10 Principles You Must Follow To Successfully Do Business In China:

It is true that China is currently somewhat facing an economic crisis, although it is a kind of crisis that most countries would be happy. In the first quarter of 2016, its economy grew by "only" 6.7% - its slowest quarterly growth in seven years - and the last country report on China Atradius (January 2016) has an
expected GDP growth of 6.6% for 2016. in comparison, go the outlook for the US and the largest Western European economies out of a maximum of 2.8% GDP growth - and in many cases much less.

If China already has a problem, it is the victim of its own success as the "factory of the world". Now the Chinese government wants to re-balance the country's economy by basing it on consumption rather than on a growth-driven investments. Considering the preparations which include covered in this report, which is good news could mean for foreign companies that want to make their mark on this huge export market.

China is certainly not the easiest country to do business: according to the latest 'Ease of Doing business'- index of the World Bank, China is on the 84th place out of 181 countries surveyed. Since joining the WTO in 2001, China has, however, made great strides to open up to international trade - by relaxing the tariffs, quotas and other trade barriers. Evolves its currency, the renminbi, towards a complete internationalization. Nevertheless, foreign suppliers have the peculiarities of Chinese law - and
practical side of sales to Chinese customers - understand when they plan their export strategy. We hope these ten principles will help.

1. Keep track of the Chinese import rules

As China uses complex import regulations in many other countries - which change regularly. China shares goods into three categories: prohibited, restricted and prohibited. Some goods, such as waste and toxic material, may not be introduced in the public interest or to protect the environment. Other goods are strictly limited: thereon quotas or licenses apply. In 2015, China for example, reduced the quota for foreign cotton to boost demand for domestic products. The Ministry of Commerce (MOFCOM), the government body responsible for foreign trade in China, and publishes regularly review the lists of restricted or prohibited goods.
TSW Shipping Regulations

In practice, it is mainly the second category - restricted goods - which may be relevant to foreign suppliers. Most goods belong to the category of authorized goods; foreign suppliers and their Chinese customers at its sole discretion to decide how much and when they deliver the goods purchased. Some admitted goods - which can lead to certain electrical products all his livestock - MOFCOM uses a licensing system to control imports to China. And although all the companies have the right to import most products, a limited number of goods such as crude oil and fertilizers may only be imported through state companies or other companies approved by MOFCOM. A detailed list of categories of goods can be obtained from MOFCOM or the trade missions from your country to China.

Tariffs are levied on most goods imported into China, according to their value including packaging, transportation, insurance and other costs incurred to be delivered before the goods. But, as evidence of China's gradual acceptance of international trade, the average rate of over 15% in 2000 fell to 9.8% in 2015. A tariff system, which is updated annually, is available from China Customs Press, Jia 1, East Fourth Ring South, Chaoyong District, Beijing 100023;
Phone: 86 10 6519 5616.

2. Make the most of the Chinese free trade zones

In response to changes in international trade patterns created the Chinese government's first Free Trade Zone (FTZ) in mainland China in 2013, in Shanghai.
On the international market today are parts of one country often assembled in another country and sold in a third country. As international trade grows, offer FTZ's (FTAs) numerous benefits. Since foreign goods and parts can be delivered, assembled or used in the production process and re-exported without the usual intervention of the customs authorities.

The FTZ Shanghai, focuses on financial services, trade, shipping and logistics. In 2015, three other FTZ were created in China:

    Tianjin: focuses on maritime and air cargo logistics; financial services, high-end manufacturing; shipping services; ship registration; very real.
    Fujian: focus on production and services; maintenance of equipment and shipping; shipping services.
    Guangdong: focus on production; leasing; commercial and financial services; research and development of pharmaceutical and chemical products.

Foreign companies will find that they can export their products and services to these FTZ's at lower duties or no duties. In 2016, seven new free trade zones approved, so trade is further opened.

