Guide for Exporting to China Enhancing Export Capacities of Least Developed Countries in Asia for Intra- Regional Trade

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GUIDE FOR EXPORTING TO CHINA ENHANCING EXPORT CAPACITIES OF LEAST DEVELOPED COUNTRIES IN ASIA FOR INTRA- REGIONAL TRADE

GUIDE FOR EXPORTING TO CHINA

Acknowledgements

This document was prepared by Lei Zhang, Dean of School of WTO Research and Education, Shanghai University of International Business and Economics (SUIBE), Qing Yun Jiang, Associate Professor at SUIBE and Lifeng Tao, Associate Professor at SUIBE, Joost van der Kooij and Onno Roukens, ITC international consultants, Sylvie Bétemps Cochin, ITC Trade Promotion Officer and Mihoko Saito, ITC Junior Professional Officer, under the supervision of Xuejun Jiang, ITC Chief of the Office for Asia and the Pacific.

Further thanks go to a wider group of colleagues at ITC, notably Gultekin Ozaltinordu, Project Manager for Enterprise Competitiveness and Mohamed Es Fih, eSolutions for Business Adviser for their feedback and comments.

This guide was prepared as a part of the project “Enhancing Export Capacities of Asian LDCs for Intra- regional Trade” supported by the Ministry of Commerce of the People’s Republic of China. The goal of the project is to increase exports of SMEs from 6 Asian LDCs – Afghanistan, Bangladesh, Cambodia, Laos, Myanmar and Nepal – to China, to take advantage of Asia's largest and most dynamic import market, as a stimulus to boost intraregional trade in target sectors.

Views expressed in this paper are those of consultants and do not necessarily coincide with those of the International Trade Centre. The designations employed and the presentation of material in this paper do not imply the expression of any opinion whatsoever on the part of ITC concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.

Mention of firms, products and product brands does not imply the endorsement of ITC.

This guide has not been formally edited by the International Trade Centre.

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Acronyms and Abbreviations

This page should contain the list of abbreviations within the document. It can be named either Note or Acronyms or Abbreviations. The following sentence should be used if dollars or metric tons are mentioned in the document.

Unless otherwise specified, all references to dollars ($) are to United States dollars, and all references to tons are to metric tons.

The following abbreviations are used:

APTA Pacific Trade Agreement AQSIQ General Administration of Quality Supervision, Inspection and Quarantine ASEAN Association of South-East Asian Nations B/L Bill of Lading B2B Business to Business B2C Business to Customer C2C Customer to Customer CAEXPO China – ASEAN Expo CCC China Compulsory Certificate CCOI China Chamber of International Commerce CFDA China Food and Drug Administration CFR Cost and Freight CIETAC Chine International Economic and Trade Arbitration Commission CIF Cost, Insurance and Freight CIFIT China International Fair of Investment & Trade CIQ China Inspection and Quarantine Service CISMEF China International SME Fair CITES Convention on International Trade in Endangered Species CTL China Textile Leader CNCA Certification and Accreditation Administration CQC China Quality Certification Centre CSSN China Social Sciences Net D/A Documents against Acceptance D/C Documentary Collection D/P Documents against Payments EXW Ex-Works FIE Foreign Invested Enterprise FOW Free on Board FTA Free Trade Agreement FTZ Free Trade Zones GB Guobiao standards GSP General System of Preferences ICC International Chamber of Commerce IP Intellectual Property ISO International Organization for Standardization ITC International Trade Centre ITFCEW Invest and Trade Forum for Co-operation between East and West China (ITFCEW)

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JV Joint Ventures L/C Letter of Credit LDC Least Developed Countries MFN Most favoured nation MOFCOM China’s Ministry of Commerce SMEs Small and Medium-sizes Enterprises SAC Standardization Administration of the People’s Republic of China SAIC State Administration of Industry and Commerce SAR Special Administrative Region SEO Search Engine Optimisation T/T Telegraph Transfer UKTI UK Trade & Investment UNCTAD United Nations Conference on Trade and Development VAT Value-Added Taxes WFOE Wholly Foreign-Owned Enterprises WTO World Trade Organization

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Contents

Acknowledgements i Acronyms and Abbreviations ii

Chapter 1. Why China? Finding your opportunities 1

1. Why China? The big picture 2 1.1. Introduction to the Chinese market 2 1.2. Top 3 reasons for Asian LDC SMEs to enter the Chinese market 2 1.2.1. Fast growing consumer market 2 1.2.2. Increasing purchasing power 3 1.2.3. Trade opportunities for ASEAN member states 3 1.3. Opportunities for SMEs from Asian LDCs 4 2. Opportunities in key sectors 5 2.1. Food sector 5 2.2. Textiles and apparel sector 6 2.3. Wood 7 3. Choosing the right location in Mainland China 7 3.1. Regions with a promising market for Asian LDC SMEs 7 3.2. Where to start 9 3.3. Expectations for the coming 2 years 10 3.4. Mapping your opportunities: doing market research on China 10

Chapter 2: Five steps to successful market access 13

1. Accessing the Chinese Market 14 2. Step 1: Determine your product category 14 2.1. Free Imports 14 2.2. Restricted Imports 15 2.2.1. Import licence 15 2.2.2. Import quota 15 2.2.3. Tariff quota 15 2.3. Prohibited Imports 15 2.4. China Compulsory Certification 15 3. Step 2: Make sure your product meets the relevant standards 17 3.1. Standard levels in China 17 3.1.1. National standards 17 3.1.2. Professional standards 17 3.1.3. Local standards 17 3.1.4. Enterprise standards 17

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3.2. Food sector highlights 18 3.2.1. Green and organic food 18 3.2.2. Food Safety and Import Regulation 18 3.3. Textile and garment sector highlights 18 4. Step 3: Make sure your product meets all labelling and packaging requirements 19 4.1. Packing and packing list 19 4.2. Shipping mark on the package 19 4.3. List with labelling requirements 20 4.4. Sector specific labelling highlights 21 4.4.1. Textile and apparel 21 4.4.2. Food 21 5. Step 4: Provide required paperwork to Chinese customs 21 6. Step 5: Pay relevant customs taxes and fees 21 6.1. Custom duty tariffs 22 6.2. Special tariff arrangements between China and Asian LDCs 22 6.2.1. Agreement on trade in goods of the framework agreement on comprehensive economic co-operation between China and ASEAN 22 6.2.2. Asia-Pacific Trade Agreement 22

Chapter 3 Distribution channels: finding the right partner 27

1. Export channels and distribution 28 1.1. Fragmented market 28 1.2. Working with a company that has the right to operate import activities 28 1.3. State-owned enterprises 28 1.4. Distribution channels for export 28 1.5. Partnerships 29 1.6. How to find a partner 30 1.7. Criteria for selecting a good and trustworthy partner 31 1.8. Exporting through online channels 31 2. Other modes of market entry 32 2.1. Directly investing: Wholly foreign-owned Enterprises and Joint Ventures 32 2.2. Branches and representative offices 33 2.3. Free trade zones 33 2.4. Using Hong Kong as entry to Mainland China 33 3. Sector specific distribution highlights 34 3.1. Food sector 34 3.2. Textiles & garment sector 34

Chapter 4. Marketing: essential for long-term success 37

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1. Introduction 38 2. Product 38 2.1. Market research 38 2.2. Understanding your market 38 2.3. Regional differences 39 2.4. Intellectual property rights 39 2.5. Brand or product name 39 3. Place 40 3.1. Focus your efforts 40 3.2. 1st, 2nd and 3rd Tier cities 40 3.3. Clusters 41 4. Price 41 4.1. Pricing strategy 41 4.2. Pressure on cost price 41 4.3. Incoterms 41 4.4. Export price calculation 43 5. Promotion 44 5.1. Promotion in China 44 5.1.1. Influencers and opinion leaders 44 5.1.2. The Chinese calendar 44 5.2. B2B promotion 45 5.3. Online marketing and promotion 45 5.4. Promotional events 47 5.4.1. Successful participation in trade fairs 48 5.5. Hospitality 49 6. Promotion through missions and associations 49 7. Advertisement 50 8. Setting up follow up and after sales service 50 8.1. After sales service 50 8.2. Chinese-speaking staff 50 9. Relationship building 50

Chapter 5 Tips on commercial practices 52

1. Ordering procedures 53 2. Payment methods 53 2.1. Bank transfer (telegraph transfer or T/T) 54 2.2. Documentary Collection (D/C) 54 2.3. Letter of Credit (L/C) 54 3. Managing risks by using a contract 55

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3.1. Different viewpoints on contract 55 3.2. Hiring a lawyer to draw up your contract 56 4. How to solve contract disputes 56 4.1. Arbitration 56 4.2. Dispute resolution clause in your contract 56

Chapter 6 Tips on export logistics and documentation 58

1. Ways of getting your goods to your Chinese customer 59 1.1. Shipping methods 59 1.1.1. Transport by sea 59 1.1.2. Transport over land 59 1.1.3. Transport by air 60 1.2. Logistics providers 60 2. Border controls and inspections procedures 60 2.1. Border Controls and Inspection 60 2.2. Customs 61 2.2.1. Entry-exit commodity inspection 61 2.2.2. Customs clearance 62 2.3. Time limit and charges 63 3. Practical tips per document 63 3.1. Import cargo declaration form 63 3.2. Import contract 63 3.3. Fumigation certificate 63 3.4. Non-wooden packing certificate 63 3.5. Bill of Lading 64 3.6. Commercial invoice 64 3.7. Certificate of Origin 64

Chapter 7 Understanding Chinese business culture: key for success 66

1. Chinese culture 101 67 1.1. Power distance 68 1.2. Individualism 68 1.3. Masculinity 68 1.4. Uncertainty avoidance 68 1.5. Long Term Orientation 69 1.6. Indulgence 69 2. Concept of Guanxi (Relationships) 69 2.1. What is Guanxi? 69 2.2. Why is it important to have guanxi in China? 70

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Practical tips on Guanxi 70 3. Concept of Mianzi (Face) 70 Practical tips on Mianzi 71 4. The role of the government 71 5. Communication 71 5.1. Verbal communication 72 5.2. Nonverbal communication 72 Practical tips on communication 72

Bibliography 75

Appendix I. Packing list 78

Appendix II. Sample contract 79

Appendix III. Import Cargo Declaration Form 82

Appendix IV. Import Contract 83

Appendix V. Fumigation certificate 85

Appendix VI. Non-Wooden Packing Certificate 86

Appendix VII. Bill of Lading 87

Appendix VIII. Commercial Invoice 88

Appendix IX. Certificate of Origin: Sample 89

Appendix X. Cultural dimension comparison Bangladesh-China and Nepal-China 90

Appendix XI: Useful addresses 91

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Tables

Table 1. Currencies of 6 LDCs compared to Chinese yuan RMB (2010 vs. 2015) 3 Table 2: China's top 3 imports from 6 LDCs in percentage of import value 4 Table 3. Tariff applies to LDC export to China for garments (HS 621790), 2015 23 Table 4. Pro’s and con’s of a distributor 29 Table 5. Pro’s and con’s of an agent 30 Table 6: China’s dominant E-commerce channels 32 Table 7. Incoterms 42 Table 8. Top 5 trade fairs in China 47 Table 9. Institutions issuing Certificate of Origin 64

Figures

Figure 1. China Consumer Spending Forecast 2016-2018 3 Figure 2. China's imports in value from 6 Asian LDCs by sector 2014 4 Figure 3. Per-capita cash consumption expenditure of urban households 7 Figure 4. Top 10 cities in China, based on their economic performance 8 Figure 5. Process for market access in China 14 Figure 6. Labels for organic food (left) and green food (right) 18 Figure 7. Translated label to be added on the original package 20 Figure 8. Distribution channels 29 Figure 9. World Importer Net platform 30 Figure 10. Incoterms 42 Figure 11. Major Coastal Container Ports in China 59 Figure 12. Flow of products entering into China 61 Figure 13: Cultural dimensions China 67

Boxes

Box 1. Chinese consumer preferences regarding food purchases 6 Box 2. Top 4 textiles & apparel import categories in China 6 Box 3. Opportunities in the textiles & apparel sector: 7 Box 4. Challenges of 1st tier business hot spots 9 Box 5. Advantages of 2nd and 3rd tier cities 9 Box 6. China Export Market Research Action Plan 11 Box 7. Application for CCC 16 Box 8. Finding the right standards for your product 17 Box 9. Where to find the labelling and packaging requirements for your product: 21 Box 10. Finding out which custom duty tariffs and non-tariff measures apply to your product 23 Box 11. Opportunities in Free Trade Zones 33 Box 12. Advantages of setting up a company in Hong Kong 34 Box 13. Product marketing - issues to be taken into account 39 Box 14. Finding your target market 40 Box 15. Export pricing in 6 steps 43

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Box 16. Do’s and Don’ts of pricing in China 44 Box 17. 4 steps to online marketing in China 46 Box 18. Find the best trade fair for your product 48 Box 19. Using RMB to settle border trade 55 Box 20. How to select a good lawyer 56

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Chapter 1. Why China? Finding your opportunities

Why China? 5 steps to Distribution Marketing: Tips on Tips on export Understanding successful channels: essential for commercial logistics Chinese Finding your market access finding the long-term practices and business opportunities right partner success documentation culture

Learning points for Chapter 1  Discover the top 3 reasons for Asian SMEs to export to China.  Identify specific export opportunities in your sector.  Recognize how different doing business is in the various regions of China.  Conclude what to expect of the Chinese market in the coming 2 years.  Develop an action plan for your China market research.

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1. Why China? The big picture Entering China, a large and complex market, is possible with careful planning. This chapter will help you identify your export opportunities and develop an action plan for your China market research. With this plan, you can continue to work yourself through the other chapters of this China Business Guide, which are presented in a logical order. Thoroughly executed market research can help you minimize your risks and maximize your chances of success.

It is the first step of a 7-step flow you follow to successfully export your products to China, including market access, distribution channels, marketing, commercial practices, and logistics. Chinese business culture is the final step and is integrated in all the other steps, as you will be faced with cultural aspects in every part of the export process.

1.1. Introduction to the Chinese market The development of China’s economy brings great opportunities for SMEs (Small and Medium-sizes Enterprises) from Asian LDCs (Least Developed Countries). This China Business Guide focuses on Afghanistan, Bangladesh, Cambodia, Laos, Myanmar and Nepal.

Since joining the World Trade Organization (WTO) in 2001, China has been accelerating globalisation of its economy by pursuing ‘reform-and-opening-up policies and rapidly expanding its foreign trade. In 2013, China became the biggest trading nation in the world, surpassing the United States of America. For many countries, especially in Asia, China became one of the most important bilateral trading partners.

Stable economic growth and increasing income of Chinese people raise demands for natural resources and other commodities, leading to the expansion of import in recent years. It is estimated that China's imports of commodities would exceed 10 trillion U.S. dollars by 2020, which would strongly stimulate the world economy.

1.2. Top 3 reasons for Asian LDC SMEs to enter the Chinese market

1.2.1. Fast growing consumer market The urban population of China has almost doubled since 2000. This surge of urban population changed the total consumption pattern of Chinese consumers, with increased purchasing power. Food and clothing constitute a large portion of consumption expenditure and this has increased in recent years. The level of consumer spending was 24.1541 yuan in 2014, and is expected to reach 25.0970 yuan in 2018 (IECONOMICS, 2015).

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Figure 1. China Consumer Spending Forecast 2016-2018

300000

250000

200000

150000 Consumer spending Forecast

100000

50000

0 2012 2013 2014 2015 2016 2017 2018

Source: This IECONOMICS (2015), updated on December 22, 2015.

1.2.2. Increasing purchasing power Exchange rate is another factor that affects the import and export of China. A rise in the exchange rate, including currency appreciation, will result in increased imports from foreign countries. With a strong currency, the domestic price of the imported goods falls, which will stimulate consumption of imported goods. With the Chinese Renminbi getting stronger compared to the currencies of all six LDCs, purchasing power of Chinese customers goes up.

Table 1. Currencies of 6 LDCs compared to Chinese yuan RMB (2010 vs. 2015)

Country Afghanistan Bangladesh Cambodia Laos Myanmar Nepal AFN per 1 BDT per 1 KHR per 1 LAK per 1 MMK per 1 CNY Year CNY CNY CNY CNY

2010 6.44 10.67 608.29 1207.57 0.96 10.80

2015 10.71 12.21 634.77 1279.30 202.48 16.21

Source: XE currency charts. Note: In 2012 the Government of Myanmar legalised the use and exchange of foreign currencies, which explains the big difference in currency value between the Burmese Kyat (the currency of Myanmar) and the Chinese Renminbi.

1.2.3. Trade opportunities for ASEAN member states Deepening cooperation between China and ASEAN member states create new trade opportunities in the region. In 2003, China became ASEAN's first dialogue partner to sign the Treaty of Amity and Cooperation in Southeast Asia. In January 2010, the China-ASEAN Free Trade Agreement (FTA) was established, opening a new era for economic cooperation between China and Asian countries.

In 2013, China initiated a new round of reform-and-opening-up policy by promoting inclusive growth and the Silk Road Economic Belt and the 21st Century Maritime Silk Road (Belt, One Road) Initiative. This allows China to be more closely linked to the world. Furthermore, the establishment of the Shanghai Free Trade Zone will create new opportunities for China's economic and trade cooperation with Asia and the rest of the world.

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1.3. Opportunities for SMEs from Asian LDCs The main products, which China imported from the 6 Asian LDCs in 2014, were textile and apparel products (total 51%); pearls, precious stones, metals and coins (17%); and mineral fuels, oils and distillation products (7%).

Figure 2. China's imports in value from 6 Asian LDCs by sector 2014

Articles of apparel, accessories, knit or 18% crochet 27% Articles of apparel, accessories, not knit or 3% crochet Pearls, precious stones, metals, coins, etc 4% Mineral fuels, oils, distillation products, etc 7% Wood and articles of wood, wood charcoal

Footwear, gaiters and the like, parts thereof 17% 24% Other

Source: ITC Trademap

The main export products differ greatly among the different countries. The textiles & garments export is very big for Bangladesh and Cambodia, while the export of agricultural products is relatively important for Afghanistan and Nepal. Both Lao and Cambodia have wood and wood products as their largest export contributor to China.

Table 2: China's top 3 imports from 6 LDCs in percentage of import value

2014 2014 Growth % Country Main import products import value x % of import value 2014 compared 1000 USD to 2013

Afghanistan Oil seed, oleagic fruits, grain, seed, fruit, 9,360 54% 92% etc, Wool, animal hair, horsehair yarn and 6,073 35% 73% fabric thereof Pearls, precious stones, metals, coins, 1,094 6% 384% etc.

Bangladesh Articles of apparel, accessories, not knit 190,901 25% 34% or crochet Articles of apparel, accessories, knit or 143,036 19% 62% crochet Vegetable textile fibres nes, paper yarn, 104,036 14% 13% woven fabric

Cambodia Wood and articles of wood, wood 140,227 29% 60% charcoal 108,761 22% 23% Articles of apparel, accessories, knit or

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2014 2014 Growth % Country Main import products import value x % of import value 2014 compared 1000 USD to 2013

crochet Articles of apparel, accessories, not knit 33,407 7% -13% or crochet

Lao Wood and articles of wood, wood 1,044,945 58% 140% charcoal Ores, slag and ash 449,649 25% 29% Copper and articles thereof 85,078 5% 9%

Myanmar Pearls, precious stones, metals, coins, etc 12,282,090 79% 963% Mineral fuels, oils, distillation products, etc Wood and articles of wood, wood 1,370,726 9% 579% charcoal 677,880 4% 9%

Nepal Oil seed, oleagic fruits, grain, seed, fruit, 15,673 33% -12% etc, nes Miscellaneous articles of base metal 12,789 27% 45% Raw hides and skins (other than furskins) 4,604 10% -4% and leather

Source: ITC Trademap

2. Opportunities in key sectors

2.1. Food sector Measured by revenue, China is the largest food and beverage market in the world. Growth rates are expected to be between 2.7% and 3.6% from 2015 to 2018 (EU SME Centre, 2015). This market is expected to continue growing as a result of several factors:

 Increasing disposable income

 Urbanisation

 Domestic food safety issues

 A growing taste for foreign foodstuffs

As an exporter of food products it is important to take Chinese customers’ specific preferences into consideration.

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Box 1. Chinese consumer preferences regarding food purchases

 Confidence in safety of food and ingredients  High quality and nutritional value  Focus on a better lifestyle  Modern packaging  Freshness  Convenience

Source: EU SME Centre (2015).

China’s food imports from Asian LDCs have also gone up. After the European Union, the Association of South-East Asian Nations (ASEAN) has been the second largest food import source in terms of import value (source: EU SME Centre, 2015).

Leading imported food and beverage categories in 2014 included dairy products, oil and oil seeds, aquatic products, meat, grain and associated products, sugar, alcohol and other beverages, processed foods and canned foods. High quality agricultural products from Asian LDCs have high potential to be further accepted by Chinese market.

China is among biggest markets for vegetables, fruits and nuts in the world. For LDCs like Afghanistan and Nepal, agricultural products account for the majority of their trade with China. The most frequently exported goods from Afghanistan and Nepal are dried fruits and oil seed.

2.2. Textiles and apparel sector China has been the world’s largest textiles and apparel producer and exporter since 1994. This creates a high demand for raw materials including fibres (natural and man-made) and intermediate goods like yarn and fabrics. China is the world's second largest consumer market for home textiles and clothing.

