Doing Business in China Guide

Getting Started

The Chinese market can be more complex for uninitiated companies than other international markets. The challenges of a huge market with a different business culture and language are compounded by a controlled currency and relative newness of international trading in modern China.

Whether buying, selling or investing, whether dealing in physical products or knowledge, it is important to be aware of the complexities and risks. None are insurmountable, but they do require time and resources.

The main points are covered below, and there is a wealth of information on both the UK Trade & Investment and China-Britain Business Council websites: www.ukti.gov.uk and www.cbbc.org.

 

Market Access

Before attempting to enter the Chinese market it is important to identify whether the market is open to you and whether restrictions apply. Certain sectors, for example military, are subject to UK controls and these can be identified from the “UK Strategic Export Control Lists”.

The Chinese Government classifies the market for foreign investment or entry into three categories: encouraged, restricted and prohibited. The ability of a foreign company to operate in China varies in line with these, so in some sectors it is possible to set up a 100 per cent foreign-owned company, but in others entry is possible only through a local partner, and in some it is not possible at all. With some professions, for example legal, it is possible to enter the market, but operation is severely restricted.

It is important to understand your freedom to enter the market. Refer to the official “Catalogue for the Guidance of Foreign Investment Industries”, published by the Chinese Ministry of Commerce (MOFCOM), and seek advice from UKTI, CBBC or professional services companies.

 

Certification and Standards

All overseas products imported into China are checked and certified by the domestic and overseas arm of the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (AQSIQ). Two agencies of AQSIQ, the Certification and Accreditation Administration of the People’s Republic of China (CNCA) and the Standardisation Administration of China (SAC) are responsible for certification and standardisation in China.

Generally, but not exclusively, Chinese standards match ISO, ANSI or BS/EN. When importing into China, Chinese standards take precedence over foreign standards, so it is essential that your products adhere to the applicable Chinese laws, regulations, standards and certification requirements.

Chinese standards are divided into Mandatory Standards and Voluntary Standards. Mandatory Standards are those concerning the protection of human health, personal property and safety and those enforced by laws and administrative regulations. Standards that fall outside the above criteria are known as Voluntary Standards. Certain market sectors, such as medical products and food, require extensive registration (and possibly testing) and certification. Here it is important to seek advice from UKTI or CBBC.

The China Compulsory Certificate (CCC) is a compulsory quality and safety mark that is required for a range of manufactured goods before they can be exported to or sold in China. CCC certification is required for a wide range of products that could impact on human life and health, animals, plants, environmental protection and national security. Goods imported into China that require the CCC mark and do not have it may be held at the border by Chinese Customs and may be subject to other penalties. Both the CNCA and the SAC have English language websites providing comprehensive information on certification and standardisation: www.cnca.gov.cn/cnca and www.sac.gov.cn

 

Legal System

China has created what is officially termed a “socialist legal system with Chinese characteristics”. Technically, the legal system is based on both statutory law and custom. The National People’s Congress (or its Standing Committee) enacts national laws while the State Council (effectively the Chinese government’s cabinet) implements and enforces administrative regulations and rules nationwide.

The ministries under the State Council put into effect specific national administrative regulations and rules and can be authorised to issue interpretative implementing rules. Provincial representative bodies known as people’s congresses may also enact local rules and regulations where these are not contradictory to laws, regulations and policies enacted at the national level.

In addition, the Supreme People’s Court issues judicial interpretations from time to time, which all lower courts are required to follow in adjudicating cases. Apart from this, there is no general system of precedent followed in China’s courts. After a period of intensive statutory development over the past 20 years, China now has a relatively complete basic legal system in place.

 

Management, Control and Quality Assurance 

With the challenges of distance, language and culture, many UK companies are tempted to take a “hands-off” approach to transactions and operations in China. In fact, these challenges increase the need for proactive engagement. A “hands-off” approach allows problems to develop, often to the point where they become major issues.

