A land full of Eastern promise

After stagnating for more than two decades under the rigid authoritarianism of early communist rule under its late leader, Chairman Mao, China now has the world's fastest-growing economy and is undergoing what has been described as a second industrial revolution.

Today, China is the fourth richest country in the world and only the USA, Japan and Germany have stronger economies but, if the Chinese continue to grow at the same pace, it will only be a matter of a few years before they occupy pole position. This means that the Land of the Dragon will continue to be a key market for European exporters.

China is also the world's most populous country, with a continuous culture stretching back nearly 4000 years. Many of the elements that make up the foundation of the modern world originated in China, including paper, gunpowder, credit banking, the compass and paper money. In the early 80s it dismant-led collective farming and allowed private enterprise again. Now it is one of the world's top exporters and is attracting record amounts of foreign investment. In turn, it is investing billions of dollars abroad.
As a member of the World Trade Organisation, China benefits from access to foreign markets. In return it must expose itself to competition from abroad but relations with trading partners have been strained over China's huge trade surplus and the piracy of goods. The former has led to demands for Beijing to raise the value of its currency, which would make Chinese goods more expensive for foreign buyers and, in theory, hold back exports.
Some Chinese fear that the rise of private enterprise and the demise of state-run industries carry heavy social costs such as unemployment and instability. Moreover, the fast-growing economy has fuelled the demand for energy. China is the largest oil consumer after the US, and the world's biggest producer and consumer of coal. The country spends billions of dollars in pursuit of foreign energy supplies. There has been a massive investment in hydropower including the $25bn Three Gorges Dam project.

Social discontent

The economic disparity between urban China and the rural hinterlands is among the largest in the world. Many impoverished rural dwellers are flocking to the countrys eastern cities, which are enjoying a construction boom.
Social discontent manifests itself in protests by farmers and workers. There were 87 000 pro-tests or mass incidents in 2005, according to official figures. Meanwhile, tens of thousands of people travel to Beijing each year to lodge petitions with the authorities in the hope of finding redress for alleged corruption, land seizures and evictions.
Mr Hu Jintaos position as the presidential heir apparent had been cemented at the 16th Communist Party Congress in 2002 when he succeeded Jiang Zemin as head of the party. Mr Jiang's decision to stand down as head of the powerful Central Military Commission in 2004, three years earlier than planned, was said to have completed the first orderly transition of power since the communist revolution in 1949.
Mr Hu has made the fight against corruption a priority. He has promised to promote good governance, saying that the fate of socialism is at stake. But he has rejected Western-style political reforms, warning that they would lead China down a blind alley.

Trading with China

China is the third largest country in the world and offers enormous possibilities for businesses looking for a new export market. China has a population of 1.25bn people and it is becoming easier for exporters to do business in China. Many regions are now encouraging foreign investment through tax incentives and previous legal restrictions to trading in China are being removed.
The growing economy has led to a growing private sector. However, state-supported companies may make competition difficult in some areas, if only because they get capital support from the government.
China is divided into several provinces and regions including the special administrative region of Hong Kong. Different regions have different social and economic needs so exporters should assess which areas need their products and services most. In many parts of inland China, poverty is still common.
The coastal cities and special industrial zones offer greater opportunities, with growing populations and greater personal wealth. Be aware of language differences. Mandarin Chinese is the language of mainland China whereas Cantonese is frequently spoken in Hong Kong. Most Chinese do not speak English so business people will need an interpreter.