China’s rapid economic growth and urbanisation also stimulated demand for modern and fashionable apparels. China’s apparel manufacturing industry is now experiencing a transformation from the former low-end apparel industry to a more sophisticated and diversified apparel industry.

Box 2. Top 4 textiles & apparel import categories in China

 Cotton (36%)  Manmade filaments (13%)  Manmade staple (short) fibres (10.2%)  Wool, animal hair, horsehair yarn and fabric (9.8%)

Source: EU SME Centre (2015).

Fibres and yarn from Cambodia and Bangladesh for example, are well received in China due to the fair price and good quality. China’s import volume of raw materials and textile products from Cambodia and

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Bangladesh has increased sharply over the past ten years. Apparel and textile products accounted for almost 30% of the total export of Cambodia to China.

In 2014, Bangladesh's total export to China reached US$ 760 million. Textile and apparel counted more than 60% of this value (ITC Trademap, 2015). To further expand their export to China, exporters from Asian LDCs need to cater to the change experienced in the Chinese apparel market by further enhancing qualities of their products and diversifying the products.

Box 3. Opportunities in the textiles & apparel sector:

 New applications of textile products in areas such as aerospace, automobile, healthcare, construction, and transports.  Fast growing online fashion market (>100% growth per year).  Increase in disposable income of consumers.

2.3. Wood Despite an increasing demand for crude log and converted timber in the Chinese market, with the conclusion of the latest CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) convention, the export of endangered timber has been banned by the governments of Madagascar, Thailand, Vietnam, Cambodia, Laos, and India. Although the total volume of imported wood from Asian LDCs is relatively small in 2014, it is still the most important export product for Cambodia and Laos in terms of export value to China (29% and 58% respectively) (ITC Trademap, 2015). Wood and wood products used to be the main export products from Myanmar to China. But its share of total exports has decreased from 72% in 2002 to 4% in 2014 (ITC Trademap, 2015). The share of wood and wood products export from Cambodia and Lao PDR to China has also dropped drastically. Due to the high demand for wooden furniture in China, it is noteworthy that there still is a large market for the export of wooden furniture and timber, which is not prohibited by law.

3. Choosing the right location in Mainland China

3.1. Regions with a promising market for Asian LDC SMEs China's domestic consumer market continued to grow rapidly over the past two years. Shanghai, Beijing and Guangdong are among the 3 regions with the highest per capita consumption. These are also the areas with the greatest market potential for foreign products. To find specific information on the different Chinese provinces and cities, have a look at the website of HKTDC Research: http://china-trade-research.hktdc.com/business-news/article/Fast-Facts/China-Cities- Provinces/ff/en/1/1X39VTST/1X06BOQA.htm

Figure 3. Per-capita cash consumption expenditure of urban households Unit: yuan

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30000

25000

20000

15000 Total expenditure Food 10000 Clothing 5000

Source: National Bureau of Statistics of China (2013).

On the other hand, these 3 regions are extremely competitive environments and only made up 10% of the population in recent years. For Asian LDCs there are great opportunities in the 2nd and 3rd tier cities, which show much faster growth and less competition.

Below an overview of the top ten 1st and 2nd tier cities in China:

Figure 4. Top 10 cities in China, based on their economic performance

Source: Milken Institute, Best Performing Cities China (2015).

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3.2. Where to start As a LDC SME you can find a wide variety of potential locations in China. However, it can be a challenge to choose the right location for doing business beyond the more generally known regions and cities. In the past decades, foreign companies have been focused mainly on a few business “hot spots”: 1st tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen. However, opportunities in these cities are changing quickly.

Box 4. Challenges of 1st tier business hot spots

 Markets are increasingly saturated, with only niche opportunities  Increasingly sophisticated Chinese companies  High factor input costs and fast rising costs of land and labour

Source: UK Trade & Investment (2015).

China is seeking growth driven by factors other than export. The domestic market is playing a much larger role, especially consumption and development in inland and rural areas. In the lower-tier cities the speed of development is often much higher, while the competition from other foreign companies is often lower.

Box 5. Advantages of 2nd and 3rd tier cities

 Much higher growth rates  Less competition  Large population (more than 300 million people)  Large government investments to stimulate growth and business development  Large labour pool and lower wages

Source: UK Trade & Investment (2015).

There are 3 regions that are expected to have the largest contribution to the development of the inland. Foreign companies can look for new export opportunities in following provinces due to their proximity to large and wealthy cities1:

 Sichuan province (close to Chongqing)

 Anhui, Jiangxi and Hunan province (near Guangdong)

 Hebei and Henan province (surrounding Beijing)

1 Miken Institute, 2015

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3.3. Expectations for the coming 2 years After many years of annual GDP growth above 10 percent, the China’s growth is now slowing down (International Market Advisor, 2015). The economy is undergoing a transformation, from export-led manufacturing toward a model in which GDP growth is largely driven by consumption and services. This will create both challenges and opportunities for companies exporting to China. Some of the important expectations concerning LDC SMEs are:

 China will maintain a relatively high growth rate compared to any other major economy, but economists and Chinese officials project a tougher year ahead (Wall Street Journal, 2016). The economic growth decreased from 7.3% in 2014 to 6.9% in 2015.

 Business services are expanding very rapidly.

 Wages are going up, which creates opportunities for manufacturing companies in Asian LDCs.

 Government policy will continue to be the critical shaping force.

 High growth in energy and agricultural sectors.

 Slowing down of the economy may also have negative effects for foreign exporters, as demand for certain products can decrease.

Source: International Market Advisor, 2015

3.4. Mapping your opportunities: doing market research on China Before starting up their exports to China, it is important that Asian LDC SMEs understand both the market they are entering and their own strategy. Although your products and selling points may appeal to certain target groups in the countries in which you already conduct business, they can have a completely different relevance in China. It is therefore important to gain an understanding of these differences before setting up your export activities.

In order to take a strategic approach, thorough market research and planning can greatly help Asian LDC SMEs to overcome the challenges of exporting to China. The Market Research Action Plan for export to China can help your business to formulate the strategic direction of your export plans, and map those areas that need more in-depth market research.

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Box 6. China Export Market Research Action Plan

Step 1: Desk Research

 Decide whether your company can allocate the resources, time and commitment needed to export to a new market.  Develop a list of the regions/cities you want to focus on, and create a structured search outline to find all the necessary information about these specific regions. Review chapter 1(c) to help you make a selection.  Gather basic information about: o Opportunities in your sector in China o Accessing the Chinese market o Finding a partner o China marketing o Commercial practices o Export logistics to China o Chinese business culture Information of these topics can be found in the different chapters of this guide. Have a look at the Read More section at the end of every chapter, for useful information sources.

 Try to go beyond the basic facts and figures. Make use of ITC’s Trademap (www.trademap.org) and Market Access Map (www.macmap.org) for country and sector specific data.  Have access to Chinese staff to help you get information from sources that are only available in Chinese language.

Step 2: Field research

 Acquire hands-on information at Trade Fairs and by speaking to people operating in your target market. Specific Trade Fairs can be found in chapter 4.  Invest in direct contacts with potential buyers. This can teach you a lot about the needs of your target group; information that you need to put the marketing strategies of chapter 4 into action.  Find out if your company and products can be competitive in China by doing field research on how to access the market (chapter 2), which are the distribution channels for your products (chapter 3), how to market your product (chapter 4), which method of payment you should work with (chapter 5), which shipping documents are required for your product (chapter 6), and how to successfully do business in the Chinese cultural context (chapter 7).  Opinions and recommendations from Chinese people you know are very valuable in determining potential target groups for your products, e.g. in terms of approximate age and income range, or even specific geographical market.

Step 3: Evaluate

 Decide if your Unique Value Proposition will appeal to the Chinese customer. Do a gap analysis in order to evaluate the market requirements vs your enterprise capabilities.  Make a list of the opportunities and problems you anticipate. Also review chapter 1(a) and 1(b) of this guide for opportunities in the Chinese market.

In doing market research secondary information is often inadequate. A lot of online resources such as websites are written in Chinese. Besides that, the quality and reliability of the available material can vary a lot. In some cases the necessary information is just not available. Therefore, it is important to verify the initial research findings and do more in-depth investigation.

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It is possible to seek help from specialists and industry stakeholders, such as China-based consultants, distributors, and retailers. These stakeholders can help you to get a qualitative understanding of the market dynamics you plan to be working in, provide advice on some of the questions above and assess the business opportunities available.

More useful information and tools

 UK Trade & Investment (UKTI): www.uktradeinvest.gov.uk/ukti/chinacities  International Trade Center: www.intracen.org  Association of Southeast Asian Nations: www.asean.org  Specific information Chinese provinces and cities: http://china-trade-research.hktdc.com/business- news/article/Fast-Facts/China-Cities-Provinces/ff/en/1/1X39VTST/1X06BOQA.htm  EU SME Centre: www.eusmecentre.org (only accessible for EU users)

Fast read of Chapter 1: Why China? Finding your opportunities

 Why China? Fast growing consumer market, increasing purchasing power and trade opportunities for ASEAN members.  Asian LDC SMEs have opportunities in different sectors such as food, and textiles & apparel.  2nd and 3rd tier cities offer the largest opportunities for LDC SMEs in a relatively less competitive environment.  Chinese wages are going up, which creates opportunities for manufacturing companies in Asian LDCs.  Go beyond the basic facts and figures with quality desk research. Also invest in acquiring hands-on information through field research.

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Chapter 2: Five steps to successful market access

Learning points for Chapter 2

 Determine which licences and certificates are required to bring your product on the Chinese market.  Identify the different Chinese national as well as international standards that apply to your product.  Gather all labelling and packaging requirements for your exports.  Discover which customs duty tariffs and non-tariff measures apply for your product.

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1. Accessing the Chinese Market After identifying your opportunities on the Chinese market, and deciding that China is the potential market for your product, the next step is to prepare yourself for accessing the market. This chapter describes the context of China’s market access system, licences, certifications, standards, labelling and packaging requirements, import taxes and tariffs.

Figure 5. Process for market access in China

Step 1: Determine your product category

Arrange required licenses, quota licenses and/or (compulsory) certification, if

necessary (Exporting country) Exporter

Step 2: Make sure your product meets the relevant standards

Step 3. Make sure your product meets all labelling and packaging requirements

Step 4. Provide required paperwork to Chinese customs

Importer Importer

(China)

Step 5. Pay relevant customs taxes and fees

Source: Adapted from EU SME Centre’s “Exporting goods, services and technology to the Chinese market” (2015).

This figure gives a general overview of the market access process. The process may vary for your specific sector or product.

2. Step 1: Determine your product category The first thing you need to do is find out what category your goods for export fall into. China’s Ministry of Commerce (MOFCOM) is in charge of overseeing international and domestic trade in China. Goods are divided into the following categories: Free Imports, Restricted Imports, and Prohibited Imports. At MOFCOM’s website you can find a list of goods subjected to an Automatic Import Licence (in Chinese only): http://www.mofcom.gov.cn/article/b/c/201212/20121208496384.shtml

2.1. Free Imports Some items that fall under Free Imports require an automatic import licence. This licence is granted to all companies that apply for it. An annually updated list of goods that require an automatic import licence can be downloaded from MOFCOM’s website (see previous link).

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2.2. Restricted Imports For products that fall under the category Restricted Imports, you will need to work with Chinese partners who have a valid import licence for your specific product. The Chinese government only issues such licences to companies registered in China. Some products require an import licence, a quota import licence, a tariff quota licence, or a combination of these three. It is important to verify whether your product requires an import licence before you ship it out. The Chinese customs may confiscate your goods, if they are imported without the required license.

2.2.1. Import licence Certain products require an import licence before they can be brought into China. To apply for an import licence, the importing party (usually your customer) will need an application form, the business licence of the importing company (your customer or an intermediary import company with an import licence), as well as other specific documents that vary per product. An import licence is specific to one type of product. On the website of MOFCOM you can find a list of products that require an import licence (in Chinese only): http://www.mofcom.gov.cn/article/b/c/201212/20121208502201.shtml

Hire Chinese speaking staff or a service company to help you check sources that are available in Chinese only.

2.2.2. Import quota For some goods (such as crude oil, pesticides and tobacco) China will only allow a certain volume to be brought into the country each year. For these products, the importing party (usually your customer) will need to apply for an import quota licence before importing the goods into China. More information on China’s import quotas can be found at www.sdpc.gov.cn (in Chinese and English).

2.2.3. Tariff quota Tariff quotas limit the volume of a specific product that can be brought into the country under a duty-free or lower duty rate. Before you export, make sure that your partner has sufficient import quota for your shipment. When the imported quantity exceeds the tariff quota, a higher duty rate applies. Products that fall under tariff quota are wool and wool top, sugar, chemical fertilizer, agricultural products, grains and cotton, soya bean oil, palm oil and rapeseed oil. More details on specific goods subjected to tariff quota management can be found in the More Useful Information and Tools section at the end of this chapter.

2.3. Prohibited Imports The Chinese law prohibits the import or export of any goods that may (1) endanger national security or public interest, and (2) disrupt the ecological environment. Examples of these are weapons, explosives and illicit drugs. A complete overview of sources stating the specific goods prohibited from import into China can be found in the More Useful Information and Tools section at the end of this chapter.

2.4. China Compulsory Certification Some products that are exported to China are subject to the “China Compulsory Certificate”, often referred to as “3C” or “CCC”. This mark is China’s national safety and quality mark, in the form of a physical sticker that is applied to the individual products. A lot of products that fall under the CCC are home appliances and IT products.

The Certification and Accreditation Administration (CNCA) and the China Quality Certification Centre (CQC) administer the CCC mark. CNCA’s full catalogue of CCC mandatory products can be found here (Chinese only): www.cnca.gov.cn/cnca/rdht/qzxcprz/rzml/images/20080701/4755.htm

When applying for CCC, you need to hand in several documents, depending on the product category. Documentation may include:

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 CCC application form and factory questionnaire for initial factory inspection

 Product description, including (where applicable):

− Production flow chart

− Product photos (front/rear/internal/power supply unit/nameplate)

− Copy of trademark registration in China and overseas (if any)

− Material list (e.g. information on parts, functions, type of material, supplier, etc.)

− Identity declaration for product series/family/group application (if any)

− Circuit diagram/PCB diagram/exploding diagram/block diagram

− List of critical components, including EMC performance

 Copy of the OEM manufacturing agreement (in case the manufacturer and factory are not identical)

 Copy of CB report, including Chinese deviations (if available and applicable)

 Copy of business licences for applicant/manufacturer/factory

 Product name, labels, user manual, rating, and warning labels translated into Chinese

 Organisation chart of manufacturing facility

Box 7. Application for CCC The application process for CCC can be completed in 4 to 6 months, and goes as follows:

Application accepted by Application to Chinese Product testing Reception of the Reception of the the Chinese authority, CCC printing CCC certificate authorities reception of Factory audit permission CCC factory code

To apply for CCC, go to the website of the China Quality Certification Center (CQC):

http://www.cqc.com.cn/english/

The CCC is the main compulsory certification in China. Besides the CCC, other compulsory certifications that may apply to your products are the Sanitary Inspection Certificate (food and animals) and the Veterinary Inspection Certificate (animals). Both can be applied for at the Entry-exit Inspection And Quarantine Of The People’s Republic Of China. Application documents can be downloaded at: http://www.chinaimportexport.org/china-import-and-export-documents-forms-and-samples-complete-list/ These documents need to be translated into Chinese and certified by the Chinese embassy in your country.

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3. Step 2: Make sure your product meets the relevant standards

3.1. Standard levels in China It is important for Asian LDC SMEs to be aware of compulsory and voluntary standards in China. There are four levels of standards: national standards, professional standards, local standards and enterprise standards.

3.1.1. National standards GB (Guobiao) standards are China’s (only) national standards. They apply to different sectors, depending on the product. The Standardization Administration of the People’s Republic of China (SAC) administers GB standards nationally. Asian LDC SMEs may have to self-declare conformity to the Chinese standards relevant to their product.

3.1.2. Professional standards Also referred to as industry or sector standards, professional standards apply when there are no relevant national GB standards. They are administered by various ministries, depending on the sector.

3.1.3. Local standards These are also referred to as provincial standards and come into play when neither national nor professional standards apply. They are administered by the China Inspection and Quarantine Service (CIQ).

3.1.4. Enterprise standards Enterprise standards are developed and used by companies in case other levels of standards do not apply. They are never mandatory.

Box 8. Finding the right standards for your product

National standards

All Chinese National GB standards can be found in the database of SAC (Standardization Administration of China), which is searchable in English or Chinese: http://www.sac.gov.cn/SACSearch/outlinetemplet/gjbzcx.jsp

Professional standards and local standards

The database of the CSSN (Chinese Social Sciences Net) can be researched in English or Chinese: http://www.cssn.net.cn/

Standards Map

Besides the database on National Chinese Standards of the SAC, Asian LDC SMEs can find more information in ITC’s Standards Map. It provides information on over 170 standards, codes of conduct, and audit protocols addressing sustainability hotspots in global supply chains.

Standards Map gives specific information on international standards applicable to your product and producing country, on the Chinese market. It is an online tool, which you can use for free after signing up. To start using Standards Map, go to www.standardsmap.org.

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3.2. Food sector highlights Some of the main food sector products exported from Asian LDCs to China, that are subject to measures included in standards, are grains (rice, wheat, corn, soybean), dairy products (milk, milk powder), and meat (pork, chicken, duck). For these products, measures mainly cover the quality and hygiene index, residue of pesticide and veterinary drugs, as well as genetically modified organisms (GMO).

3.2.1. Green and organic food Demand for organic and green food is increasing in China. Green food is a category of food that is not polluted, considered safe and has high quality. LDC SME exporters who wish to label their products as “green food”, must comply with a number of requirements, such as quality and hygiene standards, labelling standards, and ecological standards.

In China, organic food is considered to be the highest grade and is categorised as “AA” grade. Green food is generally categorised as “A” grade (allowed to contain minimal pesticide residue), while “AA” grade green food is close to the standard of organic food production. The term “organic” is gaining popularity among Chinese consumers as consumers’ awareness of food safety and health is rising. Exporters from Asian LDCs are encouraged to export organic food to benefit from the growing demand. More information about green and organic food can be found at the website of the China Green Food Development Center: www.greenfood.org.cn

Figure 6. Labels for organic food (left) and green food (right)

Source: Green Food Website

3.2.2. Food Safety and Import Regulation If imported food products are not yet certified according to the safety standards of the country of origin, or if it is the first time that particular food products are imported into China, the importers must apply for an import permit. The importers must also submit a safety assessment report to the Food Administration Authority. The import permit will only be issued after the application is approved. Furthermore, producers and exporters of food products must be registered at the Entry-Exit Inspection & Quarantine Bureau, which periodically issues a list of foreign food producers and export agents.

3.3. Textile and garment sector highlights Asian LDC SMEs active in the textile sector need to pay attention to GB standards. They apply to both textile and apparel products, depending on the product. Examples of these standards are GB 18401 and GB 5296.4, which cover general quality and safety requirements and labelling for textiles and apparel.

Besides GB standards, a lot of textile and apparel products are also covered by product-specific standards. These are called professional FZ standards, and they are usually voluntary. These FZ standards lay out additional quality requirements that contribute to ensuring product quality.

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4. Step 3: Make sure your product meets all labelling and packaging requirements All products that are brought into China require some sort of labelling. Your product labels need to be approved by China Inspection and Quarantine (CIQ) before they can be imported. Mandatory labelling applies to certain products, such as food and beverages, cosmetics, electronics, and chemicals. There are also voluntary labels in China, which are designed to indicate that a product is safe and environmentally friendly.

In general, China’s labelling requirements are higher than those of other countries. Besides complying with the strict labelling standards, Asian LDC SMEs also need to take into account that the higher requirements usually increase costs. According to local importers the labelling process is not difficult, once it has been navigated the first time.

Next to labelling, there are several packaging requirements for products imported into China. They are administered by different administrations, depending on the product and sector.

4.1. Packing and packing list Packing is meant to protect the goods from damaging during transport, and it must comply with commercial practices and contractual agreements. Details of the exporting goods are included in the packing list. Usually, a packing list includes a reference number, date, shipping marks, description; specification of goods, size, packing units, quantity, gross weight, net weight, measurement; and packing materials, packing method, signature etc.

If the letter of credit (L/C) specifies the content of the shipment, exporters must pay attention to the following details on the packing list:

 Name of the Document: if the L/C specifies “Weight Memo” for the packing list, “Weight List” must be used.

 Number and Date: packing list, weight list and measurement list need to be consistent with the content as stated in the commercial invoice. Special requirements listed on the L/C need to be consistent with the packing list, weight list and measurement list.

 On the packing list, weight list and measurement list, it is not necessary to indicate name of consignee, price, shipping and detailed description of the goods.

 The packing list needs to specify the packing materials and packing method.

 If the importer requires a “Neutral Packing List”, no information of the exporter or beneficiary should be indicated in the packing list (no stamps and signatures).

The exporter may also draft a detailed cargo list for the purpose of internal use, or for forwarding. In Appendix I, end matter, you can find an example of a Packing List.

4.2. Shipping mark on the package In export, it is important that those handling the cargo are able to identify what is inside the package. This way they can make sure that the package is handled properly. Therefore you need to provide the right shipping mark, information mark, and handling instructions. (Transport Information Service, 2016).

Each side of the package should be labelled with the shipping mark:

 Identification mark: e.g. initial letters or company name of receiver.

 Identification number: e.g. receiver’s order number.