Once a business presence has been achieved, companies often report numerous obstacles to successfully implementing their business plan, including factors such as protracted lead times from suppliers, supply chain management and quality control issues, administrative delays which result in longer lead times for client organisations, the management of risk, problems with obtaining finance, banking system inefficiencies, and infrastructure deficiencies.

There is no simple solution, and successful UK companies use a variety of techniques. These can include extensive travelling by UK personnel, a controlling or liaison presence in China (such as using CBBC Launchpad), or providing extensive training and good management of Chinese staff. It is important not to allow milestones to slip by, whether these are attending a board meeting in a joint venture or arranging a quality audit at a supplier.

Sourcing products from China, especially from a supplier inexperienced in dealing with foreign companies, requires particular attention to detail. Specifications are sometimes not understood and need to be very clearly explained and agreed, and a quality management system needs to be agreed and put in place with the Chinese company. Many consultancies will offer to undertake all or part (e.g. the quality management aspects) of this process on your behalf. A list of consultants can be found on the CBBC’s China Business Services Directory at www.cbbc.org.

 

Due Diligence

The vast majority of problems that foreign companies encounter when engaging in business transactions in China could have been avoided by carrying out some due diligence at the start of proceedings.

Undertaking market research and due diligence prior to entering into any formal dealings with Chinese companies is essential. However, this may be much harder to do in China’s regional cities, where market and firm-related information is likely to be less readily available than in China’s more advanced cities, and about which knowledge and experience in the foreign firm will need to be accrued over time.

There are different levels of due diligence that are appropriate for different situations. If your sole interest is in exporting, the best proof of a Chinese company’s ability to pay is whether it is able to raise a letter of credit from the bank. If so, you do not need to check the company’s financial standing as the bank will have already done so. At the end of 2008 China’s credit database contained the personal records of 640 million individuals and 14.47 million companies and is the largest credit information pool in the world. The database includes loan, credit card use, insurance and bill payment information of individuals and companies and is used by financial institutions in China to make personal credit checks on loan applicants and carry out due diligence on registered Chinese companies.

One simple piece of due diligence you can conduct is to get a copy of a company’s business licence which will tell you the following:

• The legal representative of the company

• The name and address of the company

• The amount of registered capital which is also its limited liability

• The type of company

• The business scope

• The date it was established and the period of its business licence

You should check that the information contained in the business licence matches what you already know and if it doesn’t then find out why. If you want to verify the information externally you can do so through the State Administration of Industry and Commerce (SAIC). The local AIC bureau is the Chinese equivalent of the UK’s “Companies House”. All companies in China are legally required to register with their AIC bureau at the municipal level to obtain their business licence.

You will have more security if you know who the legally responsible person is, so find out who you are dealing with. If problems occur, it will be much easier to address issues with the legally responsible person, rather than a middle man, who may go missing when problems arise.

The shareholders of the company are responsible for that amount of liability listed as registered capital on the company’s business licence. You can check whether or not the registered capital has been paid up by using a firm of accountants to get a Capital Verification Report.

If you want to establish a business relationship that goes beyond exporting, you will need to carry out further research. A thorough evaluation of your potential partner may be time-consuming and expensive, but doing so will greatly reduce the risk of serious problems in the future. However, it is not enough to obtain a copy of a company’s accounts, as they may not be accurate. Accounts are unlikely to be audited to the standards routinely expected in the UK, and companies may have different sets of accounts for different audiences, so it is advisable to use such data in conjunction with information obtained elsewhere.

There are a number of private consultancies that specialise in carrying out operational, financial, legal and technical due diligence checks on Chinese companies, typically by looking at the actual operation of the business, and building up a more accurate picture by carefully interviewing people who work in and with the company.

A particular obstacle that British companies must overcome is the reluctance of many Chinese business partners to agree to thorough due diligence investigations. Failure to gain a full understanding of a potential partner’s credit history and professional background can spell serious trouble and financial loss. It is possible to reduce local concerns over due diligence checks through a patient and polite business approach and by stressing the reciprocal nature of the arrangement, but you should expect this stage of negotiations to be lengthy and at times difficult. Good quality consultancy and assistance is available from experienced firms resident in China.