Getting paid

Most trade with China is done using letters of credit. These are promises from your customers bank to make payment to you once the goods or services you provide are received, and the documentation covering the transaction is properly and correctly presented.
Consider the options concerning payment and currency carefully. There are complex rules concerning the kind of transactions banks in China, both domestic and international, can make and business people should be aware that its difficult to exchange Chinese currency outside the country.
It is possible to accept payments in Yuan, the local currency, if appropriate banking facilities have been arranged and the trading organisation has been approved. Of course, it is possible to trade in US dollars but it should be remembered that there are exchange rate fluctuation risks. There are restrictions on the amount of currency an exporter can remove from China.
There are some important tax, duty and legal rules and regulations specific to China that should considered. Exports to China will attract import duty. The exporter or his local representative will have to pay this before the goods will be released by customs.
The level of duty will depend on the type of product. To find out the duties paid on goods exported to China, the exporter will need a 4 or 6 figure HS or commodity code number for any given product.
Exporters may also need a licence for some kinds of products. They should also check if there are any controls on the import of their type of product into China. This might be a complete ban on the import of products into China or they might, ironically, insist on minimum safety or manufacturing standards.
Since 80% of China is rural and much is mountainous it will be necessary to factor in time for products to reach remote inland areas. If airfreight is used, goods will arrive faster but costs will increase. Airfreight is less useful outside the major Chinese cities. It usually takes the same time as road or river freight to reach rural China.
Freight forwarders can consolidate products with other shipments, making the process more cost-effective and pricing more competitive. Marine insurance may be helpful as it covers air, rail and road transport as well as sea transport. Without insurance, the value of any goods lost in transit will usually come off the bottom line.

Understand your customer

In Chinese business etiquette, the concept of face is essential. It's very similar to respect, which must be given to Chinese asso-ciates. In turn visiting business people must earn the respect of their hosts. It's also important to remember that Chinese business people place great emphasis on friendship. It's a good idea to become a trusted friend first and a business colleague second.
Always address business partners formally, using their title and surname. Remember that business visitors will usually be introduced to the most senior person first. Chinese culture places great importance on seniority in business. Shaking hands is essential. Its also a good idea to bring a small gift for your hosts and a plentiful supply of business cards, which should be exchanged at the beginning of the meeting.
Negotiations often move slowly for long periods and then very quickly. Contracts aren't usually introduced early in negotiations. It's common for Chinese business people to ask for amendments after contracts have been drawn up.