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 Total number of items in the complete consignment.

 Number of the package in the consignment: e.g. 5/12 or 5-12.

 Place and port of destination.

Next to the shipping mark, there is additional information mark, stating:

 The country of origin (check with contractual agreement, in case not desired).

 An indication of the weight of the package.

 The dimensions of the package (in centimeters).

Handling marks are used to ensure that the cargo is handled with care. The symbols for package handling instructions are internationally standardised in ISO R/780 (International Organization for Standardization). You can find the right handling instruction symbols for your shipment at the website of the Transport Information Service: http://www.tis-gdv.de/tis_e/verpack/markier/markier.htm

4.3. List with labelling requirements According to the Product Quality Law of the People’s Republic of China, all exported products to China must have labels that describe the products’. This must be in simplified Chinese characters, so that it is understandable for Mainland Chinese consumers. Exporters must ensure that such labels are clear and do not mislead consumers. It is also prohibited to use names similar to those of existing Chinese products, which may violate the copyright of those products.

All products exported to China must have their labels in Chinese, either printed directly on the package or pasted onto the original package. The label must describe the specification of goods including product origin, validity and ingredients.

Figure 7. Translated label to be added on the original package

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4.4. Sector specific labelling highlights

4.4.1. Textile and apparel Textile and apparel products are required to be labelled by the Chinese National Standard (GB) 5296.4- 2012 “Instruction for Use of Products of Consumer Interest: Part 4 - Textiles and Apparel”. According to GB 5296.4, the following information must be provided on a permanent label, in simplified Chinese (International Trade Administration, 2015):

 Product type and size designation – (apparel sizes in accordance with GB/T 1335.1 - 1335.3).

 Fiber content – in accordance with GB/T 29862-2013 “Textiles-Identification of Fiber Content”.

 Care Instruction/Washing methods - care symbols specified in standard GB/T 8685.

Help with finding the specific labelling requirements for your product is given in the highlighted box at the end of this subchapter.

4.4.2. Food For food items, labels must include the name of the product, country of origin, name and address of the producer, expiry date, quality guarantee and/or storage period, condition for storage, net weight, ingredients, names of food additives, and all other items, which are mandatory under food safety regulations of China. All information needs to be translated into Chinese.

The most important organisation concerning labelling requirements of your food and beverage exports is the China Entry-Exit Inspection and Quarantine Bureau (CIQ). CIQ requirements change often. Before exporting your products to China, check the most recent requirements for labelling and other product certifications.

Box 9. Where to find the labelling and packaging requirements for your product:

Labelling requirements: http://english.aqsiq.gov.cn

Packaging requirements: www.worldpackaging.org (look for packaging regulations)

5. Step 4: Provide required paperwork to Chinese customs When the goods you export to China arrive at the Chinese border crossing, harbour or airport, they will need to be cleared by the Chinese customs. A number of documents need to be provided to the Chinese customs. Usually your customer or the intermediary import company takes care of this.

The procedure regarding paperwork at customs depends on your specific product. Because of the practical nature of this step, and its relation to export logistics, step 4 is extensively covered in chapter 6 of this guide.

6. Step 5: Pay relevant customs taxes and fees There are a number of taxes and fees applied to the products you export to China. Some of the most important ones are custom duties, value-added taxes (VAT), and consumption tax. The basic VAT rate is 17%, but 13% for certain products (including food). Consumption tax applies to products such as tobacco, liquor, cosmetics, and precious jewellery.

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Payment of taxes and fees is always undertaking by the importer, and thus this step is not part of your activities as an exporter. However, it is important to be informed about this step make sure you can verify the duty rates claimed by the importer.

6.1. Custom duty tariffs A tariff is a kind of tax that customs collect on all goods permitted by China to be imported into or exported out of the customs territory. A tariff is collected in accordance with the Customs Import and Export Tariff of the People’s Republic of China and other laws or administrative regulations.

The basic legal framework for China’s tariff is provided by the Customs Law, the Regulations on Import and Export Duties and other related regulations. Under the Regulations on Import and Export Duties, import duties are categorised into 5 types of duties, as listed below. Where goods from countries or customs territories fit into more than one of these categories, the most favourable rate applies.

General duty applies to imported goods originating from countries or regions with which China has concluded no agreements for reciprocal tariff preference, or goods with no origin or no definite origin.

Tariff quota duty rates apply to imported goods that are subject to tariff quota administration, where the quantity of the above goods is within the tariff quota.

Conventional duty applies to imported goods originating from countries or regions with which China has concluded a regional trade agreement that comprises preferential duty clauses.

Most-favoured-nation (MFN) duty applies to imported goods originating from:

 Member countries of the WTO that are subject to the application of the MFN clause.

 Countries or regions that China has concluded a bilateral trade agreement with for reciprocally granting MFN treatment.

 The customs territory of China.

Special preferential duty applies to imported goods originating from countries or regions with which China has concluded trade agreements that comprise special preferential duty clauses. Following the tariff implementation scheme of China, LDCs are entitled to special preferential duty rates.

6.2. Special tariff arrangements between China and Asian LDCs

6.2.1. Agreement on trade in goods of the framework agreement on comprehensive economic co-operation between China and ASEAN

 This Agreement regulates the arrangements of tariff-reduction and non-tariff measures on trade in goods between China and ASEAN.

 According to the China-ASEAN FTA, all goods are divided into normal products and highly sensitive products, except for products that already enjoyed tariff reduction under the early harvest program.

 For new members of ASEAN, the tariff rates applied to normal products have been reduced to zero by 2015. China’s tariff reduction list to ASEAN countries can also be found at: http://fta.mofcom.gov.cn/topic/chinaasean.shtml

6.2.2. Asia-Pacific Trade Agreement

 The Asia-Pacific Trade Agreement (APTA) is the only regional trade arrangement covering East Asia, North East Asia, South Asia and South East Asia.

 Currently the fourth round of negotiations is underway, including tariff concessions of trade in goods and services, investment, trade facilitation and non-tariff measures.

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Example - Tariff applying to LDC export of garments (HS 621790) Tariff applying to LDC export of garments (HS 621790: Garments or clothing accessories, parts of clothing accessories, of other textile materials, not knitted or crocheted) is shown in Table 5. Since China provides preferential duty rates to LDCs, most Asian LDCs are entitled to zero-tariff under the current tariff structure.

Table 3. Tariff applies to LDC export to China for garments (HS 621790), 2015

MFN duty Special preferential duty rate rates Afghanistan 14% 0% Bangladesh 14% 0% Cambodia 14% 0%

Laos 14% 0%

Myanmar 14% 0%

Nepal 14% 0%

Source: Macmap 2015

Box 10. Finding out which custom duty tariffs and non-tariff measures apply to your product Market Access Map has been developed by ITC to support exporters in developing countries. It provides information about customs tariffs (including tariff preferences), as well as non-tariff measures. Market Access Map (or Mac Map in short) is a great tool for LDC SMEs to do research for market access into China.

Market Access Map is free to use for SMEs from developing countries. To make use of the complete range of online tools that Market Access Map has to offer, you can create a free account on the website.

To find the specific tariff and non-tariff measures applying to your product, go to: http://www.macmap.org/

More useful information and tools

Stay updated about changes in import regulations via organisations relevant for your sector:

 State Food and Drug Administration (SFDA): www.sfda.gov.cn  China Organic Food Development Center (OFDC): www.ofdc.org.cn  Chinese Fisheries: www.agri.gov.cn  China Quality Certification Center (CQC): www.cqc.com.cn  China Certification Center for Electromagnetic Compatibility (CEMC): www.cemc.org.cn

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More useful information and tools (continued)

Product category, licences and certificates

 Chinese Ministry of Commerce (MOFCOM): http://english.mofcom.gov.cn/, and, in Chinese only: www.mofcom.gov.cn  Certification and Accreditation Administration (CNCA): www.cnca.gov.cn/cnca/rdht/qzxcprz/rzml/images/20080701/4755.htm

Information on import quotas (in Chinese and English): www.sdpc.gov.cn

Products that require an import licence (in Chinese only):

http://www.mofcom.gov.cn/article/b/c/201212/20121208502201.shtml

Products that fall under tariff quota management (in Chinese only):

 Wool and wool top: http://www.mofcom.gov.cn/article/b/e/201209/20120908362131.shtml  Sugar: http://www.mofcom.gov.cn/article/b/e/201209/20120908362118.shtml  Chemical fertilizer: http://www.mofcom.gov.cn/article/b/e/201210/20121008376628.shtml  Agricultural products: http://www.mofcom.gov.cn/article/b/e/201208/20120808295312.shtml  General grains and cotton: http://www.sdpc.gov.cn/zcfb/zcfbgg/2012gg/t20121008_508641.htm  Soya bean oil, palm oil and rapeseed oil: http://www.mofcom.gov.cn/article/b/e/200512/20051201000816.shtml

Products prohibited from import into China (in Chinese only):

 Second batch: http://www.mofcom.gov.cn/article/b/c/200404/20040400210013.shtml  Third batch: http://www.mofcom.gov.cn/article/b/c/200404/20040400209990.shtml  Fourth and fifth batch: http://www.mofcom.gov.cn/article/b/c/200404/20040400205769.shtml  Sixth batch: http://www.mofcom.gov.cn/article/b/c/200602/20060201575919.shtml

Standards

 Standardization Administration of the People’s Republic of China: http://www.sac.gov.cn/  Standards Map ITC: www.standardsmap.org  CSSN (Chinese Social Sciences Net): http://www.cssn.net.cn/  China Green Food Development Center: www.greenfood.org.cn

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More useful information and tools (continued)

Packing and labelling

 Transport Information Service: http://www.tis-gdv.de/tis_e/verpack/markier/markier.htm  Packaging requirements: www.worldpackaging.org/packaging-regulations/default.asp  General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ): http://english.aqsiq.gov.cn  China Food and Drug Administration (CFDA): http://eng.sfda.gov.cn/WS03/CL0755/

Custom duties

 Market Access Map ITC: www.macmap.org  General Administration of Customs PRC: http://english.customs.gov.cn  World Importers Net: http://win.mofcom.gov.cn/en/  Transport Information Service: http://www.tis-gdv.de/tis_e/verpack/markier/markier.htm

Fast read of Chapter 2: Five steps to successful market access

1. The first step in accessing the Chinese market is determining your product category, and arranging the required licences and certification.

2. The second step is making sure your products meet the relevant Chinese and international standards.

3. The third step is making sure you can meet all labelling and packaging requirements.

4. The fourth step is providing all the required paperwork to Chinese customs.

5. The fifth step in accessing the Chinese market is paying all the relevant customs taxes and fees. Asian LDC SMEs can benefit from favourable tariff arrangements between China and Asian LDCs.

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Chapter 3 Distribution channels: finding the right partner

Learning points for Chapter 3  Find out which Chinese distribution channel suits your export business.  Verify your potential Chinese business partner.  Discover which online channels can increase your chances of success on the Chinese market.  Decide which China market entry mode is the way forward for your company.

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1. Export channels and distribution The previous chapter discussed the different requirements for your product and export procedures. In this chapter we will zoom in on the channels you can use to successfully bring your products on the Chinese market, and how you can find the right partner to help you do this.

1.1. Fragmented market There is no defined formula for market entry into China. The country has a fragmented market in terms of climate, eating habits, income distribution, and level of exposure to Western culture. Distribution channels are complex and constantly changing. There is no one-size-fits-all solution, which means that the approach for exporting your product to China will vary depending on the product and the specific market that is being targeted. In this chapter we offer some general guidelines that can be applied in most situations, as well as sector-specific highlights.

1.2. Working with a company that has the right to operate import activities To bring products into China, a company requires an import license. This license gives the company the right to operate the import/export activities stated in its business license. It is not to be confused with an import license required for a specific product. Only companies that are registered in China can get an import licence. Therefore, there are two ways to acquire an import license:

 Importing yourself (with your own company).

 Working with a qualified Chinese importer.

If establishing a firm in China is preferred for your specific products or market entry strategy, it may be interesting for you to import products into China yourself. In order to do this you have to be a foreign trade operator, for which you need to establish a Foreign Invested Enterprise (FIE) in China first. This is a lengthy and extensive process, which is not recommended for most exporters. You can find more information on FIE and other market entry modes at the end of this chapter.

The second option means that either you or your Chinese customer will have to work with a certified importer. The qualified importer can merely serve as an intermediary but can also be the buyer himself. Working with a qualified Chinese importer, either as an intermediary or as a direct customer, is the way to go for Asian LDC exporters.

1.3. State-owned enterprises In addition, some special goods such as cereal, plant oil, sugar, tobacco, crude oil, chemical fertiliser and cotton can only be imported by state-owned enterprises. As rice, sugar, tobacco and cotton are the main export products of Asian LDCs, it is important for LDC exporters to be fully aware of the status of their partners.

To check the qualification of Chinese partners, it is useful to ask for their business licence, which includes business categories and the foreign trade code provided by the government.

1.4. Distribution channels for export Figure 7 illustrates the different distribution channels through which export of a product to China can proceed. Although an Asian LDC SME can sell directly to a distributor or end customer in China (with or without an agent), it is always necessary to work with a licensed importer as an intermediary.

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Figure 8. Distribution channels

Asian LDC China

Exporter Distributor End Licensed customer importer

Agent

Licensed importer - In order to export goods to China, it is essential to work with a company that is registered in China and has an import license. This company can be the buyer of your products, but often serves as an intermediary between you and your Chinese customer. It assists in bringing goods across the border and facilitates international payment.

Distributor (importer) - A distributor buys your products and then sells them to wholesalers, customers, or to other distributors down the chain. Their profit is the difference between their buying and selling prices.

Agent - Import agents operate as a direct representative of your company, to sell your product in China. Usually they work based on a management fee or a commission.

1.5. Partnerships Successful foreign companies in China know how to create long-term relationships with local companies. Doing this can help you to better understand the market and gain important government and business relationships. Developing and nurturing effective partnerships is also important for exporters from Asian LDCs, as it lowers your risks and increases the success of your products in the Chinese market.

For Asian LDC SMEs, exporting through an agent or distributor is one of the easier ways to enter the Chinese market. In China there can be many layers of distributors. Because the exact sequence further down the chain will depend on the specific sector, only one level of distributor is shown in figure 7 before selling to the end customer.

Table 4. Pro’s and con’s of a distributor

Advantages Disadvantages

 Quick access to a pool of customers.  Loss of control over the distributor’s  Access to distribution fleet, technology and expertise. activities, such as marketing or sales promotion activities at points of sales.  As the supplier, you can pass on a greater degree of risk to distributors.  Credit risk is focused on distributor instead of being spread over large number of  Financial incentive for distributors to sell your products. customers.  Lower costs, because no need for an established place of business in the territory.  Only work with accounts of several distributors rather than accounts for all customers.

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Generally speaking, it is better to work with multiple distributors in China. There are only a few Chinese distributors that have a distribution network covering all of China. Besides that, working with one exclusive partner also increases your risks. Choose the right distributor by examining whether their customer profiles fit your products and strategy. For instance, a distributor can be specialized in modern trade or traditional trade retailers, or customers in a niche segment.

Table 5. Pro’s and con’s of an agent

Advantages Disadvantages

 Local knowledge and contacts.  Frequent communication to control agent’s  Experienced in promoting foreign products. work.  Agent will focus on best-selling products with highest  Risk of agent going to competitor. margin.  Higher costs from keeping stock inventory Agent’s commission lower than margin of profit earned yourself. by distributor.

1.6. How to find a partner It is important to invest effort into finding a good agent or distributor. Your embassy and chamber of commerce can often help you with this. Another way to find a good agent or distributor is by meeting them on trade fairs or business-matching events, in your country or in China. In China, it is not allowed to hire an agent as an employee but the agent can enter into a service contract if they have their own company.

A great way to find Chinese importers is by using the platform of the Ministry of Commerce of the People’s Republic of China (MOFCOM). The Ministry facilitates a searchable platform of importers called the World Importer Net, at http://win.mofcom.gov.cn/en/ .

A large number of Chinese importers can be found on this platform. For example, in the category ‘T-shirts, singlets & other vests, of cotton, knitted or crocheted’ (HS code 610910)’ there are currently 502 importers, of which 56 in Beijing and 142 in Shanghai.

Figure 9. World Importer Net platform

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Other interesting sources for finding a partner are trade fairs (see chapter 4), Alibaba.com, member lists of associations, or company directories such as http://www.made-in-china.com/ or www.kompass.com.

1.7. Criteria for selecting a good and trustworthy partner Most Chinese distributors and agents are honest and willing to develop a sustainable business relationship with you. However, it is important to invest effort into finding a good and trustworthy agent or distributor, in order to avoid common Chinese partnership pitfalls. Examples of these are fake or opportunistic companies, or partners that do not have the extensive network that they promised to have.

3 tips to help you select your potential partner 1. Be proactive in finding a partner

 Select your partner/distributor, and be on your guard for companies or agents that are approaching you pro-actively.

 Always visit your potential partner at their company.

 Do not hesitate to start by looking into your own network of Chinese friends, and ask for recommendations for people they know.

2. Select your partner based on his/her network

 Look for a partner or distributor that has a strong customer base in a specific area in China.

 Work with multiple partners to cover different areas of China.

 Get a recommendation from a partner you already work with to get in touch with new distributors.

3. Verify the legal, financial and operational standing of the company

 Check if the potential partner possesses a business license. This can be done on the website of the State Administration of Industry and Commerce (SAIC): http://gsxt.saic.gov.cn (only available in Chinese!).

 To find an agent or distributor it is usually sufficient to ask for a creditworthiness letter (also known as a bank reference letter), which is issued by your partner’s bank. This way you can check their current financial situation, and make sure they will be able to pay you for your export goods.

 The best way to check whether a Chinese company is authentic, is by visiting the company and its premises.

 Talk to employees, neighbors, customers and competitors if possible.

1.8. Exporting through online channels E-commerce is growing in China and may serve as an interesting channel for your export activities. Compared to traditional business, e-commerce has many advantages such as a reduced cost of trade, and a shortened manufacturing cycle.

When choosing the right online channels to market your products in China, it is important to understand that Chinese companies and consumers make use of completely different online channels than those used in many other countries. This is the case for search engines, social media networks, and e-commerce platforms.

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Table 6: China’s dominant E-commerce channels

Segment E-commerce channel

B2B (Business to Business) market places Alibaba, HC.

B2C (Business to Customer) market places and retailers Tmall, Jing Dong, Tencent, Suning.

C2C (Customer to Customer) market places Taobao, Paipai.

Because Chinese customers are used to purchase on big e-commerce platforms, such as Alibaba (B2B) and Tmall (B2C), it is recommended to focus your online marketing efforts on these platforms. As an extension of your activities on the big platforms you can also build a standalone website for your company.

The more global e-commerce platforms such as Amazon and eBay only have very limited success in China. Besides the e- commerce platforms mentioned above, Chinese social media platforms such as WeChat also offer highly developed tools for online marketing and selling. It is common to buy and sell consumer products via WeChat, such as fashion or food items. WeChat is also a good tool to update on consumer trends.

If you plan to focus on Chinese end- consumers, Tmall Global offers good opportunities to sell your products in China. It facilitates payment methods familiar to your target group and draws a very large audience. For most B2C market places, including Tmall, you need to be a company registered in mainland China with a valid business license, in order to enter the market place. This is to increase sellers’ trustworthiness for online shoppers. A subscription or entry fee is sometimes applicable.

Keep in mind that for B2C activities you will need to overcome the language barrier. All your marketing and customer service therefore needs to be in Chinese. Chinese B2B buyers on Alibaba can often speak English. You will have a big advantage however, if you work with Chinese speaking customer service or sales representatives.

In chapter 4 of this guide, selling and marketing your product online in China are discussed in more detail.

2. Other modes of market entry The information that has been discussed in this chapter so far is especially focused on export. Besides export, there are other market entry modes that you could choose, depending on your goals and planning. We will briefly go through some of the main market entry modes that could be your next step after establishing successful operations through export.

2.1. Directly investing: Wholly foreign-owned Enterprises and Joint Ventures When foreign companies want to invest in China, the most common entry modes are wholly foreign-owned enterprises (WFOE) and joint ventures (JV). Because joint ventures can result in problems related to

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control, management approaches, culture, language and other issues, the WFOE is often a good choice. WFOE is a limited company with 100% foreign ownership. The WFOE can engage in any legal conduct, including hiring local employees. However, the Chinese authority will determine the minimum registered capital depending on the type of business. A WFOE leaves the complete control to the foreign company, and it offers better protection of intellectual property rights and technology. A joint venture might be ideal for developing a strategic local partnership or sharing operational costs.

If you want to invest in China you will have to abide by China’s property laws. A foreign investor is not allowed to buy land in China. The land belongs to the state and the collectives. Instead, you can pay land usage rights for an agreed-upon, but limited, period. The process of purchasing property in China for foreign investors is complicated, and it is advisable to work with a consultant.

2.2. Branches and representative offices A branch of a foreign company is a part of the legal entity of the firm that performs business activities outside of the company address. To set up a branch office in China comes with an extensive administrative process, similar to setting up an independent company. A branch of a foreign company does not receive any legal protection from the Chinese laws. Therefore, it is often not the preferred mode of entry for foreign companies.

If the only purpose is finding customers or doing market research, but all other activities take place outside of China, a representative office can work. A representative office functions as a liaison office in China for the company’s headquarters in the home country. A representative office is not allowed to engage in profit- making activities, collect money or issue invoices, buy property or import production equipment.

