurs – some 29 million people – are employment systems. However, many older Chinese estimated to be women. Forbes magazine’s annual managers and businessmen still adhere to the old mindset billionaires list consistently highlights the fact that a when conducting business and managing employees. GUANXI (关系) COMPLEX NEED TO BUILD TAKES TIME ASKING A majority of the world’s self-made female billionaires The increasing diversity in styles can be challenging for NETWORK TRUST AND A TO FOSTER TO FAVOUR are from China. The high status of women in Chinese • Chinese term for the role OF MUTUAL RELATIONSHIP BEFORE ASKING REQUIRES ONE Australian businesses: the key is to try to recognise the and importance of personal OBLIGATIONS PRIOR TO FOR FAVOURS IN RETURN business means Australian women conducting business generational differences within and between enterprises relationships and trust, AND SOCIAL CONDUCTING there are able to be less mindful of their gender as a in China, and adapt accordingly. especially within business. CONNECTIONS BUSINESS potential issue than they must be in other Confucian- based cultures such as Korea and Japan. China has for centuries had a great diversity of religious beliefs and practices. For much of the 20th century, China’s one-child policy – introduced in 1978 to control however, religion was actively discouraged and suppressed population growth – and the surge in economic growth by the Government. During the Cultural Revolution of recent decades, have both brought changes that (1966 to 1976), the major religions were effectively are challenging Chinese cultural norms. Unlike other banned, many churches and temples were destroyed East Asian cultures, the Chinese do not automatically and religious leaders and teachers were sent to factories expect women to resign from their jobs once they are and farms for re-education. In more recent times, the married and raising children. Instead, it is widely accepted Chinese Government has implemented a policy of for mothers to return to work while grandparents freedom of religious belief; redressing the unjust, false look after children. Having grandparents, particularly or wrong cases imposed on religious personages, and paternal grandparents, living with young families is a reopened sites for religious activities. The Government long-standing Chinese tradition that reflects collectivist particularly encourages traditional Eastern religions values and provides an in-family aged-care system. But such as Buddhism and Taoism to promote their role the imperative for mothers to return to work and leave in building a harmonious society. After the religious Country starter pack Country starter pack 14 15 Introduction to China Introduction to China

National People’s Congress: China’s parliament, the the Five-year Plan (2015), party construction and CHINESE GOVERNMENT STRUCTURE National People’s Congress, debates and ratifies the supervision (2016), amendment to the CPC Constitution policies set by the Central Committee of the Communist (2017), and reform of party and state institutions (2018). Party and the Politburo. It also ratifies laws and has National People's Congress oversight and appointment authority for the State Five-Year Plans Council and courts. The congress is elected for a term of Five-Year Plans indicate how China’s economic, social, five-years and meets once a year. environmental, geographic and legal landscape is likely Standing Committee of the to evolve over the coming five-years. Neither a law nor National People's Congress Plenums a regulation, the Five-Year Plan serves as a road map of Plenums are meetings of the Communist Party of government priorities and interests. 13th Five-year Plan President China Central Committee which are usually held on an covers 2016-2020. It places a significant focus on growing Xi Jinping annual basis for the five-years of the serving National domestic consumption, introducing structural reforms People’s congress. All Plenums are as important as each such as financial and investment regulations, and enhancing other. The First Plenum introduces the new leadership, social welfare, introducing various health care reforms. the Second Plenum tends to be personnel- and Party State Council Central Military Supreme People's Supreme People's construction-focused, while the Third Plenum is Economy Premier Li Keqiang Commission Court Procuratorate usually seen as the point where the new leadership has China’s economy is the second-largest in the world, consolidated power and introduces a broader economic behind only the United States. But after three decades and political agenda. The Fourth Plenum in 2014, focused of spectacular growth, China is now moving into a slower on the Chinese government dedication to following ‘rule growth phase – an inevitable result of its transition from of law’ in order to continue China’s economic growth. National State Other ministries a developing economy to a more mature, developed Ministry of This includes the government recruiting "lawmakers, economy. In the 1980s, 1990s and early 2000s, China’s Development Administration Ministry of (including Industry and judges and prosecutors who are qualified lawyers and law annual GDP growth frequently exceeded 10 per cent, and Reform for Industry Commerce China Banking Information experts" rather than selecting officials based on loyalty. with an estimated 2019 growth of 6.3 per cent, although Commission and Commerce (MOFCOM) Regulatory Technology To promote accountability, officials will now be assessed this is likely to be closer to 6 per cent with the impact of (NDRC) (SAIC) Commission) in their delivery of the law with emphasis on minimising the US-China trade war. corruption through improving government efficiency and legal support for the market regulatory environment. The In coming years, the International Monetary Fund (IMF) repression of the 20th century, many Chinese are still course of China's development. Today the party claims a plenums of the last few years have set policy on economic forecasts China to continue growing at a rate of 6.3 per hesitant to acknowledge or discuss their beliefs, resulting membership of over 85 million people. and social reform (2013), law-based governance (2014), cent in 2019 and 2020 and 6 per cent in 2021. These in a shortage of information on the level of religious observance. Recent studies estimate that 18 per cent of Chinese Government Structure CHINA REAL GDP GROWTH % Chinese are Buddhists, around 5 per cent are Christian The Communist Party is the overarching political and up to 52 per cent are non-religious. There is broad authority in China and is headed by the General Secretary respect and harmony between religious believers and (who can also be the head of state and head of military). 16 non-believers. But in contrast to some other Asian China’s military, the People’s Liberation Army (PLA), is countries, religion generally does not play a big part also directly under Communist Party oversight. The PLA in social and business contexts in China. The primary is overseen by China’s Central Military Commission. 14 sources of values remain traditional Chinese culture and Since March 2013, the roles of Party General Secretary, Confucian thought. China’s President, and Chair of the Central Military 12 Commission have been held by Xi Jinping. Politics and government 10 The Chinese Government is a highly complex organisation The President: Chinese presidents and vice-presidents that reaches into many aspects of Chinese society. An serve five-year terms, appointed six months after the understanding of the workings of the central government Party administration is settled. 8 is essential to a good understanding of China’s business culture. While this section details government at a State Council: The State Council serves as the administrator 6 national level, businesses seeking to operate in China and regulator of China’s day-to-day government functions. It comprises ministries, bureaus, commissions and agencies, should also have some awareness of the roles of provincial 4 and municipal levels of government. and is headed by Premier Li Keqiang since March 2013. Political Bureau (Politburo): The Standing Committee 2 Communist Party of China (CPC) of the Politburo is China’s most powerful political entity. The Communist Party of China was founded in Shanghai It effectively controls the direction and pace of China’s 0 in July, 1921. On October 1, 1949, after defeating the economic development. Kuomintang in the Chinese Civil War, Mao Zedong 2011 2017 2021 2012 2015 2013 2019 2016 2018 2014 2010 2022 2023 2007 2020 2003 2005 2009 2006 2008 announced the founding of the People's Republic of Central Committee of the Communist Party: The 2004 China (PRC) at Tiananmen Square. The Communist Communist Party takes its direction from policies devised Party has ruled continuously ever since, crafting all by the highest governing body in China, the Central Source: IMF World Economic Outlook Databases major social and economic initiatives and directing the Committee of the Communist Party, which is further guided by the Standing Committee of the Politburo. Country starter pack Country starter pack 16 17 Introduction to China Introduction to China

forecast figures still put it well ahead of most other engine for growth. Currently, approximately one-third of Agriculture: China is the world's largest producer of major economies’ growth rates and keep it on track to global business leaders rank China among their top three agricultural products – ranking first for rice, wheat, eventually overtake the US as the world’s largest economy. regions for generating growth over the next year. potatoes, sorghum, peanuts, tea, millet, barley, cotton, Manufacturing, services and agriculture are the largest oilseed, pork and fish. Economic reforms introduced from sectors of the Chinese economy – employing the majority Manufacturing: Manufacturing’s percentage share of 1978 led to a dismantling of the collectivist system and of the population and making the largest contributions Chinese GDP has been slipping in recent years, but it tremendous gains in production. Today the sector accounts to GDP. Since 1949, the Chinese Government has remains a major sector, accounting for around 40 per for 8 per cent of Chinese GDP, but employs 27 per cent been responsible for planning and managing the national cent of China’s GDP; indeed, it grew slightly in 2018, of the labour force, or close to 300 million people. economy. But it was only after 1978 – when Deng although is expected to fall slightly in 2019 due to the Xiaoping began market-based reforms –that growth began impact of the US-China trade war. The sector employs Legal system about 28 per cent of workers in China, and has ensured to take off, averaging 10 per cent annually for some 30 The Chinese legal system is one of the oldest in the China remains the world leader in gross value of industrial years. During that period, the size of the Chinese economy world – although it has evolved particularly over the output. On the more developed Chinese eastern grew by roughly 48 times, from USD 168.367 billion past century due to war, changing political systems and coast, the focus has increasingly moved to advanced (current prices) in 1981 to USD 11.01 trillion in 2015. globalisation. The current legal system is primarily based manufacturing, while lower cost and more labour intensive on civil law, with the Constitution of the People’s Republic Since the introduction of Deng Xiaoping’s economic manufacturing is increasingly located further inland. of China being at the core. reforms, China has what economists call a socialist Services sector: China’s services sector has doubled market economy – one in which a dominant state-owned While China is continuing to make significant environmental protection. The current five-year plan in size over the past two decades. In 2013, it overtook enterprises sector exists in parallel with market capitalism improvements to its legal system – particularly in focuses on increasing China’s competitiveness through manufacturing as the largest sector of the economy, and and private ownership. It was the active encouragement commercial law – doing any form of business in China more efficient and increasingly advanced manufacturing on in 2018 accounted for around 52 per cent of GDP. Major of private enterprise from 1978 that enabled China to can present foreign businesses with numerous challenges. the east coast, attracting labour-intensive manufacturing industries within the services sector include transport, kick-start the long expansionary boom that continues In common law jurisdictions, such as Australia, court to central provinces and increasing domestic demand. storage and post (4 per cent of GDP), wholesale and today. Private businesses now produce more than half of judgments generally have binding legal effect. However, Economic growth, which has in recent decades been driven retail trades (10 per cent), hotel and catering services (2 China’s GDP and most of its exports. They also create Chinese law follows a civil code system which involves by export-led manufacturing, is now becoming more per cent), financial services (8 per cent) and real estate most new jobs. a legal system founded on a combination of national reliant on domestic consumption. The resulting increase (6 per cent). The services sector is the largest employer in laws, and national and local regulations, supplemented Despite the recent rise of private enterprise, state-owned in consumption spending represents a major opportunity China, with around 45 per cent of workers. by court interpretations, departmental notices and, enterprises remain prominent and play a pivotal role in the for Australian businesses that are able to successfully importantly, local practice. Although there is an official success of the economy. Chinese authorities have recently target their products and services to an increasingly After years of intense focus on manufacturing, the hierarchy of legislation in which national laws take priority boosted their support for state enterprises in some sectors affluent Chinese public. There is also encouragement for Chinese Government has given higher priority to the over sometimes inconsistent lower-level regulations, in deemed important to economic or national security and to foreign businesses to invest in key areas such as advanced increasingly dominant services sector, including in its practice different interpretations of the same regulations create ‘national champions’. According to the State Assets manufacturing, energy saving, environmental protection current five-year plan. Although the sector has been are often applied. Uncertainty is often influenced by Supervision and Administration Commission, what qualifies and modern services. Tightened regulation on energy growing spectacularly, its share of GDP in China remains local protectionism, variable enforcement and a lack of as a ‘key sector’ is broad, spanning real estate, metals conservation and environmental protection also presents much lower than countries such as Australia (67 per manufacturing, shipping, science and technology, mining, an opportunity for Australian businesses. cent), the US (80.2 per cent), Japan (69.3 per cent) and telecoms and petrochemicals. Foreign investment in these Brazil (72.8 per cent). sectors is subject to close scrutiny and often restricted or China’s trade growth and foreign direct investment prohibited. particularly intensified when it joined the World Trade Organisation (WTO) in November 2001. Under the THE CHINESE COURT SYSTEM Although we tend to speak of one Chinese economy, it WTO, tariffs on agreed products were reduced and can also be usefully viewed as a decentralised collection of market access to various industries was gradually phased several regional economies, with large wealth imbalances in. Sectors opened up include trade and distribution, between the rural and urban populations. The eastern franchising, advertising services and many more. This led Supreme People's Court provinces, which contain most of the manufacturing, are to increasing global engagement including hosting the the wealthiest. Central China is more agriculture-focused 2008 Beijing Olympics and the 2010 World Expo in and not as wealthy, although low-end manufacturing is Shanghai. From 2003 to 2010, the Chinese economy increasingly moving into the region. Western China is experienced near-uninterrupted double-digit growth. the least economically prosperous region, although it This excludes the period during the global financial crisis Local People's Courts Special People's Court has significant natural resources. The three wealthiest years of 2008 and 2009 where the Chinese economy and most important economic regions are all on the east still managed to post impressive growth figures of more coast: the Pearl River Delta, close to Hong Kong, the than 9 per cent. Higher People's Courts Military Court Yangtze River Delta surrounding Shanghai, and the Bohai Bay region near Beijing. The perception of China since the 1980s as a predominantly low-cost manufacturing hub, where it Intermediate People's Courts Maritime Court Under the socialist-market model, the Chinese effectively served as an inexpensive producer for global Government plays a direct role in managing the economy brands, is changing as the economy grows. Increasing through its five-year plans that set goals, strategies and labour costs and an ageing workforce have caused Grass-roots People's Courts Railway Transportation Court targets. The five-year plans in the 1980s and 1990s manufacturers’ profit margins to decline steadily. As focused on market-oriented reforms, while the past a result, while cost rationalisation is still an attractive two five-year plans have focused on promoting more feature of the China market, global and local businesses Forestry Court balanced growth, better wealth distribution and improved are now starting to change strategies to tap China as an Source: Law Library of Congress Country starter pack Country starter pack 18 19 Introduction to China Introduction to China

Top 10 World Container Ports*

transparency, particularly in less developed areas. It is therefore essential for anyone looking to establish or operate a business in China to secure impartial and well- informed legal advice before taking the plunge.

The Chinese legal system has two overarching elements Infrastructure ratings – the Supreme People’s Court and the Supreme 2018 World Economic Forum's Global SHANGHAI BUSAN People’s Procuratorate (the highest legal supervisory Competitiveness Report ranks China's overall 1 CHINA 6 SOUTH KOREA body). In addition, the National People’s Congress and quality of infrastructure as 29th out of 140 42.01 million TEUs** 21.7 million TEUs its Standing Committee exercise national legislative economies (1 being the most developed system) power, and the State Council is authorised to adopt administrative regulations and measures in accordance ROAD PORT with the Constitution and national laws. China also has ND TH QINGDAO a system of provincial and municipal governments, each 42 48 8 CHINA with a People’s Congress that may make local regulations, 18.3 million TEUs provided they do not contravene the Constitution or AIR RAIL national laws. All citizens are equal regarding application rd TH TIANJIN of the law. 63 25 9 CHINA 16.0 million TEUs Supreme People's Court: The Supreme People's Court is the highest judicial body in China. It oversees the administration of justice by local people’s courts, military courts and other special courts. The people’s courts try Much of China’s recent infrastructure development – including rail networks, ports, telecommunications, NINGBO-ZHOUSHAN all cases publicly, except cases involving state secrets, CHINA individual privacy or minors. airports and roads – has been focused around major 4 urban centres on the east coast. When reviewing JEBAL ALI 26.4 million TEUs DUBAI, UAE Under China’s constitutional structure, courts are subject China’s various elements of infrastructure, including rail 10 to the supervision of the People’s Congresses (e.g. systems, seaports, telecommunication, airports and road 15.0 million TEUs provincial, municipal, county) and do not exercise the networks, it is important to understand the geographical power to determine the validity of laws and regulations. vastness of China and that a predominant amount of the The Supreme Court also supervises the local people’s infrastructure development is on the east coast around SHENZHEN courts with special courts existing to handle such matters the major cities. 3 CHINA as maritime and military issues. Transportation has attracted about a quarter of total 27.7 million TEUs Supreme People's Procuratorate: The highest legal infrastructure investment, with a large component supervisory organ in China, reporting to the National going into roads. This has led to China’s roads including People's Congress and Standing Committee. It supervises highways and expressways expanding from 1 million the activities of the other State departments and officials kilometres in 1990 to more than 4.9 million kilometres GUANGZHOU HARBOUR as well as the power to ensure official and agencies are today. Just over 84 per cent of China's roadways are CHINA HONG KONG in line with government rulings. This includes authority paved, greater than the developed nations of Japan (81 5 21.9 million TEUs SAR CHINA overseeing treason, attempts to divide the country and per cent), US (65 per cent) and Australia (43 per cent). 7 other important criminal cases. It examines the cases A National Trunk Highway System links all provincial 19.6 million TEUs after investigation by public security organs, and decides capitals and cities with populations of more than on arrests and prosecutions while also supervising public 200,000. In the past five years, China has seen 1.28 security organs, courts, prisons, reform through unions. million km of rural roads built or renovated, with 99.24 per cent of townships and 98.34 per cent of villages Infrastructure connected by asphalt or cement roads. Infrastructure investment in China has increased China has in recent years significantly expanded and significantly in recent decades and has been a key driver modernised its rail networks within and between its major of economic growth and improved standards of living. population centres. The biggest urban rail systems are SINGAPORE Despite the expansion, China’s infrastructure continues in the major cities of Beijing, Shanghai, Guangzhou and 36.6 million TEUs to develop and expand. Infrastructure development Shenzhen. New lines are currently under construction in 2 has lagged behind what was envisaged in the Chinese the biggest Chinese cities and other metropolitan areas Government’s five-year spending plan. The Chinese along the eastern seaboard. Government has flagged plans to address the national infrastructure shortfall from 2015, accelerating 300 When it comes to inter-city high speed rail, China is a projects valued at RMB 7 trillion (AUD 1.28 trillion). global leader. Its passenger-dedicated high-speed rail * Source: World Shipping Council Policy makers hope this will help shore up China’s annual network extends for 29,000 kilometres – making it the ** TEUs: Twenty-foot equivalent units, standard cargo carrier = two TEUs GDP growth. biggest in the world. More lines are currently being built and upgraded to eventually connect all cities of more than 500,000 people. Country starter pack Country starter pack 20 21 Introduction to China Introduction to China

China is also at one end of what is now the world’s 1.3 CHINA AND AUSTRALIA: and gold exports to China in 2018 were worth more longest railway link, which carries freight trains all the than AUD 79 billion - around half the total value of our way from China to Spain. The route, which officially THE BILATERAL RELATIONSHIP China exports. But mining is far from the whole story, opened in December 2014, covers 13,000 kilometres and in future years is likely to be relatively less important The Australia and China bilateral relationship has and is an extension to China’s preexisting rail link with as China’s economy matures, its growth slows and its developed significantly over the past 30 years. Two Germany, which runs freight between Chongqing, in demand for mineral resources tapers off. momentous events in the 1970s set in train changes southwest China, and Duisburg, and between Beijing and that would lead to China becoming what it is today: Hamburg. The new Yixin’ou cargo line to Spain, dubbed Already, thanks to a burgeoning population of urban the economic and political powerhouse of Asia, and ‘The Silk Railway’ and the ‘21st Century Silk Road’ leaves middle-class Chinese consumers, Australia is finding Australia’s number one trading partner. the coastal town of Yiwu in Zhejiang province. It passes growing markets for its agricultural produce, processed food, tourism, education, and more specialised through Kazakhstan, Russia, Belarus, Poland, Germany The first big game-changing event for China came professional services and advanced manufacturing. and France before arriving in Madrid. It takes 21 days when Western nations, including the US and Australia, Australia will increasingly need to build on these non- to get freight from China to Spain via the rail route, established formal ties with Beijing in the mid-1970s. resource export opportunities in the future as an compared with six weeks by sea and is more cost- and Soon after came the drastic economic reforms of economic cushion against the end of the mining boom. carbon emissions-efficient. the Communist Party of China under Deng Xiaoping. ChAFTA is set to greatly assist in this aim, providing China opened its doors to the world, encouraging trade, China’s ports play a major role in the nation’s international much easier access to the Chinese market for Australian investment and knowledge sharing. It released China from trade. There are about 200 ports and container terminals, service providers, and removing tariffs on most of our isolation and economic stagnation and set it on course including 34 major ports engaged directly in international according to Ministry of Industry and Information export goods as soon as it comes into force. for decades of consistently phenomenal growth and trade, and other ports along many of China’s rivers and Technology (MIIT)*. The penetration of the 4G network prosperity. waterways systems. The World Shipping Council ranks has increased significantly in recent years with 1.1 billion Although China’s growth will inevitably slow as it matures into a more advanced, developed economy, Chinese six mainland Chinese ports among the world’s 10 busiest, 4G users in 2018. China Telecom, the state-owned and The stunning rise of China has brought substantive GDP is still expected to grow at an extraordinary (by including the number one – Shanghai. This does not largest telco in China, has built a nationwide 4G network benefits, not just for hundreds of millions of Chinese Western standards) 6 per cent. As this is happening, include Hong Kong – ranked 7th – which has seen its covering all cities and more than 96 per cent of villages people who no longer live in poverty, but for much of the surge in the urban Chinese middle-class population container traffic decline in recent times due to foreign and towns. It has also established the world’s largest the world. Most countries have reaped big rewards from — they are expected to number about 550 million by ports undertaking more direct trade with the mainland. optical fibre network, which spans more than 83,000 China’s emergence as a low-cost manufacturer of almost 2022 — should also drive further growth in consumption kilometres. 5G trials began in 14 cities in China in 2019 everything, and from its huge demand for raw materials China’s air transport infrastructure is expanding rapidly, expenditure for years to come, and in doing so fuel and it is expected to be rolled out rapidly in the next two and other products and services. in line with the growth in civil aviation. The nation has years. potential new demand for non-mineral Australian exports. around 200 civilian airports (excluding Hong Kong, Australia has arguably benefited more than most The prospects for agricultural and processed food exports Macau and Taiwan), with around 130 million Chinese With the expansion of internet usage, the Chinese countries. Through a combination of good fortune and are particularly bright. Annual Australian agricultural travelling overseas in 2018. The Chinese Government Government has implemented the world’s most good management, we have positioned ourselves as one exports to China have doubled in five years to about AUD plans to increase the total number of civil airports to 244 sophisticated online censorship system, commonly of China’s key partners during its amazing economic 13.5 billion , and more growth is in the offering as Chinese before 2020, investing an estimated USD 11 billion in referred to as ‘the Great Firewall’. It blocks many social transformation, a position greatly enhanced by the signing consumers increasingly demand quality produce, and aviation projects in 2018. The top five airports in China media websites, such as Twitter, Facebook and YouTube, in 2015 of a historic free trade agreement between Australia trades on its ‘clean and green’ image. (all international airports in Beijing, Shanghai - Pudong along with numerous foreign sites including those of the Australian and Chinese governments and the 2018 and Hongqiao, Guangzhou and Chengdu) in 2017 each human rights activists and some foreign media agencies. upgrade of relations to those of a ‘comprehensive In addition, ChAFTA will provide greater market access serviced at least 40 million passengers, ranging up to The system also provides the Government with the strategic partnership’. to China with the staged removal of Chinese tariffs on a 100 million passengers at Beijing Capital International ability for extensive monitoring of the population’s multitude of Australian exports, including dairy products, Airport. Three of China’s international airports were also internet usage, including emails and online data software The China Australia Free Trade Agreement (often beef, lamb and seafood. Tariffs will also be progressively ranked in the top 50 of the Skytrax World Airport 2018 management systems such as clouds. The blocking referred to as ChAFTA) has opened up unprecedented removed from Australian wine and a range of processed Awards. Shanghai was ranked 18th, Beijing 33rd and Xi'an of websites may vary from day to day, depending on access and opportunity for Australian businesses, across foods including fruit juice and honey, along with 38th. A new airport in Beijing, Daxing Airport, will begin both domestic and international current political and a wide spectrum of industries, that want to embrace the pharmaceuticals and other manufactured products. operations in October 2019 and take another 75 million social discussions. As a result, more people are trying to opportunities in the world’s most populous nation. It will passengers. circumvent the censorship system with virtual private add momentum to what is already a very broad and strong Education is another big part of the growing China- networks (VPNs), while Hong Kong is becoming a popular economic, strategic and cultural relationship between our Australia relationship. Australia has an international Modern telecommunication facilities – fixed line cloud computing hub because it is beyond the jurisdiction two nations. reputation for the quality of its education sector, and over telephones, mobile phones and access to the internet of the censorship system. 255,000 Chinese students are now enrolled in Australian – are available across most of China, but services How strong is the relationship? Consider, first, the China- universities, schools and other institutions, accounting for are superior in urban areas. There are more than Water and sanitation is an area of China's infrastructure Australia trade numbers. Two-way trade in goods and more than a quarter of the multi-billion dollar education 1.5 billion mobile connections. The development of that is advancing, however, can be challenging in more services in 2018 reached just under AUD 215 billion, with export sector. The sector will be a beneficiary of the free telecommunications infrastructure, although rapid, has remote areas. The World Bank (2015) estimates that Australia buying roughly AUD 75 billion in merchandise trade agreement, with new rights to market directly to been unevenly distributed, with provinces along the 95.5 per cent of China's population has access to (mostly manufactured) imports from China and the Chinese students. eastern seaboard accounting for almost half of China’s improved water sources, however, only 76.5 per cent Chinese spending about AUD 118 billion on Australian telecom users. China’s western provinces and rural areas have access to improved sanitation facilities. exports (goods). This makes it by far our biggest two-way Other service industries that have previously not featured are still greatly under-served, and the Government is trade partnership, China having surpassed Japan in the * In August 2018, the China Internet Network Information Centre in the Australia-China equation could also come into play encouraging investment into these areas. (CNNIC) found that the total number of Chinese internet users number one position back in 2009. as a result of ChAFTA. Australian private hospital and exceeded 800 million. Discrepancy between data published by MIIT and nursing home operators, for example, are allowed to enter China’s internet penetration rate is soaring. About 1.3 the CNNIC could indicate that the users to which the MIIT is referring It is well-known that Australia’s most valuable exports China at a time of major potential growth as the Chinese billion people were believed to be connected in 2018 are mobile subscriptions rather than individuals, which also includes mobile to China come from the ground. Our iron ore, coal, gas broadband and smartphone connections. population ages and expenditure on health soars. Country starter pack Country starter pack 22 23 Introduction to China Introduction to China

AUSTRALIA’S TRADE AND INVESTMENT RELATIONSHIP WITH CHINA It is openly acknowledged in Australia’s political Cooperation (APEC), which China hosted in 2014. engagement with China that we do not agree on Australia and China share an interest in increasing the absolutely everything. Australia's approach to manage G20’s focus on economic challenges and opportunities in Australian merchandise trade with China 2018 A$m Total share* Growth (yoy) differences is constructive and based on dialogue. the Asia-Pacific, including removal of trade barriers. Major Australian Exports 118,379 34.3% 18.2% Apart from our different histories, societies and political The entry into force of ChAFTA between China and Iron ore & concentrates 51,367 systems, we have differences on specific issues – particularly human rights and the Tibet Autonomous Australia demonstrates the potential value of constructive Coal 14,320 Region – although Australia acknowledges that Chinese collaboration between governments that do not always Natural gas 13,699 people enjoy greater personal freedom than they did necessarily see eye-to-eye. Moreover, the deal may be a very timely tonic for Australia-China trade just as Gold 5,789 in previous decades. Australia’s long-term strategic relationship with the United States also presents some we enter a new era of slower (although still spectacular) Major Australian Imports 74,903 23.6% 16.1% ongoing complexities in terms of the roles of major growth rates in China. Telecom equipment & parts 8,528 powers in the region. In 2014 and 2015, we saw significant falls in the Computers 6,481 Australia and China have established consultation international price for our iron ore exports in anticipation Furniture, mattresses & cushions 3,289 mechanisms to advance cooperation and manage of slowing Chinese GDP growth. In this context, ChAFTA Prams, toys, games & sporting goods 2,600 differences. Under the Australia-China comprehensive provides new opportunities to rebalance our exports to strategic partnership, there is an annual meeting China, particularly through improved access to China’s Total merchandise trade (exports and imports) 193,282 29.2% 17.4% between Australian Prime Minister and the Chinese burgeoning agricultural, retail and services markets. Premier. Other dialogues cover bilateral, regional and It is imperative for our nation’s future prosperity that Australian services trade with China 2018 global issues, including trade and economic cooperation, more Australian businesses take advantage of the Major Australian service exports 17,908 19.3% 13.1% defence, regional security, disarmament, development extraordinary opportunities that will continue to open up cooperation, human rights and climate change. Australia Education-related travel 11,711 in the new China in coming years. For both China and has also strengthened its defence relationship with China Australia, this is a big partnership with so much upside. Personal travel excl education 4,121 in recent years, through senior-level dialogue, educational Major Australian service imports 3,418 3.5% 16.5% exchanges, naval ship visits, and humanitarian assistance Personal travel excl education 1,676 and disaster relief exercises. Australia and China have also pursued increasing collaboration in multilateral and Transport 721 regional forums, including the G20, which China hosted Source: Department of Foreign Affairs and Trade's China fact sheet, 2018 in 2016 and Australia in 2014, and Asia Pacific Economic * Total share of Australia's International Trade

There is also new or improved market access for in China. Australian travel agencies are also able to Australian banks, insurers, securities companies, law establish in China wholly Australian-owned subsidiaries firms and professional services suppliers, construction, for tours within China. Another huge growth area in the manufacturing and telecommunications services China-Australia relationship that could receive a boost businesses. from ChAFTA is investment. Chinese investment in Australia currently stands at around AUD 63.6 billion. One major service industry that has thrived under the At the same time, many Australian businesses have previous expansion of the China-Australia relationship is successfully invested in the Chinese market, with banking tourism. Just two decades ago, very few mainland Chinese and wealth management the largest sector of Australian tourists came to Australia. Today they are our second direct investment in China. ChAFTA has improved biggest source of arrivals, and the biggest single source opportunities for investors in both countries. of tourism expenditure. In the year ending September 2018, over 1.4 million Chinese tourists came to Australia, Our relationship with China is often dominated by trade spending around AUD 10.9 billion. Their numbers have and economics. But much of what has been achieved been growing by as much as 22 per cent a year, and on those fronts would not have been possible without Tourism Australia believes we could be earning as much the background work of successive governments in as AUD 13 billion a year from Chinese tourism by 2020. Canberra and Beijing to build and sustain the bilateral Tourism relations have grown not only through government political relationship and to collaborate on regional issues actions such as making 2017 the ‘Australia-China Year of common interest. Australia has an extensive diplomatic of Tourism’, but also through private sector initiatives and network in China, including the Embassy in Beijing and small-and-medium enterprises set up by Chinese-speaking Consulates in Shanghai, Guangzhou and Chengdu. There Australians. AirBnB for example brings its China staff to are 11 Austrade offices across greater China, assisting Australia as a model of how to run ‘local experiences’. Australian businesses to enter markets and promote Australia as an investment, tourism and education Australian tourism operators are set to additionally destination. Australian state governments are also widely benefit from ChAFTA with a guarantee from China that represented in China’s leading commercial centres. Australian suppliers are able to construct, renovate and Australia and China share over 80 sister-state/province operate wholly Australian-owned hotels and restaurants and sister-city relationships and people to people links between our two countries continue to flourish. Country starter pack Country starter pack 24 25 Getting started in China Getting started in China

Now that you have decided to launch your business in China, you must carefully plan your first moves. And one of the first things to do before entering any overseas market 2. Getting started in China is research – lots of it. Market knowledge is one of the keys to succeeding in business overseas; inadequate research could be your pathway to failure.

In the case of China, you will need to become informed on a wide range of subjects, from industrial relations and tax provisions to labour regulations and a host of other variables. You should also take time to become familiar with the culture, language and business practices of China, as well as developing an understanding of the specific market you’re considering and your targeted customer.

This chapter provides detailed information on how to go about researching the Chinese market – what to look for and where to find it. It also includes advice on key considerations and decisions to be made before launching your business venture – choosing a location, hiring interpreters, assessing the potential risks of operating in a foreign environment, and potential business structures.

China’s business environment can be challenging. This was highlighted in the 2016 Australian International Business Survey (AIBS), in which 50 per cent of respondents said it was more difficult to do business in China than in Australia, and 28 per cent said it was much more difficult. The respondents placed particular value on cross-cultural or language skills, which was cited as very important by 37 per cent of participants and second only to networking (42 per cent). More recent studies have not looked at this idea of linguistic capacity, but the 2017 and 2018 studies both noted that the US and UK remain the first and third preferred choice of destination respectively for Australian business, despite China being the larger trade partner. Country starter pack Country starter pack 26 27 Getting started in China Getting started in China

Location doing business are lower. Although a differential remains, China is a country of great regional diversity. Wide wage inflation and new social security requirements have differences in income levels, wealth, culture, language, reduced the inland advantage. Inland locations can also market preferences, education and skill levels, involve shortages in supply chain and management talent; infrastructure, and development levels are found across inconsistent infrastructure and regulatory limitations; the country. Your choice of location is therefore critical, fragmented distribution systems; and limited adoption of and will depend in part on whether you are entering China technology. Some companies address this by having some with a product or service to sell, or wanting to source of their manufacturing process in China then undertaking products there. final assembly and customisation processes in regions closer to the location of their customers. Different locations and regions are also becoming increasingly specialised in their economic and business Central and local government incentives and regulations functions, rather than trying to offer all things to all should be considered when choosing a location for your customers. For example, Beijing has become a hub for IT business. Under a regional development strategy, the companies and software development, whereas Qingdao Chinese Government has vowed to give high priority to is increasingly becoming a financial centre attracting both developing infrastructure in rural areas. It will also invest local and foreign banks. more in areas with ethnic minorities, border regions and other underdeveloped locations. Foreign investors While the eastern seaboard generally has the most wanting to reap benefits from preferential government well-developed infrastructure, it has the disadvantage treatments will need to consider moving their labour- of relatively high labour costs. Until recently, the simple intensive industries to western and central parts of China. solution to this issue had been to locate your business further inland, where resources and the general cost of

Careful planning is crucial to any China strategy: Make 2.1 WHAT YOU NEED sure you are fully prepared and committed before investing. The reality of China is often several degrees TO CONSIDER more nuanced and complex than new market entrants Doing business in China may seem rather daunting for Common reasons why some Australian businesses or investors initially expect. Careful attention must be newcomers. Taking a strategic approach is one of the paid to on-the-the ground risks with practising effective keys to making the process manageable. In particular, it is fail in China due diligence crucial to succeeding in the Chinese important to: environment (see Chapter 3 for further information). • Avoid going into China cold – get a foot in the door • Going it alone: lack of understanding • Neglecting to seek professional, Fully assess your markets and risk: Invest time and effort first by making connections and conducting research and knowledge of the Chinese business experienced help in China: a basic in getting to know your customers and partners, your before travelling there environment, culture and regulations can understanding of the Chinese regulatory government contact points and stakeholders. When • Take care with your choices of advisers, partners and incorporating risks into strategic planning, you should be a core reason for failure. environment is not sufficient. To launch contractors examine every level of risk, throughout all business successfully in China, businesses need functions. Often these risks are intertwined, and such • Allow time for bureaucracy – both filling in forms and • Limited preparation and research prior to engage professional services firms to analysis affords a bird’s eye view of the local business waiting for approvals to entering China: some Australian help with legal advice on regulations and environment and practices. An integrated China strategy • Choose a business structure based on research businesses make the critical mistake of strategic issues such as marketing. must therefore address risks that stem from both creating specific to your industry, objectives and your product assuming that business in China is just like value and protecting it. • If establishing your own business there or in a at home. Do your research on the market, • Don’t understand their Chinese business partnership, make sure you are directly involved in the Find business partners that are open to fresh thinking industry and primary competitors. partner: some Australian businesses have setting-up process. and new ideas: They must have enough experience in failed to be proactive in developing and the local industry and familiarity with differences in China is not a single market. Profound differences can • Dealing with the wrong people: it is vital maintaining a relationship with a Chinese local consumer and industry segments to see how to exist from region to region, from industry to industry, and to connect and develop relationships with business partner. Time and money must carry through with new ideas. Above all, your business market to market. The most successful foreign companies the key decision-makers. Negotiating with partners must possess resources and relationships that be invested to help you understand your in China are flexible, and adapt quickly to the realities of people in senior hierarchical positions is complement yours. But alliances come with their risks. their particular industry and market. business partner’s expectations and ways Trust and regular communication through the relationship essential in Chinese business deals. of doing business. Communication and cycle are essential and the need for practising due setting clear expectations are essential. diligence cannot be emphasised enough. Country starter pack Country starter pack 28 29 Getting started in China Getting started in China

Industry hubs of China SHANGHAI - China's automotive industry capital 6.93 million The number of vehicles sold in 2017 by Shanghai Automotive Industry Corporation (SAIC), the largest auto manufacturer CHINA IS THE WORLD'S LARGEST in China. 22 million The forecast number of vehicle sales by 2020, bigger than Gold Food either the European or North American markets. producer producer GUANGZHOU & SHENZHEN - China’s fashion capitals 1st China is going to surpass the US and become world's largest apparel market in 2019. Annual clothing sales in China is expected to exceed USD 333 million in 2019, a 25 per cent Solar panel increase from 2014. CoAL 2.2 trillion producer producer The forecast RMB value of China's fashion industry by 2020. QINGDAO - China's finance capital AND PRODUCES 31st Qingdao is ranked as the 31st world top financial hub according to Global Financial Centers Index in September 50% 89% 2018. of the world’s steel (2017) of world’s rare earth minerals 221 Qingdao is a financial services hub with a $£ high density of foreign financial institutions. The number of financial institutions operating in Qingdao It has a complete financial industry chain € including 34 foreign institutions. International banks in BEIJING - Zhongguancun Science Park - China's Silicon Valley incorporating banking, insurance, securities, Qingdao include Bank of East Asia, HSBC, OCBC Bank, trust funds and other financial services. Standard Charter, Yamaguchi Bank, Shinhan Bank.

9,000 CHENGDU, SUZHOU & CHONGQING - China's manufacturing leaders The number of high-tech businesses in Zhongguancun in 2018. 1 in 3 of the world's laptops are produced in Chongqing.