Language

For Chinese mainland busines-ses, sales literature should be translated into simplified chinese characters. In Hong Kong text needs to be translated into traditional Chinese characters. Use straightforward literature to avoid communication problems. It is wise to have a plentiful supply of business cards translated into the appropriate language. Offering a business card in your native tongue may be seen as discourteous.
A business selling in China will need some form of local presence to ensure trading runs smoothly. There are four ways to trade in China. Appointing a local agent or distributor is the quickest and
easiest method. Alternatively, business people could set up a representative office by applying to the Chinese government. Those that want to create a wholly owned foreign company also need to apply to the Chinese government for a licence, which is usually granted for 15-30 years.
This option is now by far the most popular option for foreign companies wishing to set up in China. Finally, it is possible to establish a joint venture after a period of trading with a local partner, with the overseas business opening an RO. The success of any joint venture largely depends on finding the right partner to work with. To create a joint venture it is necessary to apply for permission from a number of Chinese government agencies. Whichever avenue is selected, legal advice is paramount.
The greatest advice, of course, can only come from those who have been there and bought the T-shirt. Swiss-based FMS Force Measuring Systems AGs director of sales and marketing Steffen Kaiser was pleased to see such a positive attitude being taken by C2 Europe and its sister magazine C2 Deutschland in doing business successfully in the Land of the Dragon. He has experience of publications that have been less than constructive in their approach.
“I have been working in Asia for 17 years, with increasing emphasis on China in the past decade, and I have observed many examples of enterprises that succeed and enterprises that fail,” says Kaiser who reiterates the importance of the need to know your customer.
He refers in the main to the enormous cultural and ideological differences between West European and American countries and Asian countries. The concept of the independent individual stands at the centre of the thoughts and activities of the Western world, while the collective is the dominant model in Asia.
“Incidentally, this is also the reason why China has a completely different market understanding with regard to product design,” he adds. “Copying of brand-protected characteristics is a culturally conditioned taboo in the West but not in China, where assimilation and adaptation are accepted as perfectly normal behaviour.”
“This means that in Chinese economic theory and practical economic policy it is always the common responsibility and task of the state to maintain peace or, to use terms that are still in common use, to maintain balance and proportionality. These fundamental statements are closely linked to Confucianism and Taoism.”
“But where the state has responsibility, citizens must serve the state without protesting or withdrawing from public work and services. This absolute subordination is characterised by the principle of the responsibility of the state. When Maos Cultural Revolution broke with this principle, the social consequences were fatal 30M people died from hunger and mismanagement.
“In contrast, the subsequent communist regime in China again united the ideologically useful ideas of Mao Tse Tung with the old Confucian principles. This means that the average Chinese will never act against his state. Instead, he will do everything possible to
elevate China to its status as the Middle Realm or even superpower. He will always try to accumulate personal wealth for protection against bad times.”
“The greatest risks for European business people and enterprises lie in mindlessly applying our Western way of thinking to the culture and mentality of China. This unavoidably leads to misjudgements, lack of foresight or self-serving ignorance. Consequently, business people must take the time to look behind the apparently exotic surface of the historical and cultural scenery, just as you look behind the façades of a shopping mall.”
“As soon as business people have learned to read and understand the cultural code of the
Chinese, there are many effective ways to achieve successful, positive business relationships.”
“Once again this year I spent several weeks travelling through China with our distributors in order to visit customers for FMS Converting products such as the DLS digital line and edge detection sensor. This is a self-adjusting material position tool for web guiding applications that recognises printed lines, edges and holographic elements.”
“Agreements were made for several attractive projects and FMS will continue to expand its business relations in China successfully. I am glad that ICE has decided to expand into China, and we are pleased to participate in this, since China like India is and will continue to be a core market for FMS.”
RK Print Coat Instruments also sees China as very much of an opportunity. “Although there was, and still is a need to import best available technology, many Chinese printers, converters and support manufacturers are engaged on assimilating ideas and then innovating in their own right so as to stimulate the development of a national graphic arts industry. They are doing this to compete in world markets, not just on price but on quality as well,” says RK Print Coat Instruments managing director Tom Kerchiss.
With the increasing focus on quality and on providing the domestic market with a product that can stand comparison with products produced in the West, says Kerchiss, the demand for RK Print Coat Instruments colour communication systems and product development print/coating systems has risen exponentially over recent years.
Bench top sample preparation and colour matching systems such as the K-Printing Proofer are exported to China in large numbers, primarily for the Chinese gravure-printing sector. RK Print Coat is also providing the embryonic but fast growing flexographic sector with the FlexiProof 100 and Flexi-Proof UV. Although gravure printing still dominates the pack printing market in China, the flexographic print process is being adopted very quickly in some sectors, most notably in label printing.
The FlexiProof 100 has been supplied to a Chinese research establishment as well as to a number of ink producers, primarily satellite production plants belonging to internationally renowned companies such as SICPA and Coates. Kerchiss is optimistic that other ink manufacturers will also opt for the FlexiProof, which enables ink producers and others to monitor how inks perform under real world conditions. He says that currently there are 400 ink makers in China, employing over 25 000 workers.