2.3. Free trade zones In the past years a number of free trade zones (FTZ) have been set up to create a business-friendly environment, and to serve as a testing place for new policies. Since 2015, there are 4 FTZs in China. These are located in Shanghai, Tianjin, Fujian and Guangdong.

Box 11. Opportunities in Free Trade Zones  Inventory can be kept in a FTZ warehouse customs-free.  Products can be sold on cross-border online business platforms, such as Kua Jing Tong, without/before setting up commercial presence in China.  Asian LDC SMEs can circumvent agency fees from overseas, selling their products on the DIG (direct imported goods) Market.

2.4. Using Hong Kong as entry to Mainland China Traditionally, Hong Kong has been the gateway to doing business in China. In 1997, Hong Kong was returned to China and has been administered by Mainland China as a special administrative region (SAR). These days, many SMEs rather bypass Hong Kong and enter China directly, especially when it comes to exporting. There are however still a number of specific reasons to consider having a legal entity in Hong Kong.

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Box 12. Advantages of setting up a company in Hong Kong  A holding company in Hong Kong protects the parent company from legal issues in Mainland China.  Easier profit repatriation and lower corporate tax.  Asian LDC entrepreneurs in China without an office in their homeland can use a Hong Kong shell company to set up a representative office in China (see “branches and representative offices”, earlier in this chapter).  Fast start. A company can be established in 2 weeks in Hong Kong, compared to a minimum of 3 months in China. 

An obvious disadvantage to setting up a company in Hong Kong is the high operational costs, such as wages and rent.

3. Sector specific distribution highlights

3.1. Food sector The import and distribution channel structure in the Chinese food sector is complex and changes frequently. Distribution of products is usually done on a store-by-store or city-by-city basis and involves many different links in the distribution chain. Stores receive most imports through a series of local distributors, which creates a fragmented distribution process at relatively high costs.

Another issue is that although import procedures have to be dealt with by licenced importers, most food distributors and traders are unlikely to hold import licences. Import licenses for food commodities are usually granted to large-sized state enterprises.

A good way to overcome both obstacles is by working with Hong Kong traders as importers and distributors of food products. They have access to a wide distribution network and understand international trading practices.

3.2. Textiles & garment sector In the textiles and garment sector, the wholesale market plays an important role as a link between thousands of scattered manufacturers and retailers. The focus of these wholesale markets is generally on high volume sales at low prices. Although the domestic Chinese textile industry is still highly competitive, chances for Asian LDC SMEs as suppliers of textile products are opening up, as Chinese labour cost rise (World Property Journal, 2015). LDC SMEs should take advantage of this opportunity to move up the value chain and proactively seeking out Chinese buyers.

More useful information and tools  World Importers Net: http://win.mofcom.gov.cn/en/  Alibaba: http://alibaba.com  Tmall: https://www.tmall.com/  State Administration of Industry and Commerce (SAIC): http://gsxt.saic.gov.cn  Company directories for finding a partner:  http://www.made-in-china.com/ ; www.kompass.com

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Fast Read of Chapter 3: Distribution channels, finding the right partner 1. Although you can sell directly to your customer in China, it is always necessary to work with a licensed importer as an intermediary. 2. Working with a Chinese distributor can give you access to a large network of customers. 3. Always verify the administrative, financial and operational standing of your potential Chinese partner. 4. E-commerce is huge in China, and third-party platforms such as Alibaba and Tmall can help you reach your customers online. 5. Setting up a company in Hong Kong has advantages such as protection from legal issues and lower taxes, and in some cases can be interesting to consider for Asian LDC SMEs.

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Chapter 4. Marketing: essential for long-term success

Learning points for Chapter 4  Design and sell the right product for your Chinese target group.  Determine the right market for your product and choose the channel to reach your customers.  Calculate your export prices using an integrated marketing approach.  Promote your export products on- and offline.

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1. Introduction Now that you have mapped your opportunities in China through market research (chapter 1), familiarised yourself with the market entry requirements (chapter 2), and decided which distribution channels you will follow (chapter 3), it is now time to find out how you will market your products to your customers.

China’s increase in domestic consumption offers great opportunity for foreign companies. Even more so for Asian LDC SMEs who take the time to understand their customers, and position their products with their Chinese buyers in mind. Although as an exporter, you may not be in direct contact with the end user of your products, you need to be proactive and carefully consider your China marketing strategies.

Instead of focusing on short-term profit making, you are recommended to think longer term and work closely together with your Chinese distributor/customer. Try to find out what is important for your customer’s marketing strategy, so that you can provide support that will ultimately benefit you both. The first step is to understand your Chinese customers, but this will have to be followed by product adaption, overcoming language barriers, and working with local promotion channels.

To market your products successfully in China, you will need to adapt your marketing tactics to Chinese preferences regarding the product’s value proposition, the places that it can be sold, how it can be priced and the way that it is promoted. This chapter will highlight these four Chinese marketing aspects, and provide you with practical information on how to market your products to your Chinese customers and end users.

2. Product One of the four components of the 4Ps of marketing is the Product, with the others being Price, Place and Promotion. Regarding the Product, it is about all its physical features and quantity requirements. Below are some steps that provide guidance.

2.1. Market research Usually when a product is introduced, a pre-existing market is required. To make sure there is a market for the product, it is important to conduct market research. The problem in China is that reliable market data is often not available. Although there are a number of market research companies, their quality is often not very high and customised marketing studies can be very expensive. In order to gather practical information that can help you determine whether there is a market for your product, you can: - Look at your competitors. How well are they doing? What could you do better? - Talk to (potential) distributors. They already know the market and have valuable information. - Interview (potential) customers. Find out which of their problems you can solve or needs you can fulfil. What is important to them? - Have a look at Chinese online marketplaces to see what is popular and at what price point.

For consumer products, do not hesitate to ask for opinions from Chinese people in your country. Keep in mind that people from a certain region might have a different lifestyle and therefore preferences from others.

2.2. Understanding your market Asian LDC SMEs will need to adapt their marketing strategies and tactics when exporting their products to China. Chinese buyers will not perceive the products in the same way as the customers in your home country. Before you can adapt your product and market positioning, you first have to understand the market. It is essential to understand your potential position and strengths in the market, because the Chinese market is highly competitive.

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Box 13. Product marketing - issues to be taken into account Important questions you have to ask yourself when selecting and designing the product you want to export to the Chinese market are:

 Do you need to redesign or alter your products, to make them suitable for the needs or customs of Chinese customers? For example, Chinese greatly value “face”. Therefore, consumers will often pay more for products meant as gift, with a fancier packaging, although the actual product might be the same. Another important question is, do you need to alter your packaging or product design to needs of specific regions of China? China is not a homogenous market, and local preferences can vary greatly. This is especially the case with food products.  How do customers in your market niche define quality? Different target groups differ in their willingness to pay extra for higher quality. Many Chinese consumers above 50 years old for example are quite frugal and less willing to pay more for higher quality, while younger people on the other hand often do. Therefore, make sure you define your Chinese target group well.  What aspect of your product is particularly appealing to this market? When buying toys for example, Chinese parents place high value on safety. Another example are “do-it-yourself” products, which the older generation often makes at home, while the younger generation has less time and is looking for ready-to-use products.  Which competing products are your competitors selling? Use online market places such as Alibaba, Taobao, and Tmall to research the existing offer of your Chinese and foreign competitors.  Does it make sense to differentiate your value proposition from that of the competition, based on Product? China is shifting rapidly from a traditional manufacturing into a design and brand oriented business environment. How will you position your brand? Find a unique selling point for your product and make sure it is relevant to your target customers. For example, as an exporter of natural produce, you can respond to the increasing purchasing power and growing healthy living trend in China’s 1st and 2nd tier cities by marketing your products as ‘organic’ or ‘high in nutrition’, for example rice high in selenium. As Chinese middle class consumers are increasingly eager to try something new, you can use a ‘Geographical Indicator’ (GI) to market your product, especially if it indicates unique value or selling points, for example, ‘Jasmine rice from Thailand’.

2.3. Regional differences Chinese consumers in markets such as Shanghai and Beijing have a wide range of imported products available to them. These markets are therefore highly competitive and it might be necessary to differentiate your product. Second and Third Tier cities are still developing more strongly, and therefore offer a market with more space for your product. You can find more information about the regional differences in China in chapter 1.

2.4. Intellectual property rights If you are planning to market products for which intellectual property rights are important, make sure to inquire about registering your intellectual property (IP) locally, as foreign patents offer absolutely no legal protection in China (Sampi Marketing, 2013). There are different types of IP, and they are registered in different ways, taking 1 to 4 years to from application until the grant. For more information about the IP registration process, have a look at: http://www.allianceexperts.com/en/knowledge/countries/asia/registering-intellectual-property-in-china/

2.5. Brand or product name If branding is important for your product, a key aspect is the Chinese name that you create for your brand and product. Some companies have been very successful with their Chinese name, because it not only sounds like the original, but also translates well.

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An example of this is Coca Cola. Their Chinese name, Ke Kou Ke Le, can be translated as “happiness in the mouth”. An example of a brand name that is affected negatively by the translation is Electronic company Best Buy. Their Chinese name, Bai Si Mai, sounds similar to Best Buy when it is pronounced in Chinese. However, it translates to “think one hundred times before buying.”

For Asian LDC SMEs that rely on branding, it is important to give careful consideration to the brand or product name (Sampi Marketing, 2013).

3. Place As mentioned earlier in Chapter 1, there are vast differences between the regional economies in China. When selecting the target market for your export activities, it is helpful to view China as a country of many different markets rather than one large market. It is important to find out where to concentrate the company’s resources, in order to achieve maximum impact.

3.1. Focus your efforts Focus your efforts on one particular area to build strong relationships with your partners and customers.

Box 14. Finding your target market When researching which area in China you want to focus your marketing and export efforts on, ask yourself the following questions:

 What are the types of customers you plan to focus on? In which region of China are they likely to be based?  Which cluster or city in that region offers the most favourable balance between opportunity and competition? In other words, where are good opportunities and at the same time relatively low competition? Refer to text below for more clarification.  Which area in China do your competitors focus on?

3.2. 1st, 2nd and 3rd Tier cities Choosing the largest market or the one offering the most opportunities is one of the main priorities of any marketing strategy.

Although income levels and economic development are highest in First Tier cities such as Beijing and Shanghai, the biggest opportunities for your export products lie in Second or Third Tier cities, where economic growth is higher and competition is lower Large Second Tier cities such as Hangzhou, Suzhou, Nanjing, Wuhan, Qingdao, Jinan, Shenyang, Dalian, Chengdu, Chongqing, Fuzhou and Xiamen are developing very fast. Their markets are also less saturated, and there is much less competition from other foreign firms.

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3.3. Clusters “Regional city clusters” in China are formed by several cities interacting together to create a wider economic area. There are 12 of such regional city clusters across China. The majority of Chinese cities with a population of more than 1 million people are located in these clusters (EU SME Centre, 2014).

China is not a single national market, but a mixture of small markets that are separated by geography, culture, cuisine, demographics and dialects. When your product has succeeded in one city cluster, there is no guarantee it will in another cluster. When moving into a new area or cluster, you should therefore start with market research and careful planning once again.

Besides city clusters, China also knows a lot of industry clustering. Entire industries tend to concentrate around one city. One way of deciding on the target market for your export products, can be to identify a cluster in your industry (Sampi Marketing, 2013). They can give you access to a network of companies and distributors. This way you can make use of the industry’s distribution channels.

4. Price

4.1. Pricing strategy The third P of the marketing matrix stands for Pricing. In many cases, as a LDC SME, without proper segmentation and positioning you will not be able to dictate your own prices. Just as in the other aspects of your marketing strategy, it is important to start with thorough market research before determining your pricing strategy. This should give you insight into the prevailing retail and wholesale prices, appropriate margins and competitor prices.

Once you have done sufficient market research, you can choose your way forward based on one of these four basic pricing strategies:

 Cost-plus pricing. Take your production costs, and add the profit you need to make. Cost-plus means Cost + profit. The focus within this pricing strategy is more on selling than on sustainable long-term marketing.

 Competitive pricing. Establish your market price by benchmarking with competitors’ prices. This is usually implemented when a product is well established on the market and you face a lot of competition.

 (Perceived) Value pricing. When there is no competition yet or your product is perceived as unique or superior, you can apply value pricing. Volumes here may be small and margins high. This means you can lower the price at a later stage to increase volume. Conspicuous consumption is also important in China, including prestige-oriented buying behaviour (e.g., clothes, jewellery) or plain ‘show off consumption’.

4.2. Pressure on cost price Top export sectors in Asian LDCs, such as textiles and garments, face stiff competition, which will most likely create permanent pressure on the cost price of your products. As an Asian LDC SME, you will therefore be faced with a continuous need to increase efficiency of the different parts of the value chain. Costs can be reduced in many parts of your business, including inbound logistics, outbound logistics, operations, procurement, marketing, and sales.

4.3. Incoterms The most important incoterms (a series of pre-defined commercial terms published by the International Chamber of Commerce) that you need to be familiar with when exporting your goods to China are Ex- Works (EXW), Free on Board (FOB), Cost and Freight (CFR), and Cost, Insurance and Freight (CIF). FOB, CFR and CIF are the three most popular incoterms defined by the International Chamber of Commerce

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(ICC) to harmonise any possible disputes arising from international trade. Each exporter may choose the incoterms that are best suited to their export products; depending on the specific sector you are active in and on the negotiations with your customer.

Figure 10. Incoterms

EXW Seller Buyer Seller Buyer

Ex Works Seller Buyer

FOB Seller Buyer Seller Buyer

Free on Board Seller Buyer

CFR Seller Buyer Seller Buyer

Cost and Seller Buyer Freight CIF Seller Buyer Seller Buyer Cost, Insurance and Seller Buyer

Freight

Costs Risk Insurance

Table 7. Incoterms

EXW EXW is the price term in which the seller is required to make goods ready for pickup at his (Ex-Works) or her own place of business. The buyer assumes all other transportation costs and risks.

FOB FOB is the price term that is invoiced or quoted by a seller including all charges up to (Free on Board) placing the goods on board of a ship at the port of departure specified by the buyer. It is also called collect freight, freight collect, or freight forward, since the Chinese buyer (importer) will collect the freight.

CFR (Cost and CFR is the price term under which the seller arranges and pays for the transportation of Freight) goods by sea to the destination port in China.

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CIF CIF is the price term under which the price invoiced or quoted by a seller includes (Cost, Insurance and insurance and all other charges up to the named port of destination in China. The major Freight) difference between CIF and CFR is that CIF requires the seller to obtain insurance for the goods while in transit to the port of destination.

4.4. Export price calculation When looking at incoterms as well as the general pricing strategies as discussed earlier in this chapter, the difference between exports and international marketing becomes clear. Usually as an exporter you quote an EXW or FOB price, but you are not aware of the final consumer price of your product or the trade margins applied. This way of working is standard opportunity business.

Long term oriented marketing on the other hand, can give you access to market information, which you can use to position your product exactly in the right price segment. So, instead of basing your calculations on production costs and adding your gross trading margin, you are recommended to take the final market price as your starting point and calculate your way back to arrive at an appropriate Ex Works price.

Box 15. Export pricing in 6 steps  Select your price objective (how do you want to position your product towards the end-user?).  Quantify demand (total demand and your targets).  Find out the downstream distribution costs and trade margins.  Study behaviour of competitors and compare their price structure with yours.  Establish a target price structure.  Present a price quotation. Prepare budget for unexpected cost, which can incur at any step of the exporting process. For instance, the Chinese customs might suspect your exported natural produces of pest or pathology and require fumigation at your own cost.

You can also choose to calculate from the bottom up, by adding elements of a value-adding price structure per product:

 Fixed costs

 Variable costs

 Total cost-price

 Profit margin

 EXW price

 Transportation costs to port

 Shipping costs

 Insurance costs

 Import duties

 Clearing costs

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 Transportation costs to warehouse

 Trade margins in the supply chain

 Value-added tax

 Consumer price

Alternatively you may want to use the price methodology of Blue Ocean: https://www.blueoceanstrategy.com.

Box 16. Do’s and Don’ts of pricing in China  Understand how the Chinese customer perceives value. Many Chinese customers are price sensitive. At the same time, a lot of customers are willing to spend more on high value/quality products.  Keep an eye on your competitors’ prices and listen to your customers, instead of only focusing on your cost structures when determining pricing.  Try to develop pricing based on detailed strategic thinking, instead of only as a result of historical factors.  Consider price level difference across different regions of China. Source: B2B International (2015).

5. Promotion

5.1. Promotion in China In general, marketing in China is defined by many in Chinese companies as only consisting of the ‘Promotion’ element of the four Ps. Product is seen as something for engineers, Price as the task of sales people, and Place as a job for senior management.

For LDC SMEs however, it is best to develop a professional, integrated, and complete marketing strategy that encompasses all four elements. This way, you will be able to gain a competitive advantage over your Chinese domestic competitors, and probably your foreign competitors as well.

5.1.1. Influencers and opinion leaders When deciding on your marketing and promotion tactics, it is important to keep in mind the high level of collectiveness integrated in Chinese culture. Because it is important to conform to the group, the opinions of certain leading figures are key in consumer buying decisions. Influencer marketing is therefore popular in advertising, social media promotions and blogging. Reaching your target group through influencer outreach and targeting is common and acceptable in Chinese digital culture and it is highly effective. An example of a Chinese influencer in clothing and fashion is Mr. Bags (包先生). Although having less than 300,000 followers on Weibo, the influence on these real and engaged fans is very strong.

5.1.2. The Chinese calendar Keep in mind the important events on the Chinese calendar, such as Spring Festival (Chinese New Year), National Day, and Mid-Autumn Day. These dates can guide you in the timing of your marketing activities and offer opportunities to link your products to China’s gift-giving culture.

Gifts are given especially during events such as Spring Festival. You can boost your sales by marketing your products specifically to these events, or by adjusting packaging and branding to make them more

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suitable as gifts. You can find an overview of Chinese festivals and events at http://www.chinahighlights.com/festivals/. Keep in mind that most festivals are based on the Moon Calendar, which is different every year.

Chinese New Year usually falls in February, and also means an almost one-month holiday. Plan your operations and logistics, and contact with Chinese partners well in advance.

5.2. B2B promotion Because exporters from LDC SMEs may not always deal directly with the end-user of their products, B2B marketing skills are essential, as you will often work with Chinese businesses and distributors. Chinese companies generally prefer to communicate with suppliers through traditional routes, such as conferences and exhibitions, and through more modern ways such as email and website visits (B2B International, 2015).

5.3. Online marketing and promotion Online marketing and promotion are playing an increasingly important role in marketing in China. In recent years, e- commerce in China has been growing very fast due to the growing number of Internet users, the size of the country, an extraordinary delivery system, as well as increasing consumer acceptance of shopping online. Tools like search engine optimisation (SEO), Social Media, E-mail marketing, blogging and use of video are topping marketers’ lists.

Chinese consumers and companies however do not work with global platforms like Google, Facebook, Amazon, Ebay and Youtube. Rather, they are active on platforms of Chinese origin:

 Search engines: Baidu, 360 search, Sogou

 Social Media: Weixin (WeChat), Weibo, QQ

 Online payment providers: Alipay, Tenpay, Unionpay, 99 Bill

 C2C market places: Taobao, Paipai

 B2B market places: Alibaba, HC

 B2C retailers and market places: Tmall, Jingdong, Suning

LinkedIn is not blocked in China but usage is limited to Chinese already working with Western partners.

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Box 17. 4 steps to online marketing in China

1. Build a website for your Chinese target group

Besides profiting from the enormous amounts of traffic on third-party e-commerce platforms such as Alibaba, building your own stand-alone Chinese website or web shop has its benefits as well. It allows you to maximise contact with consumers, monitor service levels, improve customer service and maintain your brand image.

 Your website should be in simplified Chinese characters (traditional Chinese is used in Taiwan). Use a professional translator to do this, not an online translation tool.  Work with an agency that has experience with creating websites specifically for Chinese customers. Chinese websites are structured and designed in a specific way.  Make a perfect first impression with an inspiring and to-the-point homepage. Clearly articulate your unique value proposition, using large images and short, concise text.  Guide your website visitors towards the next step with clear Calls-To-Action, such as “Contact us”, “Ask for quote”, or “Buy now”.  Make your website mobile responsive, so that Chinese visitors can use it on tablets and smartphones.  Stress the visualisation of products.  Include the sales record of the products as one important feature.  Make customers’ feedback transparent and quantifiable.  Extend service hours and tailor to the communication habits of the Chinese customers.

2. Work on your Baidu SEO

The next step is to make sure your target group can find your website online. With Google banned in China, domestic search engine Baidu is the absolute dominant player in the market.

 Optimise your Chinese website and online content to rank high on Baidu.  Create quality content on your website, with keywords that your target group uses in their Baidu searches.  Often add new content, in the form of blogging or news articles.  Also work with building backlinks, as Baidu’s ranking algorithm does not focus on content quality as much as Google’s does.

3. Connect on Weixin and Weibo

Once your website is in place and customers are able to find you online, start interacting with your target group and build an online following on social media. Social media are the key to success in China, as Chinese consumers’ purchase decisions are heavily influenced by peer reviews.

 Use social media channels Weixin (WeChat) and Weibo to build relationships with your customers and create value, rather than just pushing your products into view of new customers.  Become known online as an expert in your field. Share your expertise by posting, blogging and video blogging.  Save time and automate your activities using social media management software, such as Hootsuite (compatible with Weibo).

