How to do Business in China

How to Do Business in China

Made in China

 

China is positioning itself to overtake the US as the second largest global economy by 2020. There was $576.8 billion in trade between the US and China in 2016. Goods imported from China totalled $462.8 billion in 2016. If you’re not importing from China, you might be missing out.

 

The good news is that having your products read “made in China” doesn’t carry the stigma it used to. Importing doesn’t necessarily strip the US economy. Research from the Federal Reserve Bank of San Francisco indicates that for every dollar spent on Chinese imports, 55 cents goes to US businesses for services related to the product, such as sales and marketing.

 

This money can be poured into the US economy because Chinese imports are so cost effective. This doesn’t mean “cheap,” although savings can range from 30% to 200%. This is because there is an atmosphere of hypercompetition in China, with most industries fragmented into many competitors who largely compete on price.

 

“What continues to amaze me about China is the vastness of it all. For example, in China there is a top region for umbrellas, and in that region alone there are over 300 manufacturers of umbrellas” – John Moreau, CEO Merangue International

 

 

Rest assured you can find a great deal in China. This guide will take you through the steps from help you negotiate with a supplier to import from China.

 

Introduction to China

 

Major Cities

 

China Major Cities

 

The terrain of mountain and desert in the western part of China ensures that the the vast majority of the population resides in the east. Here are our top five eastern cities for conducting business.

 

Beijing

Beijing, the capital of China, has many state run businesses and as a consequence held more of the Fortune Global 500 headquarters than any other city in the world in 2013. Also in 2013, the city’s nominal gross domestic product was $314 billion USD, approximately 3.43% of the country’s entire output. With a population of approximately 21 million, it is also the world’s most populous capital.

 

Shanghai

Shanghai is China’s most populated city; it has a population of over 24 million. With a favorable port, it realized its potential as China’s commercial center in the 19th century. It currently produces nearly 8% of the country’s GDP.

 

Guangzhou

Guangzhou, romanized as Canton, is the third largest city in China; it has a population of over 14 million. Home of the Canton Fair, the largest in China, it’s not to be discounted as a place to conduct business. It’s the oldest of all the ports in China, and the largest port in the south, making it an attractive place to conduct international business.

 

Shenzhen

The fourth largest city in in China, Shenzhen has a population of over 11 million. It’s also ranked fourth in terms of economic output. With a thriving IT sector that is home to many successful international businesses, such as communications technology giant Huawei, it stands as a great alternative for importing consumer goods.

 

The Region of Hong Kong

Hong Kong was British colony for 99 years and became a special administrative region of China in 1997. It has a population of over 7.3 million. Hong Kong is thriving with a nominal GDP of over 2.4 million. With exports of over 4.5 billion, it is a great place to find something interesting to import.

 

Currency

The currency in mainland China is Renminbi (RMB) Chinese yuan, also known as Renminbi. The basic unit of Renminbi is Yuan and the sign of Yuan is ¥. You can withdraw Yuan from an ATM once you arrive. USD is not commonly accepted in China.

 

The currency of Hong Kong is the Hong Kong dollar abbreviated HKD.

 

Language

Standard Chinese, known in China as Putonghua, is the official spoken language for mainland China. A form of Mandarin Chinese, it also serves as the language of business. In Hong Kong, English is also an official language.

 

This doesn’t necessarily mean you have to learn Standard Chinese to do business with China (although some ability in it would help business negotiations). English is a required subject in university, and it is considered increasingly useful and prestigious to be able to speak it.

 

In March 2017, Google reintroduced its Translate mobile apps to China. They are now available for use without the need for a VPN or software to bypass local censorship. Users of the Chinese version of Translate also have access to Word Lens, which translates text from photos taken with the app.

 

Beware that it is not always allowed to take photos in China. You may not take photos in:

 

  • Politically sensitive areas, such as military bases, customs, or airports
  • Religious and cultural areas such as museums, grottos, temples, and monasteries
  • Wildlife reserves

 

Note that it is also not permitted to take photos of individuals, without their permission.

 

Holidays

There are seven official public holidays in China including New Year’s Day, Chinese New Year (Spring Festival), Qingming Festival, May Day, Dragon Boat Festival, Mid-Autumn Day and National Day. These are the holidays for 2017, however a list is published yearly at the Office of the State Council of China. You can find a link for it in the useful links section at the end of this guide.

 

Public Holidays for 2017

 

HolidayDate 
New Year’s Day
Dec 31, Jan 1-2, 2017three days
Spring FestivalJan 27 — Feb 2seven days
Qingming Festival
April 2 — April 4three days
Labor Day
April 29 — May 1three days
Dragon Boat FestivalMay 28 — May 30three days
Mid-Autumn Festival & National DayOct 1 — Oct 8eight days

 

Communication from the US

 

Email

Email will likely be the predominate method by which you first contact your overseas supplier. People are politely addressed by their professional title and last name. If an individual does not have a last name use “mister,” “miss,” or “madam” before the last name.

