PEOPLE'S REPUBLIC OF China COUNTRY STARTER PACK Country starter pack 2 Introduction to China China at a glance POPULATION - 2014 GNI PER CAPITA (PPP) - 2014* US$13,130 1.361 INCOME LEVEL Upper middle billion *Gross National Income (Purchasing Power Parity) World Bank GDP GROWTH 2014 CAPITAL CITY 7.4% GDP GROWTH FORECAST (IMF) 6% (2017), 6.3% (2020) Beijing RELIGION CLIMATE CURRENCY FISCAL YEAR jan-dec BUDDHIST 18%, CHRISTIAN 5%, MUSLIM 2%, FOLK RELIGION Extremely diverse Renminbi (RMB) Calendar year 22%, UNAFFILIATED 52% TROPICAL IN THE SOUTH TO SUB-ARCTIC IN THE NORTH > TIME DIFFERENCE AUSTRALIAN IMPORTS AUSTRALIAN EXPORTS EXCHANGE RATE TO BEIJING FROM CHINA (2013-14) TO CHINA (2013-14) (2014 AVERAGE) 2 hours A$52.1 A$107.5 (RMB/AUD) behind (AEST) Billion Billion A$1 = RMB 5.560 SURFACE AREA Contents 9.6 1. Introduction 4 1.1 Why China? Opportunities for Australian businesses 5 million 1.2 China at a glance 9 square kmS 1.3 China and Australia: the bilateral relationship 21 2. Getting started in China 24 GDP 2014 2.1 What you need to consider 26 2.2 Researching China 38 2.3 Possible business structures 43 US$10.35 trillion 2.4 Manufacturing in China 48 POLITICAL STRUCTURE 3. Sales and marketing in China 52 3.1 Agents and distributors 54 3.2 Online sales 57 3.3 Direct selling 58 Communist State 3.4 Franchising 60 3.5 Marketing 60 GENERAL BANKING HOURS 3.6 Labelling requirements 63 4. Conducting business in China 64 4.1 Chinese culture and business etiquette 65 Monday to Friday 4.2 Building relationships with the Chinese 69 8AM to 5PM 4.3 Negotiations and meetings 74 4.4 Due diligence and avoiding scams 78 5. Business practicalities in China 84 INTERNATIONAL DIALLING CODE 5.1 Laws and regulations 85 5.2 Import duties, tariffs and regulations 90 5.3 Taxation 95 5.4 Audit and accountancy 99 5.5 Employing workers 100 5.6 Banking in China 107 +86 5.7 Repatriating profits and getting paid 109 STOCK EXCHANGE 6. Visiting China 112 SHANGHAI STOCK EXCHANGE (SSE) 6.1 Visas 113 6.2 Currency 114 SHENZHEN STOCK EXCHANGE (SZSE) 6.3 Air travel and airports 115 6.4 Ground transport 116 OFFICIAL LANGUAGE 6.5 Hotels and dining 118 6.6 Health and welfare 119 Mandarin (Chinese) 7. Engage with us 124 Pu tōng huà� 普通话 Country starter pack 4 Introduction to China 1. Introduction Country starter pack 5 Introduction to China 1.1 WHY CHINA? OPPORTUNITIES FOR AUSTRALIAN BUSINESSES Is there any label that can do justice to modern China? Asian giant, global powerhouse, economic phenomenon – all are true, but somehow inadequate descriptions for the extraordinarily powerful position that the People’s Republic of China has come to occupy in the world economic order. Forty years ago, after a long period of economic stagnation, China was not in the world’s top eight economies. Today, thanks to a breathtaking social and economic transformation that began in the late 1970s, China is on track to overtake the United States as the world’s number one economy within a few decades, if not sooner. By some measures, it has already done so. We are living in what many are now calling ‘The Chinese Century’. The irresistible rise of China has implications and consequences for us all on so many levels. But for the purposes of this guide, it largely comes down to one word: opportunity. For Australia, and Australian businesses in particular, has there ever been an opportunity like China? Consider some key facts: • China is home to more than 1.36 billion people – or about 56 times the population of Australia • China is the world’s number one trading nation and manufacturer by output • In 2014, Chinese GDP topped $10 trillion, second only to the United States • China’s GDP growth rate over the past three decades has often bypassed 10 per cent, and consistently exceeded seven per cent • As the Chinese economy matures, annual GDP growth is still tipped to exceed five per cent • Household incomes in China are soaring, with more than 300 million people now considered middle class • China’s urban middle class population is expected to exceed 600 million within a few years • China is Australia’s biggest trading partner by a huge margin. The stats say it all: when it comes to business and trade, China is the main game on the planet. On almost every measure, it is now bigger than the rest, and getting bigger every year. As such, China can scarcely be ignored by any business looking to expand operations beyond its own domestic market. Country starter pack 6 Introduction to China For Australian businesses, opportunities in China have (ChAFTA) will provide major new opportunities for sprouted across a huge – some might even say bewildering Australian businesses in China. Years before the landmark – range of industries, market sectors and geographic agreement was signed, China had already taken over locations. Rapidly rising income levels in China and mass from Japan as Australia’s largest trading partner. In 2014, migration from rural to urban areas have