4. Sell through Alibaba and Tmall

Besides using your own website to promote your products, you are recommended to use third-party e- commerce platforms as well.

 If you are active in B2B, Alibaba offers a great platform to sell your products on the Chinese market.  If your focus is B2C, Tmall (also part of the Alibaba Group) offers an international service through which you can sell directly to consumers.

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5.4. Promotional events Trade fairs and other promotional events, such as conferences and seminars, are a great opportunity for Asian LDC SMEs to network and develop relationships with potential customers. Trade fairs enable Chinese customers to experience something new as a group. Because the power and attraction of the group is very pronounced in China, a group event like a trade fair is very effective. In some cases the Chinese government provides free exhibition space to exporters from developing countries in a fair space in some trade fairs (Shanghai, Canton fair)

There are various trade fairs and exhibitions all over China. Following is list of the most important trade fairs.

Table 8. Top 5 trade fairs in China

Name Place and time Description

1. The Canton Fair (China Guangzhou Website: http://www.cantonfair.org.cn/en/ Import and Export Fair) October Phone: +86 20 28888-999 Frequency: two times annually Main product groups: Wide range of product groups. Origin of visitors: Both Chinese and international. Number of visitors: about 200.000 per session. 2. China Yiwu International Yiwu (Zhejiang Website: http://en.yiwufair.com/ Commodities Fair province) Phone: +86 579 5415222 October Frequency: every year Main product groups: Applied Arts, Consumer Goods, Cosmetics, Electrical Engineering, Gifts, Household Articles, Jewellery, Office Equipment, Optical Instruments, Stationery, Toys, Watches and Clocks. Number of visitors: about 200.000. 3. Auto China International Beijing Website: http://www.auto-fairs.com/ Automotive Industry April Phone: +86 10 84600163 Exhibition Frequency: every 2 years Main product groups: Automotive Parts, Control Equipment, Engines, Motor Vehicles, Production Lines, Vehicle Bodies. Origin of visitors: Mainly Chinese. Number of visitors: 800.000 4. Bauma China Shanghai Website: http://www.bauma-china.com/ International Trade Fair for November Phone: 89-949-11348 construction machinery, Frequency: every 2 years building material machines, Main product groups: Accessories, Building Machines, mining machines and Building Utensils, Construction Vehicles, Machines for Building construction vehicles Materials, Road Construction Machinery. Origin of visitors: Both Chinese and international. Number of visitors: 190.000 5. East China Import and Shanghai Website: http://en.ecf.gov.cn/ Export Commodity Fair March Phone: +86 21 63539977 (ECF) Frequency: every year Main product groups: Consumer Goods, Decorations, Garment, Home Textiles. Origin of visitors: Both Chinese and international. Number of visitors: 40.000 Source: China Highlights (2015).

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There are many industry specific trade fairs as well. Examples in the textiles and garments sector are Intertextile Shanghai Home Textiles and SpinExpo. Examples in the food sector are ANUFOOD China and CIFE. The Hong Kong Jewelry and Gem Fair is important for gem exporters from Myanmar, especially since Myanmar’s gem export accounts for a great proportion of its total export to China.

Box 18. Find the best trade fair for your product The Auma database gives you the possibility to search for trade fairs in China by industry, so that you can find the right trade fair for your export products. Auma is the world authority when it comes to knowledge about successful trade fair participation, and has a huge trade fair database. Go to www.auma.de/en.

5.4.1. Successful participation in trade fairs 1) Preparing for the trade fair

 Choose the right trade fairs. Check the trade fair’s website and find out which companies are attending, how many visitors are expected, and if the trade fair suits your sales and marketing goals. You can find a lot of useful information about exhibitors and visitors at www.auma.de. Another helpful source is www.eventseye.com. The Chinese government is proactive in inviting foreign governments to exhibit in trade fairs in China, such as: China International SME Fair (CISMEF) in Guangzhou − The China International Fair for Investment & Trade (CIFIT) in XieMen

− Invest and Trade Forum for Co-operation between East and West China (ITFCEW) in XiAn

− China-ASEAN Expo (CAEXPO) in Nanning.

It is important to check whether the location of the trade fair is near your target markets. Would your target groups travel a long distance (in China it could mean thousands of kilometers) to visit the exhibition?

 Register as early as possible. Some trade fairs offer a discount for advance registrations. Documents you will need to submit include trade registration, company registration, and company profile.

 Set clear goals. Create a list of goals, such as the number of sales leads you plan to collect, or the exact type of customer input you want to gather. Focus your activities at the trade fair on achieving these goals.

 Work with an exhibition contractor. Booth contractors are essential to build a professional booth and attract attention from visitors. Arrive at least 24 hours in advance to ensure everything has been prepared the right way.

 Attend as part of a collective. It is possible for prospective Chinese customers to feel suspicious about new exhibiting companies. Exhibiting under the name of your government or trade association can increase your company’s credibility as a legal company in the eyes of prospective Chinese partners.

 Prepare the right documentation. Although you will bring some products into China for the purpose of trade fairs, these products can be subject to custom procedures and import duties. Therefore, you might be required to present relevant documents, for example:

− Customs clearance documents, such as receipt of import duty, excise (?) or value added tax payment.

− Product quality control certification

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− Product standards from relevant governmental agencies

− Intellectual property document relating to exhibiting products.

− Some trade fairs offer some privileges for foreign exhibitors, including reduction of import duty or exception of exhibition fee. You should thoroughly study the fair manual for your benefits.

− Besides, see whether your products can be classified as temporary export under ATA Carnet. You will need to present shipping documents for planned inbound and outbound cargo for your exhibiting products.

2) At the trade fair

 Attract attention to your booth, by using banners, giveaways, product demonstrations, and interactive elements such as touch screens.

 Staff the booth with Chinese staff, besides your own staff. Chinese speaking staffs who know your company and products well are key to developing relationships with prospective customers. Although some Chinese businessmen can communicate in English, you usually need to negotiate and elaborate on your products, which is best done in Chinese.

 Present WeChat ID on your business card (if applicable). This makes it very handy for Chinese customers to contact you and also for you when following up. To secure contact, add customers’ WeChat to your company’s phone at the trade fair. More info: http://www.wechat.com/en/.

 Invite selected customers for dinner. This provides the right setting for your potential customer to form trust towards you. Guanxi culture means putting effort into establishing a relationship before closing a business deal.

3) After the trade fair

 Follow up timely. Send requested information, quotation, visits, further negotiations, feedback, etc.

 Be consistent. Do not be discouraged if your first follow up attempt is unsuccessful. Think of creative ways to follow up a second, third, fourth or fifth time, until you can form a deal with the decision-maker.

5.5. Hospitality Another powerful type of promotional event to connect with your potential customers are hospitality events. Chinese people attach high value to hospitality, and typically enjoy group dining and drinking. You can organise hospitality events to meet and engage with potential buyers, distributors and partners. Engaging with potential customers through social activities will be further discussed in chapter 7.

6. Promotion through missions and associations Try to participate in a trade mission and visit China together with a delegation from your country of government officials and other companies. This will help you find your way at government level in China, This will increase your chance of success instead of going to China all by yourself. From a marketing perspective, joining a trade mission which includes famous people from your country, such as the president, king, or even the beauty queen of your country, can help your mission to become much more high profile and successful. It is important to know and communicate your interest and priorities prior to participating in such mission in order to have effective matches with preselected Chinese potential partners. Translators who understand Chinese business culture are also helpful.

Industrial associations and chambers of commerce play an important role in helping foreign exporters to enter the Chinese market. Industrial associations are autonomous and non-governmental organisations that can provide services to exporters, who want to conduct business with China.

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One association that can be helpful to your business is the CCOI (China Chamber of International Commerce). This association has established a wide network of trade cooperation with more than 200 countries and regions. The CCOI usually organises various forms of trade activities including lectures, seminars, fairs, high-level international conferences, and overseas visits. You can contact them through www.iccwbo.org.

7. Advertisement The magazine industry is growing rapidly in China. If you focus on advertising to your end-users, advertising through industry magazines provides a targeted communications channel to reach potential customers.

Examples of important industry specific trade magazines are:

 China Food Industry Magazine (Pacific Press Group Ltd.)

 China Food Manufacturing Journal

 China Textile Leader (CTL)

When looking for a magazine to advertise, always research which people are reading the magazine, and whether it is suitable for your products. At www.industrysourcing.com you can find a magazine database of several industry specific magazines.

8. Setting up follow up and after sales service When your customers start to contact you and buy your products, you need to make sure that your business processes are ready for this. You need to develop pre-defined steps for each step in the sales funnel. How do you follow up leads? What is your sales pitch? Do you have additional information ready to send to your customer, such as pricing guides, technical specifications, as well as quote and invoice templates?

8.1. After sales service Besides setting up processes to turn leads into sales, you need to provide your Chinese customers with good after sales service. After sales care or service is vital to make Chinese buyers become permanent business partners. Many exporters make money from one-shot deals, but they may lose the market completely if quality problems are not addressed. Therefore, it is very important to establish after sales service including packaging and delivery, guarantee of products, technical support, information updates, and logging customers’ files and information.

8.2. Chinese-speaking staff If you work with internationally oriented Chinese importers or distributors, you may be able to set up your follow up and after sales processes in English. However, to build a successful business relationship with our Chinese customers, you often need to hire Chinese-speaking staff either in your country or in China itself.

Professional follow up and service will separate you from competitors that expect to sell their products without the sufficient support in place.

9. Relationship building

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Besides the standard 4Ps of Product, Place, Price and Promotion, a fifth P forms a crucial part of your marketing and sales processes in China: People. Building long- term relationships and networks are essential for succeeding on the Chinese market.

Because relationship building (‘guanxi’) is so important, marketing should pay more attention to it. This applies to both customer relations and relations with other stakeholders, among which the government plays a key role.

Developing and nurturing relationships is an important part of your marketing plan in China. At the same time it also creates an extra layer of complexity. In chapter 7 we will demonstrate how you can implement relationship building into your marketing and sales processes, in order to succeed on the Chinese market.

More useful information and tools  Chinese festivals and events: http://www.chinahighlights.com/festivals/  AUMA trade fair database: www.auma.de/en ; www.eventseye.com  China trade fair database: www.biztradeshows.com/china and www.expo-china.com  Trade fairs in China: http://www.cantonfair.org.cn/en/ http://en.yiwufair.com/ http://www.auto-fairs.com/ http://www.bauma-china.com/ http://en.ecf.gov.cn/  China Chamber of International Commerce: www.iccwbo.org  China industry magazine database: www.industrysourcing.com

Fast Read of Chapter 4: Marketing, essential for long-term success 1. Create a positioning by researching the needs of your customers and distributors. 2. Focus your marketing efforts on a specific region or city cluster in China to maximise the impact of your resources. 3. Take the final market price as your starting point and calculate your way back to arrive at an appropriate export price for your product, instead of only focusing on your production costs. This leads to a cost target. 4. Tune in to China’s booming e-commerce and sell online through platforms such as Alibaba (B2B), Taobao.com (C2C) and Tmall (B2C). 5. Build relationships with your customers through Social Media, trade fairs, social events, and by providing great after sales service.

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Chapter 5 Tips on commercial practices

Learning points for Chapter 5  Gain an understanding of the ordering procedure of your China exports.  Assess which payment method will be best for your export business.  Manage risks by using a contract for your exports to Chinese customers.  Solve contract disputes through arbitration.

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After defining your strategy for entering the Chinese market (chapter 1-3), and learning how to market your products based on the need of the customer (chapter 4), this chapter will focus on practical issues concerning ordering procedures, payment methods, and contracting.

1. Ordering procedures Before ordering products from you, your Chinese customer will usually first collect the necessary information and follow the internal ordering procedure from his or her company. This is then followed by the negotiations, and signing of the contract. The standard ordering procedure goes as follows:

Step 1: Negotiation of received enquiry

After receiving an enquiry from your Chinese customer, you will need to discuss the terms and prices of the order. Chinese businessmen will usually try to bargain on the price.

Step 2: Confirmation of order and/or signing of contract

Examine the terms and conditions of the agreement carefully, including items like product description/specification, terms of payment (see the next section of this chapter), terms of shipment (see chapter 6), inspection and insurance requirement, and expiration dates (for food). When the deal concerns a relatively small order, parties usually do not use a contract. Instead, a commitment from the other side is safeguarded by making a down payment or a complete pre-payment of the order. Please note that individual situations may differ and that the terms are always subject to negotiation between you and the business partner.

Step 3: Payment or down payment

Depending on the payment terms of the agreement, a first instalment (for example 30%) or payment through wire transfer is made. In other cases, the Chinese customer issues a letter of credit through the bank. Sometimes the customer’s shipping/logistics partner in your country makes the payment, as it helps to pay all different exporters the customer buys from.

Step 4: Preparation for shipment

At this stage you will need to prepare the goods for shipping to China, including booking the freight/shipment (under CFR or CIF).

Step 5: Boarding the shipment

Depending on the incoterms used in the agreement, you take care of the delivery of the goods to the shipping company in the port. After this, the customer is notified about the shipment details, such as tracking information.

Step 6: Sending documents

Certain documents need to be sent to the customer as a hardcopy version, such as Bill of Lading and Certificate of Origin. Usually these are sent by express mail, so the Chinese customer will have the documents in time before the shipment arrives in China.

These documents are usually sent after the final instalment is made. Depending on the terms of the contract, this often happens after shipping out the goods or before arrival in the Chinese harbour.

2. Payment methods After you and your Chinese customer have agreed on the terms of the transaction and have signed the contract, payment will be made depending on the agreement. There are several payment methods that can be used for the transaction. Because getting paid in full and on time is your ultimate goal, you need to

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choose an appropriate payment method to minimize the payment risk while also accommodating the needs of the buyer.

2.1. Bank transfer (telegraph transfer or T/T) Bank or wire transfer, also referred to as SWIFT2, is the payment method by which the buyer transfers money to you through a commercial bank. Transfer fees range between 25 and 45 USD, but rates vary per country and per bank. Go to your local bank to get information on specific rates.

T/T is often used when there is trust between you and your customer, and the transaction has low commercial risks, or when the amount of the transaction is relatively small. It is recommended for both importers and exporters, since both cost and time of transfer are smaller compared to other payment methods.

T/T could be both down payment and payment after receipt of the goods. In practice, the importer may require a down payment by T/T. For example, this can be an advance payment of 30% of the contract value (30% upfront T/T), or a 100% advance if the amount is not big (100% upfront T/T).

2.2. Documentary Collection (D/C) Documentary collection, or D/C, is the payment method by which you receive payment through the customer’s bank (presenting bank) in exchange for the required shipping documents (such as Bill of Lading, invoices, packing lists etc.). Your bank (the collecting bank) sends these documents to the customer’s bank, along with instructions for payment. After your customer has paid you through their bank, they receive the documents.

Documentary collections are based on commercial trust and often used when exporters and importers have already established stable business relationships or when a transaction is made between large companies that have the ability to meet the payment obligations.

There are two types of Documentary Collection:

Documents against Payments (D/P)

The presenting bank (the buyer's bank) is only authorised to release the documents to the buyer against immediate payment. This is, at the latest, at the arrival of the goods.

Documents against Acceptance (D/A)

The buyer’s bank releases the documents to him after he accepts a bill of exchange. This bill generally matures 30-180 days after presentation. This way, the buyer takes the goods into possession before the payment has been made. He can then sell the products, and collect the necessary funds to pay for the bill of exchange before it matures.

Source: Credit Suisse (2016).

Usually, D/A has higher commercial risks than D/P since the customer may refuse to pay to you by a fixed future date, whereas in case of D/P, you retain control of the goods until your customer pays.

2.3. Letter of Credit (L/C) One of the most secure payment methods that you could use is a Letter of Credit, or L/C. A Letter of Credit is a commitment by a bank (on behalf of the buyer) that the payment will be made to the exporter, on the condition that all the requirements in the L/C have been met. If the value is higher, traders usually

2 Society for Worldwide Interbank Financial Telecommunication

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negotiate for a better rate with the banks. High-value trading companies usually enter into some kinds of L/C agreements or packages with the bank for attractive deals. The rate here depends on negotiation.

A Letter of Credit is highly recommended for large transactions, because the bank guarantees the transaction. However, the complex procedures and high threshold of registered finance requires extensive preparation and research by SMEs before implementing this payment method.

Keep in mind that when the bank issues an L/C, the bank is only responsible for form checking, but not for the content of the documents. It is also exempt from liability in case the documents are delayed or lost in the mail.

Although an L/C is a safer means of payment compared to other payment methods, you need to pay attention to some risks, including:

 Fraud in L/C: in case the buyer finds evidence that the seller is committing fraud (for example, presenting fraudulent documents to the bank for negotiation), a petition can be made to the local court to issue an injunction to the bank as to cease the payment (before acceptance or payment is made to the beneficiary).

 Guarantee: In practice, the goods may arrive earlier than the posted documents. In such case the buyer may ask the cargo owner to release the goods first, by guaranteeing that payment will be made as soon as the bank has received the documents. If the payment is rejected, the cargo owner is responsible for all the losses incurred.

Box 19. Using RMB to settle border trade Chinese Yuan can be used as a currency to settle bilateral trade in China’s neighbouring countries. SMEs from Afghanistan, Nepal and other neighbouring countries of China, should be aware that using Chinese Yuan while trading is becoming more convenient for both Chinese customers and themselves.

China has also reached agreements with Laos, Vietnam, Thailand, Malaysia and other Southeast Asian countries for bilateral currency swap. These developments could reduce financial losses due to currency 3. exchangeManaging rates. risks by using a contract When you and your customer reach an agreement, often a formal contract is signed. Although clauses may differ for various kinds of contracts, a standard contract includes the name of the seller and buyer, the commodity, quantity, quality, price, delivery time, payment terms and dispute settlement. A sample contract is included in appendix II, end matter.

3.1. Different viewpoints on contract Given the importance of a contract, more and more companies in China are willing to hire a lawyer to draft a detailed contract. However, this does not mean that a contract deals with all possible problems. As an old Chinese saying goes, “what was true then is not true now”.

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Many Chinese consider a contract as a temporarily agreement, which can be subject to change as market conditions fluctuate. The conclusion of a contract may become simpler after several rounds of business transactions with your partners.

Contracts must be concluded and amended in writing to help settle any future disputes, as well as to amend possible different conditions in the course of implementing the contract. Conclusion and amendment of the contract should be done in writing before carrying out the deal.

A contract is enforceable by law and a single language contract may cause different interpretations during translation. Thus, making a contract in both Chinese and English from the beginning is recommended.

To avoid the risk of misunderstanding during the translation parties often agree which version will prevail in case of disputes. For example a sentence can be included, such as: “this contract shall be in Chinese and English correspondingly. In case there are discrepancies in interpretation, the English text shall prevail.”

3.2. Hiring a lawyer to draw up your contract As an Asian LDC SME it is necessary and important to get professional help from an experienced lawyer. The lawyer can look at the terms and conditions of your contract. On the other hand, hiring a lawyer does not mean you should let go of the negotiation process.

Box 20. How to select a good lawyer When searching for a lawyer to draw up your contracts and perhaps work with you on other parts of your business that need legal advice, keep the following in mind:

 Is the lawyer experienced in settling a similar dispute?  Is the lawyer specialised in doing business with Chinese companies?  Does the lawyer have other clients in your sector?  Can the lawyer educate you and your staff about the legal environment in which you will be operating?

4. How to solve contract disputes In case a dispute arises from the performance of contract, both you and your customer may first engage in consultation to resolve the dispute, or submit the case to the court with jurisdiction.

4.1. Arbitration Both parties may also opt for an arbitration procedure to settle the dispute. Generally, the arbitration procedure is more efficient and confidential compared to the court procedures. Arbitration is a legal means that can be used to keep a commercial secret and render a quicker settlement of the dispute. There are several Chinese arbitration organisations such as the China International Economic and Trade Arbitration Commission (CIETAC), Shanghai International Arbitration Center, or Hong Kong International Arbitration Center, which you can use to settle a contractual dispute. China also recognizes foreign arbitration institutions such as Singapore International Arbitration Centre, International Chamber of Commerce, Stockholm International Chamber of Commerce Arbitration Centre and London Court of International Arbitration.

4.2. Dispute resolution clause in your contract Make sure to include a clause in your contract that addresses the resolution of disputes. In most cases, China does not enforce court judgments from other countries, unless it is based on an international

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agreement that China has entered into. Therefore, getting a judgment from the court of your country against a Chinese company with assets only in China is of no use.

Draft a dispute resolution clause with your Chinese customer that calls for disputes to be resolved by a Chinese court.

More useful information and tools Credit Suisse, information on Documentary Collection as a payment method:

https://www.credit- suisse.com/ch/en/unternehmen/kmugrossunternehmen/import_export/newindex/dokinkasso/dokink_arten.html

Fast Read of Chapter 5: Tips on commercial practices 1. Your customer needs to present the original version of documents such as the Bill of Lading and Certificate of Origin to clear the goods. You can send these documents to the customer as leverage for ensuring payment. 2. One of the most common payment methods for export deals is bank transfer; recommended when the transaction has low commercial risks or when the amount is relatively small. 3. A Letter of Credit is recommended for large transactions, because the bank guarantees the transaction. However, the complex procedures make this a payment method that needs extensive preparation and it is costly. 4. Get legal assistance from a specialised source in doing business with Chinese companies, to help you draw up contracts.