3. Think Chinese

Whether you are in your own country or sells abroad, prospective customers typically connect more easily and with greater confidence a sale contract with you, as you seem to understand them - and even if they behave. It is a smart move to learn some more about the behavior of your Chinese prospects and - more importantly - to also appreciate Chinese culture.

In the Chinese business world formality and respect for hierarchy is essential. An important aspect of Chinese culture is the concept of 'respect': a combination of actions and perceptions that can promote business relations or damage. Foreign companies can win "respect" for example, when their Chief Executive attends meetings and evidence of knowledge and respect for Chinese culture. 'Respect', however, can be lost when foreign business representatives themselves, according to Chinese standards, improper conduct at a meeting.

Appointments for business meetings are essential - make this preferably as early as possible, perhaps even one or two months in advance. Often it is advisable to offer to bring through an intermediary and an interpreter at the meeting. Always pre-written introduction to your business and what you hope to achieve (in simplified Chinese) and be on time for the meeting. Attendees will be brought to their seats in descending order: the most senior counterparts are aligned.

The presentation of business cards is an important formality at the start of a business meeting. Your ticket must be printed on both sides: one side in your own language and in Chinese. Offer the card with both hands, with the Chinese side up.

Make sure every document you bring to the business meeting, including simplified Chinese and English or your own language is correct and can not be misinterpreted. If you plan to use visual aids, please keep simple - black letters on a white background - as colors have a special meaning can happen in China and insulting. Be especially patient. Chinese negotiations take a long time and your Chinese counterpart may use phrases like "we'll think about it 'instead of a clear' yes' or 'no'. Decisions can take a long time; your prospect will want to be sure that a business relationship has the potential to be profitable.

There is a lot to learn about Chinese culture, but it certainly pays off.

4. Live the Chinese competition Laws

It does not matter which national law chosen for the sales contract, any agreement to sell goods or services in China belongs to Chinese competition laws: that mainly concern the fight against monopolies, unfair competition, anti-dumping and countervailing (anti-subsidiërings) rules .

As in most other countries, competitors are not allowed to price-fixing, limiting production and sales volumes, market share, reduce the purchase or development of new products, or boycott suppliers. In vertical relationships between suppliers and buyers is to get the parties may not fixed resale prices or minimum resale prices agreed. In foreign trading companies may not engage in unfair competition, including misleading advertising, conspire with quotes, doing commercial bribery or predatory pricing. Moreover, the authorities take anti-dumping or countervailing measures - and they do - to protect their domestic industries.

the Ministry of Commerce (MOFCOM) decided since early 2015 over what it considers dumping of various materials from abroad, including unbleached zakpapier, methyl methacrylate (a substance used in the production of resins and plastics) and cold-rolled electrical steel. As a result, additional duties were levied on the importation, as a countermeasure.

On http://english.mofcom.gov.cn You can find more information (in English) about the policies and decisions of MOFCOM.

5. Protect your intellectual property (IP)

Historically, China has the unfortunate reputation of being a country where production of pirated and counterfeit goods is widespread. Yet it has put great strides in recent years to change that perception. As a member of the World Trade Organization and a signatory to the Paris Convention, the Berne Convention, the Madrid Protocol and the Patent Cooperation issued the effective laws to protect IP.

IE related to copyrights, patents, designs and trademarks.

    Copyrights concern written or published works, including books, music, movies, websites and artwork. Although you are not required to register copyrights in China, is it advisable in case you need to prove your ownership. Copyright valid until 50 years after the death of the author.
    Patents cover inventions commercial as a new industrial product or process. Designs protect assets such as computer models or architectural drawings. Patents protect an invention for 20 years, and utility models to 10 years, for an annual fee. The Chinese patent law operates on the basis of the principle of "first requestor": in other words, if two people to apply for a patent for identical inventions, the applicant will first get the patent.
    Trademarks related logos, symbols, words - and even sounds - that distinguish a product or service from products or services of competitors. As with patents are trademarks protected on the basis of the principle of "first applicant '.