98 Fortune The number of Fortune 500 firms including Intel, Microsoft and Siemens, that have set up branches and research 250+ Beijing is home to Zhongguancun Science institutes in the park. 500 The number of Fortune 500 companies with a presence in and Technology Park. Companies such as Suzhou is a centre for nano-technology Chongqing in 2018. Nokia, Ericsson, Motorola, Sony, IBM, Sun, innovation. Chongqing’s economy continues Oracle and BEA have a presence in the park. to grow faster than China’s national 74,000+ average, averaging double-digit growth in recent years. Chengdu is an IT and services The total number of patents applied for in 2018 by outsourcing hub with SAP, NEC, Cisco, Zhongguancun enterprises. EMC, Philips, Dell, Ubisoft, Maersk, 20% Siemens, Ericsson and DHL present. of the world’s computers Chengdu produces. Country starter pack Country starter pack 30 31 Getting started in China Getting started in China Heilongjiang ¥19.8K Jilin Key demographics ¥19.9K Beijing

Shanxi ¥52.5K Xinjiang ¥19.0K ¥18.4K Hebei Gansu ¥19.7K ¥14.7K Inner Mongolia ¥24.1K Factors to consider when deciding where to locate: Ningxia • Proximity to market and suppliers • Availability and duration of tax or other ¥18.8K • How easily you can move your goods in incentives Liaoning and out • Coat-tailing on someone else’s existing ¥26.0K • Costs – for example land, labour, utilities marketing and distribution network Tianjin • Leveraging off an existing Australian ¥34.1K • Reliability of local infrastructure, particularly the power supply and access business or a sister-city relationship Shandong to water • The level of local authority support for ¥24.7K foreign businesses Jiangsu • Availability of a good agent or distributor ¥32.1K • Fast growth and high costs versus low • Using a foreign trading zone, trade Shanghai costs and low competition development zone or special economic zone ¥54.3K • Demographic factors such as income • Why another Australian company levels, market size and preferences selected a particular entry point. Zhejiang ¥38.5K

Fujian Choosing a location can also be a balance between your tape. These will now also be extended to other FTA areas, and indeed, some of the innovations trialled in Shanghai ¥27.6K potential customer market and your need to hire staff. China’s rapid growth and different labour market means are now national policy, such as one-stop-shop business Tibet that skilled staff are often hard to find and retain. It can registration and bill paying. ¥13.6K also be difficult and expensive to send foreign staff to As the figure on the next page shows, this is the result some parts of China. But against that, China’s cities Anhui of FTZs being used on a regional specialisation and Qinghai have booming middle classes and are some of the most ¥20.0K customisation method. Each FTZ has a different focus Hainan attractive markets in the world, and the places where it ¥17.3K and benefit package, and businesses are best served ¥20.7K Jiangxi is hard to hire are often also where it is easy to sell and Sichuan ‘shopping around’ across these FTZs in order to find that promote one’s products. ¥20.1K which fits it best. There is no one national FTZ law, which ¥18.8K Guizhou can be a problem for overseas businesses as it means that Yunnan ¥15.1K Henan The central and provincial governments have launched a variety of free trade zones, special economic zones, FTZs are also subject to China’s strict capital controls, ¥16.7K Guangxi ¥18.4K export processing zones and technology development but it also gives Chinese local governments considerable flexibility to alter policies and laws — and Australian ¥18.3K Hubei zones. Depending on the nature of the zone/region, Chongqing foreign businesses receive various administrative and companies the chance to create a better regulatory ¥21.8K ¥22.0K trade incentives such as easier licensing processes, tax environment for themselves. At present there are 11 concessions and advanced infrastructure to encourage FTZs. But also of note and use is that there are a number Shaanxi Hunan Guangdong the establishment of businesses and industries. There of ‘clusters’ of major cities interlinked together, with the clusters to attract special clauses too. Examples include ¥18.9K ¥21.1K ¥30.3K can also be advantages relating to trade barriers, tariffs, quotas and bureaucratic requirements. In your research, the Greater Bay Area and the Jing-jin-ji area. it might be worth checking with your Australian state Based on the model of the Shanghai FTZ, three more POPULATION (million) GROSS REGIONAL PRODUCT (RMB) trade office to see if your state or city has a relationship FTZs were opened in China in April, 2015. The Shanghai with a special trade zone in China (such as a sister city FTZ was also expanded during this time. These were < ¥2 trillion arrangement). It may also help to talk to successful set up in Tianjin city, Guangdong province and Fujian Australian businesses in China about how they came to ¥2-3 trillion province. In April 2017, an additional seven FTZs were choose their location. ¥3+ trillion opened in the provinces of Liaoning, Zhejiang, Henan, Among free trade zones offering possibilities for Hubei, Sichuan, Shaanxi and Chongqing Municipality, taking the total number of FTZs in China to 11. Each is to PROVINCE AND INCOME Australian business is the Shanghai FTZ. Listed in CHAFTA as a specific area of Australia-China operation, make full use of its geographic location and carry special Province the Shanghai FTZ offers Australian business better local features. Hainan island was designated as China’s 12th free-trade zone by Chinese President Xi Jinping in <10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90+ Per capita disposable income (RMB) customs treatment, a range of financial liberalisation activities, some tax benefits and various reductions in red April 2017. Hainan FTZ would be operational by 2020.

Source: National Bureau of Statistics and China Statistical Yearbook 2017 Country starter pack Country starter pack 32 33 Getting started in China Getting started in China China’s Pilot Free Trade Zones

Liaoning Test market-oriented reforms to reignite the competitiveness of the Northeast’s traditional industries Financing your Chinese business venture Tianjin Understanding the additional costs associated with Shipping, financial leasing conducting business overseas is essential to making an and high-end manufacturing informed decision on whether you are ready to take the plunge. The main differences in China compared with Henan Is China a viable operating in Australia may include: National transport and logistics hub • A longer cash flow cycle, which could increase the option? pressure on cash flow and working capital Shanghai • Being further away from clients, this can increase the Have a detailed financial plan International finance and risk of non-payment and make it more difficult to trade, advanced manufacturing that considers: and technological innovation collect debts • Risk of non-payment in China is generally higher than • Regular visits to the market and Zhejiang other countries in Asia, even if you have a presence there possible provision of samples Sichuan International trade in • Getting paid in other currencies, which can expose bulk commodities you to foreign exchange risk and affect profit margins Growth engine for the • Hiring dedicated staff in China to less developed Western Fujian • Greater difficulty accessing finance, as Australian assist with start-up Opening Year regions of China banks are often reluctant to accept overseas assets as Trade with Taiwan, production services and high-end service sector security for loans • Business advisory services and legal 2013 Chongqing • A longer timeframe to recover the upfront costs of consultants establishing operations, which can reduce the cash flow Gateway city to open Guangdong 2015 up China’s West and working capital available for domestic operations. • Updates and adjustments as you Finance industry, customs 2017 Shaanxi clearance, international Adequate funding will be critical to your success, and a collect more data and knowledge Hainan shipping, logistics and trade detailed financial plan is crucial. Your financing options 2020 Promote cultural exchange and economic cooperation could vary according to whether you are exporting, • Contains scenario planning and risk Reach a “mature” stage by Hubei Pilot Free Trade Zone with countries participated in mitigation approaches. the Belt and Road Initiative 2035, with industries such importing or investing. A wide range of funding options as tourism, medical care, High-tech industrial base Focus exists, with various grants, venture capital and equity aviation and new energy sharing deals increasingly commonplace. However, banks remain the easiest and most approachable source of funding, with most of them offering tailored services. Your Using interpreters • The interpreter has an effective technical existing bank manager may be your best first port of call. Risks The official language of China is Mandarin (otherwise understanding of your business and approach. They should be fully briefed before meetings and, when Your research into any overseas market should include known as pǔ tōng huà - 普通话). But for many Chinese, Venture capital could be an attractive alternative careful assessment of the risks associated with doing their native tongue is their local dialect. English language necessary, provided with a list of terminology well in financing vehicle if you are comfortable with a third party business there. While Asia presents Australian businesses skills are encouraged, particularly in major cities where advance. taking an equity stake – and a share of the profits – in with numerous opportunities for growth, going offshore many business people – particularly younger – have your business. As a first step to research the venture Translators: Interpreting and translating are two different entails increased risks that need to be identified, managed studied it in high school or at college level. But English capital market, go to the Australian Private Equity and professions with totally different skills. Interpreters and reduced as far as possible. Due diligence also has to is not widely spoken among the general population in Venture Capital Association Limited website at are for oral interpreting and translators are for written be actively practised, with particular care taken to protect smaller cities and rural areas. It can be useful to have https://www.avcal.com.au/. translation. Although many people have both skills, some intellectual property (IP) when doing business in China. an interpreter during business visits, particularly when of them specialise in one discipline. Decide which one you Government assistance – both federal and state – is you need to discuss technical aspects of your operation. want. available to Australian businesses wanting to expand China can be a challenging destination for Australian In practice, many Australian businesses hire bilingual overseas, especially exporters, through a number of businesses, and in some respect can be more difficult Chinese staff to attend meetings and negotiations, assist Finding an interpreter or translator: The best way to grants, loan facilities and reimbursement schemes. These than other Asian countries. Before entering the market, with interpretation and understand context. There are find the right translator or interpreter is to rely on the include Export Finance Insurance Corporation (Efic) you need to understand China’s distinctive banking, also increasing numbers of Australian business people recommendation of someone you trust who has used – the Australian government’s export credit agency taxation and legal systems. To mitigate such risks, who speak Mandarin. It is strongly recommended that you them before. It’s not advisable to hire an interpreter or (go to https://www.efic.gov.au/) and the Export Market Australian businesses should get professional advice make an effort to at least learn basic phrases to assist in translator straight off the internet or a trade directory Development Grants (EMDG) scheme, administered by where appropriate and thoroughly investigate the building relationships and rapport with Chinese people, unless they have reputable third party endorsements. Austrade. Full information can be found at https://www. issues in entering the market and establishing business as well as establish before going into a meeting if an austrade.gov.au/Australian/Export/Export-Grants. relationships. There are many people and organisations interpreter will be required. What it costs: The cost of hiring an interpreter may you can turn to for help. Choosing the right partners and Individual state and territory government websites also vary depending on the nature of the meeting (informal, the right professional advisers is a major step in mitigating If you decide to hire an interpreter, you should make sure contain information on what financial assistance they can such as a factory visit, or more formal), the duration of risk. Your bankers, lawyers, insurers and accountants that: offer. Other sources of finance you could consider early the meeting and where it is (e.g. Beijing or Shanghai). should also be able to give you knowledgeable advice on include: Interpreters charge for a minimum of half a day, even if about the risks you may face. The information provided • The interpreter is professionally trained and it involves just an hour’s work. The cost of an interpreter experienced • A joint venture arrangement with a trusted partner in here is simply an overview of the complex business for a meeting in Beijing or Shanghai can vary between China • You have trust and confidence in the interpreter’s AUD 200 and AUD 1,000 per day. communication and presentation • Receiving an equity investment from a sophisticated individual investor or ‘angel investor’. Country starter pack Country starter pack 34 35 Getting started in China Getting started in China

THE MOST PROBLEMATIC FACTORS FOR DOING BUSINESS Common areas of risk 15 Source: World Economic Forum, Executive Opinion Survey 2017-18 When doing business overseas, Australians must consider multiple areas of risks and associated potential difficulties. These include:

Political risk: how stable is the market politically, overseas transfer goods to China, taking on the 10 economically and socially? risks of shipping, customs and sales). However, the informal nature of daigou means that the industry • Government and international enforced trade still functions, if unofficially. Formally setting up embargoes may affect the flow of goods and businesses and particularly payment mechanisms services and could affect your delivery of goods and

through Chinese social media channels such as 5 getting paid WeChat is made yet more difficult through the • Another potential consideration is whether new laws and regulations. As such, selling online to the country complies with international law China remains enormously lucrative, yet there are requirements, such as on human rights, trade regulatory and legal non-compliance risks. sanctions and recognition of personal property rights. 0 Bribery, graft and corruption risk: 1.6 4.1 7.3 7.8 3.9 6.9 7.0 8.2 8.5 8.6 4.9 Legal and regulatory risk: Challenges may arise 8.4 5.0 3.0 4.0 due to differing legal and regulatory systems. For • Bribery, graft and corruption are illegal in most 10.9 example: countries. Under Australian law (Division 70 of the Criminal Code Act 1995) you can face criminal Inflation Inflation • Common law systems versus civil law systems, IP prosecution in Australia for bribing a public official rates Tax

issues, taxation and auditing requirements in another country. Corruption Tax regulations Tax Policy instability Policy • Differences in contract law: get tailored advice on and theft Crime

contract terms due to differences with contract laws Exchange rate risk: How will adverse movements in public health Poor Access to financing exchange rates impact on your profits? • Access to courts and dispute resolution instability Government mechanisms: some countries may not permit local Foreign currency regulations currency Foreign litigation or place restrictions on the types of claims Non-payment risk: What is the likelihood of labour regulations Restrictive Poor work ethic in labour force Poor

your suppliers or customers defaulting or capacity to innovate Insufficient

that can be made. educated workforce Inadequately Inadequate supply of infrastructure Inadequate

becoming insolvent? government bureaucracy Inefficient • Changes to regulations (e.g. E-Commerce): The 2019 E-Commerce rules officially ban the so-called daigou industry (where agents living

environment that is China. Efic highlights China’s Difficulties with getting construction permits and 2017 WORLDWIDE GOVERNANCE INDICATORS key risks as the evolving banking system and business initial set-up processes can be a particular concern for regulations. This is in combination with a weak judicial Australian businesses in China. The World Bank’s Doing system that makes it more difficult to enforce contracts. Business Report ranks different countries according to how Control of corruption Government effectiveness Other challenges include rigidities in infrastructure and easy or difficult it is to open and run a small to medium- labour markets and a potentially volatile currency – all size business when complying with relevant regulations. accentuated by the devolution of power to regional and Rank one is the best. In 2019, China was ranked 46th for local bodies. ease of doing business overall, up 32 places from 2017 Rule of law Political stability and absence of violence/terrorism and was ranked 28th out of 190 countries for starting While corruption is a significant concern, the Chinese a business (ranked 127th in 2017). It rates highly on Government is actively focusing on improving enforcing contracts (6th) and quite good on registering transparency and due diligence across government property (27th). And relative to other large, developing Regulatory quality Voice and accountability and business. Transparency International's Corruption countries, it ranks well for trading across borders at 65th. Perceptions Index 2018 ranked China 87th out of However, it was ranked a very low 121 for dealing with 180 countries in 2018 on the perceived level of public construction permits (ranked 177th in 2017). India was 0 25 50 75 0 25 50 75 sector corruption (one being least corrupt and 180 most ranked 77th, Indonesia 73rd and Malaysia 15th for ease of corrupt). China was ranked ahead of Indonesia (89), doing business overall. Philippines (99) and Thailand (99) but behind other Asian China (%) East Asia & Pacific (%) countries such as Malaysia (47), Korea (57) and India (78). China’s sovereign risk is considered reasonably low, Source: World Bank Governance Indicators (WGI) Project with a credit rating of A+/A-1 from Standard & Poor’s. Country starter pack Country starter pack 36 37 Getting started in China Getting started in China st th Rank out of 1 17 140 countries: China is a global leader with its China continues to rank highly for the INTERNATIONAL COMPARISONS OF COMPETITIVENESS* 1 being the most primary education enrolment rates. quality of its railroad infrastructure. It also comes in at a respectable 42nd competitive. for quality of roads. th rd th 1 2 3 Market size 18 23 27 China ranks well again for the limited Talent continues to head to China China ranks number 27 for the burden of government regulation. from all over the world, placing the third consecutive year for its overall Innovation capability country 23rd for its capacity to competitiveness. attract talent and 34th for capacity to retain talent. ICT adoption

Infrastructure th th th Most competitive Most

Financial system 27 45 50 With a recent shift in focus to A lack of transparency of government Worker relations is improving in China, placing 50th in 2017-18 for Macroeconomic stability address corruption, public trust in policymaking is an area improving politicians has significantly increased but still undermines the institutional cooperation in labour-employer from 66th in 2014-15. framework. relations. Business dynamism

Health th rd th

Product market 56 73 79 The quality of local suppliers China’s technology readiness holds Organised crime remains a Skills continues to improve. 73rd position. challenge in 2018. Least competitive Institutions Labour market 81 st 116 th 132 nd 150 120 90 60 30 0 30 60 90 120 150 The limited availability of latest The number of days to start a China slips back one place from the technologies see’s China sit behind business continues to be one of previous year for its total tax rate. many within the region. China’s poorest rankings. It is also ranked 104th for the number of Source: The 2018 World Economic Forum Competitiveness Report *Ranking out of 140 countries procedures to start a business. Country starter pack Country starter pack 38 39 Getting started in China Getting started in China

sensitivity with Taiwan, which varies in intensity depending on the state of political discussions. Elections in Taiwan can particularly lead to increased tensions with the mainland. Some useful public data sources on the Chinese market include: 2.2 RESEARCHING CHINA • National Bureau of Statistics Comprehensive research is crucial when entering the Chinese market because of its unique features, including: • China Internet Network Information Centre • Geographical size and cultural complexity • China Greentech Report, produced by • The speed with which the market can change and evolve the China Greentech Initiative. • Rapid change in rules, regulations and the focus of enforcement authorities • A lack of consumer information and vague Intellectual property (IP) regulations. Intellectual property (IP) rights have been notoriously Your market research should cover a very wide field, difficult to enforce in China. Despite recent from import duties and other regulations to market- improvements in the ability to both register and specific issues such as distribution channels, market protect IP, some companies reportedly continue to size and growth, competition, demographics and local suffer commercial losses due to problems in this area. production. There are also strategic questions that should Counterfeiting, for instance, is estimated to result be answered first, such as where is best to enter in the in approximately 20 per cent revenue loss for many market — China’s cities are ordered by population into global products, while estimated losses from piracy and “tiers” and a Tier 1 city, the largest, may often not prove counterfeiting of movies and software can be as high as as attractive as a Tier 2 or 3 city (what China calls a 90 per cent.This field has been a major beneficiary of secondary or regional city, but often containing more be difficult to track, while some Chinese consumers are Market visits the trade war, with new IP clauses included in foreign people than Sydney). investment legislation rushed through in March 2019. Yet becoming more reluctant to disclose personal details. After doing as much research as possible in Australia, Market statistics might either be region-specific or enacting and enforcing this legislation, particularly in local Gathering this information is usually straightforward you will need to visit China to confirm the results of your industry-specific or too broad or out-of-date to be courts, proves problematic for all parties (Chinese and but it is easy to get overwhelmed by research and all the research, develop a deeper understanding of potential useful. Researchers should also note that much of the foreign). information that exists. This section aims to condense markets, establish relationships and eventually negotiate useful market information may be in Mandarin. the main areas that can assist you. However, you should contracts and agreements. Business visits to China China is one of 36 countries on the US Trade Office’s not limit your Chinese market investigation solely to this require patience, understanding and commitment. 2018 Priority Watch List, which targets countries that guide. Getting help do not provide an adequate level of intellectual property A variety of research organisations in China, including Determine where and when to visit: There are no protection or enforcement, or market access for anyone When researching China, you need to be focused on the large international professional and accounting firms, can fixed rules about when to visit a market – except that relying on IP protection. Overall, however, protection of needs of the Chinese market, not your own company’s be a major source of information. Austrade, which has you should do so before entering into any agreements. IP rights in China has improved in recent years thanks to needs. As discussed earlier, it is vital to take into account a significant presence on the ground in China, provides This includes with prospective agents, distributors or the passage of new laws. Enforcement campaigns have the different geographies and markets within China. a range of services for Australian firms seeking to go other business partners that could influence your future also been stepped up, although this effort has not been Even urban markets in the same province can differ offshore, including: dealings. Consider meeting with several to give you a sustained. significantly. Compare Guangdong’s Shenzhen, with its basis for comparison. Always leave the most prospective young migrant population of predominantly Mandarin • Information and advice with market entry and contact until last. Meet with them once you have a better Regional risks speakers, with Guangdong’s Guangzhou, and its older, business expansion understanding of the market and standards and are more Australians wanting to do business in China should also more family-centred composition of Cantonese speakers. • Help with location selection prepared to handle questions and strategic options. be aware of regional tensions involving China that may Each region must therefore be researched before entry, • Access to local contacts and networks Concentrate your effort on only one or two markets at first contribute to business risk. China’s relationship with as customer preferences, as well as regulatory and value to ensure a much better chance of success. • Identification of specific business opportunities and Japan is at times difficult due to historical grievances and chain considerations, vary. There exists a broad spectrum follow-up To ensure a an ongoing territorial dispute over the Diaoyu/Senkaku of income levels as well, and new types of Chinese Plan your trip at least six weeks in advance: successful trip, you should arrange in-country assistance Islands. These can be sensitive issues for Chinese business consumers are emerging, exhibiting unique spending • Market research services across a wide variety of for the planning and setting up of your program. This partners and are best not to be discussed. Large-scale behaviours. Plans are subject to change, though, and sectors. will help you see the right agents and customers who protests that occur during heightened tensions with Japan some flexibility will be needed to account for the change In addition to Austrade, the Queensland, South will be briefed and screened for interest and suitability. are unlikely to target Australians or Australian businesses, in dynamics of these disparate markets and the shifting Australian, Tasmanian, New South Wales, Victorian Take note of holidays and religious festivals that occur at but can be disruptive. Protests also occur in some parts needs and tastes of Chinese consumers. and Western Australian state governments have the same time as your planned visit. Also have all your of the country where there are internal tensions including representative offices throughout China and may be required paperwork completed before departing for regional areas requesting independence. These can be Information available on the internet can only get you so able to assist with further information. The Australian China, including your relevant visa, and take with you disruptive for businesses. far. You may need to commission your own professional China-based research and visit the market in person Government’s Export Market Development Grant (if applicable) any necessary legal documentation such Rival territorial claims in the South China Sea are numerous times to develop crucial relationships. Data (EMDG) scheme, as discussed previously, can help meet as financial documents and information on regulations. another source of tension between China and some of availability and reliability are also important considerations these costs and state and territory governments may Having company and product information and business its neighbours, including Vietnam. There is also ongoing for any market study. The urban migrant population can provide grants too. cards is also vital for developing business relationships. Country starter pack Country starter pack 40 41 Getting started in China Getting started in China

Do some background reading: If you don’t know much not accessible in China. Some web domains and some about China and have never been there before, begin email accounts (such as those related to Google) are not by doing some research on the internet. You could also permitted. find out something about China and its way of life by reading news articles and travel books. Consider how you Given the importance of safeguarding IP in China, make would treat someone who has no experience of Australia sure your website content is copyrighted and any IP is visiting to do business with you. This initial research is not patented. Chinese domain names end with ‘cn’ and are to develop a judgement of China; rather, it is to enable registered with the China Internet Network Information you to ask better-informed questions and have a more Centre (CNNIC). knowledgeable commercial judgement about the people One of the best ways to you meet. Starter guides like this one and others from Trade shows and exhibitions: meet potential customers or business partners is the different sources focusing on more specific business numerous trade shows and exhibitions that take place topics can also be beneficial. across China throughout the year. However, to use Have a good website before you go: A website is your your time most effectively, ensure in advance to arrange corporate brochure. Prospective customers and agents appointments to meet pre identified contacts at industry will usually go straight to it to check you out. Therefore, events. Austrade and state governments organise trade the website needs to be informative and attractive – missions to China on a regular basis, some offering sector not overloaded with information, but cleanly laid out specific programs. Check with your state government for with interesting graphics. If applicable and possible, use upcoming trade missions. customer or client endorsements and photographs to show your products or services. Make sure that contact details are easy to find and use – preferably a direct email with a photo of the staff member and have your website also accessible in Mandarin. Be aware of the national firewall in China and make sure your website is appropriate for it, ensuring that you don’t rely on links to Many Australian cities have sister-city relationships sites such as Facebook, YouTube or Twitter as these are Building relationships and making connections To make the most out of your visit to China, you need to in China. These provide additional assistance such as be well prepared before you arrive. Don’t waste valuable networking events and a network of existing relationships. time in China doing what you can do back in Australia. Some have representative offices in China. Check with Various organisations have training courses or seminars your local government for more details. that can expand your knowledge about doing business in In the major cities such as Beijing, Shanghai and China. These include Asialink Business, Austrade, Export Guangzhou, there are several well-established country- Council of Australia (ECA) and the various state and specific business associations with memberships of territory governments. Attending such seminars and hundreds of people. These include the Australian An easy-to-navigate, well-constructed and courses will enable you to establish networks and speak Chamber of Commerce (AustCham) which exist in to experts with experience in China before you enter the Beijing, Shanghai and Guangzhou. By representing up-to-date website is crucial. market. a broad cross-section of Australians and Australian Make sure to prearrange as many of your meetings as companies, AustCham plays a critical role in cultivating It allows you to: possible and reconfirm them one day in advance. Have Australia-China business relationships. The Chambers addresses for the meetings and information on the also maintains a good working relationship with the • Present your product to your overseas • If possible, have a website with content people you are meeting with. It is vital to take business Australian Embassy and with the various Australian potential customers and business partners in Mandarin. Make sure translations are cards with you and to follow up with people who have Government departments in China. Joining a business in cost-effective ways. done correctly. provided you with their cards. It is recommended that, association, such as AustCham, is a great way to learn within 48 hours of your appointment, you send an email more about what is going on in the local business • Project the impression of a professional • Design your website for a Chinese thanking your contact for the meeting and providing any community and to meet colleagues. Please see the and trustworthy business. audience. Consider seeking professional follow-up information – noting also, if necessary, that Resources and Contacts section for further information. • Convey that your business is “modern” help to do this. you will get back to them within a specific time period on further requests. This will leave a good impression by and uses new technology. • To make it easier for Chinese users to demonstrating your reliability and professionalism. • Avoid problems with time differences. find your website, host your website in China. You will need to obtain an ICP Joining a business association is another great way to • Introduce and promote new products licence from the Ministry of Industry and learn more about what is going on in the local business while selling directly to customers. community and to meet colleagues. Information Technology. Country starter pack Country starter pack 42 43 Getting started in China Getting started in China

2.3 POSSIBLE BUSINESS further application and approval is required if you want to CASE STUDY make any amendments to the scope, which can be very STRUCTURES time-consuming. Now that you have decided to set up a business in China, Registered capital is the initial investment in the new there are many elements you need to consider. What business required to fund the operation until it is in a type of business will you have – a joint venture with a position to fund itself. The official requirements vary for Chinese partner? A wholly foreign-owned enterprise? registered capital depending on the industry and region. Or simply a representative office? There is no single business structure that holds the key to unlocking the China market. In fact, there is no single China market. Representative offices (RO) As discussed earlier, the different markets, geographies The easiest and simplest type of business structure and industries within China can be as diverse as each to establish in China is a representative office (RO). company. Local regulations and local enforcement of It is therefore popular with Australian businesses that central regulations can also differ greatly. So cultivating simply want to get a feel for the Chinese market and a wide network of local contacts in government, while environment and make business connections. There are gaining an understanding of local practices, will help lower no registered capital requirements for a representative your compliance risks and assist you in choosing the most office, but it does have a limited business scope. An RO appropriate business structure. is not permitted to engage in any remuneration or profit- “I worked with an Australian service provider who making activities and cannot issue receipts or accept Manage China landed about 18 months ago, and from the very There are multiple channels of entry open to foreign payment for services. An RO can only partake in market Tim Lyons, Director, ManageChina beginning he registered his trademark, made investors; the one you choose must fundamentally be research and public relations activities that directly relate sure all his staff were employed properly, had supported by your company’s business objectives. Knowing to the business’s products or services, as well as contact what you’d like to achieve in China will help to determine activities that relate to provision of the product and Normal business networking reaches a new level of the company completely legally set up before he the entry vehicles that can help take you there. Unlike domestic procurement and investment. sophistication in China, where it is impossible to be started anything, did Chinese lessons, paid his taxes on time. All the things you would do in a business in other countries, China has a regulation process that can “across” a vast, diverse and complex market. Other requirements include: Australia he did in China, and he won.” have an impact on the structure you choose – this includes the scope of your business and registered capital. Australian Tim Lyons, who set up ManageChina in • The parent company must have been established for a 2006 to provide “non-core” services to businesses, Not all newcomers are as diligent, says Lyons. Setting up a business in China overall generally takes minimum of two years. Oversights might not be deliberate, but operating in says newcomers to China need to hit the ground three to six months and involves various government • It cannot directly hire local employees. Rather, it an unfamiliar environment is not an excuse. running. authorities and procedures that may differ depending on must engage an official Chinese employment agency. the industry your business is in and the structure you have • The registration certificate is issued for a one year “You need networks wherever you go but in China “The number of people who don’t do any of it is chosen. The primary Chinese Government authorities term, subject to annual renewal. you almost need an instant network when you land. extraordinary, it still amazes me. People probably involved are: The chambers of commerce in China are more do need advice around those things but they make • It cannot restructure into a more comprehensive important than anywhere I’ve worked before. The too many presumptions and then start pulling their • Ministry of Commerce form of foreign investment enterprise. first thing you should be doing is reaching out to the hair out and saying ‘why are things like this?’ It just • State Administration of Industry and After an increase in the number of foreign businesses local chamber of commerce and asking how to get is like that. Commerce (SAIC) abusing the representative office non-profit requirement, involved and building your network out from there. • State Administration of Foreign Exchange (SAFE) the Chinese Government has adopted stricter measures It’s a starting point, a kick-off. It’s mission critical.” “The fact is, the Chinese are very clear about what your obligations are. We’re allowed to set up • State Administration of Taxation to stop illegal activities. These include new rules on the taxation of ROs, including annual reporting obligations Chinese business processes can be complex, and companies in our own right and in most cases they • General Administration of Customs that encompass an official audit done by a third party been-there-done-that information is invaluable, don’t require a business partner. Being able to do • State Bureau of Quality and Technical Supervision accounting agency. says Lyons. that in a country like China is extraordinary, in many Asian countries it’s not like that. China gives • General Administration of Quality Supervision, To establish an RO, the parent company must first apply us the opportunity, we need to be respectful of that Inspection and Quarantine of P.R.C. “I read a PricewaterhouseCoopers report about for a business licence by submitting an application with and follow the rules and they’re not very difficult • National Bureau of Statistics. ‘triangulating’ your information in China and that’s the SAIC, followed by registration with other relevant what we do in our business, we ask someone, check rules to follow.” The four primary options Australians businesses can authorities. In certain industry sectors, an approval from in over here then check a third time because it’s not choose from to set up a foreign investment enterprise relevant authorities is required prior to submitting the as clear a system as Australia’s. You find yourself ManageChina provides services including legal, (FIE) are: representative offices (RO), wholly foreign SAIC application. The SAIC registration process generally reaching out to others to seek clarity and they’re administration, customer service, HR and IT. Lyons owned enterprises (WFOE), joint ventures (JVs) and takes between three and four months and is quite time- doing the same. So there’s always a need in China is understandably an advocate for “doing it right”. foreign invested partnerships (FIP). consuming when submitting directly to authorities. to reach into your network.” Therefore Australian businesses may prefer to engage a Your business scope should be clearly defined early on consulting company which has more in-depth procedural https://www.managechina.com in the process, as it is what will appear on your business knowledge to submit the application. licence in China. Your business can conduct activities in China only within its business scope. Keep in mind that Country starter pack Country starter pack 44 45 Getting started in China Getting started in China

must be leased for future business before beginning the share the profits, losses and management of the venture. WFOE application process. It is recommended that a For foreign investors, there are two major reasons for clause be added to the lease voiding the contract without choosing to establish a JV; these include government penalty should the WFOE application be rejected. requirements for specific industries, and the local Advantages and disadvantages of using a wholly partner being in a beneficial position to assist with foreign-owned enterprise: The WFOE’s investors must pay 20 per cent of the market knowledge or established networks. It is strongly registered capital within three months of the business recommended that you consult with the foreign partner licence being issued, with the balance due within two of an existing JV in order to better understand the Pros years. The minimum legal requirement is RMB 30,000 if advantages and disadvantages of the structure before the WFOE has two or more investors, or RMB 100,000 progressing to establish a JV. Due diligence is essential in It allows for complete control over It is a more effective means of if the WFOE has only one investor. But this does not deal choosing the correct partner. See Chapter 4 for further business decision-making, without protecting technical information and with the issue of local authorities, who assess on a case- information on due diligence in China. considering a Chinese partner. trade secrets. by-case basis whether to grant the activity based not only on what it is to do, but also the amount of registered There are two types of joint ventures in China – equity capital. Hence, in more-developed Tier 1 cities such as joint ventures and cooperative or contractual joint Shanghai, it is preferable to invest a larger initial capital ventures, which differ predominantly in the ways in which It can formally engage in business It allows full authority over staffing. sum. Either way, the amount is then written into the profits and losses are distributed. Like WFOEs, JVs must activities; issuing RMB invoices to company’s articles of association. pay 15 per cent of the registered capital of the venture clients and receiving RMB revenues. within three months of the business licence being issued, Joint venture (JV) with the balance due within the first two years. The same A joint venture (JV) is created through a partnership minimum investment requirements and consideration by Profits can be converted to foreign It can engage in product sales both between foreign and Chinese investors, who together the Government apply to JVs as WFOEs. currency for repatriation. domestically and internationally.

ESTABLISHING A WHOLLY FOREIGN-OWNED ENTERPRISE In many cases, it requires only one It requires only one investor, who can be director (although there may be of any nationality and reside anywhere additional directors required in some outside of China. Corporate investors are Step 1 cases), who can be of any nationality also permitted. Get a business license Establish the business scope and check against the Foreign Investment Industries Guidance Catalogue and reside anywhere outside of China. two-three months*

Apply for business licence: rent premises, register name, perform environmental assessment Cons Get approval from the ministry of Commerce Establishment is complex and Incorporation is expensive: 15 per time-consuming, with approvals cent of the investment is required required by multiple authorities. within the first three months. Step 2 Register with government bureaux and Create chop, register with Public Security Bureaux other parties two-three months* Register for tax, foreign exchange, enterprise type, import/export (if required) All applications must be submitted in Mandarin and in profit-making business, and manage the business in additionally can be written in English. Documents in both its own way while also allowed to create subsidiaries. A languages shall have equal validity. Approval permits are business license is usually issued for 30 years with shorter Open two bank accounts: one for regular trading, the other to remit currency usually issued within one month of application submission. or longer terms allowed as well as extensions.

Wholly foreign-owned enterprise (WFOE) It is critical that both the business scope and total investment are accurately defined at the initial Inject capital into regular trading account A wholly foreign-owned enterprise (WFOE) is a limited application phase to receive government approval as, liability company that is entirely funded by one or more once established, the WFOE is legally obliged to remain foreign entities. WFOE is the most popular business within the parameters of its business scope and meet its Re-register business account (so-called “five in one”; this will update the regu- structure chosen by foreign investors as it permits the financial commitments. lators) most freedom in business management. A large amount of capital is required to establish a WFOE but the benefit is The process of establishing a WFOE in China generally that it creates an independent legal entity that can engage takes between three and four months. An office space Establishment Complete Total time: : allow six months*

Source: Asia Briefing and Asialink Business analysis *General estimation Country starter pack Country starter pack 46 47 Getting started in China Getting started in China

Equity joint venture (EJV) Foreign-invested partnerships (FIPs) An equity joint venture (EJV) is the second most There are two other foreign investment options that common structure used by foreign companies to enter you may consider for setting up a business in China. Areas to consider when setting up a business in China: China and is usually preferred by Chinese regulators and Foreign-invested joint stock companies (otherwise businesses. EJVs are usually established to exploit the known as foreign-invested companies limited by shares) market knowledge, preferential market treatment and are not very common in China and tend to be for larger STARTING OFF CONSTRUCTION PERMITS ELECTRICITY CONNECTION the manufacturing or service provision advantages of the organisations. The other is the recently introduced Chinese side, and the technology, market access and foreign-invested partnership (otherwise referred to as know-how of the foreign partner. a general partnership or limited partnership). FIPs have different benefits not offered by WFOE, including a ☑ EJVs usually take the form of a limited liability company set-up process without registered capital verification, tax ☑ which becomes a Chinese legal person. While there is savings, the options of domestic and foreign ownership ☑ no minimum capital nor nationally mandated or fixed (both corporate and individual) and hiring of foreigners. proportion of investment required, usually foreign The challenge with FIPs is the unlimited liability of the It takes four procedures to establish Construction permits can be slow Electrical connection takes partners must hold more than a quarter of the equity, and general partner. a corporate entity in China and an (previously, an average of 155 days on average 34 days and they can then make further investments. The key to an average of nine days to complete. to acquire) but the process was three procedures. EJV is the board and management composition. It can be Establishing holding companies in Hong Kong or Singapore streamlined significantly in 2018. hard to find an organisational structure and shared culture Another option for setting up in China, preferred by some that encompasses Australian reporting and professional REGISTERING PROPERTY GETTING CREDIT PROTECTING INVESTORS Australian businesses, is to establish holding companies requirements, and there are often intellectual property for their Chinese entities in the jurisdictions of Hong concerns; however, an EJV also allows for full access to Kong or Singapore. This permits Australian businesses the Chinese market and the equal distribution of any to partially avoid China’s regulatory environment, which profits. is tougher and has more extensive procedures. Holding companies also allow for a layer of protection between Cooperative or contractual joint venture (CJV) the parent company and Chinese subsidiary from In a cooperative joint venture, also known as contractual potential risks and liabilities. Benefits include: joint venture (CJV), there is no minimum foreign It takes four procedures and nine China is ranked 73th in the world China is ranked 64 out of 190 nations contribution required to initiate the venture, allowing • Tax advantages such as limited tax exposure on days to register property in China. for ease of getting credit. for investor protection. a foreign company to take part in an enterprise where capital gains and reduced withholding tax rates on they prefer to remain a minor shareholder. Investors’ repatriation of profits PAYING TAXES TRADING ACROSS BORDERS ENFORCING CONTRACTS AND RESOLVING INSOLVENCY contributions are not required to be monetary, and can • Relatively stable and sophisticated banking and legal

be ‘in kind’ support such as labour, resources and services. systems in both Hong Kong and Singapore that can > Profit and returns are therefore not based on investment also be used to hold offshore profits earned in China share. Rather, they are divided according to the specific • The ability, if needed, to easily reinvest profits (if held provisions of the joint venture contract. A CJV also allows in Hong Kong or Singapore) into China or expand greater flexibility in the structure of the organisation, into the Asian region management and assets. There is a duration limit for CJVs, although contracts may be renewed subject to the • Easier procedures to sell the Chinese business or Tax obligations are one of the more Exporting and importing a Enforcing contracts takes an average consent of the parties involved and approval from the introduce a third-party partner or shareholder. laborious aspects of doing business container of goods on average of 496 days, on average, costs 16 per examination and approval authorities. The foreign investor So how does China rank relative to other countries for in China, taking an average of 142 requires nine and 24 hours cent of the value of the claim. is also permitted to withdraw all or a portion of their ease of establishing a business? The World Bank in their hours of company time per year to respectively for documentary registered capital from the CJV during the duration of Doing Business Report 2019, have compared 190 nations deal with. compliance. the CJV contract. on 10 specific measures related to establishing a business. ABILITY TO TRANSFER ABILITY TO USE SOCIAL LANGUAGE CAPACITY China was ranked 46th out of 190 economies for ease MONEY MEDIA of doing business. It takes four procedures to establish a corporate entity in China (compared with the OECD average of five) and an average of nine days to complete. Further categories are discussed on the next page.