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Chapter 6 Tips on export logistics and documentation

Learning points for Chapter 6  Decide whether your export products should be transported by airplane, boat, or truck.  Map the border control and inspection procedure for your products.  Determine which documents you need to pass customs clearance.  Discover what they key elements are of your Bill of Lading, Commercial Invoice, Certificate of Origin, and other customs documents.

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1. Ways of getting your goods to your Chinese customer After preparing your export plans (chapters 1-3), marketing and selling your product to the Chinese customer (chapter 4), and closing the deal (chapter 5), we are now ready to look at the next step of the process: getting your export products to and into China. We will look at the different options you have for transporting your goods, the border control and inspection procedures, and specific documentation that you will need to prepare before shipping your goods.

1.1. Shipping methods The most common ways of exporting products from Asian LDCs to China are by sea (by boat), over land (by truck or train) or through the air (by airplane). In general, the costs for transporting goods from Asian LDCs to China are still high, mainly because of an undeveloped infrastructure and a lack of the right facilities at ports.

1.1.1. Transport by sea The most common way of transporting goods is still sea transportation. Container ships that can transport up to 8,000 20-feet standard containers on a single voyage are not uncommon.

Asian LDCs that have ocean or river connections with China can deliver the goods via water transport. The relatively low costs of ocean cargo can make their exports more competitive. In recent years, the total shipping capacity between China and the rest of Asia has increased. Port Chittagong of Bangladesh for instance, is an active trans-shipment port for trade with China.

China’s top ten coastal and inland ports are: Shanghai, Shenzhen, Ningbo-Zhoushan, Qingdao, Guangzhou, Tianjin, Dalian, Xiamen, Lianyungang and Suzhou.

Figure 11. Major Coastal Container Ports in China

Source: Hong Kong Network

1.1.2. Transport over land Landlocked Asian LDCs like Lao are restricted to land transport such as trucks and trains. This could be transport to a nearby seaport, or directly across the Chinese border. Border trade is cost-effective for some

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Asian LDCs such as Lao and Myanmar, to export goods to neighbouring Chinese provinces such as Yunnan. In general, trains transport bulky materials and can be more efficient than other transportation methods, considering the amount of energy used relative to the number of kilometres travelled. Many companies favour truck transport over train transport however, because transport by rail is less flexible than road transport.

1.1.3. Transport by air Another very common shipping method is airfreight. Although it is fast, simple, safe and easy to track, this method is more expensive than transport by sea or over land.

Transportation by air is especially useful when speed is important, for perishable goods such as flowers. Because airfreight costs can be based on the cargo’s volume as well as its weight, it only makes sense for cargo that is low in volume and has a high value.

1.2. Logistics providers A series of service providers are involved in the process of getting your products from your production site to the customer in China. These can be carriers, consolidators, customs brokers, trucking companies, and importers. Usually these steps are coordinated by a freight forwarder.

Advantages of using a freight forwarder (EU SME Centre, 2014):

 Experienced forwarders keep track of changes in freight rates, surcharges and schedules. They can advise you regarding your shipment.

 Experienced forwarders work with a network of several shipping lines and/or airlines, which enable them to offer alternative shipping solutions and make sure your goods can be shipped in time.

2. Border controls and inspections procedures

2.1. Border Controls and Inspection When your goods arrive at the Chinese border they must go through inspection and quarantine, as well as customs clearances. Figure 9 shows the standard procedure for products entering into China. Depending on your products, this procedure may vary. The blue steps take place outside of the Chinese border, and the orange steps inside of China.

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Figure 12. Flow of products entering into China

Signing of Export Exporter arranges Shipping Agent Delivery to Chinese Contract with transportation in confirms shipping Port/ Chinese importer case of FOB terms details Destination

Chinese importer Chinese importer Chinese Importer arranges further proceeds customs submits quarantine transportation clearance inspection

2.2. Customs When your goods arrive in China (for example at a seaport) they need to clear Chinese customs inspection.

Your customer will have to bring the right documents to the Chinese customs agent. Some of these documents need to be provided by you. In order to make sure your goods do not have to wait at the customs, the approval process should be started long in advance.

The documents required by customs vary depending on the product, but the standard customs procedure includes (EU SME Centre, 2014):

 Quota certificate/import licence inspection (if applicable)

 Customs registration

 Commodity inspection

 Customs declaration

 Submission of documents (certificates or origin, sales contracts, bills of lading, commercial invoices, packing lists, etc.)

 Inspection of goods

 Payment of taxes and fees

2.2.1. Entry-exit commodity inspection Goods that are labelled Type A by customs are subject to compulsory inspection by the Entry-Exit Inspection & Quarantine Bureau. For these products, the importer needs to submit an application for inspection when the shipment arrives at the Chinese port.

The “Catalogue of Import-Export Commodities Subject to Compulsory Inspection and Quarantine” lists the type of products that require inspection and quarantine. You can check the catalogue at the AQSIQ website: http://www.aqsiq.gov.cn/xxgk_13386/jlgg_12538/zjgg/2014/201406/t20140610_414823.htm.

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Requirements for food can be found at http://www.chinalawinsight.com/tags/food-safety-law/.

The inspection will be done either at the port of arrival or at an appointed area (in which case sanitary treatment will be done before transhipment). The costs of the inspection are usually paid by the importer. When the goods pass the inspection, AQSIQ will issue a certificate to the importer.

Pest inspections at SanXi after the fruits are in the warehouse.

2.2.2. Customs clearance When the imported goods arrive at the port of destination, the importer or the cargo agent needs to fill in the customs declaration form and prepare a full set of documents for customs clearance. The required customs documentation varies depending on your product, but usually includes:

 Import contract

 Commercial Invoice

 Bill of lading

 Packing list

 Customs declaration

 Payment of taxes and fees

The following additional documents may be required under specific circumstances:

 Import permit or quota certificate (the importer in China needs to have the permit before entry) (if applicable)

 Certificate of origin (provided by the exporter)

 Certificate of CCC (for example for home appliances)

 Certificate of duty exemption for import & export cargo (normally for goods used in a bonded area or to be re-exported after processing)

 Certificate of Duty Exemption/Insurance Policy

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2.3. Time limit and charges The importer needs to submit the above-mentioned documents to the local Entry-Exit Inspection & Quarantine Bureau for inspection within a particular time limit based on the type of import goods:

 14 days for general cargo: the time limit for import cargo declaration is 14 days from the entry date of the transport vehicle

 30 days before entry, for microorganism, human tissues, blood, breeding stock, poultry, embryos, and fertilised eggs

 15 days before entry, for other animals

 7 days before entry, for plants, seeds & seedlings, and planting stock

When the goods are not declared to customs in time, the customs impose a fee for delayed declaration of 0.5% of the value of the import cargo per day.

3. Practical tips per document

3.1. Import cargo declaration form The declaration form is a statement made to the Director of Customs at the port of entry, declaring specifics of the shipment. The main purpose of this document is compiling trade statistics. Both the exporter and the importer can prepare the import declaration form.

An example of this form can be found in Appendix III (end matter). You can find the form at: http://wenku.baidu.com/view/b84857ab0029bd64783e2ca6.html

3.2. Import contract The import contract sets out the standard terms and conditions of the purchase. This type of contract includes price and payment, delivery, title and risk, packaging, inspection, indemnity, confidentiality, and termination.

An example of this form can be found in Appendix IV (end matter).

3.3. Fumigation certificate The Fumigation certificate is a pest control certificate to certify that your products have been in quarantine and have undergone pre-shipment fumigation by the approved fumigation service providers. Either the exporter or the inspection company can prepare the certificate.

An example of this form can be found in Appendix V (end matter).

3.4. Non-wooden packing certificate This certificate is for the Service of China Entry & Exit Inspection and Quarantine. It declares that your shipment does not include any solid wood packing materials. It mentions the shipment tracking number, the number of pieces in the shipment, and the total shipment weight.

An example of this form can be found in Appendix VI (end matter).

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3.5. Bill of Lading The Bill of Lading, or B/L, is proof of the contract between the shipper of the goods and the carrier. Usually you need to send the original Bill of Lading to your customer, who needs it as proof of ownership to take possession of the goods.

There are two types of Bill of Lading. The first one is a non-negotiable Bill of Lading, and the second one is a negotiable Shipper’s Order Bill of Lading, also called a title document. The Bill of Lading can be used for many types of financial transactions, and is prepared by the shipping company.

An example of this form can be found in Appendix VII (end matter).

3.6. Commercial invoice The commercial invoice is used as a customs declaration, and is prepared and provided by the exporter. It specifies the goods sold, the payment terms and the trade terms.

Sometimes the importer uses the commercial invoice for foreign exchange purposes.

An example of this form can be found in Appendix VIII (end matter).

3.7. Certificate of Origin Among the documents that exporters from Asian LDCs have to prepare for their exports, the Certificate of Origin is especially important, because it can help you with tariff reductions or exemptions. This can strengthen competitiveness of your products on the Chinese market. Certificates of Origin may also be needed to comply with Letters of Credit or foreign customs requirements.

There are three types of Certificates of Origin: the preferential, non-preferential and special Certificate of Origin.

The Preferential Certificate of Origin is the Certificate of Origin that gives products tariff reduction or exemption when they are exported to countries extending these privileges, including the General System of Preferences (GSP) and Commonwealth Preference Certificate.

The Non-Preferential Certificate of Origin certifies that the country of origin of a particular product does not qualify for any preferential treatment. The Special Certificate of Origin mainly refers to the Kimberley Process Certificate (preventing ‘conflict diamonds’ to enter the mainstream diamond trade) and EU Agriculture Product Certificate.

In most countries, your local International Trade Ministry or chamber of commerce is the key agent in the delivery of Certificates of Origin. For Asian LDC SMEs, the Certificate of Origin can be obtained from the following institutions:

Table 9. Institutions issuing Certificate of Origin

Country Institution

Afghanistan Afghanistan Chamber of Commerce and Industries

Bangladesh Export Promotion Bureau (EPB ) Bangladesh Garments Manufacturers & Exporters Association (BGMEA ) Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA )

Cambodia Export-Import Department, Ministry of Commerce

Laos Ministry of Industry and Commerce, Certificate of Origin Division Lao National Chamber of Commerce.

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Country Institution

Myanmar The Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI)

Nepal The Federation of Nepalese Chambers of Commerce and Industry (FNCCI)

An example of this form can be found in Appendix IX (end matter).

More useful information and tools Products that require inspection at customs

1. AQSIQ website: http://www.aqsiq.gov.cn/xxgk_13386/jlgg_12538/zjgg/2014/201406/t20140610_414823.htm 2. Requirements for food: http://www.chinalawinsight.com/tags/food-safety-law/

Fast read of Chapter 6: Tips on export logistics and documentation 1. Transport by cargo plane is especially suitable for products that are low in volume (*). Since airfreight is more expensive, it is best to make use of this shipment method for high value products. 2. Transport by boat is relatively cheap, and only based on the weight of your products. 3. When your goods arrive at the Chinese border they must go through inspection and quarantine, as well as customs clearances. 4. You need to send the original Bill of Lading and Certificate of Origin to your Chinese customer, which they need to claim ownership of the products at the Chinese port. 5. Asian LDC SMEs can get Certificates of Origin at the Chamber of Commerce or Export Promotion Bureau of their country.

(*) How to calculate chargeable weight 3. Work out the Actual Gross Weight of your shipment by popping it onto weighing scales. The weight on the scales = Actual Gross Weight. 4. Measure your shipment, then work out Volumetric Weight using the formula:- Volumetric Weight in kgs = (Length x Width x Height in centimeters) / 6000 5. Compare answer in step 1 to answer in step 2 – the Chargeable Weight is the greater of the two. This is the amount of kgs the Airline will charge.

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Chapter 7 Understanding Chinese business culture: key for success

Learning points for Chapter 7  Find out how your own culture compares to that of your potential Chinese business partner’s, using the Hofstede cultural dimensions.  Understand what Guanxi is, and why it is so important in Chinese culture.  Learn how to give face, earn face, and save face.  Discover how important the role of the government is when doing business in China.

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After going through all the practical steps of exporting to China, this final chapter focuses on Chinese business culture. Culture is woven into every aspect of doing business, whether you are trying to understand the market, negotiating a deal, developing e-commerce, or dealing with customs. To succeed in doing business in China, you need to understand what values and norms Chinese people follow. In other words, you need to comprehend Chinese culture to better understand the people.

The country has over 5 000 years of history. It has developed a strong culture that might be difficult to understand for some countries. This chapter will explain the most important components of Chinese culture that can help you to cooperate smoothly with your Chinese customers and succeed on the Chinese market.

When doing business with China, the main language you will be using is Mandarin Chinese. Therefore, it is a big advantage if you have a good command of Chinese. Otherwise it is recommended to work with an interpreter experienced in business negotiation or knowledgeable about your products and sector. Apart from that, it is crucial to understand Chinese business customs and practices. Most of these practices are unique for only China, but are crucial for supporting and speeding up business co-operation with Chinese partners.

1. Chinese culture 101 To give a basic understanding of Chinese culture, Hofstede’s cultural dimensions can describe which values have influence on Chinese culture, and how this compares to cultures from Asian LDCs. Culture can be divided into six dimensions: power distance, individualism, masculinity, uncertainty avoidance, long term orientation and indulgence. The example below shows the cultural dimensions of China.

Figure 13: Cultural dimensions China

China 100 87 80 80 66

40 30 24 20 20

0 Power Individualism Masculinity Uncertainty Long Term Indulgence Distance Avoidance Orientation

Source: Hofstede, 2016

Comparisons of the cultural dimensions of China with those of Bangladesh and Nepal can be found in appendix X (end matter). Unfortunately the other Asian LDCs are not available in the Hofstede data. Information about the cultural dimensions of these countries can be found in the more useful information and tools section of this chapter.

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1.1. Power distance Power distance shows whether or not there is equality in power distribution in a culture. In China, a country with high power distance, power is not spread equally and therefore inequality in power exists within society. Inequality among individuals is accepted and hierarchy is valued.

This also shows in Chinese organisational culture; the chairman of a Chinese company is much more powerful than the sales manager, while the sales manager in turn has more power than the office manager. When doing business with Chinese companies, you have to make sure to respect the difference in power ranks.

Typically in large power distance countries such as China the elder advises the younger. Another example of power distance is to present your top management on your website under the about us section.

1.2. Individualism A culture with high individualism indicates that the individuals of that culture put themselves and their direct family above anyone and anything else. Personal goals are therefore more important than goals of working groups.

China has a relatively low score on individualism. This means that the Chinese culture has a collectivistic society. People of a collectivistic society have a tight community wherein loyalty is very valuable. Group interests are more important than personal interest, which results in many compromises instead of having conflicts, in order to maintain harmony and avoid loss of face.

SMEs from Asian LDCs with relatively high individualism that want to do business in China must accept that the relationship and cooperation with their future partner are more important than their own company objectives. This goes for example for Afghanistan (see more useful information and tools section at the end of this chapter).

Your message should not be focused on the individual rewards but focused on the benefit for the whole organization and or society. In China your clients often prefer corporate brands to individual product brands. Advertising should portray the group instead of someone alone.

1.3. Masculinity Masculinity in a culture means that the people of this culture are competitive and strive for success and achievements. China is a country with a masculine culture, which means that Chinese individuals find it important to achieve success even if this means that leisure and family time have to be sacrificed.

Cultures with a low score on masculinity, such as Laos, value a balance in work and life. If the culture in your country scores lower on masculinity, you must keep in mind that making sacrifices might be necessary when doing business in China.

Being a “winner” is seen positively in masculine societies as China and negatively in feminine societies, which value “modesty” more highly. In this case quantity is important and not the quality. In a very simplistic case: It is about how fast the car instead is of how environmentally friendly.

1.4. Uncertainty avoidance China has a culture that is low on uncertainty avoidance, which indicates that Chinese people are comfortable with uncertainty and are able to adjust quickly to certain situations. Bangladesh on the other hand, is a country with higher uncertainty avoidance, which means the people in general have more need for rules and guidance in order to assure security in life.

When you are from a country with high uncertainty avoidance, keep in mind that Chinese people are comfortable with uncertainties. So make sure that you are flexible, and able to adapt and to accept sudden changes. Indirect messages are appreciated and seen as more civilized.

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1.5. Long Term Orientation China is country that scores high on long term orientation. Traditions and norms can be adapted when needed due to the fact that Chinese people are open to change. In addition, Chinese people tend to be more focused on creating a relationship with partners and clients before sales are made (Beenhakker, 2011). This certainly applies to the Chinese culture due to the importance of Guanxi.

Cultures with a low score on this dimension (short term oriented cultures) appreciate time-honoured traditions and are less attracted to new adjustments. Short term oriented cultures, such as Laos, that want to do business with China, have to invest time in building a trusting relationship with a future partner. Be patient, flexible and respect the other party if you want to succeed. Engaging with your client is the key for success.

1.6. Indulgence The level of indulgence shows whether or not individuals find it crucial to fulfil their own desires and needs. Indulgent cultures have individuals that find it important to fulfil their wishes and needs in order to enjoy life. These people tend to have a more positive view on life, while people of a restrained culture tend to be more cynical and pessimistic.

China for instance is relatively restrained in this dimension; this means that Chinese people are strict in controlling their desires and impulses. Due to the control of their desires and impulses, Chinese individuals find free time less important in comparison with individuals from an indulgent culture.

Countries with an indulgent culture that want to do business in China should be well prepared with good arguments when speaking about your proposal.

2. Concept of Guanxi (Relationships) Having connections is of great importance when doing business in other countries. In Chinese culture, a business relationship is more than just discussing business. The concept of guanxi is very important in China.

The value of relationships is one of the most import traits of Chinese culture; it is derived from the influence of Confucius, whom stated that ‘maintaining hierarchy to achieve harmony within society’ is of high importance (EU-SME-Centre, 2013).

2.1. What is Guanxi? Guanxi basically means relationship connections, and it can be divided into two groups: social connections and business connections. Social connections are personal connections such as family members, (close) friends, relatives and classmates. Business connections are for example business partners, lawyers, business associates and government officials.

Guanxi is more than just building a network. It is about building close relationships with individuals, based on mutual interest. It is about getting to know each other outside of business (meetings), for example by regularly having dinner. Important elements of a well-established relationship include: trust, loyalty, respect, sincerity, benefit, obligation, two-way communication and mutual interest. To establish a good relationship, it is important that you have patience and are genuine and dedicated. It is highly recommended to invest a lot of time in relationships; regular contact with the other individual is therefore crucial. Be prepared to help others; remember to give and not only take.

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2.2. Why is it important to have guanxi in China? Due to the fact that there is a lack of legal protection, a lack of proper structure and an unreliable government due to corruption, Chinese people need to take the lead themselves (Guan, 2011). As a result, they have developed a network with trusted contacts and use these contacts to broaden their network.

Another reason why guanxi is important is trust. Chinese people tend to get in touch with other parties by using intermediaries; in this case the intermediary would be one of the contacts from their network. Chinese individuals prefer introduction through trusted sources, because of the high level of trust in the intermediary.

Chinese individuals believe in the capabilities and knowledge of the intermediary’s network and trust that the new relationship, introduced by the intermediary, will turn out well. Another reason why introduction by intermediaries is preferred is the concept of mianzi (face); Chinese people will not abuse the relationship of a person with whom they are close. Mistreating the relationship you have, will cause you to lose face, which could eventually lead to distrust and possible loss of the relationship connection (US-Pacific-Rim, 2011).

Practical tips on Guanxi

 Chinese people prefer face-to-face meetings, so it is advisable to visit China to meet business associates for friendly and/or business related meetings.

 It is good to give and receive things with both hands since this is a sign of respect.

 Learn about the culture and language before going to China. Chinese people will be very pleased when foreign business (wo) men try to speak Chinese, because this shows a sign of dedication and respect.

 Build a steady and reliable network by attending networking events. If it does not work out, do not give up but try to connect with a reliable intermediary instead, who can help you out.

 Use reliable and experienced interpreters that can help you translate during meetings.

3. Concept of Mianzi (Face) Next to the concept of guanxi, the concept of mianzi is another crucial characteristic of Chinese culture. Mianzi (‘face’ in English) can be interpreted as reputation, position in the social environment and feelings of prestige, generated by, for example, professional capabilities, wealth, beauty, established network (guangxi) and intelligence.

The concept of mianzi can be divided into three groups: giving and gaining face, saving face and losing face. An example of giving face is praising and complementing the other party; the other party that receives the praise and complements will gain face. Saving face is when someone says or does something to avoid embarrassment. Losing face can happen by causing trouble, breaking promises and being disrespectful. Mianzi plays an important role in establishing relationships (guanxi).

To give a detailed explanation, a situation is described:

Mister A wants to do business with company X but does not have any connections. Mister B knows company X and is happy to make an introduction because Mister A and Mister B have a very close relationship. Mister B decides to introduce Mister A to Mister C from company X. Mister C is slightly insecure because Mister C does not know Mister A, but because Mister C trusts Mister B he agrees. After a successful meeting, Mister A praises Mister B for having such a good network.

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As can be seen, B was very happy to help A because of their well-established relationship, in this situation, B is giving face to A by helping A out. C was slightly insecure about this introduction but because C trusts B, C felt he should do the right thing and agrees; in this case C is giving face to B while B is gaining face from C. After a successful meeting, A praises B because A is very thankful for the introduction to C, so A is giving face to B and B is gaining face from A.

