Under Kevin Rudd’s leadership, trade with China will open up exciting opportunities for Australian exporters. But you will still need to do your homework, before exporting to China, to make the right connections.
Rudd brings a level of expertise to engagement with China that is unmatched by any previous Australian leader. He has not only strong connections with China but a personal affinity with and love of the country. And he has long had an eye on China.
He is quoted as saying that as a 15-year-old he watched Gough Whitlam on television on his triumphal return from Beijing and found it interesting enough to write to Whitlam saying he wanted to become an Australian diplomat. He embraced the study of China, achieving First Class Honours in Arts (Asian Studies) at ANU, majoring in Chinese language and history. His ability to speak Mandarin effortlessly—he can even deliver word puns in the language—is a strong attribute for a new leader at a time when China is emerging as an economic, political, and military superpower.
A love of China extends to his family: his daughter recently married a young man in Australia’s Chinese community, his oldest son has studied at Shanghai’s Fundan University, and his youngest son is learning Chinese.
His strong connection with China goes beyond a love of the country, an academic degree, and a language skill. He spent the late 80s with the Department of Foreign Affairs in Beijing, reporting on Chinese politics, mastering the language and creating ties that are relevant today. During the early 90s, as director-general of the Office of Cabinet in Queensland, Rudd was influential in developing an Asian languages and cultures program for Australian schools. Before entering Parliament in 1998, he was senior consultant on China trade and commerce for KPMG Australia.
Rudd’s extensive knowledge of China, and of trade and commerce in the area, ideally positions him to represent our trade interests in a region that is becoming increasingly important to our country’s trade potential.
His Chinese linguistic ability stands him in good stead in engaging with the Chinese nation, and whenever he does, he leaves a lasting impression, an important characteristic of a nation’s leader. Australian businesses should reap the benefits of Rudd’s strong Chinese connection.
Trade Opportunities in China
Labor’s proposed trade policies have been developed to meet the needs and challenges that exporters face today, not only in our traditionally strong exporting sectors but also for small and medium businesses and other non-traditional business sectors. Its plans take into account the growing opportunities for the services and financial services sectors and for taking maximum advantage of the ongoing resources boom.
To help boost Australia’s exports, the Rudd Labor Government will invest $50 million into ‘Exports Australia’, a plan to drive export growth across the whole economy. Aspects of the plan include:
1. An Exports Policy and Programs Review, which will develop a policy and program mix enabling exporters to take maximum advantage of the ongoing resources boom and to develop our full export potential in other sectors.
2. The Export Market Development Grants scheme being revitalised and having funding increased by $50 million in 2009-10.
3. Austrade being revitalised and restructured, and having its own business advisory group to provide better service for exporters.
4. The services sector being assisted to expand its export base.
5. Taxation and marketing arrangements being improved within the financial services exports sector.
6. A Clean Energy Export Strategy to make Australia a hub for the export of clean energy technology.
7. A refocus on Australian trade policy to achieve better outcomes for Australian businesses and the Australian economy.
Benefits for SME Exporters
The new Government aims to provide Australian businesses, especially small to medium sized businesses and those in manufacturing, the services sector and regional areas, with the help they need to take their products and services to the world and to meet the challenges and competition of the global market place.
Labor sees potential for increasing exports in the manufacturing sector, particularly in elaborately transformed manufactures, and from the interface between the manufacturing and services sectors in areas such as design and the provision of expertise.
The Government is intent on achieving the best possible outcomes for the nation and for Australian business, particularly through multilateral structures. They believe there is an ongoing role for bilateral and regional agreements, especially where they are consistent with, and can contribute to multilateral outcomes.
The reinvigoration of Austrade and its programs, together with a new business advisory body, will make it more adaptable and responsive to business concerns and to new export opportunities.
Labor is committed to the expansion of a mutually beneficial trading relationship between countries. It believes we must diversify our export base to China and develop appropriate export policies to effectively compete. Labor supports a bilateral preferential trade agreement with China and is committed to establishing, through Austrade, an Australia-China Taskforce on Services Exports to identify impediments to the growth of service exports and service-enhanced manufacturing in the Chinese market.
Chris Gibbs Stewart, general manager, Australian Business International Trade Services, says that export opportunities to China, now our biggest trading partner, will expand. Currently around 4,000 Australian companies are trading with China who is a massive buyer of commodities such as iron ore, wool, cotton, copper, lead, and manganese ores.