created an annual two-way trade between China and Australia abundantly large class of urban consumers demanding reached almost $160 billion. Iron ore and coal make improved housing, a cleaner environment, overseas travel, up the bulk of Australian exports to China (more than better education, a higher protein diet and an enhanced $59 billion), but Australian service industries – led by choice of financial services. From the sophisticated education and tourism – are a growing part of the trade consumers of developed cities such as Beijing, Guangzhou relationship. China is also the largest foreign buyer of and Shanghai, to the growing middle classes in lesser- Australian agricultural products, with imports totalling known inland cities, the newly industrialised China is a $9 billion in 2013-14. Australia’s main imports from veritable smorgasbord of opportunity. China are manufactured goods, which was worth more than $17 billion in 2014 and is led by telecommunication This is not to say that doing business in China is without equipment, IT products and textiles. unique challenges and complications. Apart from language and cultural barriers, which can be considerable, foreign The implementation of the free trade agreement in 2015 businesses must navigate issues ranging from complex is set to broaden and deepen the trade relationship. bureaucracies, challenges in intellectual property (IP) New service sector opportunities are already opening law enforcement, to quality control and the sheer, up, with Australian financial and legal firms now able to overwhelming size and diversity of the country. There is do business in China for the first time, and many other also the overarching challenge of the different way that services industries permitted to set up wholly-owned business is conducted in China compared with other Australian subsidiaries there. Australian agricultural countries, the large and highly competitive market housing produce exporters will also reap competitive benefits both domestic and foreign businesses, and the complexity from a number of tariff reductions. Tariffs will be removed of understanding and selling to the Chinese customer. on 85 per cent of Australian goods imported into China when the agreement is implemented, rising to 95 per The rewards can be immense for Australian businesses cent once it is fully enforced. willing to put in the necessary preparation and hard work to address these challenges and successfully establish There is no reason to think that the resources sector in China. The Chinese Government has continued won’t continue to dominate Australia’s trade relationship to introduce policies aimed at raising standards and with China for a long time to come. But opportunities encouraging more trade and investment, both inbound outside the traditional export areas are booming. and outbound. In this context, it is hoped that the recent Australian businesses should particularly consider some of signing of the China Australia Free Trade Agreement the following sectors: Considering doing business in China? 1. Do your Research • Be flexible & open to difference • Speak to industry experts • Understand the local culture and • Connect with Australian businesses prepare before meeting with local operating in China business partners • Go to industry events & information • Practice Chinese business etiquette. seminars 3. Building relationships is crucial in • Seek professional advice. Chinese culture, but it can take time 2. Become aware of cultural differences • Be patient with developing relationships and ways of doing business in China • Follow up and maintain contact with • Gain an understanding of your customer your networks. & local business partners Country starter pack 7 Introduction to China Education: China is Australia’s largest source of Legal services: Negotiations with ChAFTA have benefited international students. In 2014, there were 152,898 Australian law firms by permitting them to be the first Chinese students enrolled in Australian education foreign entrants able to establish commercial associations institutions (including schools), representing 28 per with Chinese law firms in China. This will specifically cent of all international enrolments. Just over 90,000 occur in the Shanghai Free Trade Zone (SFTZ). Australian of these were in higher education institutions, including law firms will be allowed to offer Australian, Chinese universities, while 13,158 were in vocational education. As and international legal services through a commercial levels of disposable income continue to increase in China, presence, without restrictions on the location of clients. Chinese parents are increasingly choosing to send their children abroad for secondary education in preparation Information communication technology (ICT): Huge for foreign university. In 2014, there were 8,386 Chinese growth in e-commerce in China has resulted in massive students enrolled in Australian schools.