Chinese companies need to keep Social media accounts need to Writing in Chinese with elegance and monies within a Chinese bank be put in the name of a Chinese fluidity is a challenge beyond even many account, registered to a Chinese responsible person, with a native speakers. Copywriters and editors business entity or responsible Chinese address, ID card and a can be expensive, but almost all service person, with a physical address license from the local internet industries in China will rely solely on the in country. There are significant regulator. Buying an account written vernacular. Your staff’s ability limitations in remitting funds to in someone else’s name can to write and speak in Chinese, and your one’s home office in Australia. rebound. ability to verify their work, is a significant challenge. Source: World Bank Doing Business Report 2019 and Asialink Business Country starter pack Country starter pack 48 49 Getting started in China Getting started in China Chengdu Xi’an (SICHUAN PROVINCE) (SHAANXI PROVINCE)

is a hub for the manufacturing of aviation, space and telecommunication equipment.

Other has developed a reputation for the manufacturing significant of textiles – specifically cotton, wool, satin and manufacturing bases silk. It also hosts the production centres of more can be found in Guangzhou than 260 Fortune Global 500 companies, (Guangdong province), mostly focused in the IT industry. Changsha (Hunan province) and Suzhou (Jiangsu province), an already industrialised city expanding into the production of high-end technologies. INNER MONGOLIA

zhengzhou xi'an

suzhou chengdu

2.4 MANUFACTURING IN CHINA the need for rigorous quality control, possibility of leak changsha of products to the domestic and international market, SHANGHAI China is the world’s largest manufacturer, sometimes production overruns and ethical and corporate socially referred to as ‘the world’s factory’. It has been an responsible manufacturing. zhuzhou attractive destination for manufacturing in recent decades thanks to its low labour costs, technically There are a number of ways for foreign businesses to go guangzhou skilled workforce and good infrastructure. But China’s about manufacturing in China. Contract manufacturing competitiveness and manufacturing profile are changing, is a popular option for both large and small businesses shenzhen with more developed regions moving up the value-chain across various industries. Australian businesses can also and labour-intensive manufacturing moving inland. choose to invest directly in a factory in China, either Businesses are increasingly choosing to manufacture in independently as a wholly foreign-owned enterprise or as China to service the growing Chinese market, rather than part of a joint venture with a Chinese company. For more use it as low-cost option to manufacture export items. information on setting up a business in China, see the previous section 2.3. Advantages of manufacturing in China include access to increasingly sophisticated Chinese research and Location is another key consideration for manufacturing development (R&D) and science and technology, in China, with the Chinese Government encouraging Zhuzhou as well as incentives offered by local, provincial and investment in different types of manufacturing in central government agencies. Another positive of different regions. On the more developed eastern (HUNAN PROVINCE) manufacturing in China are the efficiency gains thanks seaboard, where wages are higher and the infrastructure to larger economies of scale in China. However, rising is better, the Government encourages investment labour costs, skills shortages and intellectual property in high-end, low-polluting manufacturing. Further is known for its Shenzhen protection are significant issues to be considered when inland in China’s central and western provinces, where biotechnology and food (GUANGDONG PROVINCE) looking at manufacturing in China. Other concerns and labour is cheaper and infrastructure less developed, the processing capabilities. challenges when manufacturing in China are the current Government encourages investment in more labour- is a special economic zone and home to the development stage and inconsistency with application intensive manufacturing. Some cities and provinces largest outsourcing industry in Asia. of commercial law in China and variable quality of specialise in certain industries and producing specific It is a major manufacturing base for many of the logistics and infrastructure systems. Using contracted goods. manufactures or subcontractors may also cause serious Zhengzhou WORLD’S difficulties that have to be strictly managed. These include HIGH-TECH (HENAN PROVINCE) COMPANIES is known for the manufacture of including Hewlett-Packard and Sony. With its status as the most advanced textiles, machinery and locomotives. manufacturing city, wages are comparatively higher. Country starter pack Country starter pack 50 51 Getting started in China Getting started in China

CASE STUDY

Michell Wool does this by sending their Australian Michell Wool managers to China to train staff, and bringing Peter Michell, Executive Director Chinese senior management to Adelaide for training and development. This helps create a corporate Expanding manufacturing facilities to countries such culture that reinforces safety. as China not only opens doors to one of the world’s largest markets, it can also ease access to goods Cultural sensitivities can also be problematic in the restricted by Australian import regulations or tariffs. factory environment. “When you’re the foreign boss, Quality control But it is not without challenges, chief among them to save face, they often won’t tell you if something is wrong or if they need help. For this reason it is vital to Quality control is an important consideration when sourcing talent, staff turnover, quality assurance and make the right decisions in front of them so they can choosing to manufacture in China. There have been high- cultural differences. see and follow you as an example,” highlights Michell. profile cases in which poor quality control by Chinese “There have been times where something hasn’t been manufacturers – usually sub-contractors – has caused In 2006, 145-year-old Australian family business Contract manufacturing fixed that was meant to be on my last trip to China, significant problems for international brands, ranging from Michell Wool opened their 14,000-square- and I have had to shut down the whole factory to clothing to toys and food products. Make sure you have metre Suzhou factory for carbonising wool – a in China reinforce the importance of repairing it despite costs. robust quality control mechanisms in place and perform required process to clean the wool. They bought Safety and quality have to come first.” due diligence. See Chapter 4 for further information. Contract manufacturers provide a 220-metre-long machine from a Taiwanese competitor that was closing down, and transported it engineering and manufacturing to mainland China in 86 shipping containers. Retaining staff can also be a problem, particularly services to companies and brands around Chinese New Year when many employees that do not want to own and operate “The Chinese factory wasn’t to replace the Adelaide return to their family homes in western China, and factory, but rather was to increase capacity through don’t always return after the holiday. their own factories. Chinese contract providing access to imported wool from countries manufacturers range in size from the such as France and South Africa, an opportunity not But as years pass, Michell Wool is developing a giant Foxconn to small sewing shops permitted in Australia due to quarantine regulations,” capable workforce. “There was a lot of training in the says Peter Michell, executive director of Michell beginning, but our managers are now becoming a lot in rural areas. Contract manufacturers more affluent and we are hiring more local Suzhou are typically experts in manufacturing Wool. It also moved them closer to one of the world’s largest pools of textile manufacturers – China’s staff than when we first opened as the area develops,” and can quickly adopt your products direct buyers of carbonised wool. says Michell. into their manufacturing lines and Having a good relationship with Australian schedules. The process of establishing and running a wholly foreign-owned enterprise (WFOE) has been government officials in the area, such as consulate challenging at times, particularly due to the different staff, has also eased Michell’s Chinese operation. work ethic in China. “We open our Suzhou doors whenever an Australian official visits, which helps demonstrate to Chinese “In China, don’t assume when it comes to government officials that we are well connected occupational health and safety. The Chinese and respected at home. The guanxi we display from perception is often production first, not safety,” Australia is often as important as our local guanxi.” explains Michell. “Contractors and factory workers are getting used to Western OH&S requirements but you still need to demonstrate how it is done, particularly from the top down.” https://www.michellwool.com Country starter pack Country starter pack 52 53 Sales & marketing in China Sales & marketing in China

How can you sell and market your products (or services) in China? Should you sell online, or through an agent? Should you set up a franchise? What are the labelling requirements? 3. Sales and marketing in China There are many options for getting your products marketed, distributed and sold in the Chinese market, and these will be examined in this chapter.

The most common method for Australian businesses seeking to sell and distribute products within China after selling directly from Australia, is to use agents and distributors located in market. Online sales are also becoming increasingly popular due to lower risks and costs than having a physical presence in the market. Australian businesses are strongly advised to conduct due diligence and careful research, beyond this guide, into the marketing and sales strategies that will best suit their business strategy and objectives. Country starter pack Country starter pack 54 55 Sales & marketing in China Sales & marketing in China

3.1 AGENTS AND DISTRIBUTORS Distributors may carry complementary and competing Contracts lines and usually offer after-sales service. They earn If you are going to use agents or distributors in China, Most Australian firms rely on agents or distributors to Agent: An agent is a representative of the supplier, money by adding a margin to product prices. Distributor make sure you have detailed and well-constructed represent their businesses and sell their products in but does not take ownership of the goods. An agent margins are generally higher than agent fees because contracts in place. As there are no laws or regulations international markets. The roles of agents and distributors is generally paid a commission based on an agreed distributors have larger costs, such as for storage of covering agents and distributors in China, you will have are often confused, so it is important to understand percentage of sales value generated. Agents tend to be inventory. Australian businesses considering a distributor to rely on contracts to define the relationship and the difference between them. The definition and based in China and often represent numerous services in China should note that although in other international enforcement. responsibilities of agents and distributors can also vary or product lines. They may operate on an exclusive basis, markets, a distributor will generally take on the role depending on the country or industry in which you are where they are the sole agent for a company’s goods or and responsibility of marketing, this is rarely the case in Contracts with agents and distributors should: involved, so you will need to confirm their specific roles services in that market, or as one of a number of agents. the Chinese context. Marketing needs to be discussed and responsibilities. The information below is of a general in detail with a potential distributor –confirm if the • Allow you to keep your options open. Agents and nature. It is therefore important to make sure you have the Distributor: A distributor takes ownership of the goods distributor will do marketing and what their role will be to distributors will likely want exclusive access to your role of the Chinese party clearly defined and confirmed in by buying them and reselling them in China, either to market the product. Often Australian businesses find it products, even if they cannot cover the whole the individual agreement (contract) you have with them local retailers or consumers directly. In some cases, the more suitable to engage a specialist marketing firm. country. Agreeing to exclusivity may limit your and not assume they will take on all activities that an agent distributor may sell to other wholesalers who then sell to access to markets. It is recommended not to engage or distributor may generally perform in Australia. local retailers or end users. Choosing an agent or distributor: The most important in exclusivity until there is mutual trust and a track consideration when choosing an agent or distributor is to record of doing business together. ensure that you can establish a close working relationship; • Include escape clauses in case you wish to change you must be able to build high levels of trust and regular agent or distributor and be conservative with payment communication. Before making a final choice, meet with terms. Why use an agent? Why use a distributor? a potential partner in their own market. This allows you to get to know them better and observe their knowledge • Manage risks in areas such as transportation, and presence in their own market. Also ask your potential warehousing and intellectual property. Also include a

> business partner for trade references and consider using mechanism for arbitration in case of dispute. Generally cheaper You can pass a great degree of a professional credit checking agency to confirm their • Set the terms of standard individual sales order. than a distributor. risk onto them. financial stability. • When dealing with distributors establish that you have $ ownership of approved labels after the verification When assessing potential agents or distributors, consider: process. • Do they have good networks and contacts? Do they • Set sales volumes for agents. You have greater control over terms $ A distributor has greater incentive to have guanxi (relationships) with the right people? of sale and marketing, and choice of sell your product as they also have to customers to deal with. cover the costs of holding stock. • What is their experience in that sector? Do they have good knowledge and have they represented a similar product previously? Can they help with marketing? • A well-established company with a good network of Direct contact between Only have to monitor distributor’s contacts may not be flexible or open to your ways of manufacturer and customer. accounts rather than all customers. business. • A young, energetic company will tend to be flexible, innovative and trying to prove its worth. The downside is it may have limited experience or contacts.

Why not use an agent? Why not use a distributor? Many Chinese agents and distributors work for trading companies that are authorised to deal in a wide range of products. Some of the larger companies have offices It may involve tax implications (check the Less control over marketing, terms in other countries, along with a network of offices and TAX relevant laws for that area). of sale etc. affiliates in China. However, large agents and distributors x sometimes manage so many products that yours may not get enough attention.

China’s size and regional diversity also mean you may Maintaining stock inventory can The credit risk is with the distributor ☑ $ need to engage several agents to cover different areas. be costly. rather than with customers. Remember, payments can only be repatriated easily if the goods were imported. If they are China-produced, agents can only repay funds after end-of-year tax has been paid.

An agent may be selling products Distribution agreements regulated by that compete with yours. local competition law. Country starter pack Country starter pack 56 57 Sales & marketing in China Sales & marketing in China

3.2 ONLINE SALES CASE STUDY China has the most Internet users in the world today, with over 800 million reached in 2018, triple the number of Internet users in the US (275 million). China became the world’s largest e-commerce market when its total China’s Leading Online online sales reached USD 409 billion in 2013. This figure then jumped to USD 586 billion the following year, Market Places accounting for 10 per cent of China’s total retail sales. Tmall and Tmall Global In 2018 China's online retail sales was USD 1.33 trillion. https://www.tmall.hk At this rate of growth, China’s total online retail sales are expected to hit USD 2.4 trillion by 2020. Owned by one of China’s leading e-commerce groups – Alibaba, Tmall is China’s largest online Given the rapid development of China’s e-commerce market place with Tmall Global providing access market in recent years, selling online is going to be an for foreign businesses/individuals to sell to inevitable business model for Australian businesses online Chinese consumers. Over 600 foreign regardless of the size and industry. China currently has merchants use Tmall Global which has a specific over 530 million online shoppers, and it is estimated that English-speaking support team. more than half of China’s consumption will be purchased and needed to be sold at a premium. To price online within 10 years. KeepCup otherwise, would encourage the Chinese consumer JD.com and JD Worldwide With a growing number of middle-high income Chinese en.jd.com Katherine Underwood, International to perceive the product as manufactured in China and consequently of lower quality, a perception consumers and their surging demand for foreign products, Account Manager Asia Pacific not valued highly by the target market of specialist overseas online purchasing power in China is also JD.com is China’s largest online direct sales coffee drinkers. expected to be robust. China’s cross-border consumer company, having recently launched JD Many people when they consider selling a e-commerce transaction was USD 220 billion in 2017. Worldwide in Australia in July 2015, it allows product in China think of offering low prices. Having sold over three million cups globally since China is predicted to become the largest cross-border Australians to sell directly to customers in When Australian business KeepCup realised their 2009, KeepCup trusted and listened to their business-to-consumer market by 2020. Currently, 40 China. This platform enables the merchant to distributors in China were selling their products for Chinese distributors keeping the higher price. With per cent of Chinese online consumers engage in cross- have individual online shopfronts with a licence three times the recommended retail price (RRP) the efforts of the distributors, sales have tripled border purchasing. And Australia is estimated to be the to import shoes, apparel, and food and beverage they were astounded and wanted to know why. It in China over the past 6 months with the brand fourth most favourable source of products, following products from Australia. was simple – “Our pricing which is calculated on growing across the country in the last year. the United States, Japan and Korea. To further enhance an index of the local price for a cup of coffee, was Australia’s competitiveness in the lucrative Chinese Others: way too low for China and impacting sales.” says However, as a result of the Chinese economy’s market, it is crucial for Australian businesses to maximise Katherine Underwood, KeepCup International rapid growth, distributors can be sensitive and the use of online sales channels and learn how to do so in • Kaola.com Account Manager for Asia Pacific. worried of losing control of their market. A strong an effective way. • Suning.com and trustworthy relationship with your distributors • Gome.com.cn is fundamental in China but is an ongoing and Established in 2009 as a family business, the Models for selling online 小红书 organisation’s objective is to reduce disposable sometimes challenging process. “You need to make • Xiaohongshu In general, there are five distinct ways of selling your coffee waste through the world’s first barista them feel imperative to your brand and to do so • VIP.com goods or services online. The first is to use Chinese standard reusable cups. Manufactured in from the beginning. They have to all feel reassured social media sales channels, or intermediaries such as Melbourne, and now selling in over 60 countries, that everyone is working together, not against each daigou who use these social media channels. This involve the company recognised the value that locally other.” reinforces Underwood. becoming aware of a product through social media (most producing in Australia could bring, while usually WeChat; but there are also others) — this can However, establishing your own website would require allowing them to retain quality and reduce their KeepCup does this by providing along with their either happen through a link being forwarded in WeChat; high IT and set-up costs. Your website will need to be environmental footprint. “It is vital to get your price standard distributor agreements, a ‘Letter of through seeing a friend like or recommend a product; or hosted overseas, or else a trusted partner to host the right, don’t undervalue your product.” outlines Authorisation’ for each distributor, making it through seeing a product being used by another social website; there are significant regulatory barriers to Katherine. “China is an interesting market, on the official with the company stamp which distributor media user. As with Australia, this is often done through Chinese hosting. In addition, your marketing costs may one hand they are price sensitive, on the other, is responsible for a certain Chinese market. so-called ‘influencers’. Your product would require its own be increased as the Chinese customers need to be a lack of trust exists among Chinese consumers “Communication is also key which we do regularly WeChat page, sales channel, and Chinese distributor. specifically directed or lured to your website. This option towards Chinese manufactured goods. There is this with phone calls and using WeChat.” says Often, locals with family or networks in China act as therefore would involve looking for local Chinese partners strong desire for manufactured Western goods, Underwood. “Nonetheless, we need to maintain buyers for Australian goods and, using their own social and offline sales support in order to operate your business particularly Australian.” control of our product from Australia so being reactive to market demands and handling our brand media, send the goods back to China having extracted a effectively. The three Chinese distributors, each focused on a marketing, while setting sales targets to maintain fee (daigou). This is illegal for commercial purposes as of The next is referred to as the business-to-business different type of market – cafe, retail and corporate growth is crucial.” 2019, but is still used regularly for ‘friends and family’. (B2B) model, where you sell your product wholesale to clients, expressed that the product was undervalued The second is to set up your own website in China, one of China’s major e-commerce sites (eg. Tmall or https://www.keepcup.com which incorporates an online store, or to set up a TMall JD.com), which will then manage the marketing, sales or Alibaba module of your own website. This option and distribution to customers from there on in. However, allows you to gain total brand and price control. You are Australian businesses who are interested in the B2B also able to directly communicate with your customers. model should be aware that these large e-tailers may Country starter pack Country starter pack 58 59 Sales & marketing in China Sales & marketing in China

TAILORING YOUR ONLINE SALES TACTICS FOR THE CHINESE CUSTOMER

• The Mandarin term for ‘Sale!’ is: 打折! (dǎ zhé!). heavily discount products on their sites. This often has an adverse impact on your ability to negotiate pricing • Discounts are demonstrated differently in China (both 打折 with bricks and mortar retailers in China, as the identical How to set up a Tmall in store and online). The Chinese advertise a sale price ! product priced lower online will ultimately win market by the proportion of the total price placing 折 (zhé) at share. the end. For example if is 20% off –it is demonstrated DISPLAYING DISCOUNTS IN CHINA Global online store as 8 折. The next option is referred to as business-to-consumer 1. Submit a company and product • Get involved with popular seasonal promotions. 10% - 9 折 60% - 4 折 (B2C), where you would set up an online store within information to the Australian office Key dates include: one of China’s major e-commerce sites. A B2C model - Chinese New Year (generally Jan/Feb) – the 20% - 8 折 70% - 3 折 will expose your product to a greater number of potential 2. Receive an invitation from Tmall Global primary time of the year for gift giving customers than your own website would. However, this (comes through China; around a week) option includes high initial establishment costs. For - Valentine’s Day (February 14) 30% - 7 折 80% - 2 折 instance, a security deposit of up to USD 25,000 on 3. Register an Alipay overseas account (around - Children’s Day (June 1) top of a USD 5,000 annual service fee is required when a week; must be a new account) - Dragon Boat Festival (June) 40% - 6 折 90% - 1 折 establishing an online store on Tmall Global. 4. Sign the agreement with Tmall and pay - Mid-year promotions across all platforms (Mid June) 折 A final option, and a popular one for testing China’s security deposit and service fee (seven to 10 - Mid-Autumn Festival (September/October) – the 50% - 5 e-commerce market is the Business-to-Business- working days). second most popular gift giving time in China to-Consumer (B2B2C) model, which involves selling - Christmas. your product through a third party store, referred to as 5. Register a Tmall platform international PUSH YOUR SALES IN CHINA WITH account. Fill in company and product online supermarkets, on one of the major e-commerce • Chinese consumers tend to prefer to buy large information. sites such as Tmall and JD.com. This model can be very quantities of one item when shopping online so • 2 for 1 deals convenient and low risk as it does not involve high set up multiple item deals can be popular. costs. In addition, this model exposes your product to an 6. List products on online store (content may • Limited time offers need to be translated to Mandarin). Ensure established customer base, allowing you to quickly build • Free delivery is common among major online retailers. • Gift with purchase brand recognition in a new market. that products are listed on your store within 30 days of the signing of the TMall agreement. • Detailed product information (in Mandarin) is generally sought after by Chinese consumers including • Gift packs – especially during peak Online marketing 7. Launch online store. country of origin and customer reviews. seasons e.g. Chinese New Year Cross-border e-commerce trade is booming in China, with a growing number of foreign products and brands • If your product has a strong presence in Australia or flowing into the lucrative Chinese market every day. It is won any type of awards – make sure you promote this therefore increasingly important for Australian businesses Zealand headquarters in Melbourne, Australia in February to build a reputation. to learn how to market their products or services online 2018 as it accelerates expansion in overseas markets • Be aware that if you get customer enquiries – they so that they stand out in the growing competitive market. amid fierce competition from Alibaba Group Holding more than likely will be in Mandarin and will require a Understanding the distinct Chinese e-commerce Ltd and Amazon.com Inc. In addition, Australia Post has Mandarin response. market environment is a critical success factor, as is signed agreements, with both Alibaba Group and JD.com, understanding Chinese online consumers’ shopping specifically aimed at supporting Australian SMEs selling in behaviour. China with end-to-end supply chain solutions. For more CHINA’S BIGGEST ONLINE SHOPPING DAYS information, please contact Australia Post. The Chinese e-commerce market offers immense opportunities but its landscape is very unique. From Search engine marketing (SEM) is an essential form SINGLES’ DAY ‘11/11’ DOUBLE 12 ‘12/12’ internet search engines to online payment systems, the of online marketing in any country, including China. Chinese online consumer has a preferred way to research However, to ensure Australian products can be found • The world’s largest one day online sale – breaking • Alibaba’s new shopping festival – however with a focus and purchase products. online in mainland China, it is important to customise global consecutive sales records since the inaugural on SME business and promoting their products online. your SEM efforts to suit China’s local search engines such Singles Day on November 11, 2009. Alibaba.com is the largest e-commerce company in as Baidu or 360, rather than Google. Google content is • Double 12 was originally promoted on Alibaba’s Taobao China. It dominates the B2B market and its Tmall and often inaccessible within the China-wide government • Originally a university holiday, Alibaba pushed to make and has spread to other online platforms including Taobao websites also enjoy the biggest market share of firewall. Baidu is China's top search engine with an 80 it a shopping festival – now their registered trademark, jd.com, suning.com and amazon.cn. the B2C and C2C sales respectively. Jingdong (JD.com), Singles’ Day generates more than two and half times per cent share of the country's search market in 2018. It • It’s estimated that over two million online retailers the largest online direct sales website in China, is another the amount of sales as the US’s equivalent – Cyber is currently ranked as the fourth most trafficked website take part. major e-commerce platform favoured by Chinese in the world. Australian businesses are also strongly Monday. Sales in Alibaba's site Tmall and Taobao consumers. Tmall Global and Jingdong Worldwide, owned encouraged to have a China domain website which assists reached over USD 30.8 billion in November, 2018 up • In 2014, Alibaba moved the shopping festival to be by Alibaba group and JD.com respectively, allow foreign your page being picked up on Baidu, China’s most popular from USD 25.3 billion in 2017. offline with consumers able to take advantage of sales businesses to create an online store and sell online search engine. However, Australian investors should bear in retail stores by paying through ‘Alipay’ (similar to without a physical presence in China. On 4 February in mind that opening an account on Baidu may take up Paypal). 2017, Alibaba Group opened its Australian and New to two weeks and that a sign-up fee is applicable. Also, Zealand headquarters in Melbourne, aiming to introduce note that the minimum Baidu SEM advertisement credit more Australian brands to China and the world via deposit is USD 5,000, which is valid for one year. Alibaba platform. Currently, there are more than 1,300 Australian brands being sold on Alibaba's Tmall and Tmall Social media platforms are also playing a crucial role Global. JD has officially opened its Australia and New in China’s e-commerce market and becoming a key For more detailed information about selling your product online in China, refer to Austrade’s E-commerce in China: A Guide for Australian Business at https://www.austrade.gov.au/Export/Export-Markets/Countries/China/Doing-business/e-commerce-in-china. Country starter pack Country starter pack 60 61 Sales & marketing in China Sales & marketing in China

PROXIMITY PAYMENT MARKET SIZE IN CHINA 2013-2020

450 500 400 450 350 400 350 300 300 250 250 200 200

150 % y-o-y growth 150 100 CNY bn. constant 2015 rsp 100 50 50 0 0 2013 2014 2015 2016 2017 2018 2019 2020 element of business success today. Instead of Facebook consumers are motivated to buy foreign products online Proximity Payments Growth Source: Euromonitor International or Twitter however, it is critical to use Chinese social as they trust the quality of a product coming directly media apps such as WeChat, Weibo and Youku to reach from the source. Additionally, 22 per cent of them the widest target market. prefer buying from overseas sellers as they believe a ALIPAY MOBILE APP REGISTERED USERS 2013-2017 broader range of products is on offer. On the other WeChat, the most popular Chinese social media platform hand, some disadvantages may include the abundance 550 released in 2011, has grown significantly in recent years. of counterfeit products, low brand credibility, slow 500 WeChat is now the fastest growing chat app in the delivery, bad customer service and the lack of preferred 450 world according to Global Web Index. According to data payment methods. These are factors that may stop released by WeChat in July 2018, 83 per cent among Chinese consumers purchasing online. When it comes to 400 all smartphone users have become daily logged in users. buying online from abroad, the 2018 Google Consumer 350 Approximately 33 per cent of Chinese internet users Barometer also shows that 55 per cent of Chinese 300 surveyed by the Global Web Index in 2016 used WeChat consumers hesitate to buy foreign products online due to 250 to pay for an item, making it a leading platform not only the poor translations. It is therefore good to remember

Users (Million) Users 200 for social networking but also for e-commerce and that price is not the only determinant. Australian direct business-to-customer communications and sales. businesses should consider a wide range of factors when 150 WeChat offers three types of accounts including personal creating their marketing strategies and engaging with 100 accounts, subscription accounts and serviced accounts. today’s Chinese consumers. 50 For promoting your products or services, Australian 0 businesses are recommended to open subscription and/or Online Payment Nov 2013 Oct 2014 Jul 2015 Oct 2016 Dec 2017 serviced accounts where they can create business blogs Together with the flourishing Chinese e-commerce Source: Euromonitor International via Alibaba Group. and online stores. An alternative marketing strategy is industry, China’s online payments market is also booming. to obtain an endorsement of your product by a popular Alipay, with over 900 million registered users, is China’s ALIBABA SINGLES DAY 11/11 SALES: 2011-2018 WeChat user who has more than 100,000 followers. This leading online payment system run by the Alibaba Group. could involve the WeChat celebrity either recommending Alipay’s major domestic competitor WeChat pay/Tenpay, your product or posting a photo or video of it. Such 220 140 owned by Tencent, has also contributed to the robust an endorsement is available for a fee that can range development of China’s third party payment market. In 200 120 anywhere between a few hundred and a few thousand particular, QR code scanning through Alipay and WeChat 180 100 dollars, depending on the popularity of the social media pay mobile apps is considered as a more convenient celebrity. 160 90 payment option compared with cash and credit cards, and 140 80 Effective online marketing strategies in China also require is currently the most used third party payment method a good understanding of Chinese online consumers’ in China. Alipay and WeChat payment systems are also 120 70 shopping behaviour. Clothing, cosmetics, health widely used at bricks-and-mortar retailers including 100 60 major supermarkets and restaurants, making the mobile products and computer hardware are online bestsellers 80 50 in China. Chinese consumers enjoy online shopping payment apps an inevitable tool in Chinese consumers’ % y-o-y growth 60 40 for many reasons. First, more than half of Chinese daily life. With the significantly increasing use of Alipay, day sales (RMB bn) Singles shoppers purchase online because products are offered Tencent Finance and WeChat pay, the third party 40 30 payment market in China achieved a total transaction at a cheaper price. Many consumers also prefer online 20 20 shopping due to the convenience and the abundance value of USD 0.95 trillion for online payments in Q3 2018, representing the foreseeable future of China’s 0 0 of product information. According to the 2018 Google 2011 2012 2013 2014 2015 2016 2017 2018 Consumer Barometer, 54 per cent of Chinese online online payment industry. Alibaba Double 11 Sales Growth Source: Desk Research Country starter pack Country starter pack 62 63 Sales & marketing in China Sales & marketing in China

Cities with cross-border e-commerce comprehensive pilot zones

Dalian

Tianjin

Qingdao Zhengzhou Shanghai Suzhou Hefei

The increasingly convenient Chinese mobile payment logistics provider to transport purchased goods from Ningbo Chengdu system has fuelled online transactions. According to Australia to China. It allows Australian manufactures to Chongqing Alibaba, its mobile revenue was USD 6.4 trillion in exercise greater control over stock levels, giving them Q3 2018, when for the first time, mobile payments more flexibility to redistribute unsold stock, than if the Hangzhou accounted for 80 per cent of the company’s China retail stock was held in a warehouse in China. It also enables revenue. China Internet Watch also predicts that about Australian manufacturers to provide a wide range of Fuzhou half of China’s smartphone users will use mobile payment products to Chinese consumers. A clear disadvantage by 2020. is longer delivery times associated with international Guangzhou Pingtan shipping and complex customs clearance procedures. Online payment methods attract Chinese shoppers not only because of the convenience but also because Under the B2B2C model, Australian sellers would set Shenzhen Chinese e-tailers often offer marginal discounts on up a warehouse in one of the cross-border e-commerce products purchased and paid for online. It’s however comprehensive pilot zones. Foreign goods are shipped important to note that Chinese consumers sometimes into China and stored in a warehouse under customs prefer paying cash on delivery for certain products, supervision, then delivered directly to purchasers in including expensive household electronic appliances China. Compared to the B2C model, this B2B2C and fresh food. This allows them to check the quality of model would reduce delivery time as well as labour costs. the products delivered before payment. Therefore, to However, it is important to test the market with smaller successfully capture Chinese online consumers, offering shipments initially and closely monitor stock levels to preferred Chinese payment platforms and methods is ensure there is no wastage. Most bonded warehouses also critical. charge a fee to dispose of unused stock.

Cross-border e-commerce logistics The two models above receive support from the Chinese government and enjoy use of the integrated customs Cross-border e-commerce logistics can be one of the system which simplifies cross-border trading procedures. most challenging aspects of selling your products to However, it should be noted that Australian businesses China. Two common logistics options used by foreign need to submit relevant documents that comply with the sellers are the direct business-to-consumer (B2C) option Cross-Border E-commerce Comprehensive Pilot Zone: integrated customs system, including purchase orders, and bonded warehouse (B2B2C) option. logistic and payment information for delivering products These pilot zones are exclusively designated for promoting the development of China’s cross-border Under the direct B2C shipping model, foreign businesses to China. In the case of the B2C cross-border shipping e-commerce industry, offering friendly cross-border trading environments, including preferential tax policies, warehouse their stock in Australia and deliver products to model, strict compliance with China Inspection and advanced online financial services systems and streamlined customs clearance procedures. Chinese customers once they have completed an online Quarantine (CIQ) regulations is necessary. purchase. This model involves contracting an international Country starter pack Country starter pack 64 65 Sales & marketing in China Sales & marketing in China Jingdong Mall (JD) TMall Global

Business Model Hypermarket/Online Mall Online Mall Market Share 25.8% 59.5% Focus General Merchandise General Merchandise Estimated Number of users 305.2 million 350 million Number of Products 40.2 million Over 1 billion product and service listings Target Consumers Mainland China Mainland China Entry Requirements • Presence in Mainland China • Presence in Mainland China 0-2 0-2 years years • Operations Location: • Operations Location: Mainland Mainland China or abroad China or abroad • Stock location: Mainland • Stock location: Abroad China or abroad Target Merchants Overseas companies without Overseas companies without Chinese Chinese licences licences Legal Entity & Tax Registration Outside China Outside of China Corporate Bank Account Home Country Bank Account Home Country Bank Account Trademark Any country Any country Setting a recommended retail price for large international brands (eg. apparel and cosmetics) Shipment and Delivery In-house delivery & logistics Overseas Directly to Chinese consumers When it comes to setting a recommended retail price which have the potential to achieve large volume of sales. In contrast, as JD.com dominates the consumer Commission Charge on Sales 5% to 7% plus 0.85% if utilising 3% to 6% plus 1% Alipay fee (RRP) for cross-border e-commerce, Australian JD shipping businesses need to consider a wide range of factors electronics sales in China, it is the more appropriate marketplace for selling 3C (computer, communication, that they may not be familiar with. Conducting a Consumer Protection Fee 1,592 to 15,920 USD 25,000USD comprehensive market analysis and price comparison consumer electronics) products. Australian businesses within the relevant industries is always fundamental to therefore should see beyond the costs and understand Technical Fee 955USD (Standard Annual Fees) 5,000USD or 10,000USD (Standard fixing your retail price. Other factors including logistics the differences between the two in order to choose the Annual Fees) right e-commerce platform. costs, e-commerce platform costs and customs duties Payment methods Tenpay/JD pay Alipay are also essential considerations in setting a profitable yet Customs duty is perhaps the most important factor Ownership Publically Listed Alibaba Group competitive retail price. to consider when Australian investors conduct cross- border trading with China. Keeping an eye on China’s Logistics costs can vary depending on the shipping ADDITIONAL DUTIES FOR CROSS-BORDER E-COMMERCE SALES method. Foreign sellers can either choose shipping or air customs duty is critical as it not only affects your RRP, freight to transport their products to China. It is highly but more importantly, customs duty regulations can Transaction Customs duty Import VAT Consumption tax* recommended that Australian businesses use a good change frequently and sometimes unexpectedly and non- Transaction value < RMB 5,000 or 0% 11.2% (70% of 70% of the customs broker and/or a Chinese freight forwarder as compliance may stop your products from entering China accumulatively within annual quota of RMB the standard applicable rate they may be able to facilitate the most cost-efficient and fulfilling customer orders. 26,000 per Chinese buyer rate) freight rate. As Chinese freight forwarders tend to have relatively wider distribution networks in China, they often Policy development for cross-border Transaction value > RMB 5,000, or The standard rate 16% The standard rate offer competitive deals with sea or air carriers. The type of e-commerce accumulatively over the annual quota of RMB products may also impact the logistics costs. For instance, In January 2019 the Circular on Tax Policy for Cross- 26,000 per Chinese buyer perishable goods would cost more than general cargo and Border E-commerce Retail Imports (E-commerce usually incur more expensive destination local charges. Tax Circular) issued by the Chinese authorities came IMPORT TARIFF RATES FOR ENTRY ARTICLES Australian businesses that are considering transporting into effect. Following the announcement of this new perishable goods to China can seek further advice from regulation, the Chinese government also issued two Tariff category No. Applicable categories of goods Tax rates Food Innovation Australia Limited (FIAL), which works Cross-border E-commerce Retail Lists of Imported with CIQ to approve perishable goods in Australia. For Goods (positive lists) which contain eight categories of 1 Books and newspapers, magazines, and educational audio-visual products; 15% more information, please visit: https://www.fial.com.au. products with over 1300 tariff lines in total. Products on information technology products including computers, video cameras and digital the positive lists including food and beverages, apparel cameras; food and beverages; gold and silver; furniture; toys, games and other As mentioned earlier, selling your products on China’s and cosmetics can be imported into China’s cross-border recreational articles; and medicines. major e-commerce platforms is costly, and this needs to e-commerce bonded warehouse zones or shipped from 2 Sporting goods (excluding golf clubs and related equipment) and fishing tackle; 25% be taken into account when fixing your RRP. overseas distribution centres that are linked to Chinese textiles and textile products; TV cameras and other electrical appliances; bicycles; customs. A flat tax of 11.2 per cent will then be applied Though both Tmall Global and JD.com allow foreign and all other goods not specified as falling under Category 1 or 3 to the final online retail price at the time of purchase. companies to sell their goods online in China, there is On the other hand, for products entering China through 3 Tobacco and alcohol; precious jewellery, gemstones and jade; golf clubs and 50% a big difference in costs as shown in the comparison postal and courier mode, they would be subject to postal equipment; high-end watches; and high-end cosmetics. box below. It is also important to note that the two tax rates of 15 per cent, 25 per cent or 50 per cent e-commerce platforms differ from each other in many *Effective from 1 October 2016, consumption tax on all cosmetics have been either removed or reduced. The depending on the categories of goods. other ways. For example, Tmall Global is more suitable consumption tax for all 'non luxury' make-up and skincare products (ex-VAT price below 10 RMB/ml (g) or 15 RMB/piece) was removed while all 'luxury' make-up and skincare items are subject to a 15% consumption tax. Country starter pack Country starter pack 66 67 Sales & marketing in China Sales & marketing in China

New Regulations for Online Food Safety in China

To improve and enforce China’s food safety standards, the State Administration for Market Regulation (SAMR) issued Measures for the Investigation and Punishment of Illegal Acts Concerning Online Food Safety (the Measures). These new and stricter rules entered into force on 1 October 2016.

