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Presentation in Latvia
June 01, 2012
A project funded by the European Union
Today’s presentation
The EU SME Centre
Market opportunities: Is China on your
radar?
Market access:
• Challenges
• Investing in China
• Standards and conformity assessment
• Finding and knowing your partner
The EU SME Centre
Purpose and expertise
Support EU SMEs to establish, develop and
maintain commercial activities in the Chinese
market
Free, confidential information and advice, and
practical support services
An office in Beijing with an experienced multi-
cultural team of 15 persons
Four main areas of expertise
Business
Development
• Practical
information &
advice on:
Market
(challenges,
opportunities,...)
Strategy
Business plan
Marketing
Legal
• Practical legal
information &
advice (initial
consultation)
• All legal topics
except IPR
(cooperation with
the China IPR
SME Helpdesk)
Standards
• Practical
information &
advice on:
Chinese
standards and
marks
Conformity
assessment
procedures
Labelling
Human
Resources
• Practical
information &
advice on:
Recruitment
Retainment
Labour costs
Intercultural
management
issues
Enquiries
Find the answers for all of your questions!
How do I set a WOFE ?
What are the labour costs and taxes?
What are the standards to import my products?
Knowledge Centre: Publications
Access latest and essential information on China for free on our website through 50+ Documentations.
Other services
Access to contacts and information databases, including:
• Documentation
• Service providers
• Exhibitions
Hot-desks: free, temporary office space in the EU SME
Centre to explore local business opportunities
Market Access Services
Online Portal
The website aims to be a
valuable source of practical
information for professionals,
companies and trade promotion
agencies developing commercial
activities in China.
Registration is free and allows
users to access the
Knowledge Centre
Ask-the-expert service
Hot-desking service
www.eusmecentre.org.cn
Is China on your radar?
China on the radar?
24 million SMEs in the EU
13% of EU27 SMEs export
beyond internal market
Only 250,000 SMEs export to
China
It should be…
China, the EU and Latvia
Source: World Bank 2010, IMF 2011
China EU27 Latvia
country area (square
km) 9.6 million 4.3 million 64 thousand
population 1,338 million 502 million 2.2 million
GDP (nom) USD 7,298 billion 17,577 billion 28 billion
GDP per capita (nom)
USD 5,414 35,116 12,671
150 times the size of Latvia with 608 times the population.
How things have changed
400 million people lifted out of
poverty in the last 30 years
China has led GDP growth since
1980’s
Before people wanted bikes,
watches and knitting machines
Now they want cars, houses and
computers
A rapidly growing economy...
8.3% 9.1%
10% 10.1% 10.4% 11.6%
13%
8.9% 9.1% 10.3%
9.8% 8.50%
0%
2%
4%
6%
8%
10%
12%
14%
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
E
But China has also been affected by the global downturn.
China took over Japan in 2011 to become the second biggest economy worldwide. The Chinese economy is now projected to take over the US economy by 2020, becoming the world largest economy.
Source: http://nationalinterest.org/commentary/china-trounce-us-next-decade-5573
Drivers: Urbanisation
Urbanisation of China’s
population: 49.7% now
live in cities, compared
with just ~20% in 1982.
From 2010 to 2025, 300
million Chinese now
living in rural areas will
move into cities.
Source: Ministry of Housing and Urban-Rural Development
More people with money to spend
777 875 1010
1238
1663 1814
2006
2635.6
0
500
1000
1500
2000
2500
3000
2004 2005 2006 2007 2008 2009 2010 2011
Annual per capita Disposable Income of Urban Households in China (EURO)
Source UKTI: Discovering high Growth McKinsey, Meet the 2020 Chinese consumer
Per capita disposable income of urban consumers will reach EUR 6,000 by 2020. That will be close to the current standard of living in South Korea but still a long way from that in developed countries.
China’s regional cities
Source: Opportunities for UK Business in China’s Regional Cities, 2011
The Chinese cities exhibiting the largest market size and potential are still to be found predominantly in the Eastern provinces.
China’s thriving cities
Sources: China Statistical Yearbook 2011, Chongqing statistical yearbook 2011, National Bureau of statistics, Ministry of Land and Resources
Shanghai Chongqing Wuhan Changsha
Area (1000 square km) 6.3 82.4 8.5 11.8
population (million) 23.03 28.85 10.02 7.04
GDP (billion USD) 270.5 124.9 87.7 88.5
GDP per capita (USD) 13,012 4,329 8,967 12,534
1.00 CNY = 0.157611 USD
Increasing interconnectivity
The development of high speed rail is connecting “City Clusters”.
China plans to increase the high speed railroad network to 25,000 km by 2020.
Source: Opportunities for UK Business in China’s Regional Cities, 2011. http://gz.focus.cn/news/2011-02-05/1185627.html
What does this all mean?
11.7 million passenger cars sold in 2010,
making China the world largest auto market
1.8 billion tonnes of cement consumption in
2010, accounting for more than half of the total
world consumption
859 million mobile phone users, making China
the largest phone market in the world.
The second largest online retail market in terms
of value after the US
The world’s largest market for luxury goods by
the end of the decade.
Source UKTI: From Surviving to Thriving; McKinsey China Consumer Spending Survey 2011; CLSA Dipped in Gold: Luxury Lifestyles in China/HK; www.worldcoal.org/coal/uses-of-coal/
Key opportunity drivers
Consumer demand
• Food and beverages
• Clothing
Environmental
• Air monitoring systems
• Green building
• Water treatment
• Biogas plants
• Energy efficient devices
Productivity • Machinery
• ICT
Stavus
Mining cars
Environnement SA
Air monitoring systems
Taste Spain
Spanish food and wine
Cases
Competitive Advantage Advanced Tech Know How Relationships
Getting to know the market
Don’t take China as one market: significant differences exist between
east and west, cities and countryside…
A lot of documentation is available: Chambers, EU SME Centre
documentation library, McKinsey, Business Monitor international etc.
