Doing business in China

Our experiences and tips

The trade opportunities with China remain considerable. Trade between the Netherlands and China has grown considerably in recent years. China currently takes fourth place when it comes to the countries the Netherlands imports from, and ranks eleventh for export. The Netherlands imports various products, such as manufactured goods, machinery and clothing, from China. In addition, exports to China have increased strongly in recent years.

Labour market in China

Although incomes in China are rising and the production costs for foreign entrepreneurs are therefore also increasing, this raises the question of whether China will still be attractive as a production country in the future. However, due to the shift of production in China from cities such as Beijing, Shanghai and Guangzhou to other regions that are still economically lagging behind, doing business with China still remains attractive. It is, however, important to carefully research which regions in China are still economically interesting.

Quality of the products

Due to political interventions, Chinese entrepreneurs and foreign companies have to deal with rising wage costs and social charges, which calls for a high degree of flexibility. In addition, pensions are now also being paid, as a result of which wage costs rise by some 20 percent. A positive aspect, however, is that the quality of labour and productivity increase proportionally with the rising costs. Doing business with China is also becoming increasingly easy, as most managers now speak reasonably good English. Even employees at lower levels are better educated and are starting to speak English.

The wholly foreign owned enterprise (WFOE China)

A common phenomenon in China is the establishment of a Wholly Foreign Owned Enterprise (WFOE) by companies that import a lot or even produce in the country. A WFOE is a fully owned subsidiary of, for example, a Dutch parent company. Important characteristics of a WFOE are that it has been established entirely with foreign capital, is under foreign control and has no Chinese ownership interests. There is no interference from Chinese partners. Brands and intellectual property are protected under international law. The WFOE is taxed under local legislation. This makes it a popular company form for many foreign entrepreneurs who want to produce in China and then export from China.

Chinese trading partner

Finding a reliable and professional Chinese partner for production and distribution can be a challenge. To prevent potential business and personal disappointments, it is wise to carry out thorough research into organisations and to make use of reliable B2B websites. This way you can make a well-considered decision and do business in China with partners who meet your requirements and expectations:

• BenCham: The Benelux Chamber of Commerce in China
• Alibaba: addresses per sector
• AsiaNet: organised by sectors
• Made-in-China.com: organised by sectors and producers

Contracts

The three best-known contract forms in China are:

• The purchase contract
• The distribution agreement
• The agency agreement

A contract must contain at least the following elements: the details of the contracting parties, the subject of the contract, the quantity, the quality, the price or remuneration, the time, place and method of performance, liability, breach of contract and dispute resolution. Although verbal agreements are legally valid, it is always advisable to obtain a written signed confirmation. This has to do with the burden of proof and the fact that certain conditions can only be agreed in writing. Having a written contract offers more certainty and clarity for all parties involved while doing business in China.

Culture of doing business in China

Doing business in China requires a completely different approach from what you are used to in the Netherlands. Handling matters in a hasty manner absolutely does not work here. To be successful in Chinese business, it is generally necessary to invest a lot of time and energy in building and maintaining a strong and friendly relationship with your business partners. It is therefore essential to thoroughly familiarise yourself in advance with China, the culture, language and customs. Show respect, take your time and be patient in your approach when doing business with China.

Business cards

Exchanging business cards is an important part of doing business with China. It is advisable to have your business card drawn up both in English and in Mandarin. When you receive or hand over a business card, always do so with both hands. This gesture symbolises respect. Take the time to look carefully at the business card received and study it attentively. With this you show respect for your business partner. Note that the first name on the business card indicates the person's surname. In China the surname is mentioned first, followed by the first name. So address people by their surname, not by their first name. If a title is stated on the card, it is customary to also mention it or use it during the conversation.

Eating, drinking and karaoke

Building a relationship of trust with your Chinese business partners while doing business with China requires regular visits. During these visits you will often take part in various meals. It is important to eat what is served to you, regardless of how tired you feel after a long flight. Not eating offered dishes is considered impolite. Your Chinese business partner is keen to entertain you and to show appreciation for your visit. Important business matters are often only discussed after extensive dinners. In addition, an evening of karaoke can also be part of the programme, as the Chinese like to create an informal atmosphere during business negotiations. To prevent consuming too much alcohol while going out with your business partners, it is wise to never drink your glass completely empty. You will, after all, immediately be offered a new glass.

Communication while doing business with China

In interactions with Chinese business partners it is important to always use the correct name, both verbally and in writing, namely "The People's Republic of China". For formal occasions you must be dressed in a dark suit with tie, while ladies wear a skirt. Although gifts are not expected at a first visit, corporate gifts can help in building a good relationship while doing business in China. It is advisable to research which gifts are considered valuable in specific circles. During informal activities such as dining, drinking and singing karaoke, you must avoid business topics, as well as controversial topics such as human rights. It is considered impolite to maintain eye contact for too long, and friendly touches such as pats on the shoulder are generally not appreciated.

Quality control

When you order goods in China, it is essential to check the quality of the goods during the production process, before shipment, during the loading of the container and even during the transport to the port. This way, while doing business with China, you prevent unpleasant surprises on arrival of your order in the Netherlands. If you are not able to carry out quality checks yourself, it is strongly advisable to engage a specialised and independent agency to do this on your behalf. With this you safeguard a thorough and reliable check of the quality of your goods and you can do business in China safely.

Successfully doing business in China starts with the right knowledge and reliable logistics partners. The Freight Hero is happy to help you further!