Maintaining face is very important in Chinese culture, it is therefore not surprising that the hierarchical system in an organisational structure is accepted without any objections. It is natural in Chinese culture that employees listen and perform assignments without questioning supervisors or employers.

If you want to do business in China, it is recommended to start a relationship by giving face to the client/partner in order to show that you are worth the business deal (Upton-Mclaughlin, 2013).

Practical tips on Mianzi

 Be aware of the cultural differences, and try to adjust to others when dealing with Chinese people. Be open to suggestions and new ideas and never reject someone’s offer because that causes losing face.

 Be patient when working with Chinese individuals. Negotiations and business meetings tend to be slow. Stay calm, polite and respectful when dealing with Chinese and never get angry or lose your temper, because this will cause you to lose face and can possibly have negative influence on your relationship.

 Never write notes on business cards, this is considered extremely rude.

 Do not forget that it is important to invest a lot of time and attention in your relationship network. Help others out when possible in order to stay loyal. Do not do anything that can cause someone to lose face (e.g. breaking promises or being dishonest). After all, relationships are more important than business.

4. The role of the government When doing business in China, foreign companies are very focused on the customer. However, in China, customers are not the only group that foreign companies interact with. One of the important parties to keep into account is the local government.

After the Communist party took control of China after 1949, all Chinese businesses became under State control. Over the years, the governmental influence has decreased significantly, but it remains an important force.

Although more and more private businesses are being established in China (currently, the private sector accounts for around 75% of the Chinese economy and creates more than 80% of new jobs), this does not mean that the role of the government disappeared. Many big Chinese enterprises remain state owned and some private enterprises are state controlled as their shareholders are under governmental influence (Atherton, 2015).

It is beneficial for exporters from Asian LDC SMEs when their own local government has a good relationship with the Chinese government. The purpose of guanxi can help foreign businesses bloom in China. The Chinese government and government officials will only be willing to help you out with for instance promotional events and potential buyers, if a good relationship is established.

5. Communication China’s main language spoken is Mandarin. Due to China’s great population, it is not surprising that Mandarin is the most spoken language in the world. Understanding and speaking Mandarin does help

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foreigners when going to China for business, but in order to fully understand the culture and language, it is necessary to comprehend both verbal and nonverbal communication styles in China.

5.1. Verbal communication There are two types of communication styles: direct and indirect communication. Chinese culture is a high context culture; this means that the communication style tends to be indirect. This partially has to do with the concept of mianzi.

It is expected from Chinese individuals to show respect and to think about whom you are speaking to and about what message you want to send. Opinions are therefore expressed discreetly, in order to avoid conflicts and to maintain harmony (long term relationships). This explains why Chinese people avoid saying no, it is therefore important to ‘read between the lines’.

Businesses that are from a low context culture, with a direct communication style, are recommended to stay calm and patient when speaking to Chinese companies. Ask politely and discreetly when you do not understand something or are unclear about the meaning of the message.

As mentioned before, hierarchy is very common in the Chinese culture. As a result, addressing individuals by their honorific titles and family name is a must. Before a meeting, it is advised to send documents about your company and an agenda regarding the meeting. For a meeting with Chinese business associates, it is necessary to bring one or more interpreters and to be on time.

When greeting, it is advised to greet the oldest person first in order to show respect. It is common to start a conversation about non-business topics such as family and hobbies. Avoid speaking about sensitive political topics.

Business cards (in Chinese if possible) should be exchanged using both hands and spending a moment on the business card(s) before putting it aside. When presenting documents or presentations, make sure a Chinese translation is available (UKTI, 2013).

5.2. Nonverbal communication In addition to verbal communication, it is also necessary to understand nonverbal communication. As mentioned, Chinese culture is a high context culture. This means that indirect communication is applied in China. Due to the fact that indirect communication can be unclear, it is advised to keep an eye on nonverbal communication such as body language.

When greeting, it is common to lower your head and bend your body when greeting someone, especially when greeting seniors. This way of greeting is a sign of respect. For meetings with foreigners, handshakes are given. Chinese do not usually make direct eye contact when speaking, because it is considered inappropriate. This has to do with the hierarchical system in China.

Because Chinese people value building relationships, it is common to be invited to events like dinners at restaurants and teahouses. Chinese people will always appreciate it if you bring a gift when visiting. Gifts must not contain the number four (sounds like ‘death’ in Chinese), clocks, handkerchiefs and sharp utensils like knives and scissors due to their reputation of bad luck and negative meaning. Recommended gifts are food and fruit baskets.

During friendly dinners, it is inappropriate to discuss business topics because these events are for strengthening the relationship.

Practical tips on communication

 Jokes are not very appropriate; so make sure to be careful with your message.

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 China applies an indirect communication style, this means that ‘yes’ may not always mean ‘yes’, and using ‘no’ is avoided by Chinese people. Be clear in what you want to ask and what you want to know by using polite language and open questions.

More useful information and tools  Cultural dimensions Afghanistan: https://globaljournals.org/GJMBR_Volume13/3-Afghanistans-Younger-Elite-and.pdf  Cultural dimensions Cambodia: https://ceg-cambodia.wikispaces.com/Leadership+Styles+%26+Workplace+Culture  Cultural dimensions Laos: http://com339.weebly.com/hofstede-dimensions.html  Cultural dimensions Myanmar: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1114625

Fast read of Chapter 7: Chinese business culture, key for success 1. Differences in cultural dimensions may require you to think outside of the box and respect a different way of thinking. 2. It is highly recommended to invest a lot of time in building and maintaining relationships, or guanxi. A lot of business in China is being done through network connections. 3. Mianzi (‘face’ in English) can be interpreted as reputation, or one’s position in the social environment. It is important in Chinese culture to avoid others losing face. 4. China applies an indirect communication style, this means that ‘yes’ may not always mean ‘yes’, and Chinese people avoid using ‘no’. 5. In China, customers are not the only stakeholder you interact with. One of the important parties to keep into account is the local government.

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SAC. (2015). Retrieved from Standardization Administration of the People's Republic of China: http://www.sac.gov.cn/

SAMPi. (2013). 4Ps of Chinese Marketing Mix in B2B context: #1 Product. Retrieved from SAMPi: http://sampi.co/4ps-of-marketing-mix-in-china-1-product/

TIS. (N.A.). Marking of packages. Retrieved from Transport Information Service: http://www.tis- gdv.de/tis_e/verpack/markier/markier.htm

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UKTI. (2013). Business culture. Retrieved from Doing Business in China: http://www.watershedassociates.com/learning-center-item/direct-communication-vs-indirect- communication.html

Upton-Mclaughlin, S. (2013). Gaining and Losing Face in China. Retrieved from The China Culture Corner: http://chinaculturecorner.com/2013/10/10/face-in-chinese-business/

US-Pacific-Rim. (2011). The Most Misunderstood Business Concept In China. Retrieved from Business Insider: http://www.businessinsider.com/the-most-misunderstood-business-concept-in-china-2011-2?IR=T

Vassiliou, D. (2013). Internet Marketing In China. Retrieved from Search Engine Journal: https://www.searchenginejournal.com/internet-marketing-in-china-daniel-vassiliou/60754/

Watershed-Associates. (N.D.). Direct Communication vs. Indirect Communication. Retrieved from Watershed Associates: http://www.watershedassociates.com/learning-center-item/direct-communication- vs-indirect-communication.html

Worldbank. (2015). China. Retrieved from The world bank: http://www.worldbank.org/en/country/china

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Appendix I. Packing list

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Appendix II. Sample contract

IMPORT CONTRACT Contract No. Date:

The under-signed Buyers and Sellers have agreed to close the following transactions according to the terms and conditions stipulated below:

The Buyers: Address:

The Sellers: Address:

(1)Commodity: Cotton (2)Specifications: All the technical specification and scope of supply shall be based on the technical agreement signed between the buyer and the seller on XX(date)/XX(month)/year, and the technical agreement shall be an integral part of this import contract.

(3)Quantity:

(4)Unit Price:

(5)Amount Total Value: US$646,000.- CIF Shanghai, China, says US dollar six hundred forty six thousand only.

(6) Terms of Shipment: --Time of Shipment: To be informed at the time of declaration of effectiveness of the contract, but latest 6 months before required time of shipment. --Expected arrival date at Shanghai: --Port of Shipment: --Port of Destination: Shanghai, China --Partial Shipment Not Allowed; --Transshipment Allowed only in Hong Kong, if necessary, 7 to 10 days staying in Hong Kong. --Special Conditions: Destined for container transport.

(7) Shipping Mark: On the surface of each package, the package number, measurements, gross weight, net weight, and the below shipping mark shall be stenciled legibly in fadeless paint:

15X&Y VMW436D-13 Shanghai, China

(8) Packing: Seaworthy packing will be suitable for long distance transportation. The Sellers shall be liable for any damage to the goods on account of improper packing, and in such case or cases any and all losses and/or expenses incurred in consequence thereof shall be borne by the Sellers.

(9) Country of Origin and Manufactures:

(10) Terms of Payment: [ X ] Payment by L/C: 30 days before time of shipment, the Buyers shall establish with Bank of China, Xiamen Branch an Irrevocable L/C at sight in favour of the Sellers for the total value of the contract. The credit shall be available against Sellers’ draft(s) drawn at sight on the opening bank for 100% invoice value accompanied by the shipping documents specified in Clause 13 hereof. Payment shall be effected by the opening bank against presentation to them of the aforesaid draft(s) and documents. The Letter of Credit shall be valid until the 30th day after the shipment is affected.

(11) Late Delivery and Penalty: [ X ] In case of delayed delivery, the buyers shall have the right to reject the goods and to lodge a claim against the Sellers. [ X ] In case of delayed delivery, except for Force Majeure cases, the Sellers shall pay to the Buyers for every 10 days of

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delay a penalty amounting to 1% of the total value of the goods whose delivery has been delayed. Any fractional part of 10 days is to be considered 10 days. However, the total penalty shall not exceed 5 % of the total value of the goods involved in the late delivery, and is to be deducted from the amount due to the Sellers at the time of payment. In case that there are quality problem with the commodity which caused delayed delivery of the vessel, the Sellers shall paid the loss caused to the Buyers.

(12) Insurance: To be effected by the Sellers for 110% of the invoice value against All Risks as per The Ocean Marine Cargo Clauses of The People’s Insurance Company of China dated 1, January,1981, Claims if any covered by the insurance, the Sellers should dispatch the goods under this Contract again or take other measures according to the requirements of the Buyers to insure not to affect the production of the Buyers’ shipyard and the Buyers should transfer the right of claim and provide the necessary claim documents to the Sellers.

(13) Documents: The Sellers shall present the following documents to the paying bank for negotiation or to the Buyers directly in case of payment by TT/MT; A. Full set of Clean on Board Shipped Bills of lading made out to Order and endorsed in blank, marked “FREIGHT PREPAID” and notify the Buyers. B. Invoice: indicating contract number, Shipping marks, name of carrying vessel and number of the Letter of Credit. C. Packing List and/or Weight Memo: indicating contract number, shipping marks, gross and net weight of each package and describing the detailed goods and quantities contained in each particular package. D. Insurance policy or certificate for 110% of invoice value covering all risks, indicating in the event of loss or damage, request for survey upon arrival of the cargo at the port of destination be made by the China Commodity Inspection Bureau of that port. E. Certificates of Quality and Quantity/Weight of the contracted goods issued by the manufacturers. F. All necessary certificates and documents stipulated in the technical agreement of the ordered goods. (1 original and 3 copies of LRS certificate and IAPPC (Nox) certificate will be sent directly to the buyer by separate post (DHL) within 50 days after shipment date.) G. Seller’s certificate: Certifying that one full set of non-negotiable documents have been sent to the Buyers within 7 days after shipment and the relative express postal receipt or DHL receipt is required. H. Copy of fax advising shipment (according to clause (14) of this Contract.)

A B C D E F G H

To the negotiating bank (original) 3 3 3 2 1 1 1 1 To the Buyers by express (copy) 1 1 2 1 1 2 1 1

(14) Advice of Shipment and transshipment: The Sellers shall, upon completion of loading, advise immediately the Buyers by fax of the contract number, name of commodity, number of packages, gross and net weights, invoice value, name of vessel and loading date. If transshipment is necessary, the Sellers should inform the Buyers by fax of the name and voyage number of second feeder vessel as soon as transshipment is effected.

(15) Guarantee of Quality: The Sellers shall guarantee that the goods correspond in all respects with the quality, specifications and performance as stipulated in this Contract. The guarantee period shall be 30 months counting from the date of shipment or 12 months from the date of the vessel’s delivery which comes earlier. When the product fail and have to be repaired or replaced during the guarantee period, the supplier of this machinery and equipment shall – after repair or replacement – prolong the guarantee period with the same period as the guarantee period for the item in question.

(16) Inspection & Claim: The Buyers shall have the right to apply to the China Commodity Inspection Bureau (CCIB) for inspection after discharge of the goods at the port of destination. Should the quality and/or quantity/weight to be found not in conformity with the contract or invoice, the Buyers shall be entitled to lodge claims with the Sellers on the basis of CCIB’s Survey Report, within 90 days after discharge of the goods at the port of destination, with the exception, however, of those claims for which the insurance company is to be held responsibility. All expenses incurred on the claim including the inspection fee as per the CCIB Inspection certificate are to be borne by the Sellers.

(17)Force Majeure: In case of Force Majeure, the Sellers shall not be held responsible for delay in delivery or non-delivery of the goods but shall notify immediately the Buyers by fax and deliver to the Buyer by airmail a certificate issued by Government Authorities or Chamber of Commerce as evidence thereof, If the shipment is delay over one month as the consequence of the said Force Majeure, the Buyer shall have the right to cancel this contract.

(18) Arbitration: All disputes in connection with this Contract or the execution thereof shall be settled by friendly negotiation. If no settlement can be reached, the case in dispute should then be submitted for arbitration to the International Economic and Trade Arbitration Commission of China in accordance with the Provisional Rules of procedure of the International Economic and Trade Arbitration Commission of China for the Promotion of international Trade. The decision made by the said Commission shall be accepted as final and binding upon both parties, The fees for arbitration shall be borne by the losing party unless

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otherwise awarded by the Commission..

(19) This Import Contract is made out in two copies, one copy to be held by each party in witness thereof, The Contract come into effective after being signed by the seller and the buyer.

(20) Additional Clause: If any of the above mentioned clause(s) is/are inconsistent with the following additional clause(s), the latter shall be taken as authentic.

The Buyers The Sellers

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Appendix III. Import Cargo Declaration Form

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Appendix IV. Import Contract

Bangladesh Red Flag Dress Co. Ltd. TEL:0067-536-6068 FAX:0067-536-6066

ADD:Red Flag Road, Chittagong 20158, Bangladesh

SALES CONTRACT Date: 2015-03-16 Ref. NO.XL20050705

Seller: Bangladesh Red Flag Dress Co. Ltd.

Buyer:QINDAO RIYI Industry Co. Ltd.

This Sales Contract is made out as per the following terms and conditions mutually confirmed by both parties:

(1) Commodity

（1）Name of Commodity and Specifications （2）Quantity （3）(FOB) （4） Unit Price Amount

MEN’S SUIT 18000 US$15.30 US$275400.00

MEN’S SUIT 18000 US$15.60 US$280800.00

Remark:the a.m. price does not include US$556200.00 button,inner lining,trademark,label etc.

Total Value: US$556200.00

(2)Price: FOB Chittagong

(3) Time of Delivery and Mode of Transportation:18000sets shipment, before 30st, August 2015 by sea. 18000sets shipment, before 26st September 2015 by sea.

However, the Seller’s obligation to deliver is conditional upon receipt from the Buyer’s payment in accordance with Clause 8 of the Contract 25 days before the time of delivery stipulated hereof, if a carrier is selected and booked by the Buyer itself in accordance with the terms of this Contract, the Seller will have the commodity ready for shipment by such time of delivery.

(4) Port of Loading: Chittagong, transhipment allowed

(5) Port of Arrival: Qingdao, China

(6) Payment:100% L/C at sight irrevocable and transferable. Have to receive original L/C before 7 days.

(7) Documents : the Seller shall provide relevant documents to the Buyer

(8) Risk of Loss: The risk of the commodity shall transfer to the Buyer:

a) When it has passed over the rail of the vessel and been released from tackle in case of shipment by sea.

b) When it has been delivered into the custody of the air carrier or agent in case of shipment by air.

c) When it has been delivered into the custody of the railway in case of shipment by rail.

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(9) Quality/Quantity Discrepancy:

In case of quality discrepancy, claims shall be field by the Buyer within 3—6 month after the arrival of the commodity at the port of destination, while for quantity discrepancy, claims shall be field by the Buyer within1— 3 month after the arrival of the commodity at the port of destination. Otherwise no claim will be accepted. It is understood that the Seller shall not be liable for any discrepancy of the commodity shipped due to causes for which the insurance company, other transportation organization or post office are liable. The settlement of such claims is restricted to replacement of the non—conforming commodity on a one—to—one basis or devaluation of the commodity according to degree of inferiority and extent of damage in case of quality discrepancy or supply for the shortage in case of quantity discrepancy, after the Seller has received an inspection report on the commodity by sampling issued by a reputable commodity inspection organization or chamber of commerce at the place where the Buyer is located, certifying the non—conformity thereof. In no event shall the Seller be held liable for the merchantability or fitness for any purpose. Nor shall it have any liability or responsibility for damages of any kind whatsoever, including but not limited to any direct, indirect or collateral damages. In case the L/C or the advance payment does not reach the Seller within the time stipulated in the Contract or does not correspond to the Contract terms and the Buyer fails to amend its terms within the time limit after being notified by the Seller, the Seller has the right to cancel the Contract or to delay the delivery of the commodity as well as to lodge claims against the Buyer. (10) Force Majeure:

The Seller shall not be held liable for failure or delay in delivery of the entire lot or a portion of the commodity under this Contract in consequence of any force majeure incidents.

(11) Arbitration:

Any or all disputes arising from or in connection with the performance of the Contract shall be settled through negotiation by both parties, failing which they shall be submitted for arbitration. The arbitration shall take place in China and shall be conducted by the China International Economic and Trade Arbitration Commission in accordance with the provisional rules of procedures of the said commission. The arbitration award shall be final and binding upon both Buyer and Seller . Unless otherwise awarded by the said arbitration commission, the arbitration fees shall be borne by the losing party.

(12) Other Conditions: Any increase of cost due to national policy adjustment shall be calculated anew.

Buyer Seller

______

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Appendix V. Fumigation certificate

Fumigation Services

Pest Control Speicialist:

GOVERNMENT RECOGNISED HOUSE INSPECTIONS (Wood Destroying Insects) “TENT” FUMIGATION – GRAIN AND PRODUCE FUMIGATION – COCKROACHES – BUGS

WHITE ANTS – RODENTS

Tel: 031/2630134 Fax: 031/2610135 Cell:082 550 7760 47 Nelson Road, Berea Durban

Recognised by the Division of Plant Pest Control for the eradication of Wood-destroying insects.

“TO WHOM IT MAY CONCERN” FUMIGATIO N INSPECTION CERTIFICATE FOR WOOD PACKING MATERIAL

This is to certify that we have fumigated with Methyl Bromide (CH3BR) to the following: ADDRESS: SHANGHAI, CHINA SHIP: BUXLAGOON VOY: 101E CONTAINER NO.: CBHU 3267669 SEAL: 1691228 COMMODITY FUMIGATED: 1 x 20’ GP-COIL WIGHT: - FUMIGANT: METHYL BROMIDE DOSAGE RATE: 48 GRAMS PER M3 TEMPERATURE: 27 DEG C FUMIGATION SPACE: - EXPOSURE PERIOD: 24 HOURS GRADE MARK (IF ANY): - DATE FUMIGATED: 21/08/2010 CONTRACT NO.: AWY10-005 FILE REF: JQ24588

The above container has been fumigated with Methyl Bromide gas at a dosage are in accordance with the Health and Safety Notes of Guidance for fumigation. And may be discharged at any time after 17h00 hours on 22/August/2010.

......

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Appendix VI. Non-Wooden Packing Certificate

Progressive Trading Co., Inc. 1032 Irving Street, No. 92 San Francisco, CA 94122 U.S.A. TEL: 415/504-8222

FAX: 415/504-8122

Buyers of All Grades of Scrap Processors and Brokers

August 21, 2010 To: Whom It May Concern Re: XWLV4801125 Seal#: 19388560

Commodity: Mixed Metal Scrap Weight: 19,297 kgs

DECLARATION OF NON-WOODEN PACKING MATERIAL

To the service of China Entry & Exit Inspection & Quarantine:

We hereby declare that all packing materials in this shipment mentioned above are made of non-wooden packing material.

Yours truly,

Hans Biri

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Appendix VII. Bill of Lading

BILL OF LADING 1) SHIPPER 10)B/L NO.

2)CONSIGNEE C O S C O

中国远洋运输（集团）总公司 3)NOTIFY PARTY CHINA OCEAN SHIPPING(GROUP)CO.