Participate in exhibitions and conferences to get a first feel of the
market in your sector.
Be cautious, not all sources of information are equally trustworthy,
Crosscheck your findings.
Market Access…
Is it that easy?
Challenges
Source: Opportunities for UK Business in China’s Regional Cities, 2011
Investing in China
Selecting the right vehicle
Regulatory environment China’s Foreign Investment Industrial Catalogue sets
out the encouraged, permitted, restricted and prohibited
activities and sectors
Automotive and telecom industries are examples of
industries that require foreign invested enterprises to have
local partners.
Business needs Invoice and settlement in RMB
Hiring local personnel
Setting up independent distribution channel
Manufacturing locally
WFOE EJV RO
Separate legal entity? Yes Yes No
Capital contribution Yes Yes No
Business activities
Conducting business transactions
according to the business scope
approved by the authority
Conducting business transactions
according to the business scope
approved by the authority
Acting as liaison office (market
research, marketing and liaison
activities, etc.)
Management control Complete managerial and
operational control
Subject to contract and
proportion of ownership;
unanimous board resolutions on
certain matters necessary
-
Profit-sharing
As set out in articles of
association or shareholder’s
agreement
In proportion to equity
contribution -
Ease of setup Approvals can take time Negotiations and approvals
could take time Relatively straight forward
Intellectual property Have control IP and confidential information
potentially at risk Have control
Taxation
CIT 25% on profit; Business tax
or VAT according to the business
scope
CIT 25% on profit; Business tax
or VAT according to the business
scope
Taxed on expenses (approx..
15%)
FDI by Vehicle Type
Source: PRC Ministry of Commerce (MOFCOM)
Standards and conformity
assessment
Snapshot on Standards
Standards outlines the legal requirements for products on the Chinese market
Conformity assessment is carried out by a laboratory testing the product
Most products entering China are covered by mandatory certification
Compliance testing is required before the product is allowed to enter China Testing can only be carried out at designated laboratories
Opposite approach from EU’s ”Presumption of Compliance”
Four levels of standards
Standards Administration (SAC)
Ministries
China Inspection and
Quarantine Services (CIQ)
Local companies
Voluntary GB Stand.
22,931
Mandatory GB Stand.
3,111
Different authorities!
The Path
EU
Manufacturer
Chinese
Market
Access
Scheme
Compulsory
Certification
/Registration
Identify
Chinese
Standards
Commodity
Inspection
Conformity
Assessment
/ Testing
CHINA
What are the legal requirements?
Does it require certification, mandatory marking, registration, all of them?
Where do I find the technical requirements?
Where do I have to do the conformity assessment?
Which test methods will they use?
Identifying Standards
Standards China-EU Standards Platform http://eu-china-standards.eu/
GB Standards – Standards Administration of China (SAC)
http://www.sac.gov.cn/SACSearch/outlinetemplet/gjbzcx_en.jsp
Professional/sectoral YY Standards - SFDA http://www.standards.cn/
General Remarks
Getting into the Chinese market for the first time is a very complex and cumbersome administrative process. - Investing time in making the first time successful is a good strategy to avoid redoing the administrative process and delay the time to market
First time applicants should get assistance from professional service provider. Spend time finding the right service provider and learn about the process for future occasions - Making experience with the Chinese market
Language is one of the main barriers to product certification - In-house language capabilities is an asset
Finding partners
Finding Partners
Exhibitions • Conferences
• Fairs
Chambers of
Commerce
• Membership
• Networking events
Online
• Industry platforms
• Directories
Know Your Partner
On Business licence make sure to always verify:
Company name
Business scope
Legal representative
Shareholder, registered capital
Term of operation, annual check
All information can be checked at AIC branch or on AIC websites
In China, the Company Stamp equals to company signature
Ask whether the office premises are legally owned or rented
Know Your Partner
Contracts in China are less formal but some important provisions should
be insisted upon:
Parties identifications (must be in line with the business licence in
Chinese)
Specification of the goods and/or services, product quality
Stating payment terms, delivery conditions
Stating termination, liability
Exclusivity clause
Governing law
Method of dispute settlement
Equip yourselves with Chinese Legal Advice
Get all legal documents translated by a lawyer
Know Your Partner:
Financial and Operational
Before choosing your business partner ensure it provides:
A Creditworthiness Letter - both for the company and its shareholder(s) Financial statements and audit reports – can be asked at the State
Administration of Industry and Commerce (local branch) And personally: Pay a visit at the company's premises – go a few times, sometimes
unannounced
Talk to suppliers, neighbours, employees
Do your due diligence!
“Far too many companies go to China and make the same mistakes a thousand others have made because they’re lazy and cheap. They don’t bother to invest the time and resources necessary to do even the most basic due diligence on China and they end up wasting far more money in costly mistakes.”
China Uncovered, 2010 - Professor Jonathan Story
In conclusion
China on the radar?
China should be on your radar
But it is a tough market to do
business in
Before you go:
Carry out further market research
Carry out due diligence Check which standards and
conformity assessment requirements apply to your product
Register your IPR… Contact the EU SME Centre
IPR SME Helpdesk Enquiry Helpline
Research/Publication
Business tools
Training/Workshop
Website
IPR SME Helpdesk Contact:
Telephone: +86 (10) 8527 6922
Email: [email protected]
Online: www.china-iprhelpdesk.eu
Project implemented by:
