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Some recent evidence suggests that a profound transformation of the industrial landscape in China is under way. First of all, migration of mass manufacturing activities from traditional export centers in Southern and Eastern coastal cities to the inland is accelerating. The world’s largest PC makers and their contract manufacturers are establishing new factories in the Southwest: Hewlett-Packard (No.1 PC vendor by shipments), Acer (No. 2) and AsusTek (No. 6) have chosen Chongqing, while Dell (No. 2) and Lenovo (No. 4) have chosen Chengdu of Sichuan Province. When these new plants run at their full capacity, industrial analysts expect that Chongqing and Chengdu will become the world’s largest manufacturing base for notebook and tablet computers, respectively. China’s populous Chongqing and Sichuan Province, once characterized as poor and rural and the country’s major sources of migrant workers, are going to be transformed into immense industrial hubs.

The drivers of this large-scale industrial migration are a sharp rise in labor and land costs as well as labor shortages in established manufacturing centers in Eastern and Southern China. In addition, the new manufacturing locations are well-serviced by infrastructure after a decade of government investment under the campaign of “Developing the West”. This migration of mass manufacturing presents a new challenge of growth for the developed coastal cities. While shifting manufacturing to the inland, multinationals are also transferring more managerial and R&D functions to China, with some cities being better positioned than others to attract this high-end employment. Regional headquarters of multinationals in Shanghai rose to 305 in 2010, up from 224 in 2008, according to the Shanghai statistics bureau (Financial Times, May 25). Intel has just sent an executive vice-president to Beijing as chairman of its China operations, a clear sign of the expansion of higher-end activities in the country.

Other cities may not be so lucky. According to recent Chinese reports, eighty percent of the Shanzhai cell phone manufacturers in the Shenzhen area have gone bankrupt since the beginning of the financial crisis. Although started as local-made lookalikes of foreign brands as the Chinese characters suggested, some scholars of industry have characterized the Shanzhai cell phone makers as a “Chinese way of innovation”. Based on turnkey solutions for combined chip, platform and third-party apps (provided by Taiwanese company MTK), clusters of small cell phone suppliers had been very successful in making cheap phones with gaudy features and shiny looks that pleased low-income Chinese and foreign consumers. Some 200 million unbranded Shanzhai cell phones were sold in 2010, and a large portion went abroad. Yet the faster than expected conversion to 3G-capable smart phones has destroyed the Shanzhai business model; at this stage at least, it is difficult for chip suppliers to commoditize the sophisticated smart phone platforms. The small Shanzhai manufacturers that used to implement incremental innovations on less advanced technologies in the 2G era now have neither the capability nor the financial resources to develop 3G smart phones.

Who’s up for a game of sponsorship?

If you’ve spent the last week focused on continuing machinations behind the closed doors of Zhongnanhai - where if we believe the rumours to be true, the Party has been pulling itself apart at the seams in order to piece itself back together again - you might have missed the biggest news of the month. That was of course, Huawei’s decision to sponsor the Canberra Raiders Rugby League Team.

The decision to hand over a cool US$1.8 million to see their logo adorning the shirts of a fairly unknown team -certainly to anyone outside of Australia  - may have confused you at first. On closer inspection, however, it becomes clear that the move has everything to do with the Australian government’s decision to turn Huawei’s bid to work on the rollout of a national broadband network. Rather than having a hissy fit and storming back to the firm’s mega campus in Shenzhen, they chose instead to sponsor the Raiders.

The reason is simple. Huawei hopes to ingratiate itself with the locals and throw off its image as an instrument of the PLA, something it has repeatedly failed to do despite a string of attempts in the past and which continues to hamper its expansion into developed markets.

Disregarding Huawei Australia CEO’s outlandish claim that “with Huawei’s 140,000 staff, it’s safe to say that the Raiders have just gained 140,000 new fans around the world”, it does look like a canny piece of PR. It’s sending the right message: you turned us down but we’re not going anywhere; in fact we’re so mad about Australia we’re going to sponsor your rather mid rate rugby league team. This week a team, next week the entire League perhaps?