Stewart says there are huge and diverse untapped trade opportunities for Australian products, services, and ‘know how’ in construction, engineering, environmental and town planning, medical, health and pharmacy services and technologies, telecommunications, lifestyle and leisure, food and beverages, luxury consumer products, architecture, design, logistics, legal, financial, business administration, tourism, education and training.
Stewart does recommend however that first time exporters get advice from professionals whose knowledge, contacts, and experience are critical in doing business with China successfully.
Doing Business with China
1. Market entry strategies
Start small. China is a large and complex market so it is recommended that you initially establish yourself in one province, even one city. Once you understand the regulations and practices in that region you can begin to expand one region at a time.
2. Business culture
Be prepared for a very different business environment. All business relationships are established for the long term. Negotiations can seem slow at the beginning, as your potential partner gets to know you in order to determine whether you can both commit long-term. Visit the country and meet potential partners if you can. This will help you develop comfortable business relationships. Respect ceremonies such as giving gifts and hosting meals. These ceremonies, though they may appear casual, are traditionally very important and are still highly respected by the Chinese.
Appreciate that in China life is business and business is life. Chinese business people work long hours, and many social activities revolve around business networking. When establishing a relationship with a Chinese company it will not be unusual for them to request a meeting in the evening or on a weekend.
3. Research the company structure that best suits you. Thoroughly consider the different market entry options before engaging China. There are several possibilities, including direct export, using a local distributor/agent, setting up a representative office, forming a co-operative joint venture (CJV) or equity joint venture (EJV) or establishing a wholly owned foreign enterprise (WOFE). The entry model right for your company depends on your corporate strategy, internal resources, normal industry practice, and the market situation.
4. Legislation may also have a large impact on the business structure you select. Each industry has very specific regulations and policies as well as government restrictions and incentives, some which restrict the type of company that can be formed. Though the market is becoming freer, wholly owned foreign enterprises (WOFEs) are still not permitted in all industries. It is very important to define your business correctly to ensure you do not breach legislation or restrict the options available to you.
5. Don’t neglect due diligence. Conducting research on Chinese companies can be difficult, but this should not prevent it from happening. Though language barriers can impede your ability to find quality advice, you should not rely on information sourced from the internet alone. If you are having difficulty obtaining information on your own, seek assistance from companies such as Australian Business International Trade Services.
6. Don’t underestimate the importance of language and cultural differences. Language will be a barrier to establishing relationships. English is not widely spoken and you need to be ready for the challenge. However, in contrast to popular opinion, Chinese people are not easy to offend. If you make an attempt to learn the language and stumble, they will appreciate your efforts more often than be offended. A good way to minimise the effects of cultural differences is to employ staff or an adviser with Chinese experience or background.
Top Tips for Success in China
Focus your market entry efforts on one region or one city initially.
Choose the ultimate location for your China operation, considering the long and short- term business development needs for infrastructure, skilled labour, customer contact, and government incentives.
Clarify your industry category.
Identify the laws, regulations and rules governing the industry category.
Ensure your business case meets all local requirements from the outset as this will streamline the application and approval process.
Understand what business structures are allowed.
Explore the restrictions on investing parties.
Be aware of the minimum capital requirement.
Understand what corporate structures are allowed, especially who is permitted to be the legal representative of the entity.
Understand your potential tax liabilities and explore the legitimate mechanisms to reduce tax liabilities.
Be aware of government incentives, including tax holidays and special treaties offered by different regions.
Build a strategic relationship with the regional government who will be able to provide excellent advice on local policies and regulations; this may also open access to other business networks.
Seek professional help. China is a large and complex country with varying laws and regulations depending on the industry category and region, and this can be quite confusing for the uninitiated.
—Charisse Gray is senior business writer for NSW Business Chamber.
China Fast Facts:
Capital: Beijing
Official language: Mandarin
Population: 1,314.1 million (2006)
Australia’s trade relationship with China:
Exports to China A$22.8 billion
Major Australian exports for 2006-07 include iron ore, clothing, wool, copper ores and coal.
Exports of services to China A$3.604
Major Australian service exports include education-related travel and personal travel (excl travel)
China’s global merchandise trade relationships:
China’s principal import sources, 2006:
1 Japan 14.6%
2 Republic of Korea 11.3%
3 Taiwan 11.0%
7 Australia 2.4%
* Source: DFAT