RK Print Coats Rotary Koater has made headway in a variety of sectors in China. Five Rotary Koaters, valued in excess of
£200 000, were supplied to Chengdu Silicone Research, to China North Industries, Rhoda Silicones, Sinostar, and Sino Trade Promotions.
The Rotary Koater is a pilot printing, coating and laminating machine, offering more than 15 different printing and coating
systems. It is used in three main areas small-scale production, often of specialised materials; as a pilot coating machine; and as a research and development tool for the testing of different formulations, substrates, and processes on an economic scale under realistic and precisely controlled conditions.
In comparison with advances made in other parts of the world, Chinese companies and joint venture companies are engaged in a catch up process. Systems such as the Rotary Koater enable organisations engaged in producing new products to find out what works and what doesnt quickly and without high costs.
“With more than 82 000 printing companies, 400 printing/converting machinery manufacturers, 9000 paper and other substrate production plants and much more besides, the opportunities for selling our equipment is vast. In fact weve barely scratched the surface,” concludes Kerchiss as he looks to the future.
The new Lenzing viscose fibre plant at Nanjing is the second
production site for the group in Asia and its sixth production site globally. The new factory means that the companys global leadership as the world's biggest producer of cellulose fibres has increased to a nominal capacity of 560 000 tons/yr.
Lenzing (Nanjing) Fibres is a joint venture with Nanjing Chemical Fibre. Lenzing holds a share of 70% and NCFC 30%. The nominal capacity of the new plant is 60 000 tons of viscose fibres. Expansion is scheduled in alignment with market development. Investment for this stage was about €65M.
Lenzing Nanjing is a modern production facility that fully conforms to the Western European standards of the Lenzing Group. Lenzing Technik, the systems engineering subsidiary of the group, provided key technology. Construction of the plant, which is operated by a staff of 540, was completed in less than two years.
“Lenzing Nanjing is a central element of our strategy of expansion and globalisation,“ said chairman Thomas Fahnemann at the inauguration of the new plant last month. China, with an above-average growth of its viscose fibre industry over the past five years, has become the largest producer and the biggest consumer of viscose fibres.”
“For us China is one of the key markets of the future. With our new fibre production plant we want to give a clear signal to our customers in China that our strategy is long-term. We will establish ourselves as a local producer. We believe in the sustainable success of the Chinese textile and non-wovens industry.“
“Although there are now more than 400 manufacturers of equipment and consumables, the need to import technologically advanced equipment and systems remains,” says chief engineer for Ashe Converting Equipment Keith Fordham.
Fordham says attention to detail is critical if repeat business is to be made. Machines must be innovative in concept and incorporate features that confer recognisable benefits. For example, the Sapphire DB supplied to Nine Colour Printing in Kumming was a bespoke system with a web width of up to 1650mm and engineered for the slitting of hot stamping foils, cigarette papers and 10-micron BOPP high slip films.
Another machine that has captured the attention of the Chinese market is the Jade series of primary film slitters. The 1000m/min Jade turns convention upside down. This individual arm centre-surface machine incorporates Profibus communications to local drives.
Keith Fordham says that the film manufacturer is faced with the challenge of producing a consistent product (films and other materials) with no flaws, and a product wound not too hard, nor too soft, that can be delivered to a printer or converter for further processing without problems.
DuPont Packaging & Industrial Polymers has opened an R+D Laboratory in China. Located in Shanghai, it houses an industrial scale nine-layer blown film co-extrusion line which will support development of film structures for the packaging and industrial film markets.
The line is capable of producing structures with a film lay flat of up to 1.27m and from 30-250 micron thick. With a separate extruder for each layer, it will be able to produce a broad range of structures including barrier films.
The investment also includes a small three-layer blown film co-extrusion line for rapid prototyping and smaller scale development work. This will be used to serve the packaging, consumer goods and industrial markets on a global basis.
Equipment is also available for material identification and characterisation testing. This will be used for trouble shooting customer problems and to enhance product quality and optimise their production processes.
As John D. Brown, chairman of UK-headquartered optical anti-counterfeiting technology specialist Light Impressions International, says: “Cutting corners or producing fake goods is rampant in China and is, arguably, part of the legacy left over from the initial rush towards a free market economy. The lack of a strong legal and regulatory system together with a culture of bribery and corruption has provided opportunities or the right conditions for counterfeiters to turn a quick profit.”
“The recognition that something needed to be done to thwart counterfeiting in China to protect Chinese business and state interests has encouraged companies to invest in anti-counterfeiting measures with holography a popular option. To counter the threat to their profits however, some counterfeiters attempt to counterfeit the hologram, many of which are produced in China. This in turn has led to state owned and private organisations seeking sophisticated anti-counterfeiting solutions from Light Impressions International.” A new generation of devices from the company includes BrandMax® OVD for products and packa-ging which is software driven, offering an artwork resolution exceeding 16M diffractive pixels per square inch.
Obviously, business people should take every care to protect their business's intellectual property when trading in China since copyright, trade marks, patents and design right may obviously be upheld to different degrees in different areas. Despite this and the many other hurdles that entrepreneurs will have to clear, China presents more of an opportunity than a threat. Good hunting!