On July 5, officials from China’s Ministry of State Security took four employees of the Anglo-Australian mining giant Rio Tinto into custody, and created a shockwave that rocked the news wires with a steady stream of updates on the scandal between the Chinese government and Australia. It might seem like doing business with China is taking a turn for the worse, and the days of building mutually-beneficial relationships are quickly being ushered out, as the PRC asserts itself as a my way or the highway kind of country. No apologies, and no prisoners… unless you’re holding back the GDP, that is.
Seemed like a good idea at the time.
All of this is not entirely untrue… but let’s look at it from a wholesaler’s perspective, before we panic. First of all, the sky is not falling, because there’s too much business going on for that to happen. China needs the world as much as the rest of the world needs China, so there’s no danger of the supply chains being cut off by the CPC, and no signs pointing at a revision of trade policy that will hamper the wholesale business.
In order to resist the doom and gloom of scathing editorials and journalism that tends to promote an agenda of punishing China for making the latest bad move, you have to understand a little about China’s position in the grand scheme of things first. I’m talking about the fact that there are more than a billion people in the PRC, and the country cannot support itself without doing trade. That much is a no-brainer. There are also a lot of things going on every day that make China a highly unstable place, and that alone explains the need for such an authoritarian government to keep it all in check.
Here’s some food for thought: China is roughly the same size as the USA, in terms of land mass, and oddly enough, Beijing is located near the Northern part of the East Coast, just like Washington DC… and that’s pretty much where the similarities stop. Money is rather concentrated along the lower portion of the East Coast, and within the Southern regions of Guangzhou and Hong Kong. Population density reflects the economic values, and that makes the coastal locations suffocatingly crowded almost year-round. I sometimes scratch my head in amazement, since I would expect the country to simply break off at the borders, and slide right into the Pacific with that much of an imbalance! Meanwhile, way out West, it’s rather far-flung and sparsely populated… and recent turmoil over XinJiang and its inhabitants isn’t making anybody really excited about buying a house or launching a venture out there any time soon, either.
Having this all right up in front of you should make one thing quite clear: business in China is largely motivated by accelerated asset gains, and immediate returns on investment. It’s a lot different from the way things are done in the West, with contracts and negotiations… in China, there are no negotiations; just lengthy standoffs until one side caves to the other side’s concessions. After that, it’s a race to grab as much as you can before somebody notices what’s happening… and making a clean getaway afterward.
In all fairness, not all Chinese partners will work this way. Some of them actually do try to follow internationally-accepted procedures, and abide by widely-adopted business practices and ethical standards. However, the caveat is that the local governments often don’t play by these rules, and that forces people to make decisions that might seem underhanded and conniving to some, while simply being a matter of survival for others.
Here then, is my TopTen List of things to be sure about before doing business in China:
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Make sure you are looking to China for the right reasons. Re-evaluation of the currency, rising labor costs, and a higher standard of living have impacted China’s status as the ‘cheap alternative’ in the manufacturing game. On the other hand, increased awareness of competition, higher quality standards, and a growing population of educated workers is turning the spotlight on low-end technology, foods and supplements, and educational materials, to name a few.
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Research everything, and then research some more after that. This cannot be overemphasized.
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Choose a city, any city… there’s a lot of good things about the first-tier cities like Shanghai and Beijing that could be worth your while, but I would suggest checking out the smaller, less saturated locations like Hangzhou, Qingdao, and other second-tier cities that are on the rise.
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Which way to go? Do you want to set up a rep office, a joint venture, or go all out with a Wholly Foreign-Owned Enterprise (WFOE) under your belt? It’s no secret that wholesale can benefit greatly from having some form of presence in China.
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Understand some Chinese history and culture. Easier said than done… but it’s not impossible. I can tell you that living here has made a huge difference, and there are some basic truths that I will explore and present to you in greater detail in the future.
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Determine what business you want to do. there’s a lot of options, but some sectors are more difficult to master than others… and some will pay off faster than others too.
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Shop around. Some other countries are emerging as the new kids on the block for manufacturing and trade, and it makes the Chinese more receptive to any leverage you may have over a deal. Have you ever been to Brazil? Nice place, and it’s booming right now.
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Establish your limits. This is almost the same advice I would give anyone who is going into a risky personal relationship; make some boundaries clear to the other party, and be prepared to defend them when they are not respected.
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Not all Chinese are the same. Do you know the difference between people from Beijing, Shanghai, and Hong Kong? Have you ever met somebody from Wenzhou? Does any of this matter? Sure it does. Just like the people from the Deep South don’t always ‘take a shine’ to those slick New-Yorkers… the Chinese also have some regional idiosyncrasies that are worth noting.
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Learn how to work with the currency. I saved the best part for last. China is a controlled economy, and that means that repatriating cash or simply transferring funds can be an obstacle, depending upon the political climate at the time. Be ready to have some holdings in China to fuel your local operation, and don’t expect to see all of your profits turn back to your country. This may sound like you’re losing money, but in the end, it’s just asset allocation.
In conclusion: there’s more than meets the eye in dealing with the Chinese, but at the end of the day, it’s all about getting your share of the winnings. As China continues to shock, awe, and sometimes disappoint us… remember that there are a lot of people living there who are not going to sit idly and wait for their government to provide everything to them. I’ve met some highly proactive people here, and they are eager to make changes on their own, all in the name of doing good business with good partners. Perhaps checking some sourcing sites like Manufacturer.com will help you to find a viable trade partner. Happy hunting for your wholesale partner, and good luck! I’ll be posting follow-up articles to this one, to help you learn more about China and the mysteries of doing business with the Chinese, so keep checking back here!