I often receive questions from entrepreneurs who would like to export their products to China or maybe even just play the role of intermediaries between Italian exporters and Chinese buyers.
In this article I want to share some information that I consider essential for anyone who wants to work in the field of import/export with China.
Many exporters believe a priori that the only way to enter the Chinese market is to set up a joint venture with a local company. If this was true in the past, today it is no longer so. Let’s see the different possibilities:
Establish a joint venture with a local partner
Some strategic industries – telecommunications for example – are regulated by the Chinese government and the only way to do business in such fields is actually to enter into partnership with a local company. While a partnership of this type offers several advantages – for example, a good partner will already have a customer portfolio and a good knowledge of the local market, – from another point of view, you will have to measure yourself against a business philosophy, the Chinese one, very different from the one we are used to in the West. If you want to learn more about it, I recommend reading Managing the Dragon, the book written by Jack Perkowski, the founder of ASIMCO Technologies.
Founding a WFOE
A WFOE (Wholly Foreing Owned Enterprise) is a Chinese company controlled exclusively by foreigners. The main obstacle, when deciding to establish a WFOE, is the fact that you need to have a fairly high initial capital. In top-tier cities such as Shanghai, Shenzhen or Beijing you will need more than 80,000 Euros to get started.
However, it is not a deposit that must remain blocked in the company’s bank account: once you have obtained all the necessary documents to start your business, you will be free to invest this capital as you see fit. For an in-depth look at WFOEs and the substantial differences with joint ventures, I recommend you take a look at the excellent China Law Blog.
Trade in China through a local distributor
This option is the easiest to implement as it does not require you to open a company in China. On the contrary, you just need to rely on a local distributor who will take care of managing logistics and distributing your goods within the Chinese market.
I know several Italians who have lived in China for many years and, after creating a network of contacts, they started working as intermediaries between European exporters and Chinese traders (both wholesale and retail). As you can see, it is possible to work in the field of import/export even without necessarily having to invest large initial capital.
Opening a representative office in China
A few years ago, opening a representative office was a fairly common way of bypassing the initial capital requirement and regulations in force in China. This is still an option if the purpose is to have a legitimate representative office.
If, on the other hand, you want to use it to import products from Italy and distribute them in China, I do not recommend it since it is an illegal operation.
And nowadays the Chinese have become much stricter in enforcing the laws: you risk a hefty fine and the loss of your business license in China.
The Chinese have developed a system of duties and regulations with the aim of protecting local companies. At the same time, Chinese consumers are very sensitive to the price of goods and are not always willing to pay the same sums that European consumers would pay in exchange for a quality product.
One way to cut costs is to relocate the production of goods to China and then distribute them to the local market. However, you are not obliged to build a production line in China as you could very well contract out the production of your goods to a local manufacturing company. However, you will need a Chinese company so that you can market your products legally in China.
Register your trademark in China
The Chinese are often willing to pay a higher price for a product that has a foreign brand. For example, although companies such as Apple, Sony or Amazon sub-contract the production of iPhones, iPads, Kindles and Play Stations to a Taiwanese multinational called Foxconn, which owns thirteen production lines in China, they still manage to preserve their image as “foreign” brands.
But the Chinese are not stupid. If your brand is unknown and the products have a “Made in China” label, it will be difficult to convince the inhabitants of Middle-earth that it is actually a “foreign” product. In this case, it may be cheaper to produce in Europe, pay import duties and place the product in a high-level market niche. After all, there are more than 200 million people in China today, mostly living in coastal cities, who can afford to buy luxury products.
Not registering your trademark in China is one of the most common mistakes made by exporters. In China, the “first come” rule applies. This means that anyone can register your trademark in China and win a possible legal dispute simply because they registered the trademark before you did. The only way to defend yourself is to play in advance and register your trademark as soon as possible.
Exporting to China can bring enormous benefits to your business, especially in this period of crisis for Europe and the United States. At the same time, it’s not an easy task, and you’ll need to figure out your way around first. So I hope this article can help you take the first step.
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