WINNING BUSINESS IN CHINA 中国 IRL EXPORTERS' HANDBOOK Winning Business in China 中国 A Guide for Irish Companies Introduction This guide is intended as an introduction to China and the Chinese market for Irish companies interested in doing business there. As you would expect this brochure develops a detailed picture of the business environment in this sizeable and dynamic economy. It points to the growth areas that are attractive to Irish companies and to the means by which Enterprise Ireland can assist your firm in executing your China growth plan. The sheer size of China’s economy provides a wealth of opportunities for determined Irish companies. Enterprise Ireland continues to encourage and assist Irish exporters entering the China market, providing support infrastructure to investigate all elements of the market. Irish firms in the future will need to look beyond the traditional main markets such as the US and UK, and look further a field to more dynamic growth markets such as China. Many international businesses are lured to China by the prospect of a market of a billion new consumers, but this is a somewhat naïve view. Income levels vary significantly, between the richer urban areas and the more rural areas. For the majority of the population, the concept of ‘disposable income’ bears no meaning. However, there is a population of about 300 million who are certainly in the market for western goods and services. Also, in their drive to address export markets, Chinese businesses are developing an appetite for technology, systems and infrastructure that cannot be satisfied by indigenous suppliers. Although Ireland, like the US suffers from a ‘trade deficit’ with China, China can and has met our needs for raw materials, components and parts, and feeds into our own manufacturing facilities. China’s inputs to the Irish economy over the last two decades has contributed to our economic growth. Throughout the last three decades, Irish firms with the help of Enterprise Ireland and the Irish Embassy in Beijing, have seen sales grow year after year, stronger relationships have been built, and awareness of Ireland is increasing all the time. China recognises Ireland has a lot to offer in Information Technology, Engineering, Life Sciences, Food and Drink, and Education. Just as China is a vast country, the topic of doing business with China is also vast. This guide is intended only to introduce the subject anyone contemplating business in China will have to conduct serious research and be prepared to commit considerable resources to the task. This guide includes references to a wide range of useful sources, and the Enterprise Ireland offices in Beijing, Shanghai, Hong Kong and Guangzhou will be happy to assist you, whether by conducting market research on your behalf, arranging introductions to potential customers and partners, or providing practical assistance on legal, taxation or other business issues. This guide develops on the experience of a number of Irish companies already successfully exporting to China which may help answer some of the questions you may have about doing business in China. The companies interviewed offer practical advice on how to succeed. Hopefully this brochure can provide the means by which to help you and your company win business in China. Alan Dixon. Director Asia-Pacific Region Enterprise Ireland Contents 1 About China 1 Brief Economic History 2 Current Economic Situation 3 Population 3 Climate 3 Language 3 Geography 3 Southern China 4 Northern China 5 Central China 6 Western China 7 When You Are There 2 Doing Business in China 10 Getting Information 10 Trade Fairs 11 Consultants 11 Industry Directories 11 Trade Associations 11 Investing in China 12 Selling In China - The Consumer Market 13 Selling In China - Logistics 14 Selling In China - Finding the Right Partner 15 Intellectual Property Rights 16 Sourcing In China 18 Chart - Ease of Doing Business in China 3 Setting up a Company in China 19 Choosing the Right Kind of Entity 19 Representative Office 20 Joint Venture 20 Wholly Foreign-Owned Enterprise 20 Procedures for Setting Up 20 Obtaining a Business Licence 21 Recruiting Staff 21 Finding Accomodation 21 Banking & Accounting in China 22 Foreign Exchange Controls 23 Foreign Business Taxes in China 4 Sectoral Opportunities for Irish Companies 25 Software & IT 26 Environment 27 Education Services 29 Medical Devices 30 Food 5 How Enterprise Ireland can help you with your China plans 32 Effective Teamwork 33 Companies in Action with Enterprise Ireland 34 Business Acceleration Programme 6 Irish Companies in Action Throughout China 36 Audit Diagnostics 38 Henry J. Lyons Architects 40 Creganna 42 The Irish Dairy Board 44 Greenstar 7 Appendices 51 Useful Chinese Phrases 53 Map of China 1 About China Brief Economic History Deng-Xiao Ping in 1978 initiated an “open door policy” to reform and modernise the Chinese economy, promoting foreign trade and investment as the main catalysts of growth. China, economically backward before 1979, has