 

Making calls from the US

If you need to contact a supplier within the country, China’s phone code is +86. This means you need to add it to the beginning of any phone number. For example: when dialing from the US, you would dial 01186 + the local number which would be 8 to 12 digits. If calling a cell phone, you would dial 01186 + 1 + the cell phone number which would be 10 digits.

 

Time difference: UTC+8 (13 hours ahead of Washington, DC, during Standard Time)

 

Online supplier directories

Alibaba.com is a worldwide phenomenon, and although it’s a good place to start, you will see from this guide that business in China is all about relationships, so we recommend building one with your supplier and even traveling to China to go and meet them.

 

Traveling to China

With the advent of sites like Alibaba, you may find it unnecessary to travel to find a supplier, but meeting people face-to-face is the easiest way to build business relationships or guanxi (see below).

 

All basic conditions (wifi, cell phone services, chain hotels and restaurants, plugs and sockets, etc.) are very similar to the US, so you don’t need to worry about those when traveling to Canada.

 

Visas

Any kind of traveling in China requires a valid passport and a visa. There’s a special visa type for conducting business. Without a visa, it’s unlikely an airline will allow you to board.

 

It is required to appear in person at a consulate or visa office to complete the application. If you cannot attend the office yourself, you can send a delegate in the form of a relative, friend, or visa agent in your place.

 

It’s recommended you apply for a visa at least two weeks in advance, as the processing time is typically four business days. There is an express service of two to three business days, and a rush service of one business day.

 

A detailed explanation of how to apply for a business visa can be found at the site for the Chinese Embassy, in the useful links section below.

 

A US citizen may travel to Hong Kong without a visa for a visit of less than 90 days.

 

Using a Cell Phone in China

Roaming can be quite expensive in China. We recommend either buying an international SIM card at home or buying a Chinese SIM card once you arrive. SIM cards are typically pre-charged in China and are easily available around the city and at most airports.

 

The Internet and VPNs

Hotels in China typically have an area for doing business where internet service is available. Some hotels also have wifi service in the rooms for use on your laptop. It’s worth noting that certain social media sites are banned in China, such as Facebook.

 

This can be circumvented by using a VPN, or Virtual Private Network. A VPN extends a secure private network across a public network. By using a VPN you are using a server located in another country. This makes the internet think you are in the country where your server is located (you would want one based in the US). This means sites that are typically blocked in China could be open to you.

 

We recommend setting up a VPN before leaving the US. Some popular sites that offer this service include VyprVPN and ExpressVPN.

 

Please note that the situation with privacy and the internet in China is always changing, so it’s worthwhile to do some research on the tools you intend to use before leaving the US. For example, VPNs will be blocked from February to March 2018, as part of a sweeping crackdown on dissent and with the aim of maintaining the Communist party’s power.

 

Two of the Major Trade Shows

 

The Canton Fair

A national fair, the Canton fair is China’s biggest trade fair. The fair features virtually every type of industrial product imaginable. There are three “phases” of the fair in which exhibitor focus on certain products. Phase 1 consists of electronics and automobiles. Phase 2 consists of consumer goods and gifts. Lastly, Phase 3 is comprised of clothing, medicines, and recreational products. The event is held twice annually in the spring and autumn.

 

Though most of the buyers are from other Asian countries, buyers from Europe, the US, and Russia each make up about 10% or more of the buyers. It is designed to be an international event with language assistance for people from 200 countries.

 

The Yiwu Trade Fair

The Yiwu Trade Fair is a permanent fair and is targeted to small buyers from all over the world.

 

It is generally less expensive than the Canton Fair, but with less variety as well. Buyers come from about 100 countries.

 

Business Culture

As the Chinese saying goes ru jing sui su–“When you enter a region, follow its customs.” In China, guanxi, or great business relationships, are essential. What we might consider small talk actually builds an atmosphere of trust with your supplier — and a great relationship is your best risk management strategy for negotiations and transactions.

 

Guanxi

 

Guanxi roughly translates as networks or connections.

 

Fundamentally, guanxi is about building a network of mutually beneficial connections which can be used for personal and business purposes. In a sense, guanxi is important for business in any part of the world. However, in China guanxi is perhaps more important because the political system is centralized and bureaucratic, and the legal system is comparatively weak.

 

Where in the US you may be able to make a deal strictly over the phone or through business meetings, in China it is necessary to get to know your counterparts outside the boardroom at meals or over tea. You can find advice on how to conduct yourself at these meetings here.

 

Guanxi

Businesses in China often attribute their success to having good guanxi.