Foreign companies sponsoring sports teams is nothing new of course. As economic power has shifted West to East, we’ve seen a correlated increase in the number of Western teams sponsored by Eastern firms. Just look at the English premiership. The Japanese were at it in the 1980s – JVC sponsored Arsenal, Sharp sponsored Manchester Utd, and er…Crown Paints sponsored Liverpool (woops).  The Koreans, in the shape of Samsung adorn the Chelsea shirt, while Arab nations are now well represented via Emirates’ sponsorship of Arsenal and Etihad’s of Manchester City.

But up until now, we haven’t seen too many examples (at least not to China Brain’s knowledge) of Chinese companies sponsoring Western teams. In the same way Chinese demand has raised prices for assets in the past, should we expect to see a similar effect occurring in sports sponsorship?  We wouldn’t be surprised to see representatives of the many teams who are struggling financially in these times of austerity heading over to China. Much in the same way business junkets continue to arrive on a daily basis attempting to flog all and sundry to the Chinese, who’s to say that they won’t succeed where others have failed? It’s just a shame for Glasgow Rangers that Scotland’s oil has run out otherwise we would be fairly confident of seeing PetroChina’s or CNOOC’s name on the shirt and an easy way out of their insolvency crisis.

Huawei has made a bold first foray into foreign sports and it is once again blazing the trail for Chinese firms overseas. Its first task it to test whether the Raiders will really live up to the company’s vision which according to its web site is ‘To enrich life through communication’. Anyone who’s shared more than a few drinks with a representative of an Australian Rugby League team will affirm that their communication style can certainly be colourful. Enriching might be stretching it a bit though. Good on yer’ Huawei.

In February 1989, at the “China/Avant-Garde show” at the National Gallery of Art—the first Chinese government-sponsored exhibition of experimental art—the female artist Xiao Lu whipped out a pellet gun and fired two shots into a mirrored sculpture made from two telephone booths , which she created with another artist, Tang Song. Police officers swarmed into the museum. The international media covered the story as an act of rebellion. Xiao was embraced by the Chinese intelligencia as a hero and became the most famous female Chinese artist ever. Some even said the incident was an inspiration for the Tiananmen Square demonstration a couple months later.

Later Xiao said that the motivation for her action was not political or aesthetic but emotional. She was expressing anxiety over her relationship ship with Tang which was on the decline, and firing at a reflection of herself. Many found this revelation trivialized what was perceived as a great revolutionary act.

In the mid 1990s, the art scene was still largely underground and most artists were poor, often living in squalid conditions. Modern artists were accused of being sources of “spiritual pollution” and worried about being arrested if they talked to foreign reporters. With money in short supply, censors watching them and no galleries to market their works, they mounted one-night shows that doubled as rent parties in their small apartments.

On his only visit to China in 1982, Andy Warhol wrote: “I went to the Great Wall. You know, you read about it for years. And actually, it was really great. It was really, really, really great.”Warhol painted Mao because Life magazine called him the most famous man in the world.

 An exhibition featuring Chinese artists at the Saatchi Gallery in London called “The Revolution Continues” drew lots of attention in late 2008. On the Chinese modern art scene today John Howkins wrote in The Australian, “One of the most vibrant scenes is contemporary art. New movements multiply with bewildering speed, as cities, artists and international dealers promote their favorites... the Stars Group, Scar Art, the Red Brigade, Nativist Realism, Cynical Realism, Rational Painting, the Stream of Life, the New Generation...and Political Pop through to Youth Cruelty and Visual Comics. This rapid turnover is caused partly by Chinese people's instinct to operate in groups and partly by their mania for labels. [Source: John Howkins, The Australian July 28, 2008]

Chinese Art Schools and Artists

Work by Wang Guangyi Artists have traditionally been required to belong to the China Artists Association. Until fairly recently there were very few art galleries in China.