Finally, do as the Chinese do. Expect to spend a lot of time at meetings and banquets with your potential Chinese partners. You might think this is a slow progress, but the Chinese are using this time to establish whether you will make a suitable and trustworthy partner and whether they want to enter into a long-term business relationship with you. It is wise to do the same. Building relationships is by some distance the best way to overcome many of the obstacles to doing business in China.

 

UK Visas

The UK visa service has been complimented by major Chinese investors such as Huawei for its efficiency. Biometric data (fingerprints and photographs) is now required for all visa applications and this can be done at Visa Application Centres across China. Full details on the visa application process can be found at www.vfs-uk-cn.com

While the majority of visas are granted, some common problems arise which may prevent or delay the granting of visas to the UK. Some Chinese companies may rely on local agents for advice, rather than the Embassy website (www.gov.uk/government/world/organisations/british-embassy-beijing). The quality of these agents varies and they are often more of a hindrance than a help; recommend your visitors use official channels. On top of this, assistants or secretaries may miss or incorrectly enter vital information, so forms should be checked personally by the applicant. If assistants or colleagues are also applying, a cover letter to the visa section explaining that the applications are linked can help. Finally, visitors should allow plenty of time for their application, especially if they require several visas to visit multiple destinations.

 

Finding a customer or partner

Once you have identified where you would like to start and the best market entry option for your company, the next step is to find potential customers or partners for your company.

The following are all effective ways of finding potential customers, agents, distributors or partners:

• UK Trade & Investment’s Overseas Market Introduction Service (OMIS): This can be used to tailor-make a list of potential customers, agents, distributors or partners and arrange a programme of meetings with them for when you visit China. In China, CBBC provides OMIS services on behalf of UK Trade & Investment. OMIS can also be used to engage CBBC to arrange a technical seminar or product introduction event in China, which can be an effective way of getting your message across to a number of potential customers.

• Attend trade shows and exhibitions: Numerous trade shows and exhibitions take place in mainland China and Hong Kong throughout the year and these can be an excellent way to meet potential customers face to face. However, arranging appointments in advance to meet pre-identified contacts at niche industry events is essential if you want to make effective use of your time. Through OMIS, the UKTI Hong Kong team is able to connect you to a wide range of opportunities to break in the Hong Kong, and potentially China, markets.

• Take part in a UK Trade & Investment-supported trade mission: UK Trade & Investment supports a large number of trade missions to mainland China and Hong Kong organised by CBBC, trade associations and local chambers of commerce.

 

Marketing

The Chinese market is constantly changing, but as income levels rise across China there will be an increasing number of new consumers and first-time buyers who will wish to purchase and experience new products and services. However, the Chinese market is evolving rapidly and to win these new consumers over you will need to continually reassess your marketing strategy to help raise the image, profile and understanding of your business in China.

Tradeshows and exhibitions are very good ways of meeting potential customers, but you still need to persuade them to buy your product. You will need to ensure that your sales literature is effective in English and Chinese and decide what kind of advertising is appropriate. You will almost certainly need to adapt your products to meet Chinese preferences or requirements in order to be able to sell them. Ignoring local regulations, tastes and cultural preferences is a recipe for failure.

For example, a lot of Chinese consumers attach much more importance to the functional aspect of many products than we do in the UK, so Chinese marketing campaigns may focus on these features rather than on what the product says about you as an individual.

Also, the concept of auspicious and inauspicious symbols is emotionally important to many people in China. Many companies make use of positive symbols and avoid those with negative connotations in order to maximise the success of their products. For example, the number 4 is regarded as unlucky, as the word “four” in Chinese sounds similar to the word for death, but 8 is regarded as lucky, as “eight” sounds similar to the words for prosperity and wealth.

We recommend that you involve a specialist consultancy that can develop a marketing strategy appropriate to your product and to the areas of China where it will be sold.