The right holder is not only a patent, design or trade register, as well as the note - the application for protection - their applications to the Chinese customs which may intercept infringing goods, whether exported or imported. The holder can help customs by sharing information about offenders and their access to the market.

register your rights is the first step. Enforce those rights, if necessary, the next step is. As with other business matters choose Chinese mediation rather than confrontation. Initially, a pensioner, before turning on the authorities simply let his lawyer send a letter in which the infringer is required that he stops his practice and which threatened further steps.

Even after the authorities were involved, many IP disputes settled yet be put before legal action. If that fails, administrative action may be needed. Lawsuits related to trademarks and counterfeiting are often simple, but it always helps your case when tangible evidence can be collected.

In addition to enrolling your registered IP rights, there are several ways to protect your IP. Regular risk assessments, advice from local representatives or others who are already doing business in China and IP related clauses in your employment can all help.

An important case about IP infringement in China illustrates the long road China has made in the field of IP protection. In January 2016 the French company Moncler got the maximum compensation allowed under the new Chinese law on trademarks (RMB 3 million: approximately EUR 408,000) for infringement of its trademark by Nuoyakate, based in Beijing. This court decision proves that China now wants to draw much harder than in the past, even if the infringer is a Chinese company.

6. Choose the right payment method
There is a saying that is often used, particularly in credit circles: "A sale is a gift until it is paid." That's right every time when a sale is closed, but that you have no greater risk because your goods or services are supplied to a customer in China.

Still, Atradius pointed in his Market Monitor April 2016 on the Chinese sector of durable consumer goods and retail on the possibility of longer payment periods as the economy slows. Small businesses would rely on unofficial lenders, such as 'shadow banking'. E-commerce (which we will do later in this report) have put the fund under pressure - and even increase the number of insolvencies - in companies that invest heavily in their online presence.


With that in mind it is worth the trouble to consider the payment - check which may consider a foreign supplier - with different security levels. It should be said that not all payment methods will be suitable for every circumstance.

Prepayment: This is a form of security which the Chinese customer must have a certain degree of confidence that the foreign supplier will fulfill its obligations under the agreement. For goods with a long production period, to partial payments are convenient.

Letter of Credit: although an LC - especially a confirmed and irrevocable LC - can give a certain degree of certainty, it still has drawbacks. The biggest disadvantage is that it shifts the obligation of the customer to the bank of the customer. The bank has no interest in the quality of the supplied products or services, but will expect that every detail of the LC exactly match the details of the contract and delivery documents.

Any deviation from that will invalidate the LC and dismiss the bank of its obligation to pay. In addition, LC's can be expensive, both for the purchaser and for the seller, and therefore not suitable for similarities to a low value.

Documentary collection: under these conditions, the seller would expect the buyer pays when receiving the documents confirming the shipment. The ownership documents (including the waybill) will be handed over only to the buyer when he pays (cash against documents) or agree to the payment (documents against acceptance). This form of security may be appropriate in some cases - for example when the goods are critical to the operations of the Chinese customer - but can pose a risk to the foreign seller, for example when the goods are perishable. The buyer can then use that as a reason to renegotiate the price.

If you are confident that your customer will pay, or if the degree of competition in the market so requires, you can also work without conditions. Offering the least security and will be most interesting to your customer.

As with any contract is ultimately down to trust and choose a payment method that allows both parties can agree. But, as we shall see later in this report is a greater degree of certainty as possible, even when working without conditions.

7. A local presence can increase your sales

Physically present in China can bring real benefit to foreign suppliers: as it helps them to fully understand the market and there is more opportunity for personal contacts with existing and potential customers.

The first questions to ask a foreign company, however, shall be: 'What kind of companies is China looking for? " and "Where can we draw the best?" The answer to the first question can be found in the five-year plan of the Chinese government, which describes the activities they want to encourage.