The Central Academy of Fine Arts in Beijing is China’s top art school. Less than 10 percent of those who apply are accepted. Among the famous contemporary artist that have studied there are Liu Wei, Fang Lijun and Zhang Huan, Faculty members include the artists Liu Xiaodong, whose works have sold for as much as $8.2 million, Sui Jianguo, regarded as China’s best sculptor; and Xu Bing, the winner of a MacArthur Foundation genius award. Many of the school’s professors have become millionaires from selling works by their students.

In the Maoist era the Central Academy of Fine Arts occupied a small area near Tiananmen Square, It had only 300 students and professors who mostly taught Social Realism and prepared students to work for the state. In 1989 its students created the “Goddess of Democracy” statue that was a focal point of the Tiananmen Square protests. Today the school occupies a new 33-acre campus and has 4,000 students, a 160,000 square-foot museum, spacious classrooms and studios and the latest video editing equipment. Students tend to be less idealistic than they were in the past and more commercial minded.

Works by students who have not even graduated from the Central Academy of Fine Arts in Beijing are being featured at major galleries and being sold for thousands of dollars. Collectors often show up at the university to search for rising talent. Some artists sign their works with their e-mail addresses and cell phone numbers.

Faculty members at the Central Academy of Fine Arts have told the New York Times that today’s students are less interested in politics and more interested in their personal struggle. One artist, whose works feature subjects that look himself dressed in women’s clothes, performing violet sexual acts, told the Times his art tells “my own story, my mentality. The whole process of art is like a process to cure myself.”

Traditionally students have been taught to paint by painting the same figurative works over and over in a training method that emphasized discipline. At the Central Academy of Fine Arts these training methods have given way to a freer teaching styles that encourage students to look deep in themselves of inspiration,

Other noteworthy schools include the China Academy of Art in Hangzhou (formally known as the Hangzhou Academy) and the Sichuan Fine Arts Institute. The latter has a reputation for producing innovative painters. In 2007 it received more than 64,000 applications for 1,600 openings.

Chinese Modern Art in the 1980s

Work by Xu Bing In 1982, a couple years after the Cultural Revolution ended, there were only 100 or so graduating art majors in the whole country. Today there are around 260,000. The revolutionary Stars Group was formed in the late 1970s.

 The relatively free-wheeling 1980s is regarded by some as a sort of golden age of Chinese modern art. Many critics argue that more innovative works emerged during that period than during the painting boom that followed when artists became more commercially aware and made “a fortune manufacturing machines to read credit cards.”

The 1980s is regarded as key period in Chinese modern art. Artists from the influential 1985 New Wave include Wang Guangyi, Xu Bing, Geng Jianyi and Hunag Yongping. Some of their works are clearly copies of Picasso, Munch and the Dada artists but others are original and offer insight in what Communist China was like as it was emerging from the Cultural Revolution.

In 1988, an exhibition of relatively modest nude oil paintings in Beijing was singled out by Communist officials as a display of Western decadence and closed down. A protest over the closure grew into larger protests that led to the crack down at Tiananmen Square.

The “China Avant-Garde” show in 1989 at the National Gallery if Art in Beijing was a defining moment in the Chinese modern art scene. It was the first contemporary art exhibition permitted in an official forum. It lasted for only a few hours. It was shut down after a performance artist entered the show with a gun and shot two bullets through her work—a pair of mannequins in phone boxes.

One famous work from the 1980s is A Book form the Sky by Xu Bing. Attracting a lot of attention when it was shown at the National Art Museum , it consists of a bunch of books and wall scrolls that appear to replicate ancient literary text but up are comprised of intelligible characters. The work was interpreted by many to be criticism of Communist propaganda.

Chinese Modern Art in the 90s

work by Zhang Xiaogang In the early 1990s the art scene in Beijing was centered around an artist colony called Dong Un (East Village) behind the city’s Third Ring Road. There was a very lively underground scene there. Shows were held in basements in out-of-the-way areas to avoid police detection. If an exhibit stayed open a week that was considered a long time. Artists sometimes moved four or five times a year. After one controversial exhibition in 2001 police raided the colony and arrested some of the artists and razed the village and built a public park in its place.