 

Guanxi is a two-way relationship in which one relates oneself to others in a hierarchical manner, maintaining social and economic order. It does not end at a favor for a favor, but instead emphasizes ongoing mutual obligation, reciprocity, and trust which are its foundations.

 

Mianzi

Mianzi, or face is an intrinsic part of the Chinese psyche. The concept of face carries more weight in China than it does in the US because of the hierarchical nature of Chinese society. Having face means having the respect of others, and it bears with it the concept of personal dignity.

 

As in the US, you can lose face in China. The most common way to lose face is to be criticized in front of others. You can also lose it if you’re teased in public, which can be misinterpreted as an insult. Causing someone to lose face can destroy business prospects because it destroys trust and consequently guanxi.

 

Unlike in the US, face is not only saved or lost, but it can also be given and earned. To give face one compliments or praises someone’s work in front of his peers. However, praise should be used sparingly as it can be mistaken for insincerity.

 

In general, Chinese communication is more subtle than English. For example, it is considered rude to say “no” outright. Saying no could potentially embarrass the person you’re saying it to, which would mean they would lose face. A more polite alternative is to delay the answer, by saying, for example, “perhaps we can come back to that.”

 

Similarly, a Chinese businessperson will not say “no” to you. They may reply “I see what you are saying but…” when in fact the “but” means they completely disagree.

 

Hierarchy in Chinese Businesses

 

“The individual is subordinate to the organization. The minority is subordinate to the majority. The lower level is subordinate to the higher level” - Mao Zedong

 

This quotation exemplifies traditional societal values in China. That said, it also shows why Chinese businesses are hierarchically organized. It suggests that Chinese people are more group-oriented than individualistic. For this reason, people infrequently give an opinion before their peers as it might cause loss of face. People are more likely to offer opinions in private conversation.

 

Although it is quite different from the US value of individualism, this hierarchical structure must be respected when visiting China. It will be especially important when conducting business meetings in China.

 

Business Communication

 

The First Meeting

 

Attire

It is best to dress conservatively in China. Jeans are not acceptable for business meetings and shorts are only used for sports. Men should wear suits that are beige, brown, or dark blue (not black). Women should wear flat shoes and long sleeved blouses that have high necklines. Revealing clothing is considered tasteless.

 

Timing

Businesses are closed in China between 12pm and 2pm. Appointments must also be scheduled around holidays. (For a list of holidays see useful links below). It is polite to arrive early or at least punctually.

 

Introductions

Address people with their business titles and last names as you would in email. Although if permission has been granted, it is acceptable to address someone by their first name. It is ideal to have a Chinese name when doing business in China. If you’ve hired an interpreter, he or she can create one for you. It’s best if it’s not just a transliteration, but a unique name.

 

It’s appropriate to shake hands in China, although any other manner of physical touch will appear strange. Traditionally, people bow upon meeting, although the handshake has become more popular.

 

Business Meeting Tip

Because the Chinese business culture is always changing to accommodate more American business owners, it can be tricky to decide whether to bow or shake hands when meeting potential business partners. To make it easy, always wait to see if a person extends their hand before you offer yours.

 

It is important to respect hierarchy in China so greeting, shaking hands, and exchanging business cards in order of seniority is essential.

 

Business Meeting Tip

It’s common in China for the most important person in a meeting to enter the room first, use this to decide who you should greet first.

 

Business Cards

Business cards are exchanged upon meeting (while standing) and it is polite to have the flip side of your card translated. When exchanging business cards, greeting your Chinese counterparts with simple phrases such as “Ni Hao” (pronounced nee how meaning hello), “Zao Shang Hao” (pronounced zow shong how meaning good morning) and “Xia Wu Hao” (pronounced sia woo how meaning good afternoon) can help ease the conversation.

 

Business cards should be given and received with two hands, because you are holding an object of value and a representation of the person whose card it is. That also means business cards are not to be written upon, folded, or shoved into a pocket. Instead it’s polite to examine the card and then place it in a business card holder or on the table next to you.

 

Small Talk

It is best to avoid speaking about politics and to discuss your standard topics such as hobbies, family, hometowns, and the weather. It is generally better to avoid jokes, as most don’t translate well.

 

Gesture in China

Beware that gestures have different meanings in China so they are to be used sparingly.

 

  • In particular, nodding means “I hear you,” not “I agree with you.”
  • It is considered rude to point at someone with either your hands, feet or chopsticks; it is better to gesture with an open hand.
  • In order to indicate negativity, shaking your head works in China, but many Chinese will show you their palm close to the body with a slight side-to-side wave to indicate negativity.
  • In order to ask someone to come you should hold your hand out with palm facing down and fingers rapidly waving to mean come here. However, this gesture is typically used when summoning kids, taxis, waiters, and the like so use it cautiously.
  • In order to say thank you in gesture, you let either palm rest on the fist of the other hand. In some parts of the country, this is followed by a slight bow.
  • In order to wish someone good fortune in gesture, you interlock your hands as you would in prayer but without the fingers pointed.