The Measures seek to clarify the Food Safety Law implemented in 2015, by identifying the specific obligations that both online food trading platform providers and online food traders are required to comply with. New obligations include:

Online platform providers* Online food traders • File with the State Administration for Market • Obtain food operation licences. Food Regulation (SAMR) and obtain the filing number manufacturers and catering services that possess within 30 business days of receiving approval to a food operation licence are not required to sell online. obtain an additional licence to sell online. • Maintain adequate technological capacity • Display business, food manufacturing and/or including data storage, backup and restoration food operation licence on their websites. Online technologies to ensure the reliability and security food traders who sell health food, food with and piracy). Several changes have been introduced in are difficult to falsify or use features that enable your of online food trading data. special medical purposes and infant milk powder the new law, such as defining e-commerce regulators, consumers to easily recognise your products and identify • Retain trading records and information for at should also display their products’ registration providing insurance for consumer fraud, strengthening whether other products have been tampered with. least six months from the quality guarantee certificates. IP protections, and regulating against unfair competition. period of a product and for at least two years for • Use proper storage and transport logistics for Online providers themselves, perhaps reading the tea 3.3 DIRECT SELLING products with no specified guarantee period. foods that require special storage conditions leaves, have also implemented their own measures, including fresh-keeping and refrigeration. including innovative IP escrow services. Making direct contact with buyers and end users is another option for selling your product in China. As regulations change constantly at this stage, Australian Although low cost and relatively low risk, direct selling is *Including both third-party online food trading platform providers and food manufacturers trading through self- investors are advised to closely monitor any potential not an easy route to market because of strict regulations built and managed websites. policy changes and make sure to seek professional advice that constantly change. Until recently, direct selling was According to the released Measures, online platform providers will receive a warning from the SAMR if they before selling online in China. illegal in China due to widespread pyramid schemes. fail to comply with the new obligations. Fines ranging from RMB 5,000 to 30,000 can be imposed when they Under the relevant laws that now permit the practice, ignore the warnings. IP and brand protection only certain types of products can be sold directly. These E-commerce is becoming an increasingly effective way include cosmetics, cleaning supplies, health and exercise For more information please refer to the Measures for the Investigation and Punishment of Illegal to promote and sell your products in overseas markets. equipment and small kitchen products. Seek professional Acts Concerning Online Food Safety, the Chinese official document at: http://www.sda.gov.cn/WS01/ Intellectual Property protection however can be advice if you are considering direct selling in China which CL0053/159060.html or seek assistance from professional advisors. challenging. E-commerce based businesses can easily be can also assist you to understand Chinese tax and import affected or paralysed if the company’s business name or duties requirements. trade mark is stolen or pirated. Australian businesses are The benefits of doing it yourself include eliminating Understanding and following China’s new rules for These regulatory changes are designed to improve the advised to register their trademarks and domain names middlemen and gaining a better understanding of buyers’ its cross-border e-commerce industry is critical for reliability and maintain the creditability of cross-border at an early stage as the process of securing trademark or end users’ technical needs and an ability to customise Australian businesses. For instance, to make the cross- e-commerce trade in China. Increasing the accountability protection can take from 15 to 24 months in China. It is accordingly. However, not having a physical presence border trade more transparent, China Customs launched of cross-border e-commerce retailers, improve online always safer to oversee the trademark process yourself in the market can make it difficult to conduct direct an Unified Import Information System, which requires product safety and customs efficiency are the main rather than delegating this to your distributor. You should sales in China. Some Chinese clients will not always be cross-border importers to submit digital documentations reasons for these changes. The rule changes on cross- also protect your trademark both in English and Chinese, prepared to do business with a company that has no local including orders, payments, and logistics in order to border e-commerce should be considered as a positive including any alternate local names or colloquialisms presence or representation. Companies in China that obtain Customs clearance. Another important rule is that development, with Chinese authorities seeking to referring to the product. Keep in mind that the Chinese have successful direct selling strategies tend to employ fresh food including fruit, seafood and milk can only be strengthen the cross-border e-commerce system. As trademark can be rejected if you use names that are a high number of direct sales agents who cover diverse sold through a bonded warehouse zone as these products such, staying patient would be a key to success for foreign considered too common or words with an intrinsic geographical areas. Be aware that selling directly to end are subject to stricter quarantine inspection. In addition, businesses. meaning. Australian businesses are advised to obtain users involves being responsible for all market research under the E-commerce Tax Circular, products including professional legal advice when protecting their intellectual China implemented a new e-commerce law from 1 and marketing, distribution, shipment, warehousing and infant formula milk powder, infant formula food, food for property. For more information regarding IP protection in January 2019. The new law ‘extends legal protection delivery, customer and after-sales services and the sales special medical purposes and health food are also required China, please see Chapter 5. to follow China’s Food Safety Law. In particular, infant for consumers and brand owners’, and is, in conjunction order, billing and collection processes from Australia. formula milk powder and health food that is imported with changes to the foreign investment regime, the next Creating a high level of brand recognition and consumer

for the first time to China are required to register with step in fighting against charges of providing fake goods. awareness is a good way to protect your brand overseas. China’s State Administration for Market Regulation (It will also help Chinese businesses, as they themselves You should also use Google Alerts to monitor unauthorised (SAMR). seek remedies from losing money through counterfeiting use of your brand. You can create innovative labels that Country starter pack Country starter pack 68 69 Sales & marketing in China Sales & marketing in China

• Brand awareness: Chinese middle-class consumers place strong significance on brands, particularly luxury brands. Status is a key factor – many people will buy luxury goods not because they necessarily like them, but because they are representations Most popular Chinese of success. Make sure to have a specific strategy focusing on brand localisation, brand building and social networking sites awareness creation. New entrants to the market with a recognised brand may wish to consider a product and apps: launch or media conference to announce their arrival in China. Weibo – similar to Twitter – 431 • Price consciousness: Price is an important million users consideration for Chinese consumers, particularly at the lower middle-class and lower income levels. As Qzone – social networking site – 638 opposed to status items on which Chinese consumers million users are willing to spend more, non-status items are likely to be chosen based on price. This can impact on QQ – instant messaging/social even well-known brands, whose makers may have to network – 868 million users develop a lower cost alternative to their most popular Weixin/WeChat – instant messaging/ products to address China’s price sensitivity. social network – 1000 million users • Demographic dynamics: In addition to vast variation in income levels across rural and urban areas, China’s Sina Blog – biggest blog service in household consumption has been impacted by the China, with 445 million registered previous one-child policy. Single children are often users including many celebrities Australian exporters may sell directly to Chinese retailers 3.5 MARKETING lavished with attention, consumer goods and high- or retail chains when consumer products are involved. RenRen –social network similar to quality food. This is producing strong demand not To do business this way, Australian exporters must travel China became the world’s second largest consumer Facebook – 257 million users only for imported and ‘safe’ food items such as milk to China and make contact with retailers. This should market in 2014 and has by some measures now overtaken formula, but also high-status goods for children. be supported by direct mail material such as letters, the United States as the world’s largest consumer market. Youku and Tudou – video sharing Younger Chinese consumers are also more willing to brochures and catalogues. There should also be follow-up But it is a complex and diverse market, one with a wide portals similar to YouTube. spend than their parents and grandparents, making contact with retailers to ensure they know your products array of different tastes and preferences, all of which them the driving force behind the Chinese consumer Dianping – China’s largest restaurant well and can sell them effectively. The retailer may have it is vital to consider for marketing strategies and even market. They are driven by peer perception, and review website, similar to Yelp input on the development of products, pricing and your products. In addition to intense competition from are regularly informed of new trends through social marketing. Selling directly to retailers generally reduces both domestic and international companies, you must media. Market segmentation and positioning is commissions, reduces travel and reaches the market consider the diversity of cultural backgrounds, differing therefore crucial with marketing strategies tailored to more effectively. You can also use an agent or distributor levels of wealth and sophistication, and the sheer size of the specific targeted group. to get your products to a retailer. both the population and land mass. But against that, there Useful information at the city and provincial level, such are also commonalities: a common written language, • Logistics: China is still a developing country with as main industries and GDP per capita, is available from 3.4 FRANCHISING almost ubiquitous use of one or two social-media tools a less developed logistics capacity than Australia. the Hong Kong Trade Development Council. For more and internet ecosystems, and finally access to highly More limited infrastructure in some poorer regions information visit its website and follow the link ‘Retail For Australian brands looking to bring their goods and sophisticated online payment and delivery services, may cause delays in getting goods to markets and Hubs’: http://www.hktdc.com/en-buyer/. services to China, franchising is a popular and proven available almost everywhere. consumers. This should be considered when deciding expansion technique. Franchising provides access to local where and how to sell in China, particularly for Trade shows and exhibitions: An effective way to reach capital and local knowledge of consumer habits, retailing The best way to deal with the complexities of the perishable items. potential new customers is to visit one of the many Chinese market for marketing and advertising purposes practices and real estate opportunities. Franchising Given the size and diversity of China, it should be trade shows and exhibitions that are frequently held is to invest in and hire local knowledge. Both Chinese has become very popular in China, particularly in the viewed as a series of markets, each with thousands of across China. Although consumers may come to look and international companies specialise in marketing in food and beverage industries and in retail and business different outlets for goods and a broad mix of channels, at your product, you still need to persuade them to buy China. A comprehensive marketing plan is required that services. Franchising regulations are relatively new and including large chain stores such as Walmart, traditional it. You should have your sales and product literature and considers core elements such as your brand, stakeholder are continually evolving, so you should seek legal advice trade (local mum-and-dad stores), and on-premises technical specifications translated into Mandarin when management, public relations, media (including digital and before setting up a business as a franchise. (restaurants, schools, and internet cafés). Be aware advertising in trade journals, participating in trade shows social media), and your product/brand value proposition. that different regions have different tastes. Eastern or organising technical seminars. It is also strongly advised Australian businesses looking to franchise in China must: Be aware, however, that you will need to continually cities such as Nanjing and Shanghai, for example, have to have a bilingual representative or interpreter at your reassess your marketing strategy and plan. The Chinese more sophisticated and educated consumers with high stall, and a senior representative of your business. This can • Be a business with a registered trademark or patent. socioeconomic environment is constantly evolving and incomes and a desire for the latest trending items, relative establish your reputation and trustworthiness in the eyes • Have two directly operated outlets running for over a expanding, which in turn impacts on consumer choices. to western regions with the lowest income levels and of Chinese consumers. year. This is referred to as the ‘2+1 Requirement’. The You should be particularly mindful of factors including: underdeveloped transportation infrastructure. two outlets do not have to be in China. Country starter pack Country starter pack 70 71 Sales & marketing in China Sales & marketing in China

Product and service adaptations: You may need to characters are written, also known as calligraphy, is an 3.6 LABELLING REQUIREMENTS adapt your product to meet Chinese preferences or important consideration when communicating to a requirements. Adapting to local regulations, tastes and Chinese audience. Be aware that calligraphy is covered by China has strict rules for product labelling, particularly cultural preferences vastly improves your chances of intellectual property, which can cause issues. when dealing with food safety. Labelling requirements success. vary between two primary product categories – food and Australian businesses should aim to have names with beverages (which have to meet regulations of the Food Brand marketing and advertising: Chinese language, auspicious meanings, such as longevity, good health, luck, and Safety Law), and non-food and beverage (which have culture and symbolism need to be considered when happiness and wealth. Given the different symbolism, to have China Compulsory Certification). marketing and advertising in China. Your company or writing system and cultural nuances, you should consider product name may have an embarrassing or negative engaging an advertising or marketing company that has The inspection of import labels is the responsibility meaning when directly translated into Mandarin. This had success in China. of China Inspection and Quarantine (CIQ) offices can have a substantial impact on sales, with customers, at the port of entry. Requirements often change and distributors and agents all avoiding your product. Seek Advertising is subject to significant regulation in China. can be complex to interpret. Australian exporters are professional advice when translating your business or Advertisements must "be good for the physical and encouraged to re-confirm labelling requirements and product name into Mandarin to avoid these problems. mental health of the people" and "conform to social, other product certification with their importers in China public and professional ethics and safeguard the dignity or relevant departments, prior to dispatch of goods. You Symbolism is strongly emphasised in Chinese culture, and interests of the state". It is recommended you engage must get labelling verification from CIQ before packaged with meanings associated with numbers and colours. experienced China specialists as the laws governing goods are imported or distributed in China. The process Colours red and gold and numbers 8, 6 and 9 are seen as advertising can be applied inconsistently throughout should take one to two weeks. positive whereas black and white and the numbers 4, 14 China. and 24 are viewed negatively. Items required for labelling verification are: China Compulsory Certification (CCC) How to advertise and use media: In addition to seeking China Compulsory Certification (CCC) is a mandatory The Chinese writing system also poses challenges and guidance from a local advertising company, Australian • Completed application form of Import Food certification system for a wide variety of products opportunities for marketing your business or product businesses should also consider Chinese-language Labelling Verification exported to or sold in China. As the statutory safety in China. The Chinese writing system is based on publications to promote their products and services. • An explanation of the original English label in certification, the CCC mark informs Chinese consumers characters representing words and ideas. How Chinese Chinese. The National Standard of the Labelling of that a product has met the minimum safety requirements. Foods (GB7718-1994) states that the label should Manufacturers are required to obtain the CCC mark include: before exporting to or selling products covered in the - Certificate of origin CCC catalogue in China. If your product does not have - Registration information and qualifications of the CCC mark, it may be held at the border by customs distributors or dealers and be subject to penalties. - Samples of Chinese label Category Name The Certification and Accreditation Administration - Product sample for inspection. (CNCA) is responsible for administrating the CCC mark and the China Quality Certification Centre (CQC) On the Chinese label you must include: TV News National level: CCTV; Xinhua News Agency handles the CCC mark application process. There are 23 • Name, trademark and country of origin of the main categories of products with 214 kinds of products product listed. These include such items as toys, agricultural machinery, small power motors, automobiles and related • Ingredients, storage instructions and usage General National level for the government: People’s Daily, Reference News, components, and decoration and fitting products. The instructions Newspapers Guangming Daily CCC catalogue is regularly updated so check it often to • Net weight, solid content and batch number find out if your product requires a CCC mark. National level for the public: Southern Weekend, Global Times • Name, address and telephone number of manufacturer and packer or distributor Whilst you can manage the CCC mark application Business/ Economic Observer, 21st Century Business Herald, China Business yourself, it is advisable to seek assistance. As with most Economics News, Economic Daily • Production date in Chinese date order (year/month/ processes in China, seek advice from those who have in- Newspapers day), and storage period (year/month/day) or quality country experience. Agents and consultants will be able guarantee. to assist you, or you can ask your Chinese partners for help. Alternatively, your importer or distributor may take Business/ Caijing Magazine, CBN Weekly, China New Century Weekly, Caixin – Always consult closely with your importer or distributor. responsibility for managing the CCC mark process. Economics China Economics & Finance China utilises the GS1/EAN numbering and barcode Magazines standard. For more information visit https://www.gs1au. org. English China Daily, Global Times, (South China Morning Post and Shanghai Newspapers Daily are available in Hong Kong and Shanghai) For details about wine export standards from Australia to China, visit the Australian Grape and Wine Authority website: https://www.agwa.net.au. For further information about the import regulations specific to food, refer to the Online WeChat news, Toutiao, TikTok (video news) relevant authorities. Media Country starter pack Country starter pack 72 73 Conducting business in China Conducting business in China

Having chosen your strategy for establishing your business, you must consider how to conduct business in China. This includes understanding Chinese business etiquette 4. Conducting business in China and culture, developing business relationships, choosing business partners, negotiating, holding meetings and carrying out due diligence.

4.1 CHINESE CULTURE AND BUSINESS ETIQUETTE The Chinese are strongly influenced by Confucianism, which emphasises respect for education, authority and age. Although modern urban Chinese may not adhere to Confucian principles as rigidly as previous generations, these principles continue to underpin many customs and business practices. The deeply rooted importance of family and respect for parents is still very apparent today. The Chinese have a saying: fù zhī guò (父之過) meaning it is not your fault, but rather placing the blame and therefore the shame on your parents. However, the significance of the opinions of peers is growing, particularly with the one-child policy generation. This also ties in with China’s ‘collectivist’ philosophy, which emphasises relationships, looking after each other, sharing responsibility and that everyone is a part of a hierarchy. The need to belong to and conform to a unit – a family, a political party or an organisation – is a fundamental element of modern Chinese culture. This often translates into the Chinese business culture, in which people highly value positions of authority, the maintenance of harmony via saving face, and the feeling of belonging in a workplace that is comparable to a family environment.

Building good business relationships and trust are very important in China, so expect to spend plenty of time at meetings and banquets with your potential business partners. Often these will be done out of business hours with karaoke (KTV) being a favourite medium for developing relationships or at business dinners. Chinese business people prefer to establish a strong relationship before closing a deal and never start a discussion or meeting by getting straight to the point about business. Like other East Asian cultures, the Chinese like to develop a personal connection first. So expect to be asked, and to ask questions, about family. Try to find a connection with your Chinese counterpart and make a note to remember it. For example, if they have a son, remember his name and ask each time you see them how he is. Country starter pack Country starter pack 74 75 Conducting business in China Conducting business in China

Greetings and titles: A handshake is becoming the business dress or a suit with a blouse (not low-cut and, in standard way to greet men and women in a business the case of skirts, not too short). In summer, however, it is setting, whatever their age or seniority. Note that the more acceptable for men to wear sports coats, with slacks Chinese respect their elders and an extra display of and open-necked shirts being generally suitable. Women Key success factors courtesy in the presence of an older person will go should avoid wearing heavy makeup, exposing their backs, Tips down well. Often people will slightly nod or bow their wearing shorts and having excessive jewellery. for conducting business heads when shaking hands, particular with senior people. Business cards are then generally exchanged before Guanxi: Often translated as “connections”, “relationships” seating. or “networks”, none of these terms do justice to the in China fundamental and complex concept of guanxi and its When meeting Chinese business people, it is also useful central role in Chinese culture. Guanxi can also be used • Learn and understand the culture to know some Mandarin. Simple phrases such as: nĭ hăo to describe a network of contacts, which an individual can • Having a Chinese person’s perspective and (hello, for all times of the day) – or nín hăo for someone call upon when something needs to be done, and through 名片 insider knowledge is valuable older, and saying xièxie (thank you) and zàijiàn (goodbye) which they can exert influence on behalf of another. • Be adaptable and have flexible plans if can go a long way. Be aware that surnames are placed first These networks can have a direct impact on conducting things don’t go your way e.g. Mr Yao Ming should be addressed as Mr Yao. Married business in China, including market expansion and sales • Research everything – location, women tend to keep their maiden names, so don’t assume growth. Maintaining open 'bureaucratic relationships' Present your business card by holding it in both competitors, the market, business partners, that their title is Mrs. If you are introduced to a woman can also help businesses set up with minimum delays. hands between your thumb and index finger negotiation plans as “Zhen Xiao” it is best to refer to her as Ms Zhen unless But it can also bring challenges. For example, some otherwise directed. legitimate guanxi building may lead to corruption, such at the top of the card. If you have it translated • Build relationships with key decision-makers as the awarding of a contract to someone in guanxi into Mandarin - have that side face up. • Practise due diligence. Business cards: Míng piàn (名片) are essential when networks instead of the bidder with the best qualification. conducting business in China and must be handled Australian businesses might understandably struggle to with respect. You should have your card translated into integrate guanxi into their business practices. The key is Mandarin on the reverse side as well as having a Chinese to remain diligent and be aware that the reciprocal nature • You may be applauded when you first meet mobile phone number. It is also becoming increasingly of guanxi also dictates an informal obligation to 'return the your Chinese contacts. This is common Chinese cultural popular to have your WeChat name listed (WeChat is a favour'. in Chinese greetings and should be Chinese phone app incorporating calls, texting and social reciprocated. values to note when media). Make sure your business card also emphasises your title and that you take plenty of them – it is not 4.2 BUILDING RELATIONSHIPS • If you are asked "Have you eaten?" you doing business: uncommon to give out tens of business cards in one night WITH THE CHINESE are not being asked if you are hungry, but at a networking event. rather "How are you?" • Relationships: The need to develop and Investing in relationships is critical to succeeding in China. • Don't use red ink when writing as this maintain relationships is essential in all The strength of business relationships can determine The Chinese place a strong emphasis on symbolism. It implies you are severing ties. contexts, including business dinners, emails, is therefore important to ensure that your Australian many aspects of commercial life, including gaining credit, meetings and negotiations. business card uses appropriate colours, and when procurement and contracting, and the timeliness of • The number eight is considered the luckiest bureaucratic processes. Investing in business relationships number whilst the number 4 is considered • Hierarchy and respect: People are valued choosing your Chinese phone number – make sure to often involves large amounts of face-to-face time with a unlucky due to it sounding similar to the based on their title and seniority. Show choose one that has minimal 4s and plenty of 8s. Red and gold signify good luck and wealth, and are therefore person of similar age and status, with a strong emphasis word for death. respect at all times. on loyalty and trustworthiness within the relationship. popular on business cards. • Direct questioning is common in China so • Guanxi: It’s all about your relationship with Australian businesses should also explicitly consider the don’t be offended if you’re asked how old someone. Don’t ask a favour without giving When presenting your card, do so with both hands impact of age, gender, educational and marital status on you are and how much money you make. one in return. holding the card in between your thumb and index finger at the top of the card with the Chinese face up. Never the formation of personal and commercial relationships Privacy, especially of one’s personal life, is • Loss of face: Encourage harmony and place the business card in your pants or skirt pockets, in China. For example, younger people are often generally not practised in China. maintain face by complimenting others. excluded from decision-making processes in China, and even if it is in your wallet in your pants pocket – this • Draw on the informal personal relationships Never publicly criticise anyone, refer to are expected to defer in language and attitude to older symbols that you’re sitting on the person. Instead, spend you have with local cultural informants to their mistakes, show anger or disagree with people. a few moments examining the business cards, providing understand the hierarchy. a superior. positive feedback with a smile and exclamation of perhaps General knowledge of China: Relationships can be • Observe who are the key decision-makers • Trust: It is built through personal the title. Then place the card either in your chest pocket aided and built by some general knowledge of China from the Chinese side in meetings or connections. Be open and don’t be or in front of you at the table (putting it away at the end and its culture; it can assist to establish an immediate negotiations by who walks into the room concerned if your Chinese partner is of the meeting either in your chest pocket or business connection to a new Chinese contact. For example, an first, who opens the discussions in the interested in your personal life and card holder, as long as it is not put in your pants pocket). ability to demonstrate knowledge of Chinese geography meeting, who sits in the middle of the table discusses it in business meetings. Dress code: Conservative, unpretentious and modest when someone tells you where they were born could and who the delegation defers to. clothing should be worn in China, particularly in the immediately give them more trust in you and lead to business environment. Avoid large, flashy or otherwise them being more open in communicating than they loud accessories. Conservative professional attire is otherwise might be. Travelling around China to develop expected in the business setting, although this can differ a connection with the country could therefore serve you depending on the season and the city. Men should well in a business context. generally wear a suit (with tie) and women should wear a Country starter pack Country starter pack 76 77 Conducting business in China Conducting business in China

Formal introduction: With the emphasis on guanxi, dinner at a business contact’s house (which is generally a CASE STUDY Chinese prefer to do business with people they have reserved honour) – arrive on time, remove shoes before a personal connection with. It can help if you are entering and take a gift. Karaoke venues normally have a introduced to a prospective business associate through good selection of English songs, and almost everyone is an intermediary. The higher the social status that your expected to sing and give a performance. Businesswomen connection has, the more successful you are likely to be attend such events but spouses are not usually included at being introduced to the right people and key decision- in business entertaining; however, business people may makers. bring their secretaries.

Conscious effort: Relationships in China are more trust- Dining is commonly used to gently probe positions oriented and personal than relationships elsewhere, without any formal commitment. Business is generally therefore a conscious and continued effort is required not discussed during meals; the focus is rather on to develop and maintain them. It will require frequent building trust and relationships. However, business may visits, almost daily communication (preferably CEO/ be discussed if your Chinese counterpart initiates it. company director to CEO) and plenty of socialising. Business breakfasts and lunches are becoming more Always stay at least one night in each Chinese city where popular in parts of China, but they are generally seen as you have a meeting to allow for social events. After you less important than dinners. So if you want to impress have established your business, you should still send the your Chinese counterparts, ask them to dinner. If you most senior executive you can to conduct business in attend a working lunch, be aware that they are more China to avoid insult and to nurture and sustain positive formal than in Australia and are more similar to an relationships. Australian dinner meeting.

Gifts: Giving gifts is an important aspect of doing business The Chinese are great and generous hosts, often putting and building relationships in China. Australians should on 12-course banquets to welcome foreign business provide at least some overtly ‘Australian’ gifts, such as toy guests and having frequent toasts. Foreign guests koalas. Gifts that have your company emblem will also should reciprocate the meal near the end of their visit. be well received. Gifts should be given and received with Invite everyone with whom you have dealt with. Hosts both hands and should not be opened in the presence of are generally expected to pick up the bill for dinner or Orient Group the provider. It is wise to carry several gifts with you on other entertainment, however, as a guest, you can insist your trip to China for unexpected meetings. on paying the bill a couple of times, but know when to Christopher Neil, Managing Director give in and offer to pay the bill next time. Always arrive When you receive a gift, you should generally reciprocate exactly on time; arriving early might suggest that you are Speaking the local language – whether a few words Neil is a 20-year veteran of the Chinese business with a gift of a similar value. Therefore, try to avoid giving hungry and could cause loss of face. Seating is also very of Mandarin or simply understanding the Chinese world and says Australians entering the market expensive gifts that will make the receiver feel obliged to important. The guest of honour is always placed at the way of doing business – is a huge advantage need to seek good advice, team up with the right reciprocate. Gifts are best wrapped in bright colours such head of the room facing the door and should be the first for foreigners trying to move into the Chinese people, and take it slow. “We have a problem in the as yellow or red, not dark colours in sets of four, or red to begin eating or they will tell everyone to start. Leave market, according to Orient Group’s Australian West of trying to get down to business too quickly. writing as these are seen as symbols of death. The same some food on your plate during each course of a meal to managing director Christopher Neil. “I’ve listened It’s important to get to know the people you’re applies to knives and scissors. You should also note: demonstrate your appreciation of the host’s generosity. to so many speeches here in China and someone doing business with, get to know their family and It is bad manners for a Chinese host not to keep refilling • Be prepared to exchange gifts with your Chinese gets up on stage and even if they say ‘nihao’ or a understand what motivates them. If you don’t guests’ plates or teacups. few words in Chinese the audience loves it,” Neil understand them you’re just trying to sell them business colleagues at the initial meeting to prevent says. “They love that someone’s making an effort, something, and you have to have something pretty the business relationship starting off on the wrong You should also be aware that: it doesn’t matter if they make a mistake as long as damn good for them to buy because there are so foot. they’re giving it a go. They really respect that.” many competing products in the market.” • You may want to give a gift from your company to the • The more noise made at dinner demonstrates one’s host company. This should be presented to the most appreciation for the meal provided. Therefore, don’t Orient Group helps foreign organisations entering “You have to respect China and the Chinese, senior delegate. be surprised if your Chinese counterparts slurp their the Chinese market, conducting due diligence, it’s one of most important things, you have to soup or belch. • To give individual gifts to the Chinese delegation – do facilitating partnerships, and also working with be very humble in your approach, and you have so in the order they were introduced to you by. It is • If using a toothpick, always cover your mouth and Chinese companies operating overseas. Its to be patient. It can take some time to get an always best to either give gifts to all the delegation or, never put bones etc. into your rice bowl. Rather, International Properties Luxury Lifestyle division understanding of the market and trust from the if you do not have enough, only to the most senior place them on the table or side plate. offers property investment and immigration market, to build your brand up. person. • Chopsticks are used for all meals – dishes will come services to Chinese buyers. “Australia has a very good image in the Chinese • Older Chinese usually refuse a gift at first to be polite with their own chopsticks to be used to serve the market, a very clean, green, organic image so so ensure you offer a second time. food – do not use your own chopsticks on a shared dish. It is considered rude to tap your chopsticks on you have to market that and trade on that Brand • Always bring a small gift (such as chocolates or cakes) the table, point with them or stick them vertically in a Australia that we have.” for the hostess if you’re invited to a person’s house. bowl of rice. https://www.Orient-Group.org Dining and entertainment: Once you have established • Place your chopsticks neatly on the table or on the relationships in China, you are likely to be invited to chopstick rest when you finish your meal. dinners and other forms of entertainment including • If you’re hosting the meal, order a dish for every golf, nightclubbing or karaoke. If you are invited for person plus an additional dish. Country starter pack Country starter pack 78 79 Conducting business in China Conducting business in China

• No-one leaves before the guest of honour. If you are the guest of honour, you may like to leave shortly after the meal is finished. • Dishes served at home will be done so all at once, with the host placing portions of each on everyone’s plates. Be sure to try each dish as a sign of respect. • Eating rare beef is considered barbaric by the Chinese. • In some parts of China it is considered poor form to serve rice before the end of the meal. It is felt that guests should fill up first on the expensive dishes, and that rice is there at the end if you’re still hungry. But be careful not to eat too much of it if the rice comes at the end of the meal, as this can cause loss of face for your host.

Be prepared to make toasts for all occasions – the first toast usually is done by the host during or after the first course. The guest should reciprocate after the next course. When toasting, you should say ‘Gānbēi!’ which literally means ‘dry glass’ and is an invitation to empty your own glass alongside the person proposing the toast. It is customary for individuals to toast others collectively or individually throughout the meal. If toasting individually, usually the host or chief guest is toasted first, or the person sitting next to you. Making a toast towards lasting friendship is a sign of good faith. As toasts are plentiful, WeChat is also the main way of talking to your customers, Business partners partners, particularly in fields currently being promoted you may choose to toast with a lower alcohol content suppliers and any other member of your broad Chinese It is important to build relationships of trust with Chinese by China as ‘encouraged industries’. These include high- drink if you do not want to drink too much. If you prefer business environment. Relationships and communications partners and maintain regular contact, including going tech, green-tech and new energy, as well as certain not to drink alcohol, make it clear at the beginning of the are mediated and facilitated almost exclusively through to China. Ensuring the most senior executive of the segments of the auto industry. Australian businesses dinner as it is acceptable to toast with tea, water, juice messages, often short-voice messages which are Australian company is available to the China partner may also attract Chinese partners by offering access to a and soft drink. Another option is sipping the drink, rather preferred to text by many. Fulfilment and shipping avoids insult. If this creates difficulty, one way to deal with strong brand or to foreign markets to help their partners than downing it in one, by saying "suíyì", which means is increasingly organised through WeChat, and is far it is to give the individual with the most knowledge on gain a competitive advantage in China or to expand "at your own discretion". If you start drinking alcohol, more efficient due to a sophisticated digital ecosystem. the issues a high-status title. Some Australian businesses overseas. There is a growing focus on emerging markets in you will be expected to continue. As ganbei is a way to Almost all purchasing and browsing happens online. have also found that using Skype or video conferencing, central and Southeast Asia, as well as Africa. build and test comradeship and an important bonding Chinese stores often feel less sophisticated compared rather than telephone calls, has helped them to develop To find the right partner, it may help to have a designated ritual among Chinese businessmen, foreigners will often to the internet. Even very high-end retail stores are trust with Chinese partners. be encouraged to join in. It is common at dinners and moving towards more sophisticated delivery as a point of team including on-the-ground professional advisers banquets for each diner to have three glasses: one for differentiation (Louis Vuitton, for example, offers fancier Chinese entrepreneurs are becoming increasingly and agents to seek out appropriate targets. The team’s beer or mineral water; one for wine; and a small one for delivery but still sells through WeChat). confident and business savvy. They are growing primary functions will include conducting a market a grain spirit, which is what you toast with. Be aware that successfully on their own and many feel they don’t need analysis of players, meeting stakeholders and officials, and báijiǔ a popular Chinese spirit or rice wine, can range This extends to how people pay for their goods. They foreign partners, particularly when it comes to serving the building the relationships necessary to begin discussions between 80-120 proof. It is rare for Chinese women to usually use online wallets such as WeChat or AliPay. This rapidly expanding domestic market. Those that fared well for any deal. drink but it is acceptable for Western women to do so functions by the consumer scanning a QR code/in-store during the last Asian financial crisis can be particularly When seeking partners in China, Australian businesses moderately. payment device with their phone, or clicking through a demanding in negotiations. For Australian businesses, need to think ahead to issues that may occur post-deal link with their phone, and the money is debited. This is these changes can mean that Chinese companies in extremely widespread: even hole in the wall restaurants in finalisation such as local talent recruitment, management Online business and WeChat general are more reluctant to enter partnership or are and retention, and building flexibility and adaptability rural areas usually use QR codes instead of cash. Partly demanding higher priced and higher value deals. Locals It is hard to describe exactly what WeChat is, or how due to the coverage of mobile phones, partly due to the into their business models. Seek out partners that have fundamental it is to everyday life in China. It is the main are also reluctant to give up majority control or a large enough experience in the local industry and familiarity inability to get foreign credit cards, Chinese people buy share of future profits when they feel that their own way your consumers will find out about your product within their own borders/platforms much more than on with differences among local consumers and industry or service: this can either happen through a link being product offerings or business models are as good, if not segments to see how to carry through with ideas. Above any foreign platforms. Even wealthy travellers change better, than those of their foreign investors. forwarded in WeChat; through seeing a friend like or cash rather than use ATMs; but everyone mainly just all, these partners must possess the resources and recommend a product; or through seeing a product being wants to use WeChat. Therefore, to find willing partners, Australian businesses relationships that complement yours. But alliances come used by another social media user. Common WeChat- need to offer more than just deep pockets. These days, with their risks. The importance of trust and regular dependent professions now include influencers; large Chinese companies have numerous alternative sources of communication cannot be over-emphasised. groups (ie. travel groups, trade associations); agents (ie. domestic financing available to them, including domestic daigou or buying for ‘friends’). Marketing occurs through private equity. Australian businesses that offer technology creating content that is heavily forwarded, followed, and or know-how may fare better when seeking Chinese finally, trusted. Country starter pack Country starter pack 80 81 Conducting business in China Conducting business in China

Local government and authorities • Ministry of Finance (MoF) is responsible for CASE STUDY Rules and regulations can be subject to local variations formulating the accounting practices for foreign- in interpretation and enforcement. While regulations are invested enterprises operating in China. introduced centrally in China, enforcement is conducted • National Development and Reform Commission at the provincial and city level. This means foreign (NDRC) has responsibility for overall businesses need to cultivate relationships with local macroeconomic planning and policy. It studies and government officials. While building connections with an formulates policy for economic development. official that goes beyond pleasantries can be helpful for • People’s Bank of China (PBOC) has ministry-level future dealings with the government, be aware that not status and reports directly to the State Council. Its all relationships are immediately relevant to a company’s main responsibilities include drafting and enforcing needs. relevant laws, controlling the money supply, forming monetary policy, and regulating financial markets, Business should not underestimate the value of any one including the RMB exchange rate, the state foreign relationship. Different civil servants have different areas exchange and gold reserves. of responsibility, and they may come into play at any time. You should research the various government agencies to • Securities Association of China (SAC) is a non- determine which ones will have an effect on your business profit self-regulatory organisation with ‘legal person’ interests. Among the bodies that are likely to play the status subject to the guidance, supervision and most important roles are the National Development administration of the CSRC and the Ministry of Bundaberg Brewed Drinks and Reform Commission (NDRC) and the Ministry of Civil Affairs. The members of SAC include securities companies, securities investment fund management John McLean, CEO Commerce (MOFCOM), which both heavily influence the nature and direction of foreign investment into China. companies, financial asset management companies and securities investment consulting agencies. China’s food and beverage industry has been acquired knowledge of the complexities of the The following is a list of the main government agencies • State Administration of Foreign Exchange (SAFE) growing annually by 30 per cent in recent years, Chinese market has led it to consider having several and their areas of licensing authority for Australian functions as part of the PBOC. It is responsible while sales of imported products have been partners across various regions of China. Ultimately, businesses looking to do business in China: for setting foreign exchange policies, making growing by 15 per cent a year. It is clearly a great its distribution network is through a well-established recommendations, establishing/regulating current opportunity for Australian food and beverage Hong Kong distributor with links into mainland • General Administration of Quality Supervision, and capital account funds transfer activities, businesses. Bundaberg Brewed Drinks – maker of China through Fujian and upwards. The experience Inspection and Quarantine (AQSIQ) is the and overseeing the implementation of rules and the popular Bundaberg Ginger Beer – found the has also prompted Bundaberg to become more head authority for supervising quality inspections penalising rules breakers. In practice, SAFE performs potential for success in China irresistible. “China rigorous in due diligence with partner selection in on imports and exports. AQSIQ promulgates a a supervisory function for foreign exchange presented a real opportunity for Bundaberg with Asian markets generally. Values such as honesty, Catalogue of Goods that are subject to statutory transactions conducted by foreign-invested a rapidly emerging middle-class, large disposable strong business ethics and commitment to quality inspection annually. Imports and exports that are not enterprises. incomes and an increasing appetite for imported are crucial. listed in this catalogue may still be subject to random • food and beverage products,” says Bundaberg CEO inspection by local AQSIQ offices. State Administration of Industry and Commerce John McLean. “However, what we learnt the hard It is an ongoing challenge for the executive team (SAIC) is responsible for regulating domestic day- • China Banking Regulatory Commission (CBRC) to-day commercial activities. Foreign representative way is that you really need to take your time.” to find a partner that supports these values from regulates Chinese state-owned commercial banks, among the numerous partnership requests that offices are required to register with SAIC. All joint-stock commercial banks, city commercial banks, commercial entities in China must register with Bundaberg entered the Chinese market in the Bundaberg receives each week. “I want a partner urban credit cooperatives, rural credit cooperatives, early 2000s, taking on a local partner with limited who I would gladly invite to come and stay at SAIC and submit annual or tri-annual re-registration rural commercial banks, locally incorporated foreign documents to local SAIC offices as required by law. research or preparation. The relationship quickly my house as a guest,” says McLean. But many banks, policy banks, postal savings banks, asset proved very one-sided. Bundaberg was unhappy Chinese partners are reluctant to be transparent As part of China's 2018 government administration management companies, finance companies, trust overhaul, the SAIC was merged into the newly- with the partner’s lack of transparency on sales, about local market figures and their major business companies and financial leasing companies. distribution and customer details. Different values, relationships. Another obstacle is the limited created State Administration for Market Regulation business ethics and a lack of control also raised market knowledge of many potential partners. • China Insurance Regulatory Commission (CIRC) (SAMR). concerns. Bundaberg had no input into product Most partnership requests are from Chinese regulates life insurance and property and casualty • State Administration of Taxation (SAT) is responsible promotion and sales, and no ability to manage entrepreneurs who lack established market insurance companies. for the collection of taxes and enforcing tax laws. quality or contribute to strategic direction. relationships, let alone any experience in importing • China Securities Regulatory Commission (CSRC) These laws are enforced and administered on a day- Eventually it terminated the partnership. “Go slow and distributing high-quality food and beverages regulates securities companies, funds, futures to-day basis by one local government tax bureau and – it is harder to fix the mistake from rushing rather in the region. Bundaberg’s Chinese engagement companies, and equity and corporate bond insurance another bureau under the SAT in Beijing. These tax than making the right decision in the first place,” will be an ongoing learning process, but with its companies. bureaus are responsible for ensuring that the policies McLean says. commitment to going slow, and building strong • Ministry of Commerce (MOFCOM) and its local laid down by SAT are implemented in accordance partnerships, it aims to build on existing regional subsidiaries are the major government authorities with local conditions as well as for tax assessments, Having learned from its initial mistakes, Bundaberg success. that deal with matters relating to foreign investment collecting tax payments, performing tax audits and is now focused on finding a Chinese partner that in China. They have authority over the approval of conducting tax negotiations with taxpayers. SAT meets its stringent selection criteria. The company’s enterprises with foreign participation and import of is responsible for making tax policies for the whole https://www.bundaberg.com technology. MOFCOM and its local subsidiaries are country (including drafting new tax laws or revising likely to have the most contact with foreign investors. existing laws and regulations) and for acting as the appeal body for disputes between the tax bureaus and taxpayers. Country starter pack Country starter pack 82 83 Conducting business in China Conducting business in China