“Apartment art’ described the movement and experimental and avant guard artists who showed their art in private or alternative spaces because had no other place to show their art. The artist Wang Gongxin told the China Daily, ‘The government didn’t allow our works to be shown in public galleries,, so young artists of the time were looking for a private space to transform into a contemporary space.”

"Cynical Realism" is the name of the movement that sprung up after Tiananmen Square. Typical of this period was an oil painting by Fang Lijun showing a bald man with his back to the viewer, facing towards clonelike men in grey Mao suits; and sculpture by Wang Keping called “Fist,” consisting a wooden bust of a man with a giant hand wrapped around his mouth.

Modern Chinese art got its first major dose of international attention when Princess Diana showed up at the 1995 Venice Biennial, which featured several Chinese artists. Collector and fashion designer David Tang, the one who got the princess to come, later told Vanity Fair magazine, “I got the most famous person in the world to come and give us a lift, If this doesn’t succeed, nothing will.”

Chinese Modern Art in the 2000s

Factory 798 Artists working in the late 1990s and early 2000s explored the social dislocation and isolation associated with the economic reforms or did various takes on Mao or Chinese iconography.

The Beijing International Art Biennial was an enormous exhibition at the Millennium Monument Art Museum and the National Art Museum in Beijing. Dubbed “the largest international art gathering ever held in China,” its featured many non-Chinese artist. Shanghai also has a biennial. Large exhibitions of works by modern Chinese artists have also been held at galleries in London, New York and other places.

Even with this high profile exposure artists complain they get little institutional support and don’t have enough places to exhibit their works. Some have taken up living together in warehouses and pulling their resources so they can pay their bills and work. Some have been harassed by police. One group of performance artist cooked up a dish made with potatoes and jewelry and placed then in condoms that were buried in the earth. For their trouble police arrested them and put three them in jail for two months.

Chinese Modern Art Scene in the 2000s

work by Zeng Fanzhi On the art scene in China, Arne Glimcher, owner of a prestigious New York gallery, told Vanity Fair, “It’s a little bit like Germany after the Second World War. With the culture being annihilated, it was fresh to start again. Or like America in the 1950s when we really didn’t have an indigenous style, so we were fresh to start from scratch.”

On the art scene in Shanghai, one American architect and collector told Vanity Fair,“There’s a kind of energy. In the art districts, ladies in Bentleys pull up dressed to the nines, and slog through mud to get to a gallery where they’re seeing a new artist’s work, while some deranged person is quivering off to the side. There’s a visual bombardment to the place.”

On the art scene in Beijing one collector told Vanity Fair, “”If you got to other art centers of the world—London, New York, Los Angeles—you may hear about a new gallery opening here and there. In Beijing, you hear about entire neighborhoods opening up overnight. The construction happens so quickly, and the number of galleries and the amount of art that’s proliferating is just astounding.”

Li Xianting is regarded are leading force in the Beijing modern art scene. He was the editor of an official art magazine before he was canned for supporting controversial art. Gaudy Art is China’s version of Pop Art.

Arguably the most happening place for artists in China is Factory 798 in Beijing. See Factory 798, Beijing

 The Ullens Center for Contemporary Art (UCCA), opened by a Swiss collector in 2008 has become the center of art life in Beijing. The Pace Gallery has moved aggressively into China, opening a huge space here two years ago and signing up some of the biggest names in Chinese contemporary art, like Hai Bo, Li Songsong, Zhang Xiaogang and Zhang Huan,

2008 Jeffrey Hays

Economic indicators for China 1980-2016.

SOURCE: IMF, WORLD BANK

Chinese architect Wang Shu wins “architecture world’s highest honour”

Combining the use of old materials to celebrate the past with contemporary forms, Chinese architect Wang Shu won the 2012 Pritzker Architecture Prize on the 27th. Wang Shu is not only the first Chinese citizen to be awarded this honour, he is also the fourth youngest winner. Previously, Chinese-American I.M. Pei had also won this award in 1983.