And the answer to the second question depends on the nature of your business. For example if you're a high-tech company, Beijing is perhaps the best location. Depending on your activities a nearby port may be important; conversely, a location within the country are better for your business.

An easy way to help you answer these questions is to seek advice from a chamber of commerce, trade association or other companies that have already located in China.

There are several options in terms of corporate structure:

a company wholly foreign-owned (OVBH), a limited liability company with 100% foreign ownership;
an equity joint venture (EJV), a private company with limited liability established by both foreign and Chinese parties;
a cooperative joint venture (CJV): a joint venture with both foreign and Chinese investors; or simply
a representative office or local representation by third parties

Each of them has its advantages and disadvantages. For example, a representative office is an easy option, but limits your opportunities in China: in fact it is just a way to increase your brand awareness.

A OVBH may be the most complicated corporate entity, but gives a foreign company full control of the partnership: technology, know-how and, most importantly of all, commercial confidentiality.

Between these two extremes lie the joint ventures. These can be useful for foreign suppliers with a limited knowledge of the Chinese market and business culture; their local partner will indeed have better access to local customers and help expand sales in China.

The participation of a foreign supplier in a EJV must typically at least 25%. The profit is divided in proportion to the contribution of each party in the capital. A CJV offers more flexibility, as the parties may agree on a distribution of profit that is not based on the pro rata principle. This can be important for a company that would have better access to the market if it was controlled by the Chinese partner, while the goods and services are provided mainly by the foreign supplier.

A CJV need not be established as an independent legal entity and can thus enjoy a very flexible administration regime. Meanwhile, however, the Chinese government is reluctant to establish such CJV's because of the "flexibility" of their structure. In the past decade there's no CJV established without legal personality, because of the tax / accounting and operational challenges associated with this structure.

Other issues that you should consider are the size of the local company and the complexity of local requirements for employees and tax administration. But despite providing the additional administrative burden more and more foreign suppliers to establishing a presence in China strengthens their brand value, thanks to the more direct access to local customers, better control of the distribution channels and more options for maintenance and after sales services locally, rather than having to perform these tasks from abroad or through local representatives.

8. Consider online sales

China has the largest e-commerce market in the world; Every year growing online B2C sales by 25%. There is even a special annual online shopping day - "Sing training day '- who was alone accounted in 2015 for a turnover of EUR 12 billion. A tempting opportunity for foreign companies wishing to enter the Chinese market.

But we want to warn you. Even if you already have experience with online sales in your home country and in the Western market, you will find that the Chinese digital market is totally different. You may be familiar with social media like Facebook and Twitter, but Chinese consumers used Renren, Sina Weibo, Tencent, Tudou and Youku. PayPal may be the most common, secure payment method in the West is that Alipay in China. And while Western consumers often do directly on a retailer website their purchases, they prefer in China's major e-marketplaces including Tmall.


Provided that foreign companies willing to invest in a good understanding of the market time and money, it can cause a lot of them. China 'surfers' online will definitely be looking for discounts, especially for items such as electronics, but Chinese buyers are willing to online much to pay for foreign goods with a certain look - like original designer clothes.

In April 2016, the Chinese government introduced new tax rules for cross-border e-commerce, to regulate the sector and to improve the safety of consumers. On http://www.kpmg.com/CN/en is a handy summary of the changes made by KPMG.

A large part of the investments made by foreign vendors will go to the implementation, including logistics and technical support. This presupposes a certain presence 'on the ground'. And your online presence will also have to appeal to the Chinese psyche; you will have to do more than just translate your current website.

9. Choose the best way to resolve disputes
With few exceptions, the parties may choose to cross-border supply between Chinese law or the law of another country for their relationship. However, It should be mentioned that the mandatory provisions of Chinese law, such as tax, currency and competition rules will apply irrespective of the choice of the parties to foreign law.