4)PLACE OF RECEIPT 5)OCEAN VESSEL

6)VOYAGE NO. 7)PORT OF LOADING ORIGINAL

8)PORT OF DISCHARGE 9)PLACE OF DELIVERY COMBINED TRANPORT BILL OF LADING 11)MARKS 12)NOS.&KINDS OF PKGS 13)DESCRIPTION OF GOODS 14)G.W.(kg) 15)MEAS(m3)

16)TOTAL NUMBER OF CONTAINERS OR PACKAGES(IN WORDS)

FREIGHT & CHARGES REVENUE TONS RATE PER PREPAID COLLECT

PREPAID AT PAYABLE AT 17)PLACE AND DATE OF ISSUE

TOTAL PREPAID 18)NUMBER OF ORIGINAL B(S)L

LOADING ON BOARD THE VESSEL 20)BY

19)DATE

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Appendix VIII. Commercial Invoice

ISSUER

SILVER SAND TRADING CORP. 6TH FLOOR, Blue Ocean

BUILDING, 135 Long Beach Road, Chittagong, Bangladesh

Shanghai Jin Hong Co. Ltd., 622 Gubei Road, Shanghai 200336, China NO. DATE

2013SDT013 MAY 09, 2013 TRANSPORT DETAILS S/C NO. L/C NO. Shipment from Chittagong port to Shanghai port by sea NEO2013/020 FLS-JHLC06 TERMS OF PAYMENT L/C AI SIGHT Marks Quantity Unit Price Amount Number and kind of and package Numbers FOB Description of Chittagong goods

FL 9711 FOREVER BRAND YE803 600 YE803 US$ 66.00/SET，TE603 YE803 US$ Baby Carrier SETS US$71.00/SET 39600.00 Shanghai TE603 600 YE603 TE603 US$ CARTON SETS YE803 1-1200 42600.00

Total: 1200 SETS SAY US$ EIGHTY TWO THOUSAND TWO HUNDRED ONLY TOTAL: We hereby certify that the contents of invoice herein are ture and correct. SILVER SAND TRADING CORP

______Signature & Stamp

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Appendix IX. Certificate of Origin: Sample

1.Exporter(full name, address and country): Certificate No: CERTIFICATE OF ORIGIN DUTY-FREE TREATMENT Granted by China (Combined Declaration and Certificate) 2.Producer's name and address, if known:

Issued in...... (See Instruction Overleaf)

3.Consignee(full name, address and count): For official use only:

4.Means of transport and route(as far as known) 5.Remarks

Departure date Vessel/Flight/Train/Vehicle No. Port of loading Port of discharge

6.Item 7. Marks and 8. Number and 9. HS 10. Origin 11. Gross 12.Number, date of Number Numbers on kind of Code (6- Criterion Weight, Quantity invoice and Packages packages; digit) (quantity unit) or invoiced value Description of other measures Goods (litres, m3 etc.)

13.Declaration by the exporter 14.Certification 15.Customs verification

The undersigned hereby It is hereby certified, on the This is to certify that the goods declares that the above details basis of control carried out, that declared for exportation and statements are correct, that the declaration by the exporter is correspond to what is stated all the goods were produced in correct. under this certificate ...... (country) and that they comply with the origin requirements specified for these goods under the Duty- ...... Free Treatment exported to China Place and date, signature and Place, date, signature and stamp of issuing body. stamp of exporting customs authority.

...... Place and date, signature of authority signatory.

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Appendix X. Cultural dimension comparison Bangladesh-China and Nepal-China

Cultural dimension of Bangladesh in comparison with China

China Bangladesh

100 87 90 80 80 80 70 66 60 60 55 47 50 40 30 30 24 20 20 20 20 10 0 Power Distance Individualism Masculinity Uncertainty Long Term Indulgence Avoidance Orientation

Source: (Hofstede, China, N.A.)

Cultural dimension of Nepal in comparison with China

China Nepal

100 90 87 80 80 70 65 66 60 50 40 40 40 30 30 30 24 20 20 10 0 0 0 Power Distance Individualism Masculinity Uncertainty Long Term Indulgence Avoidance Orientation

Source: (Hofstede, China, N.A.)

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Appendix XI: Useful addresses

Chinese Trade Associations

1. China Aggregates Association Address：San Li He Road, Haidian District, Beijing Tel：86-10-57811368 E-mail：N/A Website：www.zgss.org.cn

2. China Concrete Cement Products Association Address：San Li He Road, Haidian District, Beijing Tel：86-10-57811203/86-10-57811204 E-mail：[email protected] Website：http://www.ccpa.com.cn/

3. China Brick & Tile Industry Association Address：4/F No.213 Zhaohui Road, Hangzhou, Zhejiang Tel: 86-0571-85871510, 85871590 E-mail：[email protected] Website：http://www.cbtia.com/

4. China Architectural & Industrial Glass Association Address：Room 605, No.108 Beishagou, Haidian District, Beijing Tel：86-10-57159695 E-mail：[email protected] Website：http://www.glass.org.cn

5. China Lime Association Address：San Li He Road, Haidian District, Beijing Tel：86-10-57811597 E-mail：[email protected] Website：http://www.zgshxh.com/

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6. China Stone Material Association Address：No.11 Sanlihe Road, Baiwanzhuang, Beijing Tel：86-10-88084883 E-mail：[email protected] Website：http://www.chinastone.cn

7. China Metallurgical Construction Association Address：33 West Xiwucheng Road, Haidian District Beijing Tel：86-10－82227790 E-mail：[email protected] Website：http://www.zgyj.org.cn/

8. China National Garment Association Address：N/A Tel：86-10 85229073 E-mail：[email protected] Website：http://www.cnga.org.cn/

9. China Edible Fungi Association Address：No. 45 Fuxingmennei Road, Beijing Tel：86-10-66030506 E-mail：[email protected] Website：http://www.cefa.org.cn/

10. China National Association of Metal Material Trade Address：N/A Tel：86-10-63265698 E-mail ：N/A Website：http://www.cumetal.org.cn

11. China Nonwovens & Industrial Textiles Association Address：12 East Chang'an Street, Beijing Tel：86 -10 -85229421 E-mail：[email protected] Website：http://www.cnita.org.cn/en/

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12. China Textile Machinery Association Address：Room 406 No.12 East Chang’an Street, Beijing Tel：86-10-58221177 E-mail：[email protected] Website：http://www.ctma.net

13. China Chemical Fibers Association Address：Room 802, Building 8, Wanda Plaza, No.93 Jianguo Road, Beijing Tel：86-10 51292251-616 E-mail：[email protected] Website：http://www.ccfa.com.cn/

Chamber of Commerce

1. China Chamber of International Commerce Address：International Chamber of Commerce Building 2,Birchbark Hutong, Xicheng District, Beijing Tel：86-010-82217800/86-010-82217878 E-mail：N/A Website：http://www.ccoic.cn/

2. China Chamber of Commerce of Foodstuffs & Native Produce Address ：4th Floor, No. 80 International Building, Guangqumenwai Avenue, Dongcheng District, Beijing Tel: 86-10-87109819，87109821 E-mail：N/A Website：N/A

3. China Textile Import & Export Chamber of Commerce Address ：Building 12, South Lane, Panjiayuan, Chaoyang District, Beijing Tel：Silk Branch：86-10-67739216,Clothing Branch：86-10-67739327 Textile branch：86-10-67739327,Color bleaching cloth Branch：86-10-67739209 Ramie yarn branch：86-10-67739209 E-mail ：N/A Website：N/A

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4. Jiangxi Province Chamber of Commerce Address：16 Baihuazhou Road, Nanchang, Jiangxi Province Tel：N/A E-mail：N/A Website：http://www.jxfic.gov.cn/

5. Shandong Chamber of Commerce Address：Floor 51 Shandong Weier Chamber of Commerce Building, Jinan, Shandong Province Tel：86-0531－86097914 E-mail：N/A Website：http://www.sdfic.com.cn/about.asp?id=19 6. Hubei Province Chamber of Commerce Address：Chamber of Commerce Building, No. 71 Hubei Wuchang Road, Wuhan Tel：86-027-88072796 Email：N/A Website：http://www.hbgsl.com/

7. Liaoning Province Chamber of Commerce Address：No. 68 Shenyang Road, Shenhe District, Shenyang, Liaoning Province Tel：86-024-24846547 E-mail：[email protected] Website：http://www.lnsgsl.org

8. Jilin Province Chamber of Commerce Address：No. 825 Gongnongda Road, Jilin, Jinlin Province TEL：86-0431-85086937 E-mail：N/A Website：http://www.jlgsy.org/

9. Hong Kong General Chamber of Textiles Address：Room 1,11thFloor, Hong Kong Center, Jiulong Changsha Road, Hongkong Tel：86-852-23579978 E-mail：N/A Website：http://www.textileschamber.org/

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Federations

1. China Federation of Industry Address：No. 70 Deshengmenwai West Street, Xicheng District, Beijing Tel：86-010-58050500 E-mail：N/A Website：http://www.acfic.org.cn/web/c_000000010001/

2. Beijing Federation of Industry Address ：White Bridge Street, Chongwen District, Beijing Tel：86-(010)-67163772, 86-(010)-67155161 E-mail：N/A Website：N/A

3. Shanghai Federation of Industry Address：17th Floor Shanghai Federation of Building, No. 55 Yan'an East Road, Shanghai Tel：86-021-63373169 E-mail：N/A Website：http://www.sfic.org.cn/1

4. Tianjin Federation of Industry Address：No.9 Garden Road, Heping District, Tianjin Tel：86-022-27125110 E-mail：N/A Website：http://www.tjfic.com/

5. Jiangsu Provincial Federation of Industry Address：19th Floor No.30 Nanjing West Road, Nanjing, Jiangsu Tel：86-025-83329618 E-mail：N/A Website：http://www.jssh.org.cn/

6. Anhui Provincial Federation Address：18th Floor Administrative Building B, 509 Ma’anshan Road, Hefei, Anhui Tel: 86-0551-62999939 E-mail：N/A Website：http://www.ahgcc.cn/

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7. Fujian Provincial Federation of Industry Address：16th Floor Tongxin Building, No. 276 Lake East Road, Fuzhou, Fujian Tel： 86-0591-88019819 E-mail：N/A Website：http://www.fjgsl.org.cn/

8. Guangdong Industry and Commerce Association Address：No. 2 Sky Road, Yuexiu district, Guangzhou, Guangdong Province Tel：86-020-83356356/86-020-83332173 E-mail：[email protected] Website ：http://www.gdgcc.gov.cn/

9. Hainan Federation Address：Hainan Provincial people's Congress Committee office building, 69 Guoxing Avenue, Haikou, Hainan Province Tel：86-0898-65372046 E-mail：N/A Website：http://www.hnfic.org.cn/index.do

10. Chongqing Municipal Federation of Industry Address：4th Floor No.2 Hong King Street, Yubei District, Chongqing Tel：86-023-67516135 E-mail：N/A Website：http://www.cqgcc.com.cn/

11. Sichuan Provincial Federation Address：No.33 White Silk Street Chengdu, Sichuan Province Tel：86-028-82820787 Email：N/A Website：http://www.scgcc.org.cn/Index.html

12. Gansu Province Federation of Industry and Commerce Address：1st Floor West building, No1.Tuanjie Road, Chengguan District, Lanzhou, Gansu province Tel：86-0931-8586166 E-mail：N/A Website：http://www.gssgsl.gov.cn/

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13. Ningxia Hui Autonomous Region Federation Address：50 West Wenhua Road, Yinchuan, Ningxia Tel：86-0951-6071046 E-mail：N/A Website：http://www.nxgsl.com/

Chinese Government Departments

Central government departments 1. General Administration of Customs Address：No. 6 Jianguomen Avenue, Beijing Tel：86-010-65194114 E-mail：N/A Website：http://www.customs.gov.cn/publish/portal0/ 2. Ministry of Commerce Address：No.2 East Changan Avenue, Beijing Tel：86-010-65197748 E-mail：N/A Website：N/A

3. The State Administration of Quality Supervision, Inspection and Quarantine Address：No.9 East Madian Road, Haidian District, Beijing Tel：N/A E-mail：N/A Website：http://www.aqsiq.gov.cn/

4. The People’s Bank of China Address：No. 32 Street, Xicheng District, Beijing prescription Tel:86- 010-66194114 E-mail：[email protected] Website：http://www.pbc.gov.cn/

Local Offices

1. Shanghai Customs Address：No.13 East Zhongshan Road, Shanghai Tel：86-021-68890000 E-mail：N/A

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Website：http://shanghai.customs.gov.cn/publish/portal27/

2. Urumqi Customs Address：No.295 South Road, Urumqi, Xinjiang Tel：86-0991-3627114 E-mail：N/A Website：N/A

3. Hohhot Customs Address：No.8 Siwei Road, Ruyi Development Zone, Hohhot, Neimenggu Tel：86-0471-4167213 E-mail：N/A Website：http://huhehaote.customs.gov.cn/publish/portal99/

4. Xiamen Customs Address：No. 269 Lujiang Road, Xiamen City, Fujian Province Tel：86-0592-2355555 E-mail：N/A Website：N/A

5. Nanjing Customs Address：No.360 Lung Poon Road, Nanjing, Jiangsu Province Tel：86-025-84422114 E-mail：N/A Website：http://nanjing.customs.gov.cn/publish/portal119/

6. Qingdao Customs Address：No.2 West Lingxia Road, Qingdao, Shandong Province Tel：86-0532－82955112 E-mail：N/A Website：http://qingdao.customs.gov.cn/publish/portal105/

7. Yinchuan Customs Address：No.220 South Zhengyuan Road, Yinchuan, Ningxia Tel：86-0951-5671026 E-mail：N/A Website：http://yinchuan.customs.gov.cn/publish/portal127/

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8. Chengdu Customs Address：No. 66 Hi-tech Zone Skyway Street, Chengdu, Sichuan Province Tel：N/A E-mail：N/A Website：http://chengdu.customs.gov.cn/publish/portal130/

9. Shanghai Quality and Technical Supervision Address：No.728 Yishan Road, Xuhui District, Shanghai Tel：86-021-54266366 E-mail：N/A Website：http://www.shzj.gov.cn/

10. Beijing Quality and Technical Supervision Address：No.3 South Huinan Road, Chaoyang District, Beijing Tel：N/A E-mail：N/A Website：http://www.bjtsb.gov.cn/

11. Jiangsu Province Quality and Technical Supervision Address：Longjiang Building, No.107 Caochangmen Avenue, Nanjing, Jiangsu Tel：N/A E-mail：[email protected] Website：http://www.jsqts.gov.cn/zjxx/

Chinese Research Institutions

Independent Research Institutions

1. Development Research Center of the State Council Address：No.225 Chaonei Road, Dongcheng District, Beijing Tel：N/A E-mail：N./A Website：http://www.drc.gov.cn/

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2. China Center for International Economic Exchanges Address：No.5 Yongdingmen Road, Xi Cheng District, Beijing Tel：N/A E-mail：N/A Website：http://www.cciee.org.cn/

3. Horizon Research Consultancy Group Address：4th/6th/7th/8th Floor, Building, NO.24 Mid Jiuxianqiao Road, Chaoyang District, Beijing Tel：86-010-53896000 E-mail：N/A http://www.horizon-china.com

4. China and Globalization think tank Address: B10 Room, Hanwei Building, No.7 Huaguang Road, Chaoyang District, Beijing Tel：86-010-65611038, 86-010-65611039 E-mail：[email protected] Website：N/A 5. Chinese Economic Reform Address：No.4 Zaojun Temple, Haidian District, Beijing Tel：86-010-62124700 E-mail：[email protected] Website：http://www.cser.org.cn/

6. Ministry of Commerce International Trade and Economic Cooperation Address：No.28 Donghou Lane, Andingmenwai, Beijing Tel：8610－64245741 E-mail：N/A Website：N/A

7. Institute of Economics Address：6th Floor, Zhengren Building, No.9 Chongwai Road, Beijing Tel：8610-52988126 E-mail ：[email protected] Website：http://www.unirule.org.cn/

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8. Public Environmental Research Center Address：6-1-91Diplomatic Building, No.1Xiushui Road, Chaoyang District, Beijing Tel：86 010 6718 9470 /86 010 6718 9470 – 8008 E-mail：[email protected] Website：http://www.ipe.org.cn/default.aspx

9. Chinese Economic Forum Address：N/A Tel：86-010-63906540 E-mail ：[email protected] Website：http://www.50forum.org.cn/index_home2.asp

10. Guangzhou Nonferrous Metals research institutions Address：Five Mountain Industrial District, Guangzhou, Guangdong Tel：86-020-38907765 E-mail：N /A Website：http://2146716.atobo.com.cn/WebSite/2146716-c13.html

11. Mineral Resources Research Institute, Chinese Academy of Geological Sciences Address：No.26 Biwanzhuang Avenue, Beijing Tel：N/A E-mail：N/A Website：http://imr.cags.ac.cn/

12. International Trade Institute of Food Science Address：No.9 Haiying Road, Fengtai District, Beijing Tel：86-010-63722146-8102 E-mail：[email protected] Website：http://www.gmsps.com/

University Research Institutions

1. Shanghai WTO Affairs Consultation Center Address：No.620 Gubei Road, Shanghai Tel：86-021-62591080 E-mail：[email protected] Website：http://www.sccwto.org/webpages/indexIndex.action

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2. China Academy of Social Science Address：No. 5 Jianguomen Avenue, Beijing Tel：86-010-85886805 E-mail：[email protected] Website：http://cass.cssn.cn/

3. Shanghai Academy of Social Sciences Address：No.622 Mid Huaihai Road, Xuhui District, Shanghai Tel：86-021-53060606 E-mail：[email protected] Website：http://www.sass.org.cn/

Embassies of Asian LDCs in China

1. Afghan Embassy Address：No. 8,Dongzhimen Wai Avenue, Chaoyang District, Beijing Tel：86-010-65321582 E-mail：N/A Website：N/A

2. Bangladesh Embassy Address：No. 42, Guanghua Road, Beijing Tel：86-010-65322521，86-010-65323706 E-mail：[email protected] Website：www.bangladeshembassy.com.cn

3. Cambodia Embassy Address：No. 9 Dongzhimen Wai Avenue, Chaoyang District, Beijing Tel：86-010-65321889 E-mail：[email protected] Website：N/A

4. Laos Embassy Address：Building11 No.4 East Sanlitun Road, Beijing Tel：86-010-65321224 E-mail：N/A Website：N/A

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Consulate General of Lao People’s Democratic Republic in Kunming Address：North CaiYun Road, Kunming,Yun’nan Tel：86-0871-67334522/67334511/67335489 E-mail：N/A Website：N/A

Consular Agency of the Lao Peoples Democratic Republic in Jinghong Address：The Complex Building, Nine Pagodas and Twelve Villages Project, Jiangbei Section of Xuanwei Avenue, Cangjiang New areas , Jinghong, Xishuangbana, Yunnan Tel：86-0691-2219155/ 2219355/ 2219955 E-mail：N/A Website：N/A

Lao Consulate General in Nanning Address：Nanning-ASEAN Business District (Nanning consulate area),Nanning Tel：86-0771-5672501 E-mail：N/A Website：N/A

Consulate General of the Lao People's Democratic Republic Address：9th Floor No. 355 Wuding Road, Shanghai Tel：86-021-62886314 E-mail：N/A Website：N/A

Lao Consulate General in Guangzhou Address：Room 905 No.399 East Huanshi Road, Yuexiu District, Guangzhou Tel：86-020 83340710 E-mail：N/A Website：N/A

Consulate General in Hong Kong, Laos Address：Room 1402, Mediatek Commercial Center,2-12 West Queen’s Road, Hongkong Tel：86-00852-25441186 E-mail：N/A Website：N/A

5. Myanmar Embassy Address：No. 6 Dongzhimen Wai Avenue, Beijing

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Tel：86-010-65320359 E-mail：[email protected] Website：http://www.myanmarembassy.com/chinese/default_a.htm

6. Nepal Embassy Address：No.1 West Xiliu Street, Sanlitun, Beijng Tel：86-010-6532 1795, 6532 2739 E-mail：N/A Website：www.nepalembassy.org.cn

Consulate General of Nepal in Lhasa Address：13 Road Lhasa Norbulingka Tel：86-0891-6815744, 6822 881 E-mail：[email protected] Website：N/A

Consulate General of Nepal in Hong Kong Address：No.1 Science Museum Road, Tsim Sha Tsui, Kowloon, Hong Kong Tel：86-00852-2369 7813 E-mail：N/A Website：N/A

Nepal's honorary consul in Shanghai Address：16A Building, No.669 West Beijing Road,Shanghai Tel：86-021-6272 0259 E-mail：N/A Website：www.nepalconsulateshanghai.org.cn

Chinese Embassies in Asian LDCs

1. Chinese Embassy in Afghanistan Address：N/A Tel：（009320）2105148 E-mail：[email protected] Website：N/A

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2. Chinese Embassy in Bangladesh Address：PLOT 2 &4, EMBASSY ROAD, BARIDHARA, DHAKA, BANGLADESH Tel：0088-028824862，0088-02-8824164 E-mail：[email protected] Website：http://bd.china-embassy.org

3. Chinese embassy in Cambodia Address：No.156, Blvd Mao Tsetung, Phnom Penh, Cambodia Tel：00855-12810928 Email：[email protected] Website：http://kh.china-embassy.org，http://kh.chineseembassy.org

4. Chinese Embassy in Laos Address：WAT NAK ROAD, SISATTANAK, VIENTIANE, LAO P.D.R Tel：00856-21-315100 Email：N/A Website：http://la.china-embassy.org/chn/

5. Chinese Embassy in Myanmar Address：1, Pyidaungsu Yeiktha Road, Dagon Tsp, Yangon, Myanmar Tel：00951-221280，221281 E-mail：[email protected] Website：http://mm.china-embassy.org/

6. Chinese Embassy in Nepal Address：Baluwate，Kathmandu Tel：01-4411740 E-mail：N/A Website：http://www.chinaembassy.org.np/

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