According to reports, Thomas J. Pritzker, the head of the Hyatt Foundation which organises the prize, announced the winner Wang Shu on the 27th. He said, “The selection of Mr. Wang, 48, is an acknowledgment of “the role that China will play in the development of architectural ideals.”

Pritzker pointed out: “The question of the proper relation of present to past is particularly timely, for the recent process of urbanization in China invites debate as to whether architecture should be anchored in tradition or should look only toward the future. As with any great architecture, Wang Shu’s work is able to transcend that debate, producing an architecture that is timeless, deeply rooted in its context and yet universal.” [...]

Wang Shu was born in Xinjiang in 1963. He graduated in 1985 from Nanjing College of Engineering majoring in Architecture and gained a doctorate in Architecture in 2000 from Tongji University. He is currently the head of Architectural Arts School at the China Academy of Art, and is known as “The most cultured architect in China”.

We live in extraordinary times. The fifth year approaches of financial crisis in the developed countries. Significant parts of the world are unstable. But despite these challenges, there is much to celebrate in the relationship between China and the UK.

China should complete its transition to a market economy -- through enterprise, land, labor, and financial sector reforms -- strengthen its private sector, open its markets to greater competition and innovation, and ensure equality of opportunity to help achieve its goal of a new structure for economic growth.

These are some of the key findings of a joint research report by a team from the World Bank and the Development Research Center of China’s State Council, which lays out the case for a new development strategy for China to rebalance the role of government and market, private sector and society, to reach the goal of a high income country by 2030.

The report, “China 2030: Building a Modern, Harmonious, and Creative High-Income Society”, recommends steps to deal with the risks facing China over the next 20 years, including the risk of a hard landing in the short term, as well as challenges posed by an ageing and shrinking workforce, rising inequality, environmental stresses, and external imbalances.

“China’s leaders have recognized that the country’s growth model, which has been so successful for the past 30 years, will need to be changed to accommodate new challenges,” said World Bank Group President Robert B. Zoellick.

“The case for reform is compelling because China has now reached a turning point in its development path. Managing the transition from a middle income to a high-income country will prove challenging; add to this a global environment that will likely remain uncertain and volatile for the foreseeable future and the need for change assumes even greater importance.”

“China has an opportunity to avoid the middle-income trap, promote inclusive growth, without further intruding on the environment, and continue its progress towards becoming a responsible stakeholder in the international economy,” he said.

The report lays out six strategic directions for China’s future: completing the transition to a market economy; accelerating the pace of open innovation; going “green” to transform environmental stresses into green growth as a driver for development; expanding opportunities and services such as health, education and access to jobs for all people; modernizing and strengthening its domestic fiscal system; and seeking mutually beneficial relations with the world by connecting China’s structural reforms to the changing international economy.

“Central to the report’s findings is the need for China to modernize its domestic financial base and move to a public financial system-- at all levels of government -- that’s transparent and accountable, overseen by fewer but stronger institutions, to help fund a changing economic, environmental, and social agenda,” Zoellick said.

“The reform agenda, with a stronger and more flexible financial sector, the promotion of innovation, and green growth as drivers of development, can lead to opportunities for creating new jobs and additional productivity within China as well as new opportunities for foreign firms.”

There is growing recognition, supported by the findings of the research report, that China’s growth will decline gradually in the years leading to 2030 as China reaches the limits of growth brought about by current technologies in its current economic structure. The report advocates Chinese policymakers should shift from a focus entirely on the quantity of growth to include the quality of growth as well.

The report makes the case for the government to redefine its role -- to focus more on systems, rules and laws -- to boost efficient production, promote competition, and reduce risks. It recommends redefining the roles of state-owned enterprises and breaking up monopolies in certain industries, diversifying ownership, lowering entry barriers to private firms, and easing access to finance for small and medium enterprises.