• Trademark Office of the SAIC is responsible for that Chinese businesses often meet with numerous spokesperson. It is important for Australians to follow the trademark registration and administration nationally. foreign firms seeking to establish relationships; you may similar protocol that the Chinese parties engage in even The local Administrations for Industry and Commerce not get a second meeting if you are unable to capture though your usual approach may be quite different. Lower (AICs) supervise the use of trademarks and deal with their attention at the first. Note that it is not uncommon ranked members do not generally speak unless invited to trademark infringements. In most cases, the party to for the Chinese to only confirm a meeting and its time by the most senior delegates – this is an important aspect file first will secure rights to that mark in China, so file and place at the last minute. This occurs because Chinese to observe in meetings as positions of authority can be as early as possible. For instance, a Shanghai snack business people tend to keep their diaries fluid and plan easily identified as well as those with certain expertise. maker owns the name and logo of the computer only a few days in advance. Australian businesses will When speaking, do not use your index finger or point. Use game, Angry Birds, while the trademark for Facebook particularly experience this as well as find it difficult to short, simple and jargon-free sentences. is registered for a variety of products. The Trademark secure meetings with senior company representatives or Office maintains a free, searchable database online. government officials. Ensure in meetings that you do not interrupt another when they are speaking as this is perceived as quite • State Administration for Market Regulation (SAMR) Before the meeting, make sure you know the language rude. Also, don’t put anyone on the spot by asking them is the People's Republic of China's governmental capabilities of your hosts. It is generally advisable to have to provide information they seem unwilling to give, or authority for regulating areas such as market your own interpreter (even if an official one is offered by by challenging a person directly. Doing so may lead to competition, monopolies, intellectual property, the host) as most business meetings are held in Mandarin. them being embarrassed and losing face. The Chinese and drug safety. The Administration was created Your own interpreter can be briefed in advance on the will often nod their heads or make affirmative utterances in the 2018 Chinese overhaul of government objectives for the meeting and technical terms that may be during meetings. This signals that they are listening and administration, and merged or abolished a number used. If you have specific requirements for a meeting room understand what is being said – it is not agreement. of previous agencies, such as the State Intellectual set-up (e.g. projector and screen), be sure to tell your Property Office. The Administration consolidates hosts in advance so they can accommodate your needs. Ending a meeting: If the Chinese are hosting, the end in one ministry the market regulation functions of a meeting is normally signalled by the Chinese by are arranged in a horseshoe shape. If the Chinese are previously shared by three separate ministries, the Introductions: Never be late – punctuality is crucial. making an appreciative remark about the discussion or hosting, the Chinese host will take the seat at the left- General Administration of Quality Supervision, If you are hosting the meeting, it is proper etiquette to commenting on your busy schedule while in the country. hand side at the centre of the horseshoe, while other Inspection and Quarantine (AQSIQ), the China send a representative to meet the participants outside Your interpreter and senior leader should listen carefully Chinese participants will be seated on the left hand side Food and Drug Administration (CFDA), and the the building or in the lobby and personally escort them for those comments. Unless you are the host and the of the semi-circle. The most senior Australian guest will State Administration of Industry and Commerce to the meeting room. The host should be waiting in the meeting is not progressing, there is generally no need be escorted to the right-hand side of the centre of the (SAIC). room to greet all attendees. The most senior guest should for you to be the one to close the meeting. A simple enter the meeting room first (this is a must for high level horseshoe with the remaining Australian guests seated handshake and goodbye (zàijiàn) is enough to conclude a government meetings but is occurring less in regular on the right hand side of them. Interpreters normally sit meeting, with guests expected to leave prior to the hosts. 4.3 NEGOTIATIONS AND business meetings). Assume that the first group member behind the host and chief guest. Gifts may be exchanged at this time if it is the end of the to enter the room is the delegation leader. The senior first formal meeting. MEETINGS If you’re at a meeting table, the host will always sit at Chinese person welcomes everyone. The foreign leader When it comes to conducting business meetings and the side of the table opposite (facing) the door, which is introduces his or her team, and each member distributes negotiations, the Chinese have a completely different considered a position of power. Each team occupies a Negotiating – the ‘Chinese style’ business cards and vice versa. mentality and approach to Australians. This needs to be single side of the table. Chinese hosts generally take the Negotiation in China is primarily seen as a process to build trust – so that the two parties can together achieve well understood by businesses that want to succeed in Meetings often start and end with handshakes. Note lead, and you will likely have a name card or designated an outcome benefiting both, while building long-term China. A business that can negotiate well by understanding that the Chinese place importance not on the grip of seat. The most senior people tend to be seated in the trust and relationships. Unlike the Western concept the ‘Chinese style’ will have a very strong competitive the handshake but the length. Ensure that you are not middle of the table. Always ensure you sit in rank opposite of negotiation – which tends to focus on quick deals, advantage. So before entering negotiations or making any too aggressive with your handshake. And if the meeting the similar rank of your Chinese counterpart. If you task-orientation and designing an effective contract – arrangements, you should develop an understanding of the went well, or if you want to emphasise the importance are the host and it is a reasonably important meeting, negotiations in China are part of an ongoing, dynamic ways and protocols of meetings in China. of the person you’re meeting, don’t be shy in prolonging consider hiring a formal meeting room in a hotel. process that is often slow paced and founded on the handshake. As seniority is highly valued in China, it Structure of the meeting: The Chinese don’t launch developing interpersonal relationships. Managing Chinese business meetings is important to address your counterparts by their titles directly into a business discussion at meetings. They Setting up a business meeting: The first thing to do when (chairman, director etc.). After establishing who the begin with small talk to make everyone feel comfortable, Negotiations can be lengthy, especially when dealing with arranging a meeting in China is to check the Chinese most senior person in the room is, address them first. followed by the host initialising a generally formal and key deal terms and pricing. The sometimes elongated calendar and avoid national holiday periods when the When introducing yourself, say your name clearly, and long introduction of the delegations. The discussion process well reflects the Mandarin word for negotiation - whole country can shut down for longer than the actual remember to state both the company you work for and normally begins with general topics, before turning to tanpan (谈判), meaning 'to discuss' and 'to judge'. Expect holiday (particularly during Chinese New Year and around your position as these are important in China during the more specific topics, followed by the purpose of the to encounter delays or frustration during your business May 1 and October 1). Be prepared well in advance of introduction process. meeting. You are expected to reciprocate, and the chief dealings, but it is important to remain patient and polite. your meetings; this includes having a detailed proposition guest should prepare key messages for delivery and have The Chinese don’t like to ‘lose face’ so losing your temper containing the value of your company and product Seating arrangements: There is a detailed protocol some researched points to discuss, such as areas of China or showing frustration will only set you back. Chinese to provide to your Chinese counterpart, who will also associated with Chinese business meetings. Formal to which the group is travelling and looking forward to negotiators generally are aware that foreigners prefer have one for you. It is important to send them as much meetings usually take two forms – either around a seeing. This helps build relationships and demonstrates quick, straight to the point meetings and want to have information as possible in advance. Providing details conference table or participants sit in a semi-circle your interest in the country. Note that discussions are everything finalised before returning home, thus will about the topics to be discussed and your company in armchairs (less formal meetings). The armchairs primarily between the two leaders, although either may prolong meetings as a technique of wearing the Australian information in Mandarin ensures that the people you elect to include others in the exchange. Select one person side down. It often can take several meetings and trips want to meet will actually attend the meeting. Be aware – usually a senior team member – to be your group to China before coming to an agreement. Be sure that interpretations of any business deal are consistent and all parties understand their responsibilities. Country starter pack Country starter pack 84 85 Conducting business in China Conducting business in China

Australian businesspeople will encounter a number of • Questions – Chinese holistic thinking is often • Don’t force the Chinese to say "no" – This can be significant challenges when negotiating in China. Do your accompanied by the asking of numerous questions disastrous for negotiations and business relationships. research, understand the environment and perform due and long descriptions of context. Be patient and They are more likely to say "maybe" or "we will see" diligence (see the next section 4.4) as early as possible answer the questions even if you have done so several to save face. Putting pressure on them to finalise Fundamentals to during the deal process. Some key aspects and principles times. It is often useful for Australian negotiators to negotiations or respond quickly can be detrimental, so of the negotiation process in China include (but are not ask questions to clarify points for themselves, which refrain from using this common Western negotiation negotiating in China limited to): also demonstrates interest and trust. If the Chinese tactic. If the Chinese side no longer wish to pursue ask continuous questions about the same point, it the deal, they may not tell you. To save their own • The intermediary – It is good to have one who has • Be able to see the ‘big’ or ‘whole’ is worth voicing your acknowledgment that this is face, they may become increasingly inflexible and extensive Chinese insight and is a native Mandarin important to them and asking them to state again hard-nosed, forcing you to break off negotiations. In picture speaker, which helps build connections. Often these why this is so. Remember the Chinese admire and this way, they may avoid blame for the failure. are the people who facilitate the negotiation process. • Listen and be proactive in building respond to relentlessness. • Guanxi – Remember that it’s not instantaneous, so don’t trust through dinners and social • Have a unified team – It is important that you never • Price and silence – Both are powerful Chinese expect immediate results or the immediate return of openly disagree, question each other, or discuss any events negotiation tools, particularly when the Chinese favours. Guanxi personal relationships and networks will internal issues in front of your Chinese counterparts. are trying to haggle on price and force the foreign pay off in the future – it is an ongoing practice and a • Preserve ‘face’ Saying less is always better than saying too much. counterpart into an awkward position. Don’t be put function of thinking long-term rather than now. Generally there is one designated speaker from each off by these tactics; they expect both sides to make side. Positive indicators that the negotiation is on the right • Be patient and persistent concessions eventually. Rather than demonstrating track include: the attendance of higher level Chinese • Social status is key – Choose wisely whom you send frustration, be patient and ask such questions as: • Control emotions and expectations executives, focused questions on specific areas of the to the negotiations. Make sure you have a team that “How did you come up with this amount?’’ Query deal, the Chinese calling for more meetings, requests • Be respectful, trustworthy and includes people in high positions and authority and which competitor has offered that price or warranty to bring in the intermediary, or enquires on additional etc. This will assist you to determine the basis for sincere that this is comparable to those the Chinese side is options or ‘extras’ such as overseas trips or training. Keep sending. Having some lower level members attending their figure and how to respond emphasising your in mind that a contract is considered a draft subject to • Have a well-prepared team with is useful for note-taking and numbers. value proposition without loss of face for either party. change – even if a contract is signed, the Chinese do not senior executives of your company • Trust and interpersonal harmony – These are more • Staged moves – Be aware of two common Chinese perceive it as binding and negotiations may continue or and preferably an intermediary important to Chinese business people than a piece negotiating tricks. Staged temper tantrums and the Chinese may change their mind. of paper. Expect to attend various dinners and social a feigned sense of urgency are often displayed in • Putting more time and money into events where substantial amounts of alcohol are the middle of deal negotiations to make you agree the negotiation stage – such as consumed. At these events, generally everything to concessions. They also may try to make foreign negotiators feel guilty about setbacks; they may travelling to China, bringing the but business is talked about to develop interpersonal connections. then manipulate this sense of guilt to secure certain Chinese partner to Australia – can concessions. • Clear bottom line – Before going into the negotiation, be more beneficial in the long term ensure you have a clear figure that would be your • Screen your partner before minimum amount you will accept. Also be aware of your value proposition. More than likely there will entering negotiations and research always be another business that can do a cheaper their capabilities price than you so ensure you’re able to reinforce • Be aware of Chinese negotiation why your Chinese counterpart needs your particular service or product. tactics and don’t feel insulted by • Doing business with a competitor – Don’t be alarmed them if you encounter the common Chinese tactic of • Identify the key decision makers threatening to do business elsewhere. The Chinese in the Chinese party – this can don’t want to create mistrust, and will state the obvious that they are in talks with your direct be difficult so ensure you build competitor or another business. This often insults rapport with all stakeholders to foreign business people but it simply is part of the help you identify their motivations Chinese business culture of haggling. and decision making process and • Holistic thinking – The Chinese tend to think in terms structure. of the whole and the long term, whereas Australians think sequentially and individualistically, wanting to discuss one topic at a time before moving onto the next (such as price, then payment, then delivery). Chinese negotiators will tend to discuss the various elements and issues of a deal all at once, jumping from one to another in what seems like disorder. Country starter pack Country starter pack 86 87 Conducting business in China Conducting business in China

4.4 DUE DILIGENCE AND Review their references and get a third-party evaluation: Just like in Australia, well-established businesses in AVOIDING SCAMS China should always be transparent and ready to China has an evolving legal system that is attempting provide references. Consider references of suppliers, to address issues with the Chinese tradition of informal Due diligence – check customers and even competitors. Note that more risk Chops – Chinese business practices. Nevertheless fraud, scams and will be associated with a Chinese company with a single corruption are ongoing challenges that Australian your potential business supplier or limited market. Depending on the nature of Company Seals businesses wanting to operate in China need to be aware the potential transaction, it would be useful to learn about of. Due diligence is crucial for interactions with Chinese partner’s Business your potential Chinese partner’s procurement processes All legally registered companies in businesses to protect your own reputation and your including quality and frequency, information on their China are required to apply for official business. Licence. This will outline: engaged market including sales channel, market segments and customer numbers and relationships, and their guanxi company chops from the local Public Security Bureau (PSB). The PSB will Australian firms planning to operate in China should • The legal representative of the and connections with key official parties such as the commit to the highest level of corporate behaviour and customs authority. You should also get a description of keep specimen chops for any future company familiarise themselves with Australian laws and penalties their business dealings with foreign companies, request dispute or fraud verification. The for bribery. Australian individuals and companies can be • The name and address of the names of coordinators, and if possible speak to referees company chop is used on all official prosecuted in Australia for bribing foreign officials when that speak English. overseas. company documents such as contracts, bank You also need to be on the lookout for counterfeiting, • The amount of registered capital, account applications and labour There are various ways to carry out due diligence in which is one of the main forms of fraud in China and can contracts. Companies may also have China. Some are tailored to the mode of entry you which is also its limited liability include not only fake consumer goods, but money and choose for China and the business structure. This section documentation. This means that adequate investigation their own financial chop, contract covers common risks to be aware of when conducting • The type of company and thorough research is required beyond simply chop, and legal representative chop. business in China and where extra caution may need to • The business scope reviewing all documentation when considering potential Under the Electronic Signatures Law be exercised. It is strongly recommended that you seek business partners. Fake bank confirmations, fapiao (tax (2015), this can also be a digital chop, professional advice to develop specific strategies for your • The date the company was receipts), credit card receipts and other supporting as long as it is registered with officials. business’s individual situation. China has a large number documents are all relatively easy to acquire. Use of established and the period covered A key part of due diligence in China is of professional services and legal firms that can assist by the licence. fake fapiao and supporting documentation is the most with due diligence. These range from leading international common mechanism to extract cash from firms, either as to ensure that the chop is legitimate audit, tax and advisory specialists to private business fraud to enrich employees or as a means to fund bribes, and being used in an authorised consultants who have lived in China for some time and which may constitute a violation of Australian law. These manner by an authorised person. understand the processes associated with robust due fake documents, including fapiao, generally have a fake diligence procedures required for the Chinese business chop (company seal) on them. The best way to investigate context. • For a listed company, look into the equity structure, the authenticity of chops is to visit the company or local percentage of shares, capital availability ratio, forms authorities and ask whether the person holding the seal is Your due diligence process should begin with a basic of investment and major shareholders. the authorised person to sign and stamp the documents background check to ensure you carefully choose in question. Since local authorities rarely open their • Financial statements and cash flow statements are your suppliers. Request basic inquiries on their existing files to private individuals, you can hire a local service hard to access in China with Chinese companies customers and inspection of their operations – if they provider, a licensed lawyer or a due diligence company to often holding multiple sets of books and accounts. will not oblige then you may want to reconsider your investigate on your behalf. If you’re planning to conduct But balance sheets, which provide useful information choice of business partner. For an extra level of security, deals in cash, you may want to consider measures to on current assets, current debts and long-term buyers can request audited statements from the supplier minimise your exposure to counterfeit money. Due to liabilities, can be obtained. This may require the use of or confirm the supplier’s registration at the local SAIC. the widespread circulation of counterfeit cash, most third parties. This leads to the next vital step for all potential Chinese retail stores in China have counterfeit money detector business partners, distributors, suppliers, contractors etc: • Review documents such as their bank statements, machines to assess RMB 100 notes. bank loans or credits with any financial institutions Check their registration: Get a copy of their business or private lenders, debt records, promissory notes, Conducting due diligence can assist you to ensure that licence – something all official Chinese businesses will letters of credit, government grants and subsidies. the companies you are dealing with are actually who they have. Note that these licences are in Mandarin, so you • Consider if the Chinese business has the means to say they are. It also can assist you to identify parasite may need it translated. Check that the information on pay you. The best indication of a Chinese company’s companies, which have an excellent relationship with the business licence matches what you already know. If it ability to pay is if they are able to raise a letter of a governmental decision-maker and rely exclusively does not, find out why. credit from a bank. If a company can produce this, on that relationship for its business activities. While a the bank will have investigated its financial standing. good relationship is not a bad thing for business per se, Examine their finances: Once you are confident that being overly dependent could be problematic and risky, you are dealing with a legitimate company, you should especially when a company relies on a single influential find out more about its financial standing. This can be figure for its success. The company may find itself quite daunting considering the different legal and banking operating in a legally grey area. environment in China, so it is recommended that you engage professional assistance. Country starter pack Country starter pack 88 89 Conducting business in China Conducting business in China

Keep in mind, too, that accountancy standards and Due diligence and contracts procedures are different in China than in Australia. China’s legal system is complex and comprises a Chinese accounts are unlikely to be audited to the multitude of national laws and local regulations, standards routinely expected in Australia, and companies supplemented by court interpretations, departmental may provide different sets of accounts and financial notices and, importantly, local practice. The Australian reports to different parties. As a result, it is advisable to Government recommends that you should obtain specific use such data with reference to information obtained legal advice on the terms, nature and content of the elsewhere, such as from professional services firms. contract no matter its size or complexity. This advice should also be consistent with the legal structures of Intellectual property (IP) protection is another primary area of concern for Australian businesses. See Chapter 5 China and structured for a fair result that protects your for IP-specific information. interests and avoid any issues regarding language (both English and Mandarin).

Local laws and regulations In most major cities in China, there are networks of law If you are doing business in China, you need to be aware firms offering a range of legal services. Some of the larger of both national laws and local laws, which can vary from firms now offer a full service package and are capable of province to province and city to city. Criminal charges assisting clients with complex and large scale commercial have been laid against Australian businesspeople for activities in and outside China. If engaging professional activities that do not constitute crimes in Australia – legal advice either in Australia or abroad is beyond your for example, misstating registered capital or having company’s financial means, you may need to reconsider undocumented loans. These charges can result in lengthy doing business in China. Austrade can provide referral prison sentences. If you are unsure about the legality of lists of China-based law firms that have a track record of certain business activities under Chinese law, you should working with Australian companies. first seek professional legal advice. If you’re entering into a contract to export goods from Dispute resolution: Companies involved in international commercial dispute. It is best to raise the problem with a China, ask to receive small trial shipments to ensure commercial disputes should seek appropriate legal Chinese partner and gain their agreement that it needs to product quality and legitimacy. Austrade suggests advice in Australia or overseas. Austrade can provide be addressed. employing a good local agent to consolidate, sample and referrals to legal service providers upon request. A Always maintain the focus on finding solutions and your verify goods prior to export to ensure that what you have number of international arbitration commissions exist commitment to finding a middle ground by maintaining ordered is what you get. to facilitate international dispute resolution. Deciding which arbitration body best suits your commercial needs communication and explaining the difficulties that the It is also strongly recommended you understand not is complicated, and requires the balancing of many issue is causing your company. only the individual sector you will be operating in but considerations. Australian companies should seek legal To try to avoid commercial disputes in addition to also your Chinese partner’s goals and objectives as they advice when deciding on an arbitration body. The decision conducting due diligence: may be vastly different from yours. For example, a state- will depend on a combination of convenience, cost and owned enterprise’s focus may be providing employment the facts of the particular case. While the Australian • Make sure you have clearly defined contract terms to the local community rather than increasing profit. Government supports the use of arbitration as a method with all the parties’ key rights and obligations outlined Additionally, ensure the person you are dealing with of commercial dispute resolution with foreign companies, and ask for the Chinese party to apply its official has the authority to do so by requesting to see copies it does not endorse one arbitration body over another company seal (chops). of powers of attorney and other corporate authority – whether in Australia or overseas. Common regions • Specify in the contract the applicable dispute evidence. Limit your exposure in contracts by conducting foreign companies operating in China generally choose resolution procedures with the intention of litigation a thorough risk analysis – be realistic about the level for arbitration include: Hong Kong and Singapore, or or arbitration as the last possible option. of risk you’re willing to engage in. Set milestones for a Chinese city that the Chinese party does not have performance and have an escape strategy for each strong ties to. An example is choosing Shanghai when • Agree on which language version of the contract is stage of the project, even though you don’t plan to use the Chinese company is based in Beijing. If a Chinese to prevail in the event of a discrepancy. Careful and it. Additionally, ensure that you take a proactive role city is chosen, Australian businesses should be aware thorough translation is imperative. in the business venture as projects and sales in China that Chinese courts are likely to find in favour of a local • Make certain your project is economically viable on need constant attention and reinforcement for foreign company rather than a foreign company. its own terms. Do not rely on promises of subsidies, partners. It is also vital to have the governing law agreed special considerations or non-market sources of and listed clearly in any documentation. Before getting to the stage of arbitration, it is vital for income to generate a profit. Beware of generous local you to consider the cultural and local business customs, incentives as these may not be legally enforceable. which include negotiation being fundamental to dispute resolution in China. Many commercial contracts in China • Pay careful attention to method and time of will contain a standard clause stipulating that negotiation payment. If you have agreed to be paid in RMB, verify should be pursued before other dispute settlement that you can convert profits to Australian dollars or mechanisms. A failure to adequately acknowledge this another major foreign currency. Use Letters of Credit cultural expectation may be interpreted as a lack of or other financial instruments to protect yourself. courtesy, goodwill or cultural sensitivity. This has the potential to exacerbate, rather than help to resolve, a Country starter pack Country starter pack 90 91 Conducting business in China Conducting business in China

Scams A number of websites alert consumers and businesses to CASE STUDY scams, both in Australia and overseas. Watch for scam alerts at https://www.scamwatch.com.au for suspect schemes that can affect your business here in Australia. If you believe you have been contacted by a scammer, ignore the emails and delete immediately.

There are countless scams in China, with many targeting foreigners and foreign businesses due to their lack of knowledge of the Chinese context. Australian businesses should be aware and cautious of the following, which have been identified by the Canadian Government’s Department of Foreign Affairs, Trade and Development as scams targeting foreign businesses:

• Change of bank account details scam entails scammers, masquerading as legitimate suppliers, advising of changes to payment arrangements. It in the coming five to 10 years. That can be very may not be detected until the business is alerted by North Head disconcerting to many business people, but there complaints from suppliers that payments were not are enormous opportunities in the opening up of received. John Russell, Director segments and new markets very quickly. • Come to China scam involves an unsolicited approach Persistence, adaptability and a sound business plan from a Chinese company placing a large order for a are vital for newcomers hoping to break into China’s “You have to fit in with the broad objectives of what product or service. They ask a representative to come unfamiliar business environment, according to the government is trying to do and if you work to to China to sign the deal. When the representative Australian communications specialist John Russell. the rhythm of the economy and its development arrives they are asked to pay a notary fee, host a here, whether it’s green tech or the growth of banquet and buy expensive gifts. On returning from “Most Australians are great travellers, they seem to healthcare and education services, if you’re China, the representative finds out there was no have the ability to adapt,” says Russell, managing fitting into the priorities of the government and company and no purchases are made. director of strategic communications and public economy you’re running with the tide and have • Fake company scam comprises Chinese entities affairs company North Head. “In China they will more opportunities. If you’re trying to do it without pretending to be legitimate legal or due diligence deal with distinct cultural differences, business understanding what’s happening with the broad firms, trademark, copyright, domain registration or processes and ways of operating but if there’s market direction you can be caught out badly. This patent agents, and freight forwarders. One of the persistence there are good prospects for success.” is not a market for carpet baggers.” more sophisticated scams involves non-Chinese Due diligence and a sound business plan set genuine individuals acting as employees of the fake Chinese Chief among those cultural differences is the players apart from those chasing a quick buck, says company. practice of “guanxi”, or building relationships. Russell. Regardless of the different tactics, the scammer’s goal “The Chinese business model tends to be less “It comes back to the need to do due diligence. is to extract money from foreign companies without contractual and more based on trust and the guanxi Many times I’ve seen people come here who will providing anything in return. so there can be a sense of frustration. It’s slower to build relationships, but having said that, once spend more on hotels and airfares than they will trust has been established the Chinese partners and on doing proper due diligence, taking the time to entities normally want to move very quickly,” says understand the partners and market dynamics. Russell. “An understanding of those relationships There are many differences of the east from the is necessary for success, but increasingly with west, the north from the south; and drilling down to economic reform and changes in China guanxi is no various provinces and city markets. longer sufficient for success.” “What is required is what I call not an interest in the That change is a constant factor throughout the Chinese market but a commitment to the Chinese business world. market. You hear lots of bad stories of people doing short trips up here, they meet someone who seems “There’s no such thing as the status quo in China,” OK, get into a business relationship that then says Russell. “It’s the land of opportunity because falters and turns into a bad marriage, a loveless of its growth, the size, the dynamism. What you see marriage, an antagonistic marriage, so it requires now was not really there five or 10 years ago and work, effort and commitment.” you get the sense the market will look very different https://www.northhead.com Country starter pack Country starter pack 92 93 Business practicalities in China Business practicalities in China

Understanding legal regulations and the practicalities of tax law, employment law and other relevant provisions are among the main challenges for Australians conducting 5. Business practicalities in China business in China. This chapter provides an overview of the main areas that need to be considered in the Chinese business environment. However, it is strongly recommended that you also seek professional advice in the area for which you require specific information. The various laws and regulations that may apply to your business in China are subject to constant revisions and change as the Chinese government moves to improve and attract foreign investment and operations to China.

5.1 LAWS AND REGULATIONS Investment rules China’s foreign investment system has evolved considerably in recent years, with many reforms stemming from the country’s accession to the World Trade Organisation (WTO) in 2001. The top three industries for foreign direct investment are: manufacturing, IT and related services, and real estate and leasing. Every investment project requires specific government approval, with restrictions and regulations varying across industries and regions and subject to regular change.

There are a number of key ministerial departments that foreign businesses will encounter when planning to invest in China. These are the National Development and Reform Commission (NDRC), the Ministry of Commerce of the People’s Republic of China (MOFCOM) and the State Administration of Industry and Commerce (SAIC), the State Administration of Foreign Exchange (SAFE) and the General Administration of Customs (Customs). In addition, special industry bodies such as the State Administration for Market Regulation (SAMR), the China Tourism Administration and the Ministry of Communications, must occasionally be navigated to grant pre-approval for industry-specific foreign investment proposals.

The NDRC and MOFCOM (or, when applicable, its local counterparts) are chiefly responsible for granting permission for foreign investment projects. The relevant authority (NDRC or its local office and Commission of Commerce) for dealing with applications is determined by the proposed amount of total investment and its categorisation as determined by the Investment Catalogue. Generally, projects with a total investment of USD 100 million may require national level approval (triggering a process that is likely to be more complicated and requiring more time). Country starter pack Country starter pack 94 95 Business practicalities in China Business practicalities in China

The Foreign Investment Law, which replaced and Land and property rights Intellectual property (IP) repealed three pre-existing Chinese laws governing The scale and lack of familiarity with the Chinese real China is well known for a business environment that foreign investment, is the first piece of regulation to estate market combined with the need to negotiate a carries significant risks of counterfeiting and infringement which prospective Australian investors should refer myriad of new legal and financial rules, as well as cultural of intellectual property (IP) rights. For this reason, the when planning to establish a business in China. Article 4 and language difficulties, make finding, buying or leasing US has put China on its Priority Watch List of countries promises a “negative list” approach to foreign investment, premises one of the key challenges in establishing a having "serious intellectual property rights deficiencies." with sectors to be determined by the State Council. business beachhead in China. While ownership of land for Nevertheless, the Chinese Government is concentrating However, this has yet to be determined and at present is Chinese nationals is currently under review, no foreigner on improving IP law and its enforcement, including vague. Necessary approvals and the types of incentives can currently own land in China. Generally, Australian the introduction of legal and regulatory incentives available to foreign investors vary according to the businesses can get land use rights through a WFOE or a for Chinese companies to file patent applications. classification, while investment in any sector that is not JV. Improvements include aligning the relevant legislation to included in the catalogue is automatically permitted. In the minimum WTO requirements of the Trade-Related addition, the catalogue identifies sectors and activities Land and buildings are designated industrial, residential or Aspects of Intellectual Property (TRIPs) protocol, for which a Chinese partner is required and (where commercial in China. Requirements for leasing property which outlines general standards for the enforcement applicable) the minimum shareholding that the Chinese will depend on the business structure of the venture of IP rights. The new Foreign Investment Law Article 22 partner must hold. may allow some remedy for businesses being squeezed for being set up. For example, WFOEs must have their states that the government must protect the intellectual planned place of business leased prior to submitting an The revised catalogue (April 2015, June 2017, July 2018), their technology, clarifying that foreign investment was to property rights of foreign investors and companies, and be managed by the relevant commerce and investment application to establish a business. These regulations are that Chinese organizations may not use administrative now enables the services and manufacturing sectors becoming increasingly strict. Few jurisdictions or types to be more accessible to foreign investors through departments of the government (it is not in these measures to force technology transfers. However, departments’ interests or mandate to force technology of entities allow for the use of ‘virtual offices’ (effectively, implementation and enforcement are areas of concern. reducing half the number of ‘restricted’ items from 96 (in letter boxes), so the investor may be required to rent 2015) to 48 relating to 22 different industry sectors (in transfers, as they don’t get credit for it internally). Articles 16 and 17 provide for foreign firms to access Chinese in the district in which they are registered. It is vital to Australian businesses need to have in place formal legal 2018). Furthermore, the revised catalogue significantly review all of the regulations prior to signing leases as protection of IP rights well before entering the Chinese cut the number of industrial sectors restricted to joint government procurement contracts, and to “raise capital by publicly issuing stocks, corporate bonds, and other these can be very difficult to break and authorities can market, including a well-researched and executed strategy ventures and partnerships (from 43 to 11) and halved the be inflexible. Real estate agents can be very helpful not to protect their IP. Be aware that the process of registering number of industrial sectors requiring a Chinese majority securities”. Finally, Article 22 is to prevent intellectual property transfer. only in finding, leasing or buying commercial or residential IP rights in China is more expensive and far slower than in shareholder (44 to 22). premises, but also in undertaking registration, sourcing Australia. For example, trademarks take 18 months to be With the Chinese Government committed to improving There is also a somewhat ominous clause near the end furniture and fittings, and completing installation. There granted, design patents six to eight months and copyright and developing certain sectors and industries, a large of the drafted foreign investment law. Article 34 gives are many international and local Chinese agencies from recordal procedures three months. Another critical number of the proposed changes contained in the revised the state a new power for a security review system, and which to choose, but investors should always check that difference is that China has a first-to-file system requiring draft replicate liberalised policies implemented in the states that it will pertain to foreign investment that “that the agency they are considering engaging has a licence. no evidence of prior use or ownership, leaving registration pilot Shanghai Free Trade Zone (FTZ). The Investment affects or may affect national security”. At present, Furthermore, they should seek to make direct contact of popular foreign marks open to third parties, who register Catalogue underscores China’s determination to extend foreign investors already must undergo a security with the agency rather than using third parties that famous marks ahead of the legitimate owner. There have the benefits gained from the Shanghai FTZ across the review. It is not clear what the new system will entail. will charge a commission. Law firms can also help with been cases of well-known Australian companies whose nation by allowing expanded market access and the lifting China’s National Security Law (2015) takes a broad translating lease documents. Such translations may not brand had been registered in China by an unaffiliated of the cap on foreign ownership. This includes applying interpretation of national security. Moreover, drafts of be enforceable in a court, but it is critical for prospective Chinese party even before the firm considered entering nationwide the simplified foreign investment enterprise the foreign investment law state plainly that “security foreign investors to ensure they understand what they are the Chinese market. It can be difficult, time-consuming (FIE) incorporation procedures and regulations. It review decisions made in accordance with law are final signing. and expensive to recover these marks, so it is far better to decisions”. register trademarks early. This should not in itself distract includes the law governing joint ventures (JVs) and wholly The use of serviced offices in China is an option for foreign-owned enterprises (WFOEs) that are currently in potential investors from the potential of the Chinese It is important to note that regulations can also differ people starting up a business, especially for those who place in the Shanghai FTZ. market. Risks, such as IP theft, can be managed, while the depending on whether a business is operating in the have a limited budget. These established offices are often regulatory processes in China are improving. Foreign Investment Law begins to put into law the Shanghai FTZ or inside any of the other special economic accompanied by bilingual secretarial support that takes principle that both domestic and foreign investors will zones or free trade zones. The implementation of care of routine needs such as communications, mail Clearly, the administration and enforcement of IP laws in be treated equally. It starts from the principle that all ChAFTA also influenced investment rules applying and courier services, freeing up executives to focus on China are quite different from that operating in Australia, investors are to be treated equally, with some areas to foreign-backed operations. It is therefore strongly establishing their business. and enforcement of IP rights in the former are possible recommended that prospective investors consult through both administrative and judicial avenues. But carved out for national security (technology) and what To lease premises (which is a requirement for WFOEs China refers to as “unique nature” (financial sector). professional advice tailored to their situation when unless foreign entities have a residential or business considering investing in China. and representative offices), it is necessary first to ensure address in China, applications must be filed through The law targeted investment activities by foreign persons, that the nominated office or building is allowed to be used Chinese agents or attorneys. companies and organisations, including joint ventures in this way. Most cities only allow representative offices in between overseas and Chinese firms as well as Wholly top-quality buildings. Investors should also make sure that Foreign investors can register IP in China for trademarks, Foreign Owned Entities (WFOEs). the location is in an area approved for carrying out the patents, designs and copyright. However, each of these type of business proposed. It is recommend that before is administered by a different government body. The The foreign investment legislation will provide some extra entering into any negotiations that businesses research primary law in China pertains to copyright. This protects protection for foreign companies. Article 4 promises all aspects including market rental trends (particularly in a “negative list” approach to foreign investment, with the chosen areas), best locations and projected property sectors to be determined by the State Council. Article 7 developments. Note that leases generally run for two or three years. Country starter pack Country starter pack 96 97 Business practicalities in China Business practicalities in China

copyrighted works of foreigners that are either first Violation of your IP Businesses seeking to bring a case to the courts should published in China or in countries that are signatories to Australian businesses should be prepared to act quickly do so in larger cities, such as Beijing, Shanghai or the World Intellectual Property Organisation (WIPO) and decisively to enforce their IP rights should they be Guangzhou, rather than in local courts which may have copyright protection treaty, which includes Australia. infringed. less IP expertise or which may be vulnerable to local bias. Apart from the Copyright Law, other key laws are the Trademark Law and the Patent Law, with customs There are several enforcement options for dealing with It is possible to combine administrative and civil action, authorities also playing a role in China’s enforcement of violation of IP: so that an administrative ‘raid’ can be conducted first, IP laws. followed by a civil suit to claim compensation. Costs • Administrative enforcement for civil litigation can vary considerably depending Registering IP rights ahead of entering the Chinese • Civil litigation on the complexity of a case, but may vary between market is essential because without doing so, an AUD 22,000 and AUD 44,000. • Criminal law enforcement Australian business would be unlikely to be able to enforce them later. There are various methods for registering IP, • Cease and desist (C&D) letters. Criminal prosecution depending on its type. The Australian Government’s IP China’s criminal law allows for prosecution of serious Australia website outlines the following information for Administrative enforcement cases of piracy and counterfeiting. Only cases that are Australian businesses operating in China: The main way to deal with infringements is to file a relatively large-scale, and where trademarks or copyright complaint with one of the Chinese enforcement agencies have been copied exactly, are eligible. The threshold for • Certain types of subject matter are not able to be that have specific powers to enforce IP rights: prosecution is based on a specific monetary value of Trademarks patented in China. • Trademark applications must be filed with the the case, although valuing the case (by the number of • CNIPA regional offices provide administrative • Patents: CNIPA Chinese Trademark Office (CTO), which is part of counterfeit goods sold or seized) can be challenging. The enforcement. • Trademarks: SAIC the State Administration for Industry and Commerce police, as in many other countries, have limited resources (SAIC). • Registration should be made through a registered • Copyright: National Copyright Administration Office and may be reluctant to investigate cases that they patent agent in China. consider minor. • It is essential to conduct a trademark search prior to Customs and other agencies such as the Technology registration. Designs Supervision Bureau also have powers to deal with Generally, the aggrieved party needs to prepare the • The trademark should be registered in both Mandarin In China, designs are registered through CNIPA. counterfeit goods. While their powers vary, these details of the case in advance and report to the police, and English. Protection is available for 10 years. Known as design administrative agencies can usually fine offenders, seize who do not simply act on preliminary leads. It is common • Other related rights, such as domain names and patents, they do not undergo substantive examination and goods or equipment and issue penalties. However, for a case to be transferred from the administrative company names, should also be secured through can be obtained relatively quickly. they do not have powers of arrest and cannot award authorities if it’s considered large enough. registration. compensation. Copyright Criminal cases require investment of time and resources • It is advisable to file trademark applications in China While the administrative enforcement is usually very quick to investigate leads and guide the case through the Unlike Australia, it is possible to register copyright in as soon as possible due to the ‘first-to-file’ rule. and low cost – it does not require any court procedure – prosecution process. Costs can range from AUD 22,000 China. The National Copyright Administration Office • Three-dimensional shapes and colour combinations it can be a limited deterrent and fines may be small. For to AUD 44,000. is responsible for administration of copyright. No can be protected as trade marks in China. Other non- complex IP cases, businesses may need to use the courts registration is required but registering copyright with the traditional marks, such as sounds and smells, are not yet and for very large cases, may want to pursue a criminal authorities is advisable. Cease and desist letters able to be registered, although extending protection to prosecution. An administrative action can cost between C&D letters can be an effective way of putting a stop these marks is currently being considered. AUD 4,400 and AUD 8,900. Trade secrets to infringement, if the infringer is too small in scale or • Enforcement of a trademark without registration not serious enough to warrant spending a lot of money. • Trade secrets are technical or management is possible, although the process tends to be more Civil litigation For example, traders on the internet are a suitable target information that is unknown to the public, but which expensive and less predictable. Companies can take civil action through a local People’s for C&D letters demanding that they take down any is of practical value and can bring economic benefits Court or an Intellectual Property Tribunal. The courts are infringing online products or logos. • Since 2004, customs recordation of IP rights has to the rightful party. Product and brand elements offered cross-border measures to help protect IP. suitable for dealing with: such as unique names, packaging and ornamentation To be most effective, the letter should be written in • Trade mark registrations may be removed from are also perceived to be trade secrets. • More complex cases that cannot be handled by Mandarin, sent by a Chinese law firm and followed up the register if they are not used for three or more • In China, trade secrets do not require registration. administrative authorities with telephone calls. While C&D letters are not likely to consecutive years after registration. • The principal law governing trade secrets is the Anti- • Breaches where aggrieved parties seek damages, or be effective against a hardened counterfeiter, the impact Unfair Competition Law. want to send a strong message to the infringer. of a simple letter should not be underestimated. Patents • The principal administrative enforcement agency is • China National Intellectual Property Administration Civil litigation is more suitable where the infringer has the Fair Trade Bureau of SAIC. (CNIPA) is responsible for administering patents. assets and has the ability to pay damages. Though slower and more expensive than administrative action, • Two forms of patent protection are available in China: Plant varieties invention patents (equivalent to Australian standard companies increasingly are choosing the litigation path. Plant varieties are protected in China for a period of 15 or patents, with a term of 20 years) and utility models Although damages awards for IP infringement are much 20 years, depending upon the type of plant. (for lower level inventions, with a term of 10 years). lower than might be expected in Australia, they have been Inventors may apply for both patents for the same rising in recent years. invention. Technologies • The patent examination process in China tends to be Since October 1, 2009 China has placed restrictions on longer than in Australia. the cross-border transfer of certain technologies. Country starter pack Country starter pack 98 99 Business practicalities in China Business practicalities in China

