Introduction
You read it right.
My title is not wrong. It is, “How to Enter the China Market from an Inexperienced and Unintelligent Point of View”. Why do I write that? Because I have no experience in the China market. Also, I have scarce knowledge of it, thus I am bound to make an unintelligent decision when investing, doing business, or working as an employee in anywhere in China.
Why am I inexperienced? I’ve never been to China physically. I live in Singapore and it is a 6 hour flight to Shanghai. On the contrary, it takes me less than 2 hours to fly to Thailand. It takes me 5 hours to fly to Perth, Australia. I have never stepped foot on China, and strangely enough I have been to USA and England and Scotland for many more days (more than 300 days) than I have been to China (0 days). Thus, I reiterate, I have never been to China. How strange. More curious is the fact that the ratio of books in English to books in Chinese I have read in my lifetime is probably 1000 English books to : 5 Chinese books. Despite all this, I am by ancestry a Chinese, and look like one without any doubt.
Unfortunately, this is my blog. And despite my innocence with the Chinese market, I can write completely inexperienced, not intelligent, amusing articles on topics that I have a poor knowledge of, and I still will be alright. After all, this is not an authoritative blog. It is meant to be humorous. Thus, there are humorous bits included in this article.
Why I will not write about “Guan Xi”
As a bonus to my readers, I will not mention this term called “Guan Xi” which you so often read in articles on how to enter the Chinese market. You read it right, I will not talk about “Guan Xi”. Why do I not talk about it? It is over-hyped. “Guan Xi” refers to interpersonal relationships. And for godssakes, all business people rely on interpersonal relationships to succeed. It is not a China-only thing. You need to know the corporate socialising methods in New York just as you know how to network in California or gain the trust of confidantes in London. And you probably need to know how to chum around with Russian businessmen in order to succeed there. Thus, my readers will not have to read any “Guan Xi” talk.
The Real Stuff
So here goes, my inexperienced and unintelligent take on How to Enter the China Market:
Let’s begin with the question, what is a typical Chinese city like? As you know, you need to understand what a city is like before you want to go there do work or live.
For starters, let’s pick one Chinese city, one of it’s most prosperous, Chengdu. Chengdu is a city of 11.03 Million people. Chengdu has GDP as of 2006 of RMB 275 Billion or SGD 55 Billion or USD 40.3 Billion. As we know, China’s ruling political party, the China Communist Party, is a powerful force in the country. Anyway, who am I kidding, many governments in the world are powerful forces in their home countries. The Municipal Committee is the highest authority in that state. And the Municipal authority has a secretary general, which is like the big boss. In 2007, Li Chuncheng was voted as the secretary general of this municipal authority. It is a 5-year term.
Chengdu in China does not seem like a farming, rural community. Its services sector accounts for close to 50% of the economy, of which the key industries targeted are Finance, IT and Tourism, among many others. It’s GDP is still not very high among Chinese cities, and Shanghai, Beijing and Guangzhou still rank much higher than Chengdu in terms of GDP. However, it is strong in certain areas, such as IT&T and Finance. Chengdu has a huge number of foreign companies in terms of IT&T, information technology and telecommunications, from Motorola, Ericsson, Nokia to SAP, Microsoft and New Egg.
Chengdu is also where many Panda bears are found. That is one big reason why it is attractive to me. Imagine that. Pandas! Pandas are cute, they are enough reason to convince me to go to a city.
Intel itself has a huge presence in the city of Chengdu, with many manufacturing plants. Why did I mention Intel? Because I have a strong interest in IT.
There are several types of Foreign investment forms of Companies you can set up in China if you were a foreigner. To young ones who have not much capital, like if you have less than US $3 Million, then the ideal one would be a Cooperative Joint Venture.
Of course, ideal to me may not be ideal for larger corporations or large manufacturing plants or those who wish to have a much larger stake in the business. However, at this moment I think Cooperative sounds nice. After all, to enter China it will be best to Cooperate with a China partner company. It may not be the most popular among foreigners who do not want a China person to participate.
Apparently, the standard corporate income tax rate is 25%, with lower-taxes for high-technology enterprises.
Another aspect of Chinese growth lies in its rise of entrepreneurship located in the countryside. The countryside is less exposed to government intervention, thus having rapid growth. The most prosperous Chinese cities include Zhejiang, Guangdong, Sichuan, Beijing and Shanghai.
That brings us to the question, where should you go if you were to enter the China Market?
In terms of number of mentions in the Western Media, Shanghai and Beijing come out as most popular, Beijing as the political capital, and Shanghai as the economic juggernaut. However, income inequality in Shanghai is a problem, as compared to say Zhejiang, where income equality is better. For example, in terms of employee compensation in 2002, Zhejiang exceeds Shanghai by around 25%, while they have the same level of corporate profits. Net production taxes in Zhejiang are about half that of Shanghai. As of 2005, Zhejiang and Guangdong have twice the number of patents as Shanghai. As of 2003, an average private sector firm in Shanghai had average sales of 20.8 Million Yuan, while that in Zhejiang has 91.3 Million Yuan in sales, and Guangdong had 62.8 million. That puts Shanghai even below cities like Jiangsu (26.8M Yuan) and Yunnan (38.8M Yuan). These implications point to a weak private sector in Shanghai, meaning that if you were to go there as a private entrepreneur, it may not exactly be the wisest choice.
