DOING BUSINESS IN CHINA
A FEW TIPS FOR THE FIRST TIMER
This article gives you some tips on doing business in China if you are new to the country. It is written by Xie Rong, a Chinese lawyer. She is a member of the ContractStore legal team who, after several years in a Chinese law firm, has been based in the UK in recent years.
Recent figures released in China show that 85% of foreign investors in the country are making good return from their businesses in China –the average is in excess of 12% a year, increasing annually.
This information comes from a recent World Bank investigation into 12,400 Chinese enterprises in 120 Chinese cities. They found, after circulating a wide ranging questionnaire, that the investment return for foreign investors is as high as 22%.
The Chinese market is very big and very tempting for many. When doing business in China, as in other countries, there are both cultural and commercial factors to consider. The most important thing is to prepare. Read up on the country. Seek advice from those who have been there before. And, if you have the time and money, spend some effort in conducting market research.
Business is a relatively new phenomenon for many Chinese but they are moving forward very fast.
Whereas in the UK we have a long tradition of law and our legal documents are highly developed, in China it is rather different. 30 years ago there were no private law firms in China and their documentation is still less developed than ours. It is nonetheless important to ensure that you have proper contracts in place for your business – but keep them short and simple – and try to make sure they are in both English and Chinese – (translated by a good, independent professional). ContractStore is a useful resource – it offers some well-drafted but simple dual language contract templates that can help you. And it has consultants and contacts in the UK and China, who can offer assistance.
You may also need an interpreter in your discussions, and once the initial negotiations are concluded, you can get the contract documents finalized with the aid of local lawyers.
But more important is access to someone who knows the Chinese market and can advise you before you go or, if this is not possible, then when you are there. There are organizations that can help such as CBBC (China Britain Business Council) as well as private consultants who can advise on markets and on the all-important regulatory environment.
You must also bear in mind that China is a vast country – each province has its own provisions and rules, in particular, special offers to foreign investors, and these are sometimes just as significant for business as the nation-wide legislation. For instance, you might get local tax exemption for first and second year of trading.
As the Chinese are still learning the ways of the developed economies, they are keen to make use of the know-how that they get access to. It is therefore particularly important that you take steps to protect your intellectual property by contract at an early stage. And this can mean not just your designs and inventions but also your management systems, especially if you are considering a joint venture. (There was a big case in China a few years ago involving the unauthorized use of a foreign investor’s management systems by its local partner.) For patent owners, registering your patent with the Chinese authorities is definitely worth considering.
Unlike the Gulf Arabs who are happy to let foreigners run their businesses provided they get their share of the profits, the Chinese see no reason why they should not run things themselves.
So, if you are entering into a joint venture with a Chinese partner, be sure to spell out in detail the areas of activity that you want to control and those that your partner is to deal with. Leave too much to chance and you could find that your Chinese partner will be taking a lot of decisions without consulting you as you would wish.
Start as you mean to go on – and as with elsewhere, if you build good working relations with your Chinese partners you will help to secure the business as well.
Business and culture meet over the dinner table: entertaining is a part of business. Quite often, difficult issues that cannot be resolved over the conference table will be deferred by your Chinese hosts to the more relaxed atmosphere of the dinner table. So, when you are invited to dinner or, perhaps, a karaoke bar or even a steam bath by your hosts, do not decline the invitation, thinking, perhaps, that they are just being hospitable. Accept it, while bearing it in mind that they may well want to settle outstanding business issues late in the evening after a few drinks.
Trying to do business around the dinner table might not be the Western tradition. However, you will find that by inviting your Chinese partner for entertainment, even without any business discussion, this will soften them in the negotiation afterwards.
Unlike the British, the Chinese are inquisitive and likely to ask more direct personal questions than we do.
The offering of gifts is also a part of the culture so stock up with a few English souvenirs before you go.
Culturally, you need to realise that the Chinese have a much older civilization than we do – and the average educated Chinese know their history a lot better than their English counterparts. In spite of years of austerity and horror, the Chinese are delightful people with a quick wit and, in recent years, since they were allowed to become capitalists, an eye for the main chance. You cannot be expected to know their history as well as them, but, in particular, try to get up on the area or city that you are visiting; some knowledge of the locality will please your host, and with the internet it is not too difficult to get such information.
ContractStore has a range of contract templates for use in China and you can find the full list here
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