5.2 IMPORT DUTIES, TARIFFS Tariffs and import duties AND REGULATIONS The China-Australia Free Trade Agreement (ChAFTA) entered into force in 2015 and is a key milestone in the Australian businesses exporting goods to China should Australia's ongoing commercial relationship with its largest be aware of the various import duties and taxes that trading partner. The agreement has eliminated thousands ChAFTA outcomes for may apply, and other import regulations with which of tariffs, unlocked significant opportunities for Australian ChAFTA Regulations they must comply. The terms tariff and duty are often importers, exporters and producers and strengthened Australia’s resources, energy For all Australian goods exported to China under used interchangeably and refer to the applicable taxes. Australia's competitive advantage in China. The most ChAFTA, preferential rules of origin (ROO) will However, a tariff is a tax applied on imports only, whereas recent round of tariff cuts took place in January 2019. and manufacturing sectors apply. These are agreed criteria utilised to ensure that duty is a tax that also applies to domestic products. For only goods originating in either China or Australia get Australians exporting to China, tariffs and duties are Custom duties: A business planning to import goods Australia’s resources, energy and manufacturing the benefit of reduced duty. Preferential ROO are calculated on the complete shipping value, which includes into China from a country other than Australia should sectors exported nearly AUD 85 billion worth of used to prevent transhipment, whereby goods from the cost of the goods, freight and insurance. This section note that custom duties may apply. Custom duties products to China in 2017. This is expected to increase a third party are redirected through either China or will outline core information on tariffs, duties and other are calculated on either a quantity base by applying an in coming years with ChAFTA securing the removal of Australia to avoid the payment of import tariffs or taxes that may affect Australian businesses, as well as amount of duty per unit, or on an ad valorem (by value) tariffs across the following range of products: duty. providing an overview of import regulations. basis – by applying an applicable set rate based on value. Import duty rates can be divided into the two categories: • Up to 10% on pharmaceuticals including vitamins ROO for Australian export products require goods Tariffs, as well as import regulations, are frequently revised general and preferential tariff rates. Preferential tariff and health products (either on entry into force or to be: and subject to change without notice. Therefore it is rates apply to products that originate from those phased out by 2019) • Wholly obtained in Australia strongly recommended that businesses reconfirm these countries recognised by China as having MFN status • Produced entirely in Australia from exclusively before selling goods to China. China also has a broad (such as Australia). General tariff rates apply to imports • On all resources and energy products (eliminated Australian materials range of import regulations that differ depending on from all countries with which China does not have an by 1 January, 2019) • Manufactured in Australia using materials from the industry concerned and the products that are being MFN relationship. These rates can differ, so importers • On transformed resources and energy products other sources, while meeting ChAFTA's product brought into the country. This section will review the need to check the rates for the country from where their (many removed on entering into force) -specific requirements paramount China Food Safety Law. However, it is not goods have originated. • Any item that contains non-originating materials possible to consider every aspect of this given the vast • ‘Other manufactured products’ including: must have undergone "substantial transformation" and varied application of China’s constantly changing Additional taxes on imported goods: There are other -- Car engines (up to 20%) as per the outlined ChAFTA conditions. recommendations. Prospective importers should seek taxes that may apply on goods imported into China. -- Centrifuges (10%) professional advice about the product they are looking to These may differ if the importing occurs through certain For this reason, a certificate of origin (COO) -- Plastic bottles (6.5-14%) import and refer to the appropriate ministerial website for customs jurisdictions (where regulations are met), such or declaration of origin is required if importing -- Diamonds & other precious stones (3-8%) the most up-to-date regulations. These include: as Free Trade Ports and the Shanghai FTZ. The main two goods into China from Australia under ChAFTA, -- Pearls (21%) additional taxes on imported goods are: to demonstrate the ROO have been met. The • In Australia: -- Orthopaedic appliances (4%) authorised bodies for issuing COOs to Australian -- Australian Government Department of Agriculture – • Value Added Tax (VAT): VAT is payable on the day of -- Aluminium (unwrought) (5-7%) exporters include the Australian Chamber of Manual of Importing Country Requirements (MICoR) customs clearance, which is levied at 9 per cent for -- Make-up and hair products (6.5-15%). Commerce and Industry, the Australian Industry https://micor.agriculture.gov.au agricultural and utility items, while a 13 per cent tax -- This is in addition to zero tariffs on major exports Group and the Australian Grape and Wine Authority applies to all other goods. including: gold, liquefied natural gas (LNG), iron (for wine products). • In China: ore, and crude petroleum oils. -- General Administration of Customs • Consumption Tax (CT): Items subject to CT include For the latest information on ChAFTA, go to: english.customs.gov.cn/ luxury products such as high end watches, non- On full implementation of ChAFTA – 99.9% of http://dfat.gov.au/trade/agreements/in-force/chafta/ renewable petroleum products such as diesel oil, and Australia’s resources, energy and manufacturing Pages/australia-china-fta.aspx; or for further tariff -- General Administration of Quality Supervision, high energy consumption products such as passenger exports will enter the Chinese market duty free. rates: https://ftaportal.dfat.gov.au/countries/CHN. Inspection and Quarantine cars and motorcycles. Import CT is collected either https://www.aqsiq.gov.cn/ on a by value (ad valorem) basis or quantity basis, -- Ministry of Agriculture english.agri.gov.cn/ with a significant variance in tax rates and amounts. CT should be paid within 15 days from the day that -- Ministry of Commerce Customs issues the Import CT Bill of Payment. english.mofcom.gov.cn/ Country starter pack Country starter pack 100 101 Business practicalities in China Business practicalities in China

ChAFTA - an overview for Australian goods exporters

The benefits for Australians exporting goods into China are extensive and range from removal or reduction of tariffs, larger quotas for certain restricted items and streamlined custom processes. GRAINS The elimination Australian exports of grain to China have grown significantly over the of the tariff of upto past decade, with exports valued at AUD 2.2 billion in 2017, representing Overall, 98 per cent of Australian goods exported to China are eligible to enter duty-free or around 23% of the value of Australia's total grain exports. at preferential rates. Essentially, the negotiated terms have provided Australia with a strong 3% ChAFTA has secured the following tariff eliminations on Australia’s grain competitive advantage in the Chinese marketplace over some of our leading competitors such as immediately. exports to China: the USA, Canada, the EU and New Zealand, particularly for our agriculture and processed food • 15% on cotton seeds (by 2019) sector. • 10% on malt and wheat gluten (by 2019) • Up to 7% on pulses (by 2019) • 3% on barley (day one of the agreement) BEEF • 2% on sorghum, oats, buckwheat, millet and quinoa (day one of the The removal Australia remained one of China's largest suppliers of beef in 2018, agreement). of tariffs of accounting for 17% of the market share worth AUD 1 billion. Gradual complete removal of up to 25% tariffs will assist Australia to have a 12-25% competitive advantage over other large beef exporters. By 2030, the PROCESSED The removal of Australia’s reputation for high-quality and safe food combined with total benefits for the Australian beef industry is estimated to be AUD 3.3 by 2024. FOODS tariffs across ChAFTA’s key outcomes, provides extensive opportunities for Australia’s billion. a range of processed food sector. processed foods Such outcomes include elimination of the following tariffs between 2019 SHEEPMEAT The removal Like beef, China’s demand for sheepmeat is rapidly growing with the Chinese including fruit and 2022: of tariffs of market - one of Australia’s most important sheepmeat markets valued at juice and honey. • Up to 30% on fruit juices AUD 471 million in 2017. Elimination of applicable tariffs will assist Australia 12-23% to compete with China’s largest supplier – New Zealand, who in 2016 – due • 7.5-30% on orange juice by 2023. to their FTA – gained duty-free sheepmeat entering the Chinese market. • 15-25% on canned tomatoes, peaches, pears and apricots • 15-20% on biscuits and cakes • 15% on natural honey and up to 25% on honey-related products • 15% on pasta SEAFOOD The removal of The removals of tariffs on Australian seafood exports to China created tariffs including extensive opportunities for Australia. Australia's seafood exports to China • 8-10% on chocolate. increased by 120 per cent to AUD 807 million ($578m) in 2018, as the reduction in Chinese tariffs leading up to the final year of the agreement (all 5 & 15% HORTICULTURE The removal of The benefits for Australia’s horticulture product industry that exports tariffs were to be eliminated in seafood by 2019) led to a significant shift in respectively on rock tariffs ranging to China (valued at AUD 412 million in 2017) are significant under trade flows. PRODUCTS lobster and abalone, ChAFTA. China applies some of its highest tariffs on horticulture; by 2019. (Another reason for that is the reduction of shipping through Vietnam. up to 30% however, ChAFTA outcomes have secured elimination of all tariffs Previously, live rock lobster — Australia's largest seafood export — whole most by 2019. on Australian horticulture products as well as customs processing for fresh salmon, abalone and shrimp, together as products accounting for more perishable goods. than three-quarters of total Australian seafood exports by product category, This incorporates the following tariff removals, most of which by 2019: mostly entered China through Vietnam). • 11-30% on oranges, mandarins, lemons, and all other citrus fruits (within

eight years) • 10-25% on macadamia nuts, almonds, walnuts, pistachios and all other nuts DAIRY China is Australia’s largest market for dairy exports. Nevertheless, the • 10-30% on all other fruit 10-19% market is fiercely competitive with key suppliers such as New Zealand, the tariff removal EU and the US. The elimination of tariffs acrossall dairy products by 2026 • 10-13% on all fresh vegetables. across all Australian will assist Australia to increase their current market share valued at AUD dairy products by 905 million in 2017-18. 2026. The following tariff eliminations are primary outcomes for Australia’s dairy industry: WOOL An Australia-only 77% of Australia’s wool exports destined for the Chinese market. duty free quota for Australia receives under ChAFTA an exclusive quota of 33,075 tonnes • 15% on infant formula (within 2019) wool in addition to clean wool in addition to the WTO quota of 287,000 tonnes. This will • 15% on liquid milk (within 2024) continued access grow annually by 5% up until 2024 with the wool imports all being duty to China’s WTO free. • 10-19% on ice cream, lactose, casein and milk albumins (within 2019) wool quota. • 10-15% on cheese, butter and yoghurt (within 2024) • 10% on milk powders (within 2026). HIDES, SKINS The removal of The Chinese market is Australia’s leading trade market for skins, taking AND LEATHER tariffs of 80-90% of exports with total hides, skins and leather exports worth an WINE Tariff removal of The removal of 14-20 per cent tariffs on Australian wine exports under estimated AUD 722 million in 2017. ChAFTA will enable Australia to compete with Chile and New Zealand — 5 to 14% ChAFTA has secured the outcome of elimination of all tariffs on hides, 14-20% both of which under their FTAs, previously had preferential wine access to on hides, skins and skins and leather exports ranging from 5-14% by 2022, with some tariffs by 2019. China. Australian wineries can thus use their significant brand advantages. leather by 2022. on leather products removed on day one of the agreement. Country starter pack Country starter pack 102 103 Business practicalities in China Business practicalities in China

China food safety law 5.3 TAXATION Corporate income tax One of the biggest opportunities for Australians China’s taxation system includes a wide range of imposts The Corporate Income Tax (CIT) Law: This took effect on considering exporting goods to China is in the area of on businesses and individuals including income taxes January 1, 2008, consolidating into a single regime two food and beverages. China’s food and beverage industry (corporate income tax and individual income tax), separate income tax regimes, one applied to domestically- has grown annually by 30 per cent over the past five turnover taxes (value added tax and consumption tax), invested enterprises and the other set for foreign-invested years, with an annual growth rate of 15 per cent for taxes on property (land appreciation tax and real estate enterprises (FIEs) and foreign enterprises (FEs). CIT applies imported food products. Euromonitor International tax), as well as taxes such as stamp tax, customs duties, to what is officially called a tax resident enterprise (TRE) of estimates that Chinese consumer spending on food motor vehicle acquisition tax, vehicle and vessel tax, and China. This is deemed to be a company that is established and beverage products was around USD 976 billion in urban construction and maintenance tax. This section in China or a foreign company that has its effective 2016. These figures are expected to continue to climb will provide an overview of the primary taxes Australian management located in China. Effective management is as China’s consumption of imported food and beverages enterprises need to consider when establishing a business defined as substantial and overall management and control rises to meet the demand of the growing middle class. in China. It is important that they seek professional encompassing business and manufacturing operations, Consumers in China increasingly are looking for: advice to discuss the various taxes that may apply to their financial, human resources, and property aspects of the entity. The standard CIT rate is 25 per cent on the global • Confidence in food safety and ingredients’ integrity business and its specific situation. Not all applicable taxes are covered in this starter pack and the information that income of a resident enterprise. Non-resident enterprises • Higher quality is provided should only be used as a guide. China’s laws are also subject to tax on income made in China and income • Better nutritional value and regulations, which underpin the nation’s tax system, that is connected with an establishment in China. Lower tax rates are available for companies qualifying as state • Enhanced lifestyle through greater varieties of food undergo regular revision, and recent reforms have had a encouraged enterprises, including thin-profit enterprises and beverages significant effect on the tax landscape. (ranging between 10 to 20 per cent) and new high- • Modern packaging Tax laws and policies are developed jointly by the technology enterprises and encouraged enterprises in the regulatory bodies of the State Administration of Taxation • Freshness Western regions of China (varies between 10-15 per cent). (SAT) and the Ministry of Finance. The SAT is the body • Convenience. charged with collecting tax and enforcing compliance A company’s taxable income is that amount remaining and is assisted by the state and local tax bureaus at Businesses wanting to import Australian food and out of gross income after the deduction of allowable the provincial level and below. Applicable tax laws and beverages into China, need to meet the strict regulations expenses and losses. Profits, passive incomes including policies will vary depending on the city and province in of China’s Food Safety Law. The law includes stricter interest, rents and royalties, capital gains and received which a business is operating as there can be additional monitoring and supervision, tougher safety standards, dividends from a foreign entity are normally considered to local surcharges that may apply based on provincial tax the forced recall of substandard products and severe be part of taxable income. Manufacturers of dairy products, particularly infant regulations. punishment for offenders. The law covers: formula, meat and seafood are subject to even stricter Corporate tax is calculated in renminbi (RMB), with Overview of China's taxes for businesses • Production and trading of food and food additives accreditation for the registration process. Certification foreign currency income converted into RMB for tax and Accreditation Administration of the People’s Corporate income tax 25 per cent purposes. Exchange rate gains or losses are generally • Packing materials, vessels, detergents and Republic of China (CNCA) publishes up-to-date lists rate, branch tax rate and taxable or deductible regardless of whether they were disinfectants for food and equipment used in food of approved foreign manufacturers or facilities of dairy capital gains tax rate realised or unrealised, unless otherwise prescribed by the production products, infant formula, meat and seafood. tax regulations. • Food additives and food-related products used by Taxable income Residents: Worldwide; Non- food producers and traders Decree 55 was issued by the former quarantine authority residents: China-sourced Thin capitalisation rule: This was introduced to disallow (AQSIQ) covering a wide range of products such as: income and income connected interest expense arising from excessive related party • Safety management of food, food additives and food- with an establishment in China related products. loans. The safe harbour debt-to-equity ratio for financial • Meat and meat products Double taxation relief Yes institutions is 5:1 and for enterprises in other industries, The Food Safety Law also covers all imported food • Aquatic products Tax consolidation No 2:1. However, if there is sufficient evidence to prove that products, which are subject to the national food safety • Eggs and egg products the financing arrangement was executed at arm’s length, Transfer pricing rules Yes these interests may still be fully deductible even if the standards of China. All foreign food distributors and • Dairy products producers that import food products into China are Thin capital rules Yes ratios are exceeded. • Bee products required to register with the state entry-exit inspection Tax year Calendar year and quarantine authorities. Importers must record the • Other non-prescribed foods such as biscuits and Withholding income tax (WHT): This is applicable to non- Advance payment of tax Yes foods imported and distributed in China and must retain beverages. resident enterprises at the rate of 10 per cent on dividends, interest, rental income, royalties and other forms of passive these records for at least two years. Ingredients or Food safety laws require Australian exporters and Return due date Within five months of the end income such as capital gains from the sale or transfer of components not registered in China must be registered as agents, as well as Chinese importers, to complete an of the tax year real estate or property, land use rights and shares in a new-to-China components. Any food or food ingredient online registration form. While the detailed manuals Withholding tax for non- 10 per cent Chinese company. or component that has had an import history prior to the contain step-by-step instructions on how to complete resident enterprise Food Safety Law should be allowed entry even if there the registration process, you can only submit forms in Social security 20 per cent of an employee's Tax for non-tax resident enterprises: Under the double is no Chinese standard. The law requires all foreign food Mandarin. Exporters are encouraged to work closely with contributions base salary (total employer tax treaty, if the Permanent Establishment (PE) is manufacturers to register with the State Administration their importers to provide the necessary information. contribution can be up to 40 constituted, the profit attributable to the PE shall be of Market Regulation. On the spot accreditation by per cent) subject to CIT. The Chinese tax authorities may assess a Chinese Government officials may also be required. VAT 3 to 16 per cent taxable income if the enterprise cannot submit complete and accurate documentation of its costs and expenses VAT grouping No to enable its taxable income to be calculated, Normally, Consumption tax 1 to 56 per cent a deemed profit percentage is applied to its gross Country starter pack Country starter pack 104 105 Business practicalities in China Business practicalities in China

income or turnover. This deemed profit percentage will Indirect taxes Other taxes vary depending on the industry in which the enterprise Value added tax (VAT): This is a national tax levied on the Consumption tax: This is levied on manufacturers and operates and will usually be between 15 per cent and 50 sales or importation of goods and the provision of repairs, importers of specified categories of consumer goods, per cent for non-TREs. replacement, and processing services. In 2018, the State including tobacco, alcoholic beverages, ethyl alcohol, In addition, gains (or losses) of all direct transfer or Council announced a simplification and reduction of VAT cosmetics, jewellery, fireworks, gasoline and diesel indirect transfer (including debt restructuring, share rates, further enhancing the competitiveness of China's and certain petroleum products, automobile tyres, transfer, assets acquisition, merger and spin-off) shall VAT system. VAT is now applied at two levels: small-scale motorcycles, automobiles, golf equipment, yachts, be subject to CIT when the transaction takes place. Fair VAT payers and general VAT payers. Entities engaged in luxury watches, disposable chopsticks and wooden value shall be used to determine the gains or losses. manufacturing or providing VAT-qualifying services with floorboards. The tax liability is calculated based essentially Restructuring transactions meeting certain prescribed annual sales not exceeding RMB 5 million per year are, as on sales volume and on the type of goods concerned. conditions are eligible for concessionary treatment, such of 2018, regarded as small-scale VAT payers. Small-scale Consumption tax is imposed in addition to applicable as the realisation of the gain arising from the corporate VAT payers incur VAT at the rate of 3 per cent. General customs duties and VAT. restructuring that may be deferred wholly or partly VAT payers, who are considered to be all other tax payers, Urban construction and maintenance tax: This is levied to later years, and the resulting tax liabilities may be pay at the standard VAT rate of 16 per cent, except on goods considered to be necessities, such as agricultural at varying rates on the indirect tax liability (i.e. VAT, and effectively deferred. As such the related tax implications consumption tax) of the taxpayer. It is charged at three should be well planned before the restructure or transfer. items, water, gas and so forth, which carry the reduced rate of 10 per cent. For general VAT payers, input VAT different rates depending on the taxpayer's location: 7 per cent for urban areas, 5 per cent for county areas and 1 per Tax Treaty: China and Australia have a tax treaty that incurred may be credited against output VAT in deciding aims to eliminate double taxation and provide for reduced the correct amount of VAT that is payable. cent for other areas. rates of withholding tax on dividends, interest payments Stamp tax: All enterprises and individuals who execute or and royalties. A tax residence certificate is required to Exporters of goods from China may be entitled to a refund of VAT that has been incurred on materials receive ‘specified documentation’ are subject to stamp tax claim benefits under the China-Australia tax treaty. This (known in Australia as stamp duty). Rates vary between certificate is issued by the tax authorities of the country purchased domestically. The refund rates range from 0 to the full 16 per cent. There is a prescribed formula 0.005 per cent of the value of loan contracts to 0.1 where the recipient is resident, and must be submitted per cent on the value of property leasing and property with supporting evidence of residence in that country. for determining the amount of any refund, under which many products do not obtain the full input VAT credit and insurance contracts. The rate for share transactions is also China does not have a separate corporate capital gains suffer different degrees of export VAT costs. All general 0.1 per cent. A flat amount of RMB 5 applies to business tax. Instead, a company’s capital gains and losses are VAT payers must register for VAT purposes with the local licences and patents, trademarks or similar rights. tax authorities. A non-resident company is not required usually considered part of operating income and taxed at This is a tax imposed on the owners, to register for VAT. Real estate tax: the normal corporate tax rate; with Land Appreciation users or custodians of houses and buildings. The tax Tax applying to any gains made on real property (net of rate is 1.2 per cent of the original value of the buildings. development costs). Alternatively, tax may be assessed at 12 per cent of the property’s rental value. Local governments commonly Compliance Wage tax and social security contributions: As in Australia, employers are responsible for withholding the offer a real estate tax reduction of between 10 per cent Tax year and tax returns: The tax year in China is the correct amount of income tax from their employees and and 30 per cent. calendar year. Annual tax returns must be filed on or sending it to the relevant authorities. Employers must before March 31 the following year (subject to local Motor vehicle acquisition tax: After reductions in the also contribute to a number of state-administered social variation). Provisional reporting and payments must be motor vehicle acquisition tax during 2016 and 2017, the made on either a monthly or quarterly basis, determined security insurance funds covering areas such as work- current rate has returned to the normal 10 per cent. place injury, unemployment, medical and maternity costs. by jurisdiction. Provisional payments are usually settled This applies to the purchase and importation of cars, within 15 days of the end of each month/quarter. On top of this, employers are levied around 20 per cent motorcycles, trams, trailers, carts and certain types of of payroll expenditures for a state-run retirement fund. trucks. Consolidated CIT filing: TREs are not permitted to file This may add up to a sizeable contribution, potentially consolidated tax returns unless prescribed by the State totalling 40 per cent of an employee’s base salary. Vehicle and vessel tax: This tax is levied on all vehicles Council. Until now, the State Council has not yet issued Employees also contribute a portion of their monthly and vessels within China. A fixed amount is levied on any regulation to allow group consolidated CIT filing. salary to these funds at a percentage set by local a yearly basis. Transport vehicles are generally taxed However, a non-TRE having two or more establishments authorities which varies across the country. Australians on a fixed amount according to weight, with passenger in the PRC may select one establishment for combined working in China will also need to contribute to social cars, buses and motorcycles being taxed on a fixed unit tax filing and payment upon approval by the appropriate security funds in China. amount. Vessels are taxed on a fixed amount according to tax authorities. That establishment must meet the deadweight tonnage. following requirements:

National education surcharge and local education • It assumes supervisory and management responsibility surcharge: The former applies to entities and individuals over the business of the other establishment(s) who are subject to VAT or consumption tax and is applied • It keeps complete accounting records and vouchers at a rate of 3 per cent. The local education surcharge that correctly reflect the income, costs, expenses, is similar to the national surcharge but is applied at the profits and losses of the other establishment(s). discretion of local government at a rate of 2 per cent in all provinces. Country starter pack Country starter pack 106 107 Business practicalities in China Business practicalities in China

Individual (personal) income tax 5.4 AUDIT AND ACCOUNTANCY Individuals domiciled in China are subject to China’s Income from wages and salaries is Companies in China are required to file a provisional individual income tax (IIT) — normally referred to in income tax return within 15 days of the end of each Australia as personal income tax — on their worldwide taxed according to the following progressive rates, ranging from quarter and pay quarterly installments of tax based on the income. Being domiciled refers to an individual who profits of that quarter. Annual income tax returns must usually or habitually resides in China for household, 3 to 45 per cent: be filed and settled within five months of the end of the family or economic reasons. An individual with a Chinese tax year (which is the calendar year) and audits must be Monthly taxable income* (RMB) Tax rate % passport or hukou (household registration) is generally conducted by a certified public accounting firm registered regarded as being domiciled in China. Foreign individuals 3,000 or less 3 in China. residing in China for more than 183 days are subject to IIT > 3,000 ≤ 12,000 10 on their China-sourced income only. Foreign-invested enterprises (FIEs) are permitted > 12,000 ≤ 25,000 20 for global consolidation reasons to prepare financial The revised IIT regime consolidates four previous > 25,000 ≤ 35,000 25 statements in accordance with other accounting categories of income – salaries and wages, remuneration > 35,000 ≤ 55,000 30 standards or in other languages. However, Australian for independent services, author’s remuneration, and businesses should be aware that the relevant Chinese income from royalties – into a single category called > 55,000 ≤ 80,000 35 authorities will only accept accounts prepared according ‘comprehensive income’. Comprehensive income is > 80,000 45 to Chinese accounting standards and in Mandarin. Listed subject to progressive tax rates across seven tax brackets Chinese companies are required to follow the Chinese ranging from 3 to 45 per cent. Effective as of 1 October *For Chinese citizens and foreign individuals Accounting Standards for Business Enterprises (ASBEs) 2018, the lower tax brackets for comprehensive income working in China (including residents of Hong Income other than employment income: Income earned which align with International Financial Reporting have been expanded. This means that the lower tax rates Kong, Taiwan and Macau), the standard deduction by individuals from privately-owned businesses, sole Standards (IFRS) except for certain modifications that are now applied on a wider range of income levels, while is RMB 60,000 per year (RMB 5,000 per reflect China’s circumstances and environment. ASBEs the higher tax brackets remain the same. month). proprietorship enterprises or from the operation of a business on a contract or lease basis is generally subject became mandatory for all listed Chinese enterprises Where an individual's income tax liability is borne to IIT at progressive rates from 5 per cent to 35 per cent. from 2007. The Chinese Government is dedicated to Overview of China's taxes for individuals by the employer, the tax liability is calculated on a The 35 per cent marginal rate applies to annual taxable convergence with international standards; thus, other Income tax rates Wages and salaries: 3 to 45 per cent. grossed-up basis and a different tax rate table will income (gross revenue less allowable costs, expenses and Chinese enterprises are encouraged to apply the ASBEs. Detail in table below be used to reflect the tax-on-tax effect. losses) over RMB 100,000. The accountancy laws stipulate that companies must keep Business profits: up to 35 per cent Income from dividends, interest, royalties and income three kinds of primary accounting records: accounting Capital gains tax From 0 to 20 per cent arising from the leasing and transfer of property are vouchers, account books and financial and accounting rates taxed at a rate of 10 per cent. Interest on bank deposits reports. Account books include general ledgers, detailed Taxable income from employment: For IIT purposes, Taxable income Global Income is temporarily exempt from individual income tax ledgers, daily books and other supplementary account taxable income refers to "wages, salaries, bonuses, books. Computerised accounting systems, if utilised, can Double taxation Yes (previously it was taxed at 5 per cent). Royalty income year-end bonus, profit shares, allowances, subsidies or may be reduced under a tax treaty. be regarded as the business's accounting records. relief other income related to job or employment". Certain Tax year Usually calendar month employment benefits for foreign individuals could be Compliance All accounting documents, books and statements treated specifically as not being taxable under the IIT law prepared by a FIE must be written in Mandarin. However, Return due date Within three months of the calendar if certain criteria can be met. These include: Tax year and tax returns: IIT is normally withheld from they may also be written concurrently in a foreign year for business profit tax returns and wages or salaries by employers and paid to the tax language. Companies are required to keep accounting for individuals whose annual income • Employee housing costs (with supporting invoices – authorities on a monthly basis. IIT returns must be filed records, financial statements and supplementary exceeds RMB 120,000. fapiao) borne by an employer within 15 days after the end of each month in which the memoranda for at least 15 years. Foreign-sourced income tax return • Reasonable home leave airfares of two trips a year for income was earned. within 30 days of end of calendar year. Books and records should be referenced in RMB, unless the employee (with supporting invoices) Annual IIT self-reporting requirement: Individuals are Wages and salaries withholding returns agreed otherwise by relevant authorities and partners. If • Reasonable employee relocation and moving costs required under the following circumstances to perform within 15 days of the month following a foreign currency is used, the financial statements must (with supporting invoices) annual self-IIT reporting with the Chinese tax authorities: the month in which income is earned. be converted into RMB at year-end for the preparation • Reasonable reimbursement of certain meals, laundry, and auditing of the annual financial statements. Typically, Social security Varies • When annual income exceeds RMB 60,000 language training costs and children’s education most foreign-invested enterprises choose to record their expenses in China (with supporting invoices). • When receiving income from two or more employers books in RMB because their income and expenses are The employees of foreign employers can reduce their IIT in China largely denominated in the local currency. liability and be taxed based on the actual number of days Cash allowances paid to employees to cover expected • If receiving income from outside of China residing in the PRC if they meet certain criteria. work-related expenditures are fully taxable. IIT may be reduced by reimbursing specific work-related expenses • When receiving income without paying tax Foreign individuals residing in China for less than five incurred by an employee (this may include entertainment, • Other conditions set by the State Council. years are generally only liable for tax on China-sourced health or social club fees, newspapers and journals, income. They will be taxed on their worldwide income for local travel and telephone costs) instead of paying an Annual filing is required within three months of the end each full year residing in China from the 6th year onward. allowance. The expense reimbursement may not be of the calendar year. Foreign individuals may be exempt However, if foreign individuals are resident in China for subject to IIT if prescribed administrative procedures are from this obligation in certain situations. 183 days within a calendar year they are liable for tax on followed. salary earned from working abroad when their salary is paid by a Chinese entity. Country starter pack Country starter pack 108 109 Business practicalities in China Business practicalities in China