become and will continue to be one of the globe’s major economic players, due to these crucial steps taken by Deng. In the 30 years following reform and gradual opening-up, China’s economy developed at an unprecedented rate, averaging about 10% per annum and that momentum has been held steady into the 21st century. Deng’s reforms led to China being ‘one country with two systems’, unlike centrally planned systems in other nations, China possesses a mixed economy where certain industries seen as a vital to national interest such as oil and steel are kept in the control of the government, while other industries including the commercial and private sectors, are governed by a market-oriented system. A model has basically been created in which the government plays the main role alongside private enterprise, to achieve common development. This combination of central planning and market-oriented reforms increased productivity, living standards and technological quality without aggravating inflation, unemployment, and budget deficits. Deng’s reforms led China on a rapid path to growth never witnessed before in human history, all which is re-shaping the world economy. China’s thirst for commodities such as steel, copper and oil, along with Chinese ownership of US Debt and mounting trade deficits have shifted the political and economic agendas of many nations worldwide. China joined the WTO in 2001, gradually implementing the laws required as part of accession. China’s entry into the WTO bears great importance for companies globally as it led to significant exporting opportunities for foreign firms due to the reduction of tariffs, quotas, and has opened up many sectors of the Chinese economy, such as banking, logistics, construction and services. Eventually it will led to all foreign firms in China being treated on a level playing field with domestic firms. China’s rapid growth brought many Chinese nationals from the farm yard to the computer lab, lifting hundreds of millions out of poverty in the process. Rich parts of China, the modern parts of Beijing or Shanghai or Dalian, are now more state of the art and modern than rich Europe. The buildings are architecturally more interesting, the wireless networks more sophisticated, the roads and trains more efficient and nicer. But China still remains quite a poor nation by global standards, outside the bright lights of Shanghai, Beijing, and Dalian widespread abject poverty remains, the percentage of people earning in excess in US$10,000 still remains proportionately miniscule.But with a highly educated workforce, an endless supply of labour and a government who believes ‘to grow rich is glorious’, China has grown and will continue to prosper. DOING BUSINESS IN CHINA ABOUT CHINA 1 . 2 Current Economic Situation Despite China’s increasing economic prosperity, the country faces some serious problems and growing risks that can provide threats as well as opportunities for Irish firms. One of the main tasks currently facing China is sustaining the current economic growth, spreading its benefits evenly amongst its peoples, and responding adequately to changes in the global economic climate, such as a weakened dollar, rising price of commodities and depressed export markets. Growth has brought with it a wide range publicised disadvantages, including serious inequalities in wealth and environmental degradation. The vast income disparities have become a strong source of dissatisfaction among farming and poorer communities, and has led to mounting social unrest, with reports of violent protests surfacing. Issues such as rising food prices, general inflation and limited access to healthcare have also been a magnet for dissent. Although Beijing has been proactive in addressing these concerns, these problems pose a political risk that all foreign firms operating in China should take into consideration. Intellectual Property Rights has been and still is a key issue. IPR has been improving in recent years, especially as China develops its own high-tech firms, who need IP rights to be enforced for their own protection, development, and to incentivise and encourage idea- generation amongst entrepreneurs. The nature of trade and the domestic economy has changed considerably in China over the last decade, China has made a rapid transition from low-end labour intensive goods such as textiles, to more high-tech. Government policy in its pent-annual Plans mirrors this, focusing on rewarding those firms who engage in production higher up the value chain. China’s currency the Renminbi has been the cause of much tension with the European Union. Much of China’s export led growth has been due to the Government artificially holding down the value its’ currency. The RMB is pegged to a basket of currencies but primarily to US dollar, given the record weakening of the Dollar during the 2007-08 period, the RMB has fallen in value against the Euro, hurting European exports to China and leading to a protectionist sentiment amongst Europeans.