Before concluding a contract for the supply of goods and services to a customer in China, a foreign supplier may seek the best legal advice for the inclusion of a clause relating to the settlement of disputes in the agreement. Chinese law maintains some restrictions on how and where trade disputes can be resolved. There you must take into account when drawing up your contract.

For many companies that are engaged in a dispute with their Chinese customer is the first choice arbitration instead of litigation. This goes the easier if an arbitration clause is incorporated into the Agreement. Joint ventures operating in China (see paragraph 7 above) are indeed considered as Chinese entities; disputes relating to joint ventures will generally be regarded as Chinese domestic disputes regarding arbitration.

Typically, there are four types of courts in cross-border supply agreements: China's state courts, Chinese arbitration institutions (particularly the China International Economic & Trade Arbitration Commission - CIETAC), foreign courts and foreign arbitration courts.

The choice of the most appropriate court to settle a dispute depends on the circumstances of each case, taking into account the fact that:

    Foreign court and arbitration proceedings only be possible for contracts with foreign elements; as mentioned above, the fact that a foreign supplier has entered into a joint venture in China, play a role.
    Decisions to foreign arbitration institutions - and often - in China enforced in accordance with the Convention of New York, while judgments of foreign courts generally are not enforceable in China.
    Local court and arbitration proceedings may be desirable when a short procedure (such as a court order) in China is the biggest concern of the parties. Commands related to the preservation of assets and evidence are possible within the framework of judicial and arbitration proceedings in the PRC and statements for interim measures are only possible to support processes related to infringements of copyright, trademarks and patents or infringe trade secrets in China.


In any case, the supply must be carefully designed if the parties choose a foreign law, combined with a process for the Chinese state courts. Most local courts have no experience with the application of foreign laws and, if a court finds that the applicable foreign law can not be checked properly, they may apply Chinese law, despite the contractual choice of the parties.

10. Provide a safety net to protect your credit sale

In Section 6 we talked about the payment. In addition, we noticed that with each sale of goods between parties, before the payment is made, the risk that no payment is received. Perhaps because the customer can not or will not pay, or perhaps for other reasons - which the customer has no control - such as the payment is blocked by a change in the foreign trade policy of the country of the customer.

A smart precaution is to provide protection in the form of credit insurance, in order to limit potential risks due diligence alone can not avoid.

This also holds other benefits. Namely a credit not only offers protection, but allows the supplier is also assured with regard to the identity and credit worthiness of the prospective customer. This is important: in a country as large as China is not difficult to pick two similar sounding company names interchangeably.

Thanks to this combination of protection, reassurance and market information to foreign companies who are looking for a market for their goods and services in China, afford to offer competitive payment terms.

In conclusion, there are plenty of opportunities, but you should not assume that the business techniques that you apply in your home market, will also work in China.

In our introduction we mentioned that the Chinese government is taking steps to rebalance the economy. In the country report on China Atradius (January 2016), these measures and their potential for success further highlights:

"To some extent, the growth of private consumption has started to offset the decline in investment. Since the summer of 2015, the government expenditure was stepped up to support the economy. At the same time, the central bank, the People's Bank of China (PBOC), its reference rate for loans since November 2014 decreased repeatedly, to 4.35%. Given the modest outlook for inflation of less than 2.0%, the PBOC has room for a further easing of monetary policy, if needed. "

Although this is a positive signal for foreign companies who are seeking new sales opportunities in China, they should not assume that the business techniques that they succeed in their home markets, will also work in China.

The Chinese have a word - 'Guanxi' - the personal relationship, respect and trust that one must bring into existence before a business relationship can continue to grow. The existence of - or lack of - Guanxi will affect the ease with which a deal can be closed.

This overview is intended as general guidance on the legal framework applicable
has relationships with Chinese clients. It is not the intent of this review legal
to give an opinion or a thorough examination of a supply agreement
superfluous to make.

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