Audits are required under company law, accounting 5.5 EMPLOYING WORKERS For this reason, organisations need to invest in career regulations and income tax laws in China, and audited development structures and training with effective financial statements should be filed with the tax Labour market succession planning. A healthy work-life balance is also authorities, together with the annual income tax returns. increasingly sought after by young managers in China, a China’s labour market is constantly evolving and, like FIEs are required to provide the auditors with all of the reality that is best considered when hiring. other aspects of doing business in China, will vary Tips to hiring, enterprise’s documents, books and reports. Financial between cities and regions. Various factors are at play statements that may need to be submitted during an Australian businesses may be surprised to learn that in this shifting landscape, such as increased access to developing and annual audit include budgets or plans for revenue and Chinese companies, and increasingly foreign ones who education (both domestically and internationally), growing expenditure, statements about budget implementation, are localising their staff, often promote employees faster numbers of private enterprises entering an environment retaining Chinese staff: final accounts and financial statements, electronic data than most companies operating outside the country. A once dominated by state-owned ones, expanding foreign for government and financial revenues and audit reports contributing factor for this is the lack of middle-aged investment, the nation’s intensifying economic growth, 1. Family-focused benefits and perks produced by public audit firms. managers in China’s labour market as a result of the and the development of more comprehensive labour laws. Cultural Revolution, which led to an entire generation can help retain workers with ageing Audited financial statements must be submitted to a having little education and skills only suitable for labour- parents or children. Once known for its abundance of incredibly cheap number of government authorities, mainly: intensive jobs. This means that Chinese managers are manufacturing labour along its eastern coast, China’s generally short on experience and knowledge compared 2. Begin succession planning early. economic revival has led to improved wages, rising living • The local offices of the State Administration of with their international peers. The average age of a costs and higher skill levels. In turn, these changes are Identify promising staff and Industry and Commerce (SAIC) Chinese chief executive is just over 47 years, almost 10 driving China’s manufacturing sector inland to rural areas devote sufficient resources to their • The State Administration of Taxation (SAT) years younger than bosses in Europe and the US. This and western towns and cities that offer both cheap labour also means that newly-promoted managers will often miss development, while integrating them • The local Finance Bureau. and lower set-up/running costs. The shift is also forcing out on the guidance of experienced senior management, into a global mobility program. Audited financial statements must be submitted to the China to compete with lower cost South Asian countries, which can place additional pressure on them. Many relevant authorities within four to six months of the year’s such as Bangladesh, in a bid to continue attracting foreign of these managers end up leaving, as higher salaried 3. When selecting managers to send end, depending on local government requirements. investment in manufacturing. The working-age population jobs with less responsibility are easy to find elsewhere. to developing cities within China, is also continuing to decline, further cutting the supply of This is another reason why the development of skills in low skilled labour. consider staff with local roots in those Accounting Standards for Small Business Enterprises managerial positions is crucial for businesses wanting to Along with the ASBEs, the Accounting Standards regions or ones requesting to develop Although China produces around seven million university retain staff. for Small Business Enterprises (ASSBE) is another their skills and go on secondment. and college graduates annually, competition for talent accounting framework used by foreign enterprises in Another issue facing Australian businesses wishing to expand is fierce, particularly in larger, more developed cities. China. The ASSBE came into effect from January 1 or establish operations in China is the limited supply of 4. Training programmes must be The Chinese Government is aware that large numbers 2013 and provides unified standards for small-scale experienced employees in rural and developing cities, and in of graduates do not have practical business skills or culturally sensitive for locals and enterprises. The ASSBE's main objectives are to simplify the interior regions of the country. Relocating managers to those aligned with the working requirements of large expatriates, as well as Chinese staff the bookkeeping of small enterprises and to eliminate these locations, which are likely far from family and where Chinese companies or multinational firms. It is therefore returning from overseas. differences between the books and taxes as much as standards of living are comparatively low, requires a robust attempting to address this mismatch with its National possible. Small-scale enterprises can choose to adopt raft of incentives and benefits that could be in the form of Talent Development Plan. The WTO and major firms 5. Make sure there’s a clear path for either the ASBEs or ASSBEs. hefty salaries and promotion. It is suggested to target and operating in China have also highlighted this as potentially send managers originally from such locations as they may be career development and advancement, compromising China’s ability to continue to attract The criteria for qualifying as a small enterprise, mainly in more willing to relocate to be closer to their families. Finally, as well as sufficient opportunities. foreign companies into high-skilled fields. terms of the size and nature of the enterprises, are set reverse transfers, or moving top performers from China out in a regulation issued jointly by five ministries under Retention of talent within China has also been identified to developed markets for a short period to improve their the State Council (including the Ministry of Finance and by local and foreign firms as one of the biggest challenges credentials or to undertake ‘cross training’, have become a the Ministry of Industry and Information Technology). for companies operating in China. Companies that very popular retention and development measure. Moreover, small enterprises that fall into one of the Human resources and employment law are able to attract, recruit and develop talent must following three categories are not allowed to adopt Ultimately, the importance of ‘family’ should not be then address the issue of how to secure it. Australian China introduced workplace laws more than 20 years ASSBE: underestimated when hiring staff in China. Australian businesses planning to operate in China need to be ago. The Labour Law of the People’s Republic of China of businesses will not be used to the sort of parental aware that talented workers will not only be constantly 1995, along with the subsequent Employment Contract • Small enterprises that issue publicly-traded shares or involvement in the careers of children, particularly with approached and poached by competitors, but also by Law (2008) and other employment-related amendments bonds under-25s who may be working away from their home firms operating in entirely different industries. In more and rules that have been introduced over the past several town. For example, some Australian expatriate general • Small enterprises that are financial institutions or rural areas and in the case of less-educated talent, years, underpins employment laws applying to both managers have reported receiving phones calls from have the nature of financial institutions employees often will change jobs for as little as RMB private and public sectors. Foreign-owned enterprises angry parents when their child may have been given a • Small enterprises that are parents or subsidiaries 100 per week more, so companies need to monitor what and joint ventures are similarly covered. While there performance management talk or is stressed by a work within a consolidated group (for this purpose, the other employers are paying workers, while facilitating have been no updates to the labour laws themselves, the deadline. Chinese managers and employees will also parents or subsidiaries only refer to those companies better communication with their own staff. It is more introduction of new laws covering online services and resign if their family does not like the role they are in incorporated within China). cost-effective trying to retain talent in the first place, identity have the potential to undermine labour relations. or their job title or placement, or if their family believes and understanding the motives of those who resign, than In particular, there are questions about where one’s they could make more money elsewhere. It is, therefore, Under ASSBE, accounting treatments are more in line simply letting them go. In the case of better-educated employment information is stored under the Chinese important to consider how a business can ensure any with tax laws and regulations. For example, assets are talent that is available in more developed cities, a key Data Security law. family concerns are addressed swiftly, including those stated at cost and provision for impairment is not allowed. motivating factor for switching jobs is not only higher around work-life balance. The 2008 legislation essentially encourages employers to salaries, but also training and development opportunities. enter into contracts with their employees either for non- fixed or long terms, that set outline clearly regulations Country starter pack Country starter pack 110 111 Business practicalities in China Business practicalities in China

for terminating employment. Amendments introduced in preventing rural citizens from flooding heavily populated a claim against an employer. Foreigners working for a Comprehensive Working Hours System or the Flexible 2013 and 2018 incorporated, among other things: cities. Codified in 1958, the law identifies each individual representative office in China are assumed to have an Working Hours System. as either an agricultural or non-agricultural worker, while employment relationship with the parent company and • Specific penalties for companies not having signed specifying their local authority of residence. This system that any disputes would be adjudicated according to the Overtime and overtime payment: Under standard employment contracts with employees of categorisation works effectively as a form of domestic laws of the country in which that corporation is based. employment arrangements, employees who work more • Limits on the use of fixed-term contracts visa, indicating where a Chinese citizen may live, be than eight hours a day or more than 40 hours in any week Wages and salaries: There is considerable freedom for are entitled to compensation: • Specific processes for consulting with employees schooled and work. This can only rarely be changed, and the process for gaining permission difficult. Subsequently, enterprises operating in China to set remuneration, over company rules and regulations • Overtime on work days – 150 per cent of the normal it is estimated that as many as 150 million migrants could including compensation and benefits. A provision, • Wider protection for employees hired through job wage rate be living in China’s cities illegally. Most of the people established in China’s Labour Contract Law, is that wages agencies. forming this class tend to be working in manufacturing of staff cannot be lower than the prescribed minimum • Overtime on rest days – compensatory leave or 200 • Employers and employees may face higher social and other labour-intensive industries. wage applicable for the location in which the company is per cent of the normal rate of pay insurance costs as a result of changes in the way that registered. Enterprises may also offer incentives to staff, • Overtime on statutory holidays – 300 per cent of social insurance contributions are collected The Chinese government has heralded reform of this such as sales targets, and a range of performance bonuses normal rates of pay. unique system to more easily match labour market in the form of stock options and the like, in a bid to attract China’s labour laws and regulations are enhanced often Also, employers need to consult with their employees demand and supply, with citizens expected to soon be and retain top employees. This is particularly relevant by regulations applying in different local jurisdictions. and the relevant labour union before having workers given permission to move freely to towns and smaller for management and sales positions, which are often Provinces, big cities and original special economic zones do overtime. Generally, extra hours should not cities. Hukou restrictions placed on medium-sized critical to a company’s performance and, consequently, (such as Shenzhen in Guangdong Province) impose exceed one hour per day (or three hours under special cities are also expected to be gradually lifted. However, fortunes. Reflecting cultural aspirations and practice, their own employment contract rules. But Australian circumstances), and no more than 36 hours per month. businesses entering China need to be alert to a host of migration to China’s teeming metropolises will remain companies will usually offer staff a bonus at Chinese New other laws, such as the Employment Promotion Law and strictly regulated. The system of hukou will also affect an Year, generally equal to one month’s salary. This is usually Leave: Employees in China legally must be given at least Labour Union Law, as well as laws pertaining to Mediation employee’s access to government services and the rate of paid either in a one-off lump sum or in the form of a one day off per week as well as public holidays, according and Arbitration of Employment Disputes and Entry and their social insurance contributions, and in particular their double wage in the last month of the lunar calendar. The to law. Those who have worked for one continuous Exit Control (Immigration Law). children’s access to education and medical benefits. provision of a bonus is routinely included in an employee’s year are entitled to five days’ annual leave. However, contract, so it rarely comes out of the blue, with some businesses are not obliged to grant leave to employees Representative offices: A foreign entity’s representative Hukou: When hiring in China, Australian businesses companies stipulating that it is based on the performance who have yet to work a full year. In most cases, employees office cannot hire staff directly. Rather, domestic staff should consider a potential employee’s hukou. Hukou, of the team or company itself, while others may base it on are given weekends off. Foreign-invested companies must be drawn from an agency that will substitute as a system of family and population registration that has the employee’s position within the company (say, senior typically give employees 15-25 days’ annual leave. its origins in ancient China, was appropriated by China’s the official employer, as a representative office is not a manager, or supervisor or rank and file). authorities following the 1949 revolution as a means of capitalised entity in China. This is partly in recognition Social welfare contributions: Both employers and their of the fact that local employees have the right to make Companies normally pay staff in regular intervals: at least workers are required under Chinese law to participate once a month in local currency. The date for paying staff in the country’s statutory social benefits system. These is usually agreed between the company and its workers, contributions are dictated by schemes operating in the with companies risking a financial penalty should they locale of the enterprise. For much of the workforce, this fail to meet this commitment without good reason. As in will amount to on-costs equivalent to as much as 35 to Australia, employers are required to withhold individual 40 per cent of their salary cost. Exact percentages will income tax from the gross pay of employees. differ from city to city and according to an individual employee’s hukou. Businesses should consult local Businesses contemplating establishing operations in professional advisors on requirements specific to their China should be aware that, despite long-held perception, business. Social insurance programs incorporate a variety average wages in China have been climbing on the back of benefits, including: of the country’s economic emergence, to the point where it is less a low-cost hub as it is a dynamic and complex • Pensions economy. However, the recent cooling of the Chinese economy has blunted the wages surge after a double-digit • Medical insurance increase in 2009, as noted by the International Labour • Unemployment insurance Organisation. Nevertheless, average real wages in state- • Work-related injury insurance owned and other urban-based enterprises grew by 9 per • Maternity insurance cent in 2016, while those of workers in private enterprises climbed 8 per cent in 2016. Reflecting the Chinese • Housing subsidies. ‘boom’ was the more-than trebling of the average annual To be able to participate in social insurance programs, salaries of city workers from RMB 14,000 in 2003 to corporations must first register with the relevant labour RMB 74,000 in 2017. Accompanying this new wealth, bureau, establish an account with a social insurance however, were sharply increased living costs. management authority and pay the required insurance premiums on a monthly basis. On top of this, employers Working hours: Working life in China is usually centred are required to deduct their employees’ insurance on a 40-hour week spread across five days (most often premiums from their salary before forwarding the Monday to Friday). A standard working day is eight payments to the authority. In the case of representative hours long. Alternative working hours and systems offices, these premiums should be paid via the authorised are allowed under Chinese labour laws, but require employment agency. Beginning January 1, China’s social government approval. These are categorised under the insurance contributions will be solely levied by China’s tax Country starter pack Country starter pack 112 113 Business practicalities in China Business practicalities in China

bureau, instead of the HR bureau The better-equipped the local authorities reign supreme over their jurisdiction. tax bureau will be in charge of calculating, collecting, and While there may be progress in some sectors others, such checking companies’ social insurance contributions. as teaching in the current environment, it can attract unwanted and difficult attention for expatriates. This Unions: Chinese workers are all covered by the one system, which involves employment permits, professional trade union, the All-China Federation of Trade Unions visas and residence permits, can be difficult to negotiate. (ACFTU), with independent unions not allowed. Local The regulations for hiring expatriates are subject to change chapters of the ACFTU oversee factories. However, but adhering to them is important for companies not unlike unions in Western nations, the ACFTU is not a wanting to slip up. Breaking the rules can be a criminal symbol of democracy, working to improve the lot of its offence. constituents, as it is an arm of the Communist Party of China. Its members tally more than 280 million, making For expatriates intending to work less than three months, ACFTU by far the biggest union in the world, though this a Chinese Employment Contract is not required. is not matched by muscle. Its leaders are appointed by the However, employees (excluding some specific foreign government and workers’ rights to collective bargaining suffered a work-related injury or once confirmed to engineering or technical roles) who have been recruited • Using a recruitment company. This is by far the most and striking are restricted by law. Given this structure have lost some or all ability to work due to a work- for longer periods should sign a labour contract as expensive method for recruiting talented employees, and its history, it is hardly surprising that China’s sole related injury prescribed by law and obtain both a foreigner’s residence and can cost as much as 35 per cent of salary. legal labour union has at times found itself accused of • Employment history – when an employee has worked permit and a work permit. Increasingly, foreign-owned But it can be stress-free by comparison, with the putting economic development ahead of worker welfare, for the same company for at least 15 years and is five companies are localising roles, paying their expatriates in recruitment company driving the effort by refining and industrial harmony ahead of campaigning for better years away from retirement. local currency, and having them pay income tax in China. job descriptions, building personal profiles of potential employee conditions. Should this be the case, the employee will need a local recruits, and tapping experience and contacts within Dismissal without notice is possible under the employment contract. Expats are also required to have the labour market during the search. On top of this, The ACFTU is organised into provincial, municipal following circumstances: when a worker does not an F/M (business) visa (see Chapter 6 for more details) in hired recruiters screen applicants to build a short-list and national divisions, which attract varied regulatory meet requirements during a probationary period; when conjunction with the relevant permits. of top candidates and can carry out private reference oversight. For example, in some cities companies with company regulations are seriously breached; when they checks of CVs and qualifications to narrow the field fewer than 25 employees must register their employees display a serious lack of discipline or are derelict in their Generally, employment contracts and residence and thwart fraudulent practices. Recruiters can also with the union and pay a monthly levy equal to 2 per cent duties; or should they be found to be involved in graft, permits are valid for a maximum of one year but certain ensure that contracts being offered to potential of payroll (including expatriate employees). In practice, favouritism or any activities that seriously damage the classes of foreign workers – such as, advisers and employees are in place ahead of signing. this is not imposed uniformly or nationally, with many reputation or viability of the employer. An employee consultants working for the Chinese government, high- companies (both foreign and domestic) not registering can also be sacked on the spot for more serious matters level managers and expatriates seconded to Chinese Managing a Chinese team their workers with the federation. Business operators or offences. Should an employer find it necessary companies with foreign investment of more than Australian businesses need to develop and adapt in doubt should seek professional advice on the matter to terminate an employment contract during the USD 3 million – are able to apply for a maximum five- their management styles to suit local preferences to determine how their business is classified for union probationary period, they must offer an explanation to year residence permit. and conditions. In recent years, their ability to meet purposes. the worker. intercultural challenges has been improving as China’s Recruiting staff In addition to the seemingly benign involvement of the workforce is exposed increasingly to Western business In circumstances where an employer is legally able to There are a variety of ways of recruiting staff in China and ACFTU in industrial relations, unions may be responsible practices through the various degrees and training dismiss an employee, they must offer one month’s notice the effectiveness of each option will depend largely on for distributing wages, bonuses, housing and other courses in modern management techniques being offered or one month’s salary in lieu of that notice should the the required level of expertise as well as the type of job benefits to employees in many foreign companies locally and the growing number of Chinese workers employee be deemed incompetent despite training vacancy being filled. Some common methods used by operating in China. Also, union representatives have gaining overseas work or study experiences. or attempts to reassign them to other tasks, or should Australian businesses in China include: the right to attend a company’s board meetings when there be major operational or production difficulties. The Much of the information that exists on how to manage a labour matters are being discussed and are also at liberty trade union must be notified 30 days in advance of such • Tapping key China business contacts and industry Chinese team is founded on traditional Chinese cultural to negotiate with management on behalf of individual action. Employees dismissed for the latter reason must be associations, as well as inviting recommendations values and mannerisms embraced in past Chinese workers. given priority should that same company need to recruit from a local partner. This personal approach can work management styles, particularly those practised by state- employees within the following six months. well in identifying highly skilled or industry-specific owned enterprises. However, depending on the region Termination of employment: A further issue is the talent. in which a business is operating, it will be important for difficulty often found in ceasing to employ a worker in On the flip side, employees have the right to leave a • Searching online executive and other job sites employers to adapt management styles based on the China, which can prove more expensive than in many job provided they give 30 days’ notice. During their including , demographic of their workforce – that is, job positions, other countries. This is because China’s labour laws offer probation, just three days’ notice is necessary. In certain https://www.linkedin.com https://www. (Chinese) and education levels and ages. The overseeing of workers a high degree of protection regarding job security. For situations, such as an employer failing to pay wages or lietou.com https://www.michaelpage. (especially for finance and legal roles). For born from 1978 onwards, and the management of their example, employees may not generally be terminated social insurance, employees may quit on the spot without com.cn mid-level and junior roles: , expectations in the workplace, will differ vastly from under the following circumstances (unless by mutual serving any notice period. https://www.zhaopin.com agreement or if they qualify for immediate termination): https://www.chinahr.com and https://www.51job.com that appropriate for workers born prior to 1978. This is Employing expatriates: In similar fashion to most countries, are starting points. simply due to the social and economic environment in • Maternity – including during pregnancy, delivery of foreigners may be hired to work in China when a company • Advertising via online or industry-specific which these older workers were raised. The following the child or breastfeeding (defined as lasting until the is able to show that the expatriate possesses particular skills publications and through wider media. While is an overview of key points to be mindful of when infant is one) or attributes that are not readily available domestically. reasonably inexpensive, advertisements can miscue if managing Chinese teams, but it is also recommended that Australians engage with other expats and managers • Sickness – during the stipulated treatment period for In such instances, a company must obtain approval from not accurately worded and the recruitment process in China to understand how they effectively manage their a sick or injured employee relevant local authorities and follow the strict protocols of undermined if applicants are not screened carefully local teams. • Work-related injury – either while an employee a comprehensive licensing system. While there have been with the help of local professionals. Also, there is no is being assessed to determine whether they have attempts to make a more standardised national system, guarantee that the advertisement will reach the ideal candidate. Country starter pack Country starter pack 114 115 Business practicalities in China Business practicalities in China

Approach to change 5.6 BANKING IN CHINA and expertise. These advantages are slowly but surely China can be hidebound by traditions, with workers’ being whittled away as China’s banks grow beyond the intercultural competence and readiness for change low. Banking environment nation’s borders to embrace international opportunities. Chinese culture’s conservatism means that change can China’s banking and regulatory environment has some For now, developing a working relationship with China’s often be seen as a threat to society. Effective management major shortcomings still, but is also a global innovator domestic banks can be challenging, and Australian in China means understanding this and taking into account in fintech, mobile payment and other emerging fields. businesses must understand the differences. A key that change will take longer to implement than in their Beijing has consistently flagged further deregulation for difference to banking in Australia can be the often home country or even other countries in the region. It is the banking sector, particularly in Shanghai’s FTZ and in apparent disconnect between a bank’s head office and its important to deploy carefully any change management the context of the China Australia Free Trade Agreement branches. Working with different branches can seem like strategy to ensure smooth transitions. (ChAFTA). Given the nature of such changes, forecasts working with completely separate banks. The operations predict that China will overtake the US as the world’s of domestic banks can lack sophistication and are still Approach to time and priorities largest banking market by 2023, based on the projected evolving, with services, technology, customer support growth of domestic banking credit assets. However, this Deadlines and timescales are fluid in China. Patience and relationship management models falling short of the will in part depend on how many areas of banking are is therefore crucial for successful intercultural standard of those of their foreign counterparts. Also, opened up in the implementation of the 2019 Foreign management. Essentially a relationship-driven culture, banks’ policies and practices can vary wildly. Choosing Investment Law. taking the time to get to know someone will always the right bank for a business model can be critical: for take precedence over timelines. Foreign businesses At the pinnacle of China’s banking system stands the example, some may require businesses to move their should resist any temptation to rush the relationship- nation’s central bank, the People’s Bank of China, money by 3pm each day, while others may have a later building process or they risk jeopardising any future which is responsible for monetary policy and regulating cut-off time. Technological expertise varies too, with business dealings. When working with the Chinese, it Communication in the workplace financial institutions. But key partners in the oversight of some branches fully automated, others are not. Fees and is advisable to reinforce the importance of the agreed- the financial sector include the State Administration of charges may also differ. Business in China is more formal than in many Western upon deadlines and how that may affect the rest of the Foreign Exchange (SAFE) and China Banking Regulatory countries and to ensure successful cross-cultural organisation or the team. However, it is not unusual for a Commission (CBRC). The sector itself is dominated Business and banking management businesses need to be alert to strict manager in China to avoid confrontation over a deadline by four State-owned players – the Agricultural Bank It is important when operating a business in China to have protocols that must be observed. Chinese people in order to maintain a positive relationship within the of China (ABC), the Bank of China (BOC), China a clear-cut and effective bank account structure that adhere to a strict chain of command, which comes with team. Globalisation and increasing cultural interaction Construction Bank (CCB) and the Industrial and complies with the various local regulations but does not expectations on both sides. In order to keep others mean that some Chinese managers may have a greater Commercial Bank of China (ICBC), which account impinge on the drive for efficiencies and the ability of a from losing face, communication is often non-verbal, so appreciation of the need to enforce timescales, with for more than half of all banking assets, with the rest business to operate effectively. Several account types you must closely watch the facial expressions and body agreed deadlines more likely to be met as a result. language of people while conducting business. Younger controlled by city-based commercial banks, privately- will be necessary; for starters, a local currency (RMB) owned financial institutions and credit co-operatives. account and a foreign currency one. These can be opened employees, in particular, tend to thrive on more proactive Decision-making communication with their managers; however, they can Foreign banks won a toehold a decade ago, in December with local Chinese banks or foreign-owned banks that Many older Chinese companies still adhere to a rigid still respond in non-verbal ways when trying to save face. 2006, when China opened its doors to foreign have a licence to operate RMB accounts. hierarchy, although this is starting to change in many Remember that Chinese are non-confrontational and competition. Most major banks have some presence multinationals and entrepreneurial companies, and Australian enterprises need to complete regulatory personal relationships are crucial to conducting business. in China, including Citibank, HSBC and Standard those that do business with foreigners on a regular basis. requirements and show their business licence to a bank Relationships are based on mutual respect and trust. It Chartered. Australia’s big four banks (ANZ, CBA, NAB Younger managers in China, in particular, prefer to be before they can open any accounts. The rules vary. For takes time to develop a comfortable working relationship and Westpac), along with the Macquarie Group, also kept informed of decisions that will impact the group and example; for a wholly foreign-owned enterprise (WFOE) and patience is a necessary cross-cultural virtue. The first have offices, although the commitment to China has to be involved in decision-making processes, whereas in a capital account is necessary and the required capital meeting with a Chinese team may often take place over perhaps not been as intense in recent years. In return, the past, top-down management was enforced and only remitted before local trading accounts can be opened. A lunch or drinks as a means of allowing Chinese colleagues China’s five leading banks have opened headquarters in senior executives were involved. note of caution, however: not all foreign banks operating an opportunity for getting to know their boss. On such an Australia, complementing China-Australia business links in China are able to open capital and RMB accounts. occasion, business will not be discussed. and making it easier for Australian companies to access Boss or team player? China-specific financial expertise. Choosing the right bank to match the needs of a business can be critical and some businesses will consider holding The role of a manager Because of hierarchical structures in China, it is important that a manager maintains their role as ‘boss’ Australian businesses entering China and looking to accounts at a number of banks to guarantee flexibility Cross-cultural communication will be more effective and engenders the necessary respect from within the maximise opportunities will need to work with local banks. and reduce the risk of disruption to their operations. This when working in China if managers keep in mind that each team. When the manager needs to work collectively This is becoming increasingly easy as local banks, eager to approach can sometimes be dictated by customer and person has a very distinct role within the organisation, with their team, however, then it is important that the grow internationally, welcome the opportunity to lend to regulatory needs: the former, for instance, may require and maintaining that role helps keep order. In China, need to work collectively is stated and that the team foreign companies and will usually have greater capacity a company to have an account with a bank at a particular as in other hierarchical societies, managers may take a is encouraged to operate openly in a non-threatening to advance credit than most local offshoots of foreign branch, or a local tax authority may prefer that an somewhat paternalistic attitude towards their employees. environment. Should an individual make contributions banks. Advantages of using domestic banks includes them account be opened at a certain location, even if such an Younger workers, though, tend to expect a lot more of that are seen as not helpful or necessary, then the having extensive networks, relationships with the state account would not be strictly required under regulation. expatriate managers and thrive on building a relationship manager will need to address this sensitively. It is essential institutions generally, SAFE in particular, as well as their with them, which can seem slightly confronting to expats. Dealing with banks in China can be a frustrating that the individual does not feel shamed in front of their entrenched position within Chinese society. They will Employees show respect and deference to their managers experience. For a start, bank branches can be colleagues and that the rest of the group feel able to likely have better capabilities within China to process local and, in return, managers know their subordinates’ overcrowded and service slow. Australians, used to swift continue participating and offering contributions. Expat – as well as foreign exchange – transactions. Foreign personal situations and offer advice and guidance access to bank employees with authority, can sometimes managers should also encourage social interaction in and banks on the other hand have the benefits of being more wherever it is needed. In more entrepreneurial companies, feel in a time warp. Such delays underscore the value of out of the workplace. This is a key requisite in China’s developed and advanced in the areas of technology, this may be changing. building a good relationship with a local branch manager. collectivist culture where the importance of being part of relationship management, transparency and global reach a collective or team is valued highly by employees. Country starter pack Country starter pack 116 117 Business practicalities in China Business practicalities in China

Bank accounts Foreign exchange controls in some sectors of the economy, the rapid growth of A company will need to set up different types of accounts depending upon its structure. JVs and WFOEs must have WFOEs and JVs being set up in China must register credit and debit cards is changing the payment landscape. certain book accounts, including foreign currency (FCY) accounts, RMB basic accounts, and RMB general accounts with the foreign exchange authorities – SAFE – within For now, however, only a small fraction of China’s several (which cannot be opened with the same bank that holds the company’s basic accounts). Banks can open both RMB and 30 days of securing a business licence. The entity can million merchants and retailers accept credit cards and foreign currency accounts, depending on usage, but that will require approval from the Market Regulation authority. then buy and sell foreign currency (including exchanging ATMs for cash advances are few and far between even in RMB) at authorised banks for current account items, major cities. Things to note: The main accounts Australian businesses may need to open are: such as importing or exporting goods and services. But • The commission paid to credit card companies by sufficient documentary proof of each transaction must retailers can often be added to bills. For example, be made available. Authorisation is needed from SAFE paying for travel in China by credit card can incur a for capital account transactions – those that change 2.5 to 4 per cent additional charge. a company’s capital base, such as new loans, direct investment or investment in securities. • Representative offices and WFOEs can open US Overview of Chinese RMB and foreign currency (FCY) accounts dollar accounts and RMB accounts for paying local While China has promised to end such foreign exchange expenses. When paying overseas bills, an invoice must RMB accounts FCY accounts controls, little change is likely in the near future. As a be provided (or other evidence) to be able to remit money out of China. Account type Purpose Account Purpose general rule, controls are more strictly applied to funds being moved out of the country rather than funds flowing • To pay salaries, companies will need to open a payroll Basic account Cash withdrawals and Current account Trade and non-trade into China, although China in recent times has sought deposit account. salary payments transactions settlement to temper the latter in a bid to take the steam out of the account economy. Regular account Onshore payments and Capital account Capital contribution 5.7 REPATRIATING PROFITS collections Financing AND GETTING PAID Special purpose accounts Loan, tax, customs duty, Loan accounts FCY intercompany A distinction that puts representative offices in China at Australian businesses need to tread carefully to ensure RMB reinvestment (including parent's) and a disadvantage is that they are not permitted to borrow they meet regulatory requirements when setting up capital verification etc. bank loans money in China, so all working capital must be remitted in China, or they risk running into taxation or other from Australia. Further, Australian WFOEs tend to compliance issues when seeking to repatriate profits. They fund their activities by using cash flow from China, or by should also devise a clear strategy for minimising the risk tapping a loan facility from a foreign bank with offices in of their customers defaulting on payments, as chasing both Australia and China. While it is possible to secure debts through China’s legal system is difficult, time- Documents needed: The documents required to open a • Memorandum/Articles of Association and amending financing from a Chinese bank, this tends to be the consuming and costly. Local Chinese attitudes towards bank account may vary depending on each bank’s rules. supplements preserve of very big corporations. International banks will contracts and contracted prices can jar with Western lend for domestic purposes too, where they may already ideals and Australian businesses will not want to find Nonetheless, some of the basic documents commonly • List of directors (with the company’s official chop or have an established relationship with – or can potentially themselves cornered into renegotiating prices of goods required include: signature/chop of the legal representative) develop one – the Australian parent of the WFOE once they have been dispatched. • Approval Certificate issued by government bodies • Completed mandate/board resolution operating in China. authorised by the State Council (that is, Ministry of • An organisational chart showing shareholding Repatriation of funds Business overdrafts are not used in China. Instead, Commerce or the relevant provincial or municipal percentages of each entity and each stage in the Foreign entities operating in China can repatriate up to banks prefer to top up the working accounts of entities people’s government) ownership chain of the corporate structure 90 per cent of their profits. But this can be stymied by by drawing on a parallel loan account at regular intervals • Legal Person Business Licence issued by the State • Basic information for enterprises issued by State carelessness if, when establishing a business, it fails to (essentially, at three, six or nine months). Administration for Industry and Commerce Administration for Foreign Exchange with company’s comply with all regulations. At worst, a company could • Certificate of Legal Personal Code and Organisation official chop (for the enterprise required to conduct Paying business expenses in China be denied the necessary approvals needed to send profits issued by the State Bureau of Quality and Technical Balance of Payment reporting). out of China. In most circumstances, supplies must be paid for in Supervision As well as providing the required documents, most advance or on delivery using cash or credit cards. It may Before remitting profits, a corporation must have filed its banks require authorised signatories to be present • Valid foreign-invested Enterprise Foreign Currency be a long time before a Chinese supplier extends credit fourth quarter tax return with SAT, confirming its liability when opening an account. Some banks, however, Account Opening Approval Documents (if to a newly established business and certainly not before for Foreign Enterprise Income Tax. Once calculated, have alternative rules that accommodate the absence applicable) and Foreign Exchange Registration IC they have a well-established relationship. It is common, net profit can be declared, freeing funds for sending out of authorised signatories. For businesses establishing Card issued by the State Administration for Foreign too, to be asked to pay a deposit for utilities such as office of the country. However, not all of a company’s profit offices in different cities, accounts need to be opened Exchange telephones. Cheques, once the most common form can be repatriated. Instead, a portion (at least 10 per for each within the registered city and according to local • Identification documents of the legal representative, of payment in China, have been superseded with more cent in the case of WFOEs) must be placed in a reserve regulations. Key personnel can be approved as signatories directors, authorised personnel and principal than 90 per cent of payments now sent electronically. account, which is capped at 50 per cent of the company’s for accounts in different cities. shareholders and beneficial owners Bank acceptance drafts (essentially post-dated cheques) registered capital. Repatriating the rest requires a board • Company seal or chop and special seal or chop for remain common practice in certain industries, and their resolution authorising distribution and the lodging of finance use will tend to increase or decrease depending on the an application with SAT (in Mandarin) that includes an state of the economy and general liquidity. Managing annual audit, tax receipts and other documents. In turn, • Account application and other relevant documents these variables and idiosyncrasies effectively, given the SAT will issue a Foreign Enterprise Income Tax Payment provided by the bank impact on finance and risk, is a major factor in a foreign Certificate, which enables the bank to convert RMB and • State and Local Tax Registration Certificate (original) entity’s success or failure in China. While cash is still king then remit funds. Country starter pack Country starter pack 118 119 Business practicalities in China Business practicalities in China

company which has a track record and is trusted? • How much risk is the business prepared to take in a deal of this nature? How to repatriate funds • How large is the transaction? • Is there an opportunity to bargain for more favourable Step 1: terms with this buyer? Annual audit and confirming amount Banks can assist in determining the most appropriate of funds available. payment terms to engage in when doing business in China. These main payment terms are: Step 2: • Letters of Credit Record filing at State Administration • Document Against Acceptance, or Documents Tax office. Against Payment • Cash in advance Step 3: • Open account Submit application to a designated Letters of Credit (or documentary credit, import credit, foreign exchange bank. export credit) Step 4: These guarantee payment and receipt of title from an independent party – the bank. They are therefore Remit funds. recognised internationally and are the least risky way of securing payment from new customers. Most Chinese commercial banks and foreign banks with licensed Chinese after they’ve paid for them. Trade insurance can be taken unviable. In such cases, the financial consequences of the branches can issue a Letter of Credit. Generally, there is Getting paid out to cover the risk of default where Documents Against contract not being honoured need to be weighed against no problem with Letters of Credit from Chinese banks Acceptance are used. the opportunity for developing the business. How a business is to be paid by its customers will differ being accepted by Australian banks, although this should depending on the type of business structure deployed in be checked first, particularly if the transaction involves a Cash in advance Having a long-standing relationship with a customer the China-based entity. But almost universally, Australian Chinese regional bank. Also, it is worth ensuring that all may make a merchant more comfortable using an This payment method is only used once a Chinese buyer businesses operating there nominated obtaining customer Letters of Credit are received via SWIFT (the Society for alternative payment method such as a Document Against has developed a trustful working relationship with the payments in Austrade’s International Business Survey the Worldwide Interbank Financial Telecommunication). Acceptance. Even so, trade insurance against risk of a foreign seller. (2015) as a key challenge. default would be prudent. It is very important that the documents submitted to banks Without an on-the-ground presence (a representative comply exactly with the strict conditions of the Letter Open account Letters of Credit or Documents Against Payment that office, a WFOE or a JV), payment must be remitted to of Credit. It has been estimated that half of all Letters of Perhaps the least desirable option, this method involves guarantee payment before goods are delivered also an Australian bank account by an agent or distributor or Credit are rejected by banks at first presentation because the buyer agreeing to pay for the goods within a certain safeguard against slow payers, which can often be the by the customer himself if the business is selling directly they do not meet stated conditions. The Letter of Credit period after shipment, generally 30, 60 or 90 days. This case with municipalities and local government operations. to Chinese consumers. Access to either a WFOE or should be checked against the terms of the purchase far from secure form of payment would leave Australian Should a less secure payment method be deployed, it JV allows the business to open local bank accounts into contract and, if necessary, a buyer can be asked to make exporters to China fully exposed in the event of the buyer is important to deal with the problem of a slow payer which payments can be made for goods and services. any necessary amendments before the Letter is presented. defaulting on payment. Companies using open account as soon as the payment is overdue. A conduit such as a Access to a representative office, allows the business Documents that contain discrepancies should not be would in most cases routinely cover their exposure with China-based agent should be in contact with the buyer to still open local bank accounts, but these cannot be lodged unless these have been pre-approved through the trade insurance. and seeking payment immediately. An alternative is to used for trade or service purposes. Rather, they can only banking system. Businesses failing to do so risk losing the make direct contact with the buyer from Australia, or be used for administrative purposes. Again, note that protection of the Letter of Credit. Reducing risk of non-payment and slow payers using a business associate or influential ‘friend’ in China to when invoicing a customer for payment, many Chinese Predicting or identifying who will be good or bad get in touch. companies prefer to be invoiced in US dollars, particularly Documents Against Acceptance, or Documents Against payers in China can be fraught. Instead, Australian if they are already doing business with the US, although Legal action is a last resort, but sometimes necessary Payment businesses would be better off from the outset trying the currency will be determined by the contract. despite the cost and effort required. As well, arbitration These are used in ongoing business relationships and provide to negotiate the most secure form of payment possible is increasingly being used to settle disputes between some protection – but also some risk – for both parties. when negotiating a contract. When dealing with a new Choosing the right payment option Chinese and foreign companies. They are easier to use and less costly than Letters of Credit. customer, it is best to insist on Letters of Credit to ensure When competing to win contracts, the payment terms With Documents Against Payment, the documents needed payment, while carrying out due diligence on them and can make a significant difference to the outcome. The to obtain the goods are only delivered to the importer after making sure an enforceable contract is in place. However, best payment option at any particular time will depend on they have paid for the goods. With Documents Against in the case of very small contracts, the costs associated various factors: Acceptance, the documents needed to obtain the goods with securing a Letter of Credit may render the option are delivered to the importer after they have accepted the • How much can the buyer be trusted and how much is exporter’s bill for payment at a fixed later date. Needless known about the company? to say, the latter involves greater risk for the seller. Under • Is this a first transaction? Or does it involve a the former arrangement, the buyer only gets the goods Country starter pack Country starter pack 120 121 Visiting China Visiting China

Visiting China is a crucial part of doing business there. This chapter will review all the relevant information you need to know about travelling to – and within – China. 6. Visiting China This chapter also covers health and safety in China. 6.1 VISAS China does not issue visas on arrival, so you will need to get one before travelling there, regardless of the purpose of your trip. You should apply for your visa early to leave enough time before you travel. You should also ensure that your passport is valid for at least six months from the date of arrival in China. Previously, a transit visa was required for a stopover in China, except in certain cases (for example, when a foreigner directly transits through China by air and remains in the airport for no more than 24 hours). However, today, there are 14 airports that offer a 72-hour visa on arrival, and Hainan island offers 144-hour visa on arrival. One is to stay within the landing city, but this does now offer some flexibility for easier short-term visits.

For Australians travelling to China, there are a number of different types of visas that vary according to the purpose of your visit and the length of time you will spend there. The M Visa is for business-related visits (for Australians not working full-time in China and who are travelling there for business meetings, trade shows or negotiations). The F visa is for non-commercial visits and the Z visa is required for foreigners working in China. There are also L visas for tourists and X visas for students. You may apply for a multiple entry visa, but this will depend on the purpose of your visit and how often you plan to visit China. The specific rules and policies for issuing L or F visas vary depending on the particular embassy or consulate. In November 2018, new visa requirements were introduced for foreigners visiting China and participating in work-related activities for fewer than 90 days.