 

 

Gifts

Gift giving at the end of a meeting is a common business custom in China. Gifts must strike a balance between being frugal and lavish. An inexpensive gift indicates that you do not value the relationship. An extravagant gift causes the receiver to be obliged to reciprocate. Business gifts are usually given in public and, as with business cards, should be received with two hands.

 

 

Greed in China: The receiver may initially refuse your gift as eagerness in this case is a sign of greed. Insist until they accept, but do not expect them to open the gift immediately as this is also a sign of greed.

 

Certain items and colors have negative meanings in China. Avoid giving clocks, cut flowers, white linens, storks, cranes, or anything sharp, such as knives or scissors. Avoid gifts that are colored white or black or wrapped in white or black paper as these are funeral colors. The meanings of colors vary from region to region, although red is generally a neutral color.

 

It is advisable to ask the advice of someone native to China when choosing a gift. If you do not have a Chinese friend, consider asking the interpreter you’ve hired for business meetings.

 

It is important to follow up on these meetings by communicating with your potential suppliers to continue to build guanxi. These conversations help you build a relationship with your supplier which is your best insurance in China.

 

Business Negotiations

 

Chinese business people are shrewd negotiators. Some of the tactics they use include:

 

  • Controlling the time and place of the meeting: They may schedule a meeting close to your departure date knowing you will not want to go home empty handed. One way to deal with this is to arrange an open ended ticket or to claim you are leaving earlier than in fact you are.
  • Threatening to do business with someone else if their terms are not met: this is another technique that pressures you to make the deal. The best way to handle this situation is with patience.
  • Using friendship to their advantage: this is the downside to guanxi. A business partner may insist that true friends make mutually beneficial deals. Be sure that the deal is indeed mutually beneficial.
  • Displays of anger: Chinese business people may apply pressure through outward shows of anger causing you to fear that you may lose the contract. The best option is once again to remain calm and patient.
  • Attrition: Chinese negotiators may engage in lengthy discussions in order to wear you down. Be patient and be prepared.

 

 

In addition to strategic differences, cultural differences will also be at play. Where someone from the US would search for the clear alternative, someone from China might look for a way to combine both options in order to minimize risk. For example, a supplier in China is unlikely to make exclusive deals.

 

The Invoice

Although you may exchange dozens of emails detailing your order with your supplier, the invoice will tell you the exact nature of the product you are to receive. Be certain the specifics are in the invoice. For example, if the invoice doesn’t specify that the product be boxed, expect it to arrive in bulk.

 

We advise you to request a sample of the product before finalizing the invoice. Samples can help you control the quality of the product you’re importing. Be sure to find out about points of no return: once production is started you may not be able to make changes to the product. For more about how to request a sample, see our blog post.

 

Chinese suppliers are used to 10,000 quantity orders for their domestic market. They are often reluctant to do business at quantities under 500. That doesn’t mean that a small order is impossible, just more difficult to negotiate. Find out why the supplier has a minimum order quantity to help you negotiate a small order.

 

Beware that certain items are not legally permitted to be exported from China, such as ivory.

 

Additionally there are restrictions about what can be imported to the US, so you may need additional permits if your products are agricultural, for example.

 

Making Payment

The fastest, easiest, most inexpensive, and completely safe way to pay your supplier in China is to use Veem. Veem is safer than your traditional bank, and it allows you and your supplier to track the payment from end to end. This will help build guanxi with your suppliers as they will always know when they’re getting paid.

 

Using Veem to make a payment is as simple as sending an email.

 

With Veem you’re assured that our staff has verified your supplier by confirming their bank details and making sure that they have passed all regulatory compliance requirements.

 

Regulations and Permits

 

Hire a Customs Broker

A customs broker acts as your liaison with the government, takes care of the paperwork of importing, and helps you navigate any regulations. They can also help you to estimate import costs and how long your shipment will take to be imported. Failing to comply with customs regulations can be very costly, so just be sure to add your custom broker’s fee as an expense you must cover with the sale of your goods.

 

Useful links

 

About China:

CIA World Factbook: China
National Bureau of Statistics of China

 

Holidays in China

State Council of the People’s Republic of China

 

Getting a Visa

VISA: Chinese Embassy in US

 

Regulations on Importing to the US

SBA: Office of International Trade

 

Finding a Customs Broker

National Customs Brokers and Forwarders Association of America
International Federation of Customs Brokers Associations

 

Veem-banner-send transfers