For more information on Marketing please visit the IPA profile

Cultural issues relating to marketing The concepts of good and bad luck, or auspicious and inauspicious symbols, are emotionally important to many people in China. Therefore, in order to maximise the success of your products, make use of positive symbols and avoid those with negative connotations: 4 is regarded as unlucky, as “four” sounds similar to the word for death. 8 is regarded as very lucky, as “eight” sounds similar to the words for prosperity and wealth. 3 is also lucky, as it sounds similar to the word for “life” in Cantonese. 9 is also positive as it sounds like the word for “eternity” or “long term”, while 6 sounds similar to “good progress.” In Cantonese, 2 sounds like “yi” (easy), so placed before lucky numbers will sound like “easy luck”, e.g. 23 (easily growing), 26 (easily profitable), 28 (easily prosperous) and 29 (easily enough). But avoid placing before unlucky numbers, e.g. 24 (easy death). 2424 would be particularly bad! Some consider 13 is unlucky because 1+3=4. In Cantonese 7 sounds like “chut” (for sure), so placed with lucky numbers 2 and 8 mean “certainly easy” (72), and “prosperous for sure” (78). Using the same logic, obviously avoid 74. Red and yellow/gold are regarded as lucky, but avoid white, which is associated with mourning. Use images of auspicious animals: dragon, phoenix, unicorn, tortoise (the Buddhist symbol of learning), crane and fish. Images of the Great Wall indicate stability and reliability. Avoid name plaques for opening ceremonies, as these are equivalent to your standing next to your tomb! Also avoid black borders around names or photos of people, since this is also associated with death.

 

Branding 

Conventional marketing wisdom says that global brand consistency is important, but the Chinese language presents some very specific branding issues. In order to create a favourable impression of your company and your brand in China, it is essential to have a name that Chinese consumers can remember.

If a product name can’t be remembered, it is unlikely that many people will buy it. It is therefore essential to have a suitable Chinese company and product names in order to sell your products. If your target market is mainland China (as opposed to Hong Kong), it is not advisable to have a Cantonese translation of your company name, as this will not be readily understood outside Hong Kong.

The Chinese translation of Coca-Cola is an example of best practice and highlights the issues involved in creating a suitable name. Coca-Cola in Chinese is “Kekou-Kele” which not only sounds like the English but can also be translated as “Tasty and Joyful”, thus creating a name that is easily memorable for Chinese speakers while retaining some degree of global consistency.

Another good example would be B&Q, whose Chinese name is “Bai An Ju” and can be approximately translated as “Hundred Peaceful Homes”.

A translation of a Western company name that is perhaps not quite as good as it could be is the translation of Google into “Gu Ge” which, although sounding similar, means “Song of Millet”, and Microsoft originally translated into “small and flaccid”, but not surprisingly this was not the final meaning chosen.

It’s advisable to spend some time getting this right. The name is, after all, the first thing your potential customers will see. There is no right or wrong way when translating into Chinese – the name you will ultimately end up with will be a combination of the translator’s recommendations and your own preferences.

For more information on Marketing please visit the IPA profile

A list of Chinese translators and interpreters can be downloaded from www.ukti.gov.uk

 

Day-to-day communications

Once you have made contact with a Chinese company it's likely that your day-to-day phone and email communications will be in English with one of the company’s English-speaking members of staff.

If you do not think the standard of English in the Chinese company is up to scratch, you might wish to ask for parallel Chinese texts and get them translated; this could be a valuable investment. An important part of setting up arrangements in China is to ensure that communication issues are covered in detail.

If you are going to sign anything – as obvious as it sounds – make sure you get it translated first, and by an independent translator. Do not rely on your customers’ or suppliers’ translation and do not be pressured into signing anything that you do not fully understand. Most failures occur in relationships because of fractured communications and mutual misunderstandings.

If China is likely to become a significant part of your business, you should consider hiring a Chinese-speaking member of staff. There is a rich pool of talent in the huge number of Chinese students graduating from British universities, who are keen to have internships or short-term employment in the UK before returning to China. These students can also be recruited through specialist recruitment agencies.