The website of the Embassy of the People’s Republic of China – au.china-embassy.org/eng/ – in Australia contains detailed visa information for Australians planning travel to China. For Australians already travelling or residing in China, all visa queries should be directed to the Foreigners Entry and Exit Administration Section of the local Public Security Bureau in China. As visa and other entry and exit conditions can change at short notice, you should always contact the nearest Chinese Embassy or Consulate for the most up-to- date information, including the current visa fees. In Australia, you can apply for any of the visa types at the Chinese Embassy in Canberra or at one of the Chinese Consulates in Sydney, Melbourne, Perth or Brisbane. Note that the visa processing times may vary between embassies and the various consulates. Express applications attract higher fees. Country starter pack Country starter pack 122 123 Visiting China Visiting China

VISA TYPES Credit cards are widely accepted in major cities, particularly in international hotels and restaurants. In Z-visa Considered short- smaller cities, using international cards may be more • Athletic training with a local sports organisation (athletes, coaches) term work difficult. To protect the security of your card, you should • Tasks involving technology, research, management or guidance with a local partner The Chinese currency is be particularly careful when paying for goods or services in smaller, non-reputable hotels, restaurants or stores to • Filming the Renminbi (RMB) not allow your card to be taken out of sight. • Fashion shows, photo shoots calculated in yuan (commonly called ‘kuai’) then • Foreign-related shows and performances for commercial ends into smaller units of jiao and fen 6.3 AIR TRAVEL AND AIRPORTS • Additional categories can be added at the authorities' discretion Airports M-visa Not considered The symbol for yuan is ¥. China has several international airports and numerous short-term work • Maintaining, installing, testing, disassembling or training and guidance for machinery and ¥ domestic airports, all varying in size and class. Most equipment Australians enter China via the principal hubs of Beijing However the Chinese character is • Guiding, supervising and inspecting a project that has won bidding in China Capital Airport or Shanghai Pudong International Airport. 元 often used in stores and in markets. • Dispatching personnel to work at a branch, subsidiary or representative office (RO) Guangzhou Baiyun International Airport is the main access point for southern China if you are not travelling • Participating in sporting events (coaches, athletes, assistants) via train or road from Hong Kong into Shenzhen. Arrival ¥1 = 10 JIAO (角). F-visa Not considered 角 and departure taxes for international airports are built into • Unpaid or volunteer work paid for by a foreign institution short-term work the cost of airline tickets. When flying to, or within China and using taxis to get to your final destination, be sure • Performances approved by the Department of Culture 1 JIAO (角) = 10 FEN (分) 分 (100 fen = 1 yuan, similar to to allow time for city traffic congestion (getting across 100 cents equals a dollar). Beijing sometimes takes up to three hours). Always go to the official taxi rank outside the terminal (follow the signs) To apply for an M visa you must have an invitation letter Chinese authorities strictly enforce penalties for entry and never engage with people hustling in the arrivals hall

¥ Renminbi comes in the following notes: from a company registered in China. This can be either and exit visa violations. Australians should ensure they offering cheaper taxi fares. You should have your hotel your Chinese business partner or a foreign-invested depart China before their visa expiry date unless they Yuan (元) - 100, 50, 20, 10, 5, 2 and 1 address (or other destination) written down in Chinese company in China. You can engage agents to manage the have correctly renewed it. Penalties include a daily RMB Jiao (角) – 5, 2 and 1. characters to show to your taxi driver. Hotels will often application process on your behalf if you’re unable to get 500 fine (maximum RMB 5,000) and possible detention have this information at the bottom of their reservation an invitation letter (for example, if your business hasn’t for between 5 and 30 days. confirmation email or letter. If not, ask them to send it to been officially established in China yet). The invitation Renminbi comes in the following coins: you. letter should contain: Obtaining a visa in Hong Kong: Another option is to apply Yuan (元)– 1, Jiao(角) – 5 & 1 for a Chinese visa in Hong Kong (although only certain Fen(分) – 5, 2 and 1. Beijing Capital Airport is approximately 32 kilometres • Information on the applicant (you) and your types of visas can be processed there). Most major hotels from the city centre. The trip should take about 40 relationship with the inviting individual or entity and travel agencies in Hong Kong offer a China visa minutes if there is no major traffic congestion. Taxis • Information on the inviting entity or individual, such service (service fees apply) – generally for L or F visas are a good option if it’s your first time in Beijing. Some with a turnaround time of one to two days. Alternatively, as name, contact telephone number, address, official Due to the existence of counterfeit money scams in hotels run shuttle buses to and from the airport, or you can apply through the Consulate Department Office stamp, signature of the legal representative or the China, your cash will be closely inspected when handled alternatively you can hire a driver limousine service. There of the Commissioner of the Ministry of Foreign Affairs of inviting individual and often run through a counterfeit detector to establish is also an express airport train between the two airport the People’s Republic of China in Hong Kong. This takes • Information on the planned visit – its purpose, arrival its authenticity. One scam that you should be alert to terminals and two major stops in Beijing – Sanyuanqiao longer but is cheaper. For further information, contact and departure dates, where you are visiting. involves taxi drivers targeting foreigners. Offending and Dongzhimen – which in turn connect to the major the Chinese Embassy in Canberra or your nearest capital drivers will take your Chinese yuan notes then hand it Beijing subway lines or you can get a taxi from there to city consulate before travelling to Hong Kong. A sample invitation letter is available with further back to you and demand a better note, claiming the your destination. Fares are RMB 25 with trains running information on the Chinese Embassy’s website. first was too dirty or worn. When this occurs, the driver frequently between 6am and 11.30pm. A second 6.2 CURRENCY generally has switched your note for a fake one – which international airport is currently being built in Beijing and Applying for the Z visa (otherwise known as a work visa) may be rejected the next time you try to use it. If this is expected to be operational at the end of 2019. is a more complicated process that varies according to Major foreign currencies can be exchanged for the Chinese currency Renminbi (RMB) by banks and happens to you, it is best to refuse to take your note back whether it is for short-term or long-term work. First, and don't provide another. Shanghai Pudong International Airport is the new the sponsoring company must apply for an employment authorised money exchangers at airports and in most of international airport for Shanghai. It is about 30 the major cities in China. However, nearly all payments in licence and offer a justification for why a local employee ATMs that accept foreign credit and charge cards for kilometres from the centre of Shanghai, and should China are through WeChat and Alipay. These offer short- is not being hired. The company must then apply for an cash withdrawals are widely available at airports, in large take about one hour in a taxi, depending on traffic. A term traveller accounts for visitors, or you can have all of invitation letter, and the prospective visa applicant must cities and in the lobbies of major hotels. Major cards such cheaper option is the shuttle buses that travel frequently your money in cash. However, perhaps the most effective undergo a health check. With the preceding documents as Visa, MasterCard, Cirrus, Maestro, American Express to leading hotels, but you may need to wait for up to 30 method is swaps, whereby you use a local’s WeChat completed, the applicant applies for the visa at the local and JCB are all accepted. All the ATMs have English minutes. Check with the information desk at the arrivals payment function in return for you paying them a service Chinese Embassy or Consulate. Once the visa is approved, instructions – an ‘English’ option will appear on the screen hall for the next shuttle bus departure. Another option fee and the money in RMB and/or transferring money the applicant has three months to enter China. Once you after you insert your card. Note that Chinese ATMs is the super high-speed magnetic levitation (MagLev) into their Australian bank account. There is significant have arrived and registered in China – registration can be dispense cash before returning your card, not after you train, which takes just eight minutes to complete the 30 business interest in this market, also. done at your hotel or local police office – you then apply have removed it (as in Australia). kilometre trip to Longyang Road station on the Shanghai for a residence permit (which is generally organised by the company and is valid for one year). Country starter pack Country starter pack 124 125 Visiting China Visiting China

subway line 2. The MagLev train costs between RMB 6.4 GROUND TRANSPORT To drive in China you are required to have a Chinese 50 and 160, depending on the class travelled. These run driver’s licence. regularly between the hours of 6am and 11pm. Taxis Taxis are plentiful and inexpensive in Chinese cities. However, Rail transport Shanghai Hongqiao International Airport is the domestic they may get stuck in traffic congestion, particularly in major Most of China’s major cities have well developed and hub for Shanghai and a standby airport for international cities and during the peak times of 8-9am and during lunch continuously growing mass transit rail systems. They are flights. Hongqiao Airport is about 13 kilometres from the and dinner, which can cause delays of many hours. Taxis are generally cheap, reliable and safe. However, they can also centre of Shanghai and the trip should take about 30 usually a good option: be very crowded and, although there are often designated minutes without major traffic congestion. Taxi is the best queue lines, everyone will push to get on the train once method of transport. • In off-peak times it arrives. Do not rush to get on the train when the door Guangzhou Baiyun International Airport is about 12 • If you’re going to an area in the city that is not near a closing alarms sounds. The doors are designed to not kilometres and less than 30 minutes by taxi from the metro or subway line reopen if anything is in between them. There have been centre of Guangzhou. There are frequent shuttle buses to • If you’re unfamiliar with the location to which you’re cases of people having arms or legs crushed in closing different locations across the city, most taking about 45 going. train doors. minutes. You can also take the metro from the airport to Beijing and to a lesser extent Guangzhou can be very Chinese cities with extensive train systems include the city. difficult to find cabs. There can be options such as Didi Shanghai, Beijing, Guangzhou, Changchun, Chongqing, entrances are marked by large signs with a white stylised Kuaiche (Chinese Uber), but if at all possible, one should Dalian, Foshan, Hangzhou, Kunming, Nanjing, Shenyang, Domestic flights: For domestic air travel, China’s letter G wrapped around a smaller letter B on a blue organise a driver or even stay in areas close to good Shenzhen, Suzhou, Tianjin, Wuhan and Xi'an. Most ‘big four’ airlines are Air China, China Eastern, China background. Single tickets can be purchased at vending subway transportation. Fares for Shanghai taxis start at of the subway and metro systems in China have a Southern and Hainan Airlines. Flights to Hong Kong, machines (with English instructions) that accept RMB 1 RMB 14-RMB 18 for the first three kilometres, RMB 2.4 ‘transportation smart card’, similar to Melbourne’s Myki Macau and Taiwan are all classified as international flights. coins or RMB 5 or RMB 10 notes. You need to know the - RMB 3.1 per kilometre up to 15 kilometres, and RMB or Sydney’s Opal card. These can be bought at stations name of your destination in order to calculate the correct 3.6 - RMB 4.7 per kilometre after that. Beijing fares are along with a mandatory deposit, which is refunded when Mobile phones fare. Subway trips are limited to four hours. similar at RMB 13 for the first three kilometres and RMB you return the card. The cards can be recharged at a Australian mobile phones can be used in China but 2.3 - RMB 2.76 per kilometre after that. If a journey goes majority of stations. Most major subway and metro train Guangzhou Metro: Guangzhou has a constantly international roaming charges, including for data, can be longer than 15 kilometres the fare rises to RMB 3.45 stations in China will also have security checks for bags expanding Metro system. It covers much of the city very expensive. Depending on the length of your stay, it per kilometre. Surcharges or higher flagfalls are generally when entering the station. centre, and some lines reach into the outer suburbs. may be much cheaper to buy a Chinese SIM card from applied after 11pm in most cities. Another option is to Fares range from RMB 2 to RMB 12 depending on length a local provider (such as China Unicorn, China Mobile or hire a taxi for a day (for a pre-negotiated price, which On some city trains you may encounter beggars (usually of the journey. Most signs and announcements are in China Telecom). These cards are convenient, but can be will vary according to the city you are in and where you playing traditional Chinese music on a speaker) who will Mandarin and English. very difficult to purchase, as they need to be purchased are travelling to). You could also hire a limousine with an often approach foreigners. It is best to keep your head at the carrier store, at the airport (often closing at 5pm) English-speaking driver, which can be arranged through down when you see one and not make eye contact – Inter-city rail: China has an extensive national rail and then linked to one’s passport. Simpler often is to your hotel or a car rental company. they will eventually move on. Giving them money can network that connects just about every town and city purchase a pre-paid wireless modem and carry it with encourage them to beg for more and can be a risk for in the country. Train travel between cities is reliable and you at all times, making calls over IP. Both SIM cards and Always take a legal taxi with a running meter displayed in pickpocketing. economical. Tickets are available in ‘soft’ (more expensive) wireless modems are relatively cheap – between RMB the front (unless you have organised with your hotel to and ‘hard’ (less expensive) varieties. On longer trips 150-400 for one’s stay. If you plan to put a Chinese SIM hire a taxi for a day). Legal taxis will have their taxi photo Shanghai Metro: The Shanghai Metro is ever-expanding, you may also choose between seats or sleepers (bunk card in your Australian phone, be sure to check with your licence displayed at the front of the cab and are required and is now the world’s longest subway system. The accommodation). Australian business travellers would Australian telco carrier before you leave Australia that the to be metered. If your taxi driver refuses to use the meter system currently has 16 operational lines, with more be well advised to pay the extra for a ‘soft sleeper’ ticket phone is unlocked. or no licence is displayed, then you should get a different under construction. The Metro is fast, cheap, air when travelling overnight. In rural areas, particularly taxi. Different cities have differently coloured taxis. It conditioned and fairly user-friendly, with most signs and during busy periods such as near Chinese New Year, be SIM cards can be purchased at international airports and is advisable to research the appearance of legal taxis in station arrival announcements in Mandarin and English. aware that when you pay for a seat, you still may end up at many locations in Chinese cities from convenience the city you’re travelling to before arriving. As most taxi Fares range from RMB 3-10 depending on distance. standing or sharing your seat with others. Depending stores to telecommunication stores. You will need some drivers do not speak or read English, it is useful to have There are also one-day cards available for RMB 18 (24 on the journey and ticket type, they can range between form of identification to buy a card. Not all SIM cards your destination written in Chinese characters. Note it hours valid after their first use) as well as rechargeable AUD 10 and AUD 150 (prices are subject to change). include data allowance, so be sure to ask for it if that’s is not necessary to provide a tip. Hotels generally have metro cards. Automatic ticket vending and metro card what you want. In smaller cities, you might encounter a card that has directions written in Chinese to popular recharging machines take notes and some coins with Train tickets can be bought at stations, online and from difficulties buying a Chinese SIM card if the store areas and the hotel itself to guide taxi drivers. Taxis will instructions in Mandarin and English. Make sure you some hotels. In major cities like Beijing and Shanghai, assistant speaks no English. In such cases you could ask also generally have a phone number displayed for you to have cash for tickets or card recharging. Only some lines there are English-language ticket sale counters. your hotel concierge to help. ring to speak to an English translator. It is useful to have a have people selling tickets; most of the newer lines have Chinese SIM card in your phone in these circumstances, machines only. Metro stations can be identified by red High-Speed Rail Network (HSR): China has a large and Chinese and Australian power sockets are very similar, so you’re not charged international roaming rates. and white signs with an M in a circle. Most stations are rapidly expanding high-speed rail network connecting so in most parts of China you will not need to use an Sometimes taxi drivers will phone an English-speaking underground. major cities such as Beijing, Shanghai, Qingdao, adaptor. But you should still carry a China-appropriate friend to help you communicate your destination details. Hangzhou, Hebei, Wuhan, Guangzhou and Shenzhen. adaptor for areas that have different sockets. The local metered rates will also be displayed in the taxi – Beijing Subway: The second-largest subway network in A ticket from Beijing to Shanghai will cost around RMB generally on a sticker on the back passenger windows. the world, and a great way to get around the city quickly. 550 (AUD 100) and will take from five to six hours. There are 22 lines, with more to be constructed and Tickets for 'G' trains are the fastest between the two A receipt (faipiao) will usually be offered when exiting existing lines to be expanded. Tickets cost from RMB cities, whereas 'D' tickets are for the slower bullet trains. a taxi. It is a good idea to hold onto this as it has the 3-9 per trip based on how far you travel. Trains can taxi’s details on it – making it easier to track down if you be extremely crowded during peak times, when many leave something in the taxi or have an issue with being popular stations have outdoor queues. Subway station overcharged. Country starter pack Country starter pack 126 127 Visiting China Visiting China

6.5 HOTELS AND DINING hosts numerous international brand stores, bars and 6.6 HEALTH AND WELFARE restaurants. Most international business offices are in the The Chinese hotel industry is one of the world’s largest, Chaoyang District, which also encompasses the areas of Most of the following information on health and welfare in with most budgets catered for. International chains Guomao, Dawan lu, Wangfujing and Chaoyangmen. The China has been provided by the Australian Government’s such as Marriot, InterContinental, Accor and Starwood CBD is in Guomao. Many technology companies have Useful Smart Phone Department of Foreign Affairs and Trade (DFAT) as operate in most major Chinese cities. International offices in Wangjing, a sub-district in Chaoyang located general advice. Australians should always consult DFAT travellers should note that star ratings of hotels in China, in the northeast and Zhongguancun, which is in Beijing’s Apps to use in China: for up-to-date information on travelling to China, particularly among Chinese hotel companies, do not northwestern Haidian District. The headquarters of most particularly on health risks and personal safety, before necessarily equate to the same ratings in Australia. For travelling there. Before travelling, Australians should also of China’s largest state-owned companies are also in WeChat – example, a five-star Chinese hotel may be the equivalent register on DFAT’s website in case of an emergency and Beijing. Like Shanghai, it is good to stay in a hotel in an free messaging service of a 3.5 star hotel in Australia. It is common to smell area near your meetings due to the frequent traffic jams consult https://www.smartraveller.gov.au, which provides cigarette smoke remnants in non-smoking rooms or in Beijing. The Subway is generally quicker, cheaper and Didi Chuxing – popular Taxi app in regularly updated advice for business travellers and areas. Most major five-star hotels offer wireless internet a more reliable option to get to your destination on time. China covers about 400 cities tourists visiting China. in addition to a fitness centre, sauna, business centre, However, it is extraordinarily packed during peak hour. restaurants and cafes. At some hotels you will have to pay Air Quality China – Real time Air Health insurance extra for certain facilities. Staying in Guangzhou Quality Index (AQI) for all major cities Before visiting China, Australians should take out in China Guangzhou, formerly known as Canton, is the third- comprehensive travel insurance that will cover any Staying in Shanghai medical costs. They should confirm that their insurance largest city in China with a population of more than 13 Pleco – Shanghai is the commercial centre of China and the covers them for the entire time they will be away, and million. It is in the southern province of Guangdong, Chinese-English dictionary country’s most cosmopolitan city. It is large and densely which borders Hong Kong through the city of Shenzhen. check what circumstances and activities are not included populated, with more than 24.2 million people over an A centre for manufacturing, Guangzhou is divided into Learn China Mandarin Phrases – over in the policy. area of approximately 6,340 square kilometres. The CBD 10 districts. Yuexiu and Liwan are the old city centres and 3000 Chinese phrases – no internet is divided by the Huangpu River, with Pudong to the east Zhujiang New Town in Tianhe is the new central business connection required Health risks and Puxi to the west. Pudong is a special economic zone district, home to the city’s biggest shopping malls and There are a number of basic health precautions to reduce of banks, skyscrapers and new residential compounds, highest skyscrapers. Waygo Visual Translator – translate the risk of illness while visiting China: with several major five-star hotels catering to foreign Chinese signs, menus etc by taking a business travellers. The renowned waterfront area, ‘The Business dining and entertaining photo on your phone • Check with your doctor about recommended Bund’, lies on the historic Puxi side of the Huangpu immunisations and general health matters prior to A great deal of business in China is conducted over River and looks across to the new skyline of Pudong Metro China Subway – comprehensive visiting China. dinner, where you may encounter very senior people who business district. This is at the end of the famous East metro maps can be used offline did not attend previous negotiations, but who are key to • No special vaccinations are required, but people and West Nanjing Road, with its brightly lit shops ranging the approval of a business deal. Dinners or lunches can travelling from an infected area before arriving in from convenience stores to luxury foreign brands. The Explore Metro Maps – essential subway indicate a general warming of a relationship and their China should have vaccination records available. You eastern end is a major mall area and at the western end app for cities such as Beijing, Shanghai importance cannot be overstated. Further information should ensure that all your general vaccinations, such is a collection of Western-style restaurants and bars. and Guangzhou about business protocol during dining can be found in as hepatitis and tetanus, are up to date. Continuing south-east across Shanghai is Xujiahui with Chapter 4. China Trains – can plan journeys, book its massive shopping intersection. Western Shanghai is • Do not drink local tap water. Bottled water is readily tickets and ask advice on train travel dominated by Hongqiao, a zone of hotels, conference available from supermarkets and convenience stores, The online site 'Travel China Guide' has information on across China centres and offices. Consider staying near where your and should be used even when brushing your teeth. a selection of restaurants, which are also detailed in the Avoid buying bottled water from street vendors, as meetings will be held to avoid being delayed by traffic. following popular magazines: Google Maps – useful for getting Alternatively, choose a hotel with easy access to one of this may have been reused and filled with local tap around water, then resealed. the Metro lines for easy access to your business meetings. • Shanghai: That’s Shanghai or Smart Shanghai • Uncooked food (vegetables and meat) or unpeeled • Beijing: That’s Beijing City Weekend – based on popular Staying in Beijing expat magazine, lists popular venues, fruit should be avoided, as well as ice. • Guangzhou: That’s PRD Formerly known as Peking, Beijing is the capital of China restaurants and events in Beijing, • Travel to high-altitude areas such as Tibet is not with an extensive imperial past and a population of more TimeOut Magazine is also available in the major cities, and Shanghai, Guangzhou, Shenzhen and recommended for those with pulmonary or heart than 21.6 million. Covering an area of 6,487 square there are extensive online guides, particularly should one Suzhou problems. kilometres, central Beijing is divided into five districts. be able to access Mandarin-readers. • To reduce the risk of airborne disease, avoid crowded Ctrip – China travel and The Forbidden City and Tiananmen Square are landmark public transport, particularly in rural areas. accommodation service app focal points, from which the city expands outwards with Tipping • Carry prescription documentation for medicines concentric ring roads numbered from two to. If you Tipping is not customary, but is gradually becoming China Daily News – China’s leading you have been authorised to take by your doctor in are interested in sightseeing, you should stay within the common practice. Although tipping in restaurants is not news app Australia. Third Ring Road. As the seat of China’s Government, required, it is now common practice to tip hotel staff who Beijing has many embassies, with the majority located • Bring your own basic medical kit for travel outside help with your luggage. It is a personal choice when you the major cities and carry sufficient quantities of any along Dongzhimen Road in the Chaoyang district in tip and depends entirely on the service you receive. the inner east. Nearby the embassies is Sanlitun, an necessary prescription medications. area popular with expatriates and young Chinese which • Pollution levels are a serious health concern in most major cities in China. You should consider carrying masks with built-in air filters. These can be purchased before your trip to China. When in China, you can check pollution level indexes online or on phone apps. Country starter pack Country starter pack 128 129 Visiting China Visiting China

Some apps use statistics from the United States Xinjiang Uighur Autonomous Region (Xinjiang) and Tibet: Embassy in Beijing, which are the most accurate. The Australian Government says: ‘Pay close attention to Hospitals and medical services your personal security at all times and monitor the media about possible new safety or security risks.’ Western-style medical clinics can be found in Beijing, Shanghai, Guangzhou and some other large cities. Useful numbers for Should one travel to either Tibet or Xinjiang: The security Major local hospitals also provide a reasonable standard situation in both areas is volatile due to heightened of emergency healthcare for foreign visitors at inflated emergencies include ethnic tensions. Violent incidents have occurred. It prices. Some major cities also have ‘international’ or If you can only remember one number or are in is also very hard to enter these areas at the moment, ‘American’ hospitals aimed at expatriates with foreign doubt, call 110. and one’s electronic devices are liable to be seized or doctors and English-speaking staff. searched thoroughly. Restrictions on communications or POLICE movement can be imposed with little warning. You should United Family Hospitals is a Western-style healthcare avoid any protests or large gatherings. operator that has a number of clinics and hospitals across China, including Shanghai, Beijing and Guangzhou. All of The Australian Government recommends a high degree its clinics and hospitals are at an international standard of caution if you are travelling to the Tibet Autonomous and have English-speaking staff. Region. In the past, protests have occurred with little is best to use ATMs when in the company of someone warning and turned violent, resulting in deaths and else, inside a secure location such as a bank, and Shanghai has a number of clinics and hospitals that injuries. You should not attempt to travel to Tibet without 110 during daylight hours. cater for expatriates and international visitors. They AMBULANCE permission from the Chinese authorities. Foreigners can be expensive, so you may want to be certain that wishing to travel to Tibet across a Chinese border must • If you are the victim of petty crime or a scam, you your insurance will cover the costs. American Medical apply for a Tibet Entry Permit issued by the Tibet Tourism should report it immediately to the local police. Centre, Global Healthcare Medical and Dental, Parkway Bureau in Lhasa. Even though they may not be able to retrieve your Health and Shanghai East International Medical Centre money or goods, they can issue you with an official are among the city’s private medical centres. All have Terrorism: Terrorist attacks by groups opposed to the loss report for insurance purposes. For further expatriate or internationally-trained staff fluent in Chinese Government are possible. Attacks could be information on how to reduce your risks from various English. Major state hospitals in Shanghai include 120 indiscriminate including in places visited by expatriates types of scams, visit the Australian Competition and Huashan Hospital, Renji Hospital and Zhongshan and foreign travellers. Australians could inadvertently Consumer Commission's SCAMwatch website at FIRE Hospital. Some have English-speaking staff, but it is not become victims of violence directed at others. Areas https://www.scamwatch.gov.au. guaranteed that you will get an English-speaking doctor. where terrorist acts have occurred in recent years include Urumqi, Xinjiang and randomly in Guangzhou and Penalties for drug possession and other crimes Beijing has a number of international hospitals and Kunming, Yunnan. Drug offences: Penalties for all types of drug offences clinics. Bayley and Jackson Medical Centre, International – including use, possession, manufacturing, selling or Medical Centre-Beijing, Vista Medical Centre and Foreign travellers should be alert to the Crime: trafficking – are severe, and can include life imprisonment International SOS Clinic all provide a range of medical 119 possibility of petty crime directed at them – particularly or the death penalty. These laws are strictly enforced, services and have English-speaking staff. Major state pickpocketing, purse snatching and theft of laptop TRAFFIC ACCIDENTS even for small quantities of ‘soft’ drugs. Recently, Chinese hospitals in Beijing include People’s Hospital Affiliated computers, passports and mobile phones. Resistance can authorities have executed foreign nationals found guilty to Beijing Medical University, Beijing International lead to violence or injury. Travellers have been targeted of smuggling drugs. The Australian Government cannot Friendship Hospital and Peking Union Medical College on overnight and other long-distance trains and buses override the laws and penalties of another country and is Hospital. and on public transport. Foreigners have been assaulted not able to intervene or interfere in the Chinese judicial and robbed, particularly in areas popular with foreigners, process. Under Chinese law, there is very limited scope International private medical centres that cater to including the bar and shopping precincts of Beijing, expatriates and international travellers in Guangzhou 122 to appeal for clemency for any Australians sentenced Shanghai, Guangzhou, Shenzhen and other major cities. include: Global Doctor Clinic Guangzhou, Guangzhou to death. You should never carry parcels or luggage Can-Am International Medical Centre, Bellaire Medical Scams: Foreigner travellers have been targeted by scams for others unless you are certain that the contents are Centre and Clifford Hospital. Major state hospitals in Always treat Chinese with respect and stay alert. The in China. Tourists can be approached, particularly in major legal. Australians in China should understand the serious Guangzhou include Fuda Hospital and the First Affiliated Australian Government advises Australian nationals to tourist attractions such as at Tiananmen Square, and penalties for all forms of drug offences and comply with Hospital of the Guangzhou Medical University. exercise normal safety precautions in China and use invited for a drink at a teahouse, cafe or bar nearby for local laws in full. Other serious crimes may also attract common sense and look out for suspicious behaviour, reasons including ‘to practise English’. The tourist is then the death penalty. Personal safety as you would in Australia. It is also best to monitor the presented with a vastly inflated bill (even in thousands of Other legal issues (identified by DFAT) Useful numbers for emergencies include: Police 110, media and other sources for changes to local travelling dollars) and is prevented from leaving until the bill is paid Ambulance 120, Fire 119, Traffic Accidents 122. 110 can conditions. by credit card. Physical violence, including serious assault • Demonstrations without prior approval from the be used in all emergencies. Shanghai Police offer a special when resisting, and credit card skimming or duplication Government are prohibited. These laws are strictly Civil unrest/political tension: You should steer clear number for foreigners in English: 021 6357 6666. Some has occurred. You should also note: enforced and, if arrested, you could be jailed or of all demonstrations and protests. Demonstrations cities, including Shanghai and Beijing, have English- deported. without prior approval from the Chinese Government are • Travellers have been asked to carry goods concealing speaking operators when you call 110 – once you hear • Gambling and prostitution are illegal in mainland China. prohibited and protesters can be arrested. Protests are narcotics out of China. the operator answer just say ‘English please’ and they will • Photography of military or government buildings may usually not reported in China so you may unexpectedly • There have been reports of foreign travellers being transfer you if possible. result in a penalty. You should seek permission from encounter them while travelling. Avoid photographing, drugged and robbed after accepting offers of food, local authorities before taking photographs. filming or participating in protests or other acts that could drink or transportation from strangers. be seen as provocative by authorities in China. • All foreigners, including long-term residents, are • Fake ATMs have been used to steal people’s cards. It Country starter pack Country starter pack 130 131 Visiting China Visiting China

USEFUL PHRASES FOR GETTING AROUND CHINA Phrases Mandarin Characters Mandarin Phonetic Hello 你好/您好 Nǐ hǎo/nín hǎo Good morning 早上好 Zǎoshang hǎo Public holidays in China Good afternoon 下午好 Xiàwǔ hǎo In China, weekends are ‘moved’ next to holidays that fall mid-week to give people more time off. Workers are Good evening 晚上好 Wǎnshàng hǎo then required to work the original weekend days. This system can be confusing for foreign businesses with little exposure to China. In some instances additional days are taken as holidays nationally which are not listed holidays. 晚安 Good night Wǎn'ān Check with your Chinese counterparts to make sure your visit does not coincide with public holidays. Good/Bad 好/不好 Hǎo/bù hǎo If a public holiday falls on a weekend then the following weekday is taken as a public holiday. Thank you 谢谢 Xièxie Name 2019 2020 2021 My name is .... 我的名字是.../我叫.. Wǒ de míngzì shì…/wǒ jiào… I cannot speak Mandarin 我不会说中文 Wǒ bù huì shuō zhōngwén New Year's Day Jan 1 Jan 1 Jan 1 I don’t understand 我（听）不懂 Wǒ (tīng) bù dǒng Chinese New Year** Feb 5 Jan 25 Feb 12 I’m sorry/Excuse me 对不起 Duìbùqǐ Qingming Apr 5 Apr 4 Apr 5 How much? 多少钱？ Duōshǎo qián? May Day May 1 May 1 May 1 (Too) Expensive 太贵了! Tài guì le! Dragon Boat Festival June 7 June 25 June 14 Mid-Autumn Festival Sep 13 Oct 1 Sep 21 Help! 请帮助我 Qǐng bāngzhù wǒ National Day** Oct 1 Oct 1 Oct 1 Straight on/ continue 直走/继续 Zhí zǒu/jìxù Turn left/Turn right 左转/右转 Zuǒ zhuǎn/yòu zhuǎn * Public holidays are announced by the General Office of the State Council at the start of each year. These dates are approximate. Stop here 停在这里 Tíng zài zhèlǐ Slow down 慢一点 Màn yīdiǎn ** These holidays go for three days. Change to the left hand lane 向左变道 Xiàng zuǒ biàn dào Change to the right hand lane 向右变道 Xiàng yòu biàn dào U-turn 掉头 Diàotóu

required to register their place of residence with the you could be arrested, imprisoned and/or deported. local Public Security Bureau (PSB) within 24 hours • Some Australian criminal laws, such as those of arrival, and at each change of residential location. relating to money laundering, bribery of foreign This can be done by visiting the nearest police station public officials, terrorism, forced marriage, female and presenting your passport and valid Chinese visa. genital mutilation, child pornography and child sex Foreigners staying with family or friends in a private tourism, apply to Australians overseas. Australians home are required to register with the PSB. Failure who commit these offences while overseas may be to do so could result in fines and detention. If you are prosecuted in Australia. staying at a hotel, this is done as part of the normal check-in process, after the hotel verifies your passport Climate and clothing and valid visa. Foreigners with residence permits are China is a large country with a wide range of climatic now required to register after each re-entry. conditions. Beijing is very cold in the winter and hot in • You should carry evidence of your identity at all times summer. Shanghai has cold winters with very hot and and present it upon demand of police authorities. humid summers. Guangzhou is located just south of Your passport or a Chinese residence card is an the Tropic of Cancer and has a sub-tropical climate, acceptable form of identity. Failure to carry ID or remaining relatively warm and humid all year round. Make comply with the registration requirement could result sure you pack appropriate clothing. in fines and detention. • Restrictions apply to certain religious activities, Dress to the local conditions. Women should observe including preaching, distributing literature and what local women wear and avoid short shorts and associating with unapproved religious groups. Falun singlets, especially in the far western regions of China, Gong activities are banned in China. If you participate which has a large Muslim population. in a Falun Gong-related demonstration or activity, Country starter pack Country starter pack 132 133 Engage with us Engage with us

Asialink Business Asialink Business provides high-calibre opportunities for Australian businesses to build the Asia capability of their 7. Engage with us executives and team members. Our business-focused cultural competency programs, professional development opportunities and practical research products allow businesses to develop essential knowledge of contemporary Asian markets, business environments, cultures and political landscapes.

Supported by extensive market research and customer intelligence, Asialink Business is uniquely positioned to provide tangible support to Australian businesses wishing to maximise their economic opportunities.

To start a conversation about how we can help build Asia capability in your business, please get in touch.

Asialink Business Level 4, Sidney Myer Asia Centre University of Melbourne Victoria 3010 Australia Tel: +61 3 8344 4800 Fax: +61 3 9347 1768 Web: https://www.asialinkbusiness.com.au Country starter pack Country starter pack 134 135 Engage with us Engage with us

Resources and contacts Useful websites Export Council of Australia Acknowledgements https://www.export.org.au/eca/homepage Australian Embassy, China In addition to the websites mentioned in this country The Export Council of Australia is the peak Industry body Asialink Business gratefully acknowledges the assistance 21 Dongzhimenwai Dajie starter pack, these websites may be useful for establishing for the Australian export community. and information from the following individuals and Sanlitun, Beijing 100600 a business in China. organisations in the production of this country starter Tel: +86 10 5140 4111 Export Finance and Insurance Corporation pack: Fax: +86 10 5140 4204 Asian Development Bank https://www.efic.gov.au/ https://www.adb.org Australian Government: Web: https://www.china.embassy.gov.au/ Efic provides information on overseas markets and support ADB offers good background data on its member to Australian businesses looking to expand overseas. Australian Trade Commissioner (Austrade) Embassy of the People’s Republic of China countries. Click on the “Regions and Countries” tab at Export Finance and Insurance Corporation 15 Coronation Drive the top of the home page. Global Edge Department of Foreign Affairs and Trade Yarralumla, ACT 2600 globaledge.msu.edu/resourceDesk/ Tel: +61 2 6228 3999 AustCham Beijing Department of Agriculture International business portal providing country guides, Fax: +61 2 6228 3990 https://www.austcham.org/ IP Australia Web: https://www.au.china-embassy.org/eng/ links to global information resources and a discussion The Australian Chamber of Commerce (AustCham) has forum. a number of branches throughout China. Others: China Australia Free Trade Agreement dfat.gov.au/trade/agreements/chafta/Pages/australia- Hong Kong Trade and Development Council Australian Chamber of Commerce Beijing AustCham Shanghai https://www.aboutus.hktdc.com/en china-fta.aspx https://www.austchamshanghai.com/ Australia China Business Council HKTDC support small to medium enterprises in Hong Booz&Co General Administration of Customs People’s AustCham Guangzhou Kong. They hold regular events to support business and British Chamber of Commerce in China Republic of China (also referred to as AustCham Southern China) their website is a useful source of information on China. english.customs.gov.cn/ https://www.austcham-southchina.org/ Canadian Trade Commissioner IBIS World Forbes Media LLC Invest in China Australia China Business Council https://www.ibisworld.com International Monetary Fund https://www.fdi.gov.cn/ https://www.acbc.com.au/ Produces reports on a range of industries. International Labour Organisation Ministry of Foreign Affairs, People’s Republic of China Australia China Business Council has branches in every state and territory in Australia. They hold regular Made-in-China John McLean, CEO, Bundaberg Brewed Drinks https://www.fmprc.gov.cn/mfa_eng/ https://www.made-in-china.com/ networking events and roundtables. John Russell, Managing Director, North Head Made-in-China.com provides detailed, accurate and up- National Bureau of Statistics of China Katherine Underwood, International Account Manager, Austrade to-date information on Chinese products and Chinese https://www.stats.gov.cn/english/ KeepCup https://www.austrade.gov.au/industrycountry suppliers available. It is a world leading B2B portal, King & Wood Mallesons State Administration of Taxation of the People’s Republic Austrade has a number of offices throughout China. specializing in bridging the gap between global buyers and of China Austrade’s website provides country and industry data as quality Chinese suppliers. McKinsey Global Institute https://www.chinatax.gov.cn/ well as links to other sources. National Bureau of Statistics of China Nielsen New Zealand Trade and Enterprise State Council of the People’s Republic of China China Briefing https://www.nielsen.com/cn/en.html english.gov.cn/ https://www.china-briefing.com/ Nielsen is a global marketing company with offices in Organisation for Economic Development and Australia, China and many other countries. Cooperation China National Intellectual Property Administration China Briefing provides reports and business intelligence on China for an international audience. Peter Michell, Executive Director, Michell Wool (CNIPA) Ozforex english.sipo.gov.cn/ Tim Lyons, Director, ManageChina China Law Blog https://www.ozforex.com.au/ Transparency International https://www.chinalawblog.com/ Provides current and historical exchange rates for a United Kingdom Department of International Trade China Law Blog discusses the practical aspects of Chinese variety of currencies. law and how it impacts business there. Their aim is to assist United States Trade Office

businesses already in China or planning to go into China on World Bank Doing Business Report University of Sydney https://www.doingbusiness.org/ how to navigate and use the Chinese legal system. World Bank The annual World Bank Doing Business Report measures CIA World Fact Book business regulations in 190 economies and selected cities. World Economic Forum https://www.cia.gov/library/publications/the- It ranks countries on areas such as infrastructure and World Intellectual Property Organisation worldfactbook/index.html approvals processes. World Shipping Council Detailed and up-to-date country profiles. This publication has not been produced in affiliation with, Digitalbusiness.gov.au or with the endorsement of, the above organisations. They https://www.digitalbusiness.gov.au cannot be held liable for any inaccuracies or loss which may arise from use of information contained in this publication. This website provides guidance for small businesses, not- for-profits and community organisations to establish and/ or enhance their online presence so that they can access the benefits of participating in the digital economy. Country starter pack 136 Engage with us

Note on currency

All money amounts are in Australian Dollars unless otherwise indicated. Exchange rate used is the 2018 calendar year average from OFX.

AUD 1 = USD 0.7475

AUD 1 = RMB 4.94

Disclaimer This publication contains country-specific general information and does not address the circumstances of any particular individual or entity. While all efforts have been made by Asialink Business to ensure timeliness of the data and information provided herein, the accuracy of the information in the future cannot be guaranteed. Users of this document are strongly suggested to pursue thorough examination and obtain appropriate professional advice, if required, before acting upon such information in any given situation. Asialink Business accepts no liability for any loss which may arise from use of information contained in this publication.

Reproduction of any part of this publication without prior written approval of Asialink Business is strictly prohibited. The information in this document is accurate as of September 2019.

© September 2019, Asialink Business. All rights reserved. Printed in Australia.

Asialink Business is supported by the Commonwealth Government Department of Industry, Innovation and Science, The University of Melbourne and The Myer Foundation. © September 2019, Asialink Business. All rights reserved. Printed in Australia.