So, where do you go to get your local private sector statistics? The China Federation of Industry and Commerce (CFIC). Where do you go to get your International private sector statistics on China? The International Finance Corporation.
What if you were to go into China as a private firm, what is your competition?
Chinese private firms are mostly family owned and are usually in the early stages. There is potential for more private entrepreneurship in provinces like Zhejiang which have lesser engineering talent and more agriculture, although it is more entrepreneurial, as compared to Shanghai.
What are the risks of entering China? As the market becomes more market-oriented, the stock market is prone to more fluctuations, meaning heavy ups and downs. With the huge amounts of urbanization, I mean the office towers in Shanghai are being constructed at massive speeds, energy consumption will go up, and thus energy costs will also rise and may become unsustainable.
The One-Child Policy in China
Before you ask another person hailing from China again about the one-child policy and appearing not so knowledgeable about this significant rule, you should get a brief background of it here so that you will appear smarter. Chairman Mao around 1957 fully pushed for this method of population control. Deng Xiaoping initially still strictly enforced the rule. However, due to falling agriculture output, Deng Xiaoping later later accepted a more relaxed policy.
Today, in 2010, the one-child policy is not strictly one-child. In fact, there are several layers of this policy which will apply to different people in different social and economic stratas. In rural areas a second child is allowed with a four-year interval, and in Tibet there is totally no restriction. Adhering to the one-child policy means that families receive cash, better housing, and educational opportunities for the children.
The implications? This one-child policy also leads to about a ten-percent more males than females in the population beginning from around 1979 up to the 1990s. This was because males were preferred over females when it came to having one-child, which might appear chauvinistic to some people, but it may appear justifiable to very poor rural farmers which required more male labour to tend the farm. There will be in a few tens of years time many more Grandparents to children in China, because of this policy. This means that if you were to talk to an average Chinese young person who was born around 1980s to 1990s, that person will have to support many more dependents, and will have lesser siblings to share the burden than a family of several children. This means that you can appreciate the heavy weight on the shoulders that the Generation Y and Generation M of China people face.
The above is teriyaki chicken, more of Japanese cuisine than Chinese cuisine, but I was running short of pictures related to China so I just put that in.
Understanding the Actions and Policies of the Chinese government
When you work in China, or anywhere else, it is understandable that the way your government works is not the same way that the government in China or other countries work. It is unproductive to criticise the government of a foreign country. However, all have the same aim – to maintain stability and unity within the country or at least the majority of the country. You can count on political leaders of any country to do what it takes to obtain the majority’s support, unity and peacefulness.
The implication is that
In this respect, the government in China goes back to traditional Chinese values, after all, traditional Chinese values are the bedrock of Chinese civilization. In the 17th National Congress of the Communist Party of China, one of the major meetings among Chinese politicians, which happened in 2007 and which policies will last until 2012, the key thrust was “building a harmonious society”.
Note the adjective “harmonious”. If you read traditional Chinese history, it has gone back a long way back for more than a couple of millenia, and a distinguishing feature is the amount of power struggles that China faces. Harmony is also a traditional Chinese value and it is kind of like in the blood of all Chinese an ancient proverb which goes
, which is pronounced Jia He Wan Shi Xing. It translates to, “if your family is harmonious, you will have a peaceful life and a pleasant family and wealth”.
This proverb which is family based extends into the government as well, whether consciously or not, and it is used by the government as a unifying factor. And that is why government policies in China may appear to be not to the taste of new entrants at first glance, but in fact they are to preserve unity. And to preserve unity in a population of more than 1 Billion is difficult, which leads to various mistakes being made and misunderstandings in the international community. Nevertheless, errors are a a perpetual feature of humankind, a species that is never flawless.
Conclusion
In conclusion, you have read my analysis on a few particular cities and provinces in China, the private firm and entrepreneurial environment, and a brief background of their policies. That makes you an expert on China now (of course it does not make you an expert, you will have to probably spend about a few years there before you even grasp the fundamentals). Go forth and make us proud.
Sources:
1) Economic Transitions with Chinese Characteristics, Vol. 1Thirty Years of Reform and Opening Up, Edited by Arthur Sweetman, Jun Zhang, School of Policy Studies, Queen’s University at Kingston, Canada, 2009
2) Capitalism with Chinese Characteristics: Entrepreneurship and the State, Yasheng Huang, Cambridge University Press, 2008
3) Chengdu Business Guide, China Knowledge Press Pte Ltd (Author), Julia Wang MA (Editor), China Knowledge Press Private Limited, 2007
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