You may also wish to take up the challenge of learning Chinese yourself – even having a basic level of communication will create a positive impression and will have the added benefit of making your trips to China more enjoyable.

However, even if you do attain a reasonable level of fluency (which can take over two years with dedicated study), an interpreter – or a Chinese-speaking member of staff – is still an essential in business meetings.

A note on numbers Large numbers are particularly tricky and often interpreted wrongly, sometimes leading to a mistake between millions and billions. For example, 10 million translates into Chinese as “1,000 ten thousands”; 100 million has its own character as ““; and 1,000 million or one billion translates as “的”. There is plenty of scope for confusion. Get numbers written down in Arabic numerals.

 

Interpreters

A growing number of younger Chinese managers and government officials speak English to a good standard, particularly in advanced sectors such as ICT. But you will usually need to use an interpreter for formal meetings and negotiations in China to prevent the discussions being hampered by misunderstandings. A good interpreter is the key to successful communication. If they have not understood what you have said, your message will be lost on your audience.

There are two forms of interpreting. Consecutive interpreting means you speak and then your interpreter speaks; this is the usual form for meetings, discussions and negotiations. Simultaneous interpreting involves the immediate translation of your words as you speak them. This requires special equipment and can be expensive. It is generally used only for large seminars and conferences. Interpreting is a skill requiring professional training. Bear in mind that just because someone is fluent in English and Chinese it does not necessarily mean that they will make a good interpreter.

If you are giving a speech or presentation, remember that the need to interpret everything will cut your speaking time approximately in half (unless using simultaneous interpreting). It is essential to make sure that the interpreter can cope with any technical or specialist terms in the presentation. It is better to be slightly restricted and speak close to a script than to fail to sell yourself. If you are giving a speech, give the interpreter the text well in advance and forewarn them of any changes.

If you decide to bring an interpreter with you (for example an overseas Chinese from Hong Kong or Singapore), ensure that they speak clear and comprehensible Mandarin. If you are travelling to an area where there is a regional dialect, it is also essential to check whether your interpreter can also speak and understand this.

Getting the best out of your interpreter:
Hiring a well-briefed professional interpreter is the best policy. Though this is likely to be expensive, it will be money well spent.

The Chinese will usually, but not always, provide one interpreter for their side. It is advisable to have your own interpreter available to assist with discussions, when possible. One interpreter working for both sides may become tired and start missing the meaning or detail of what is being said. Chinese partners often spring interpreting on junior staff who have studied English but are neither experienced at interpreting nor pre-briefed on the topic of the meeting. With your own interpreter, you should also have some feedback afterwards on the nuances behind what was said (and – just as importantly – not said) during the meeting.

Try to involve your interpreter at every stage of your pre-meeting arrangements. The quality of interpretation will improve greatly if you provide adequate briefing on the subject matter. Ensure your interpreter understands what you are aiming to achieve.

Speak clearly and evenly with regular breaks for interpretation. Don’t ramble on for several paragraphs without pause. Your interpreter will find it hard to remember everything you have said, let alone interpret all your points. 

Conversely, don’t speak in short phrases and unfinished sentences. Your interpreter may find it impossible to translate the meaning if you have left a sentence hanging.

Avoid jargon, unless you know your interpreter is familiar with the terminology.

China has no single number for “million” or “billion” which are translated respectively as “one hundred ten thousand” and “ten hundred million”. However, it does have unique numbers for “ten thousand” and “one hundred million” – “wàn” and “yì”. Therefore, the chance of mistranslation of large numbers is high, so make sure you clarify numbers by writing them down.

Listen to how your interpreter interprets what you have just said. If you have given a lengthy explanation but the interpreter translates it into only a few Chinese words, it may be that they have not fully understood. Or they may be wary of passing on a message that is too blunt and will not be well received by the audience.

Make sure your message is getting through clearly and in a tone that will not cause resentment. But be prepared in the response for the propensity of the Chinese language to be ambiguous.

 

 
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Source - UKTI

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