Reforms should include commercializing the banking system, gradually removing interest rate controls, deepening the capital market and further developing independent and strong regulatory bodies to support the eventual integration of China’s financial sector within the global financial system. Financial reforms in the next two decades should be decisive, comprehensive and well coordinated, following a properly sequenced roadmap. A priority is to liberalize interest rates according to market principles.

On land reform, priority should be accorded to protect farmers’ rights over agricultural land, expanding land registration and rental rights. To assist with labor reforms, changes in the residency permit system – the hukou – are a priority. While progress on hukou reforms will depend on fiscal reforms that balance revenue raising and spending authorities across different levels of government, it should begin and be completed by 2030.

To accelerate the pace of innovation, the report advocates greater efforts to build countrywide research networks, steps to improve the quality of tertiary education and links with global networks, supported by a stronger rule of law and intellectual property rights enforcement. It says such an open innovation system would be a prerequisite to benefit fully from global innovation links.

For China to advance the “going green” development agenda, it will need to look at long term market incentives to encourage enterprises and households to go green. This should include more public investments, and the better design and enforcement of regulations to complement market incentives, such as taxes, fees, tradable permits and quotas, and eco-labeling. China can establish itself as a global green technology leader by implementing stringent and effective policies to reduce greenhouse gas emissions. Stringent emissions reduction policies, such as carbon trading or carbon taxes, could spur innovation in green technologies.

To reverse rising inequality, the report says China will need to focus on a social protection system appropriate for China in 2030, with a special emphasis on the poor. It lays out the case for “flexicurity”. This can include reforms in pension and unemployment systems so workers have reasonable support in their old age or when jobless. This can ensure comprehensive coverage of pension insurance, especially for rural people and migrant workers in cities. The report also warns that extending the current level of urban services and social protection to rural residents and migrants -- well over half the population -- will pose a significant fiscal burden and should be implemented prudently.

To fund China’s priorities in the decades ahead, and to deal with external shocks, the report calls for further fiscal system reforms. These should include improving the efficiency of raising revenue and changing fiscal relations between different levels of government as well as strengthening the efficiency of public spending. There is untapped potential for revenues through higher taxes on energy consumption, taking dividends from state-owned enterprises, and levying taxes on personal incomes, motor vehicles, and property.

The report proposes a sequencing of reforms, as well as quick wins and actions to address short term risks. Support for reforms will be stronger if the plans are based on full participation throughout all levels of society. The biggest risk is that vested interests will try to thwart reforms.

As a key stakeholder on the global economy, China can consider how its structural reforms relate to rebalancing changes globally. China should support free trade and back a multilateral agreement on investment. China’s long-term interests lie in global free trade and a stable and efficient international financial and monetary system, relying on multilateral frameworks to help shape the global governance agenda.

China’s growing weight in world trade, the size of its economy and its role as the world’s largest creditor will make the internationalization of China’s renminbi inevitable. Acceptance of the RMB as a major global reserve currency will depend on the pace and success of financial sector reforms and opening of its external capital accounts.

For more information on this, please visit: www.worldbank.org/china

Research:

• Firstly, consider what your company’s objectives are in China and carefully research your target market before developing a formal business plan. Discuss your strategy with a local representative who understands the market and economic conditions.
• Consider the unique selling points of your product or service and whether there is actually a market for that product or service in China. If there is, you need to ensure you can be competitive in China and, more importantly, whether you have the time, resources and stamina to handle the demands of communications, frequent travel, product delivery and after-sales service.
• All foreign investments need to be registered with the appropriate local and state authorities, which can be time-consuming and bureaucratic. Exporters will also need to deal with Chinese tax, accountancy and employment law, and China’s transport infrastructure and commercial legal system.
• Understand the basic Chinese regulations which govern your industry or investment in China. Companies are often constrained in how flexible they can be due to the regulatory environment.
• It is recommended that you have a website including product description, indicative FOB price, and unique selling points for your product or service.
• It may be helpful to talk to other Australians with business experience in China, for example, Australia China Business Council members in Australia; China Australia Chamber of Commerce members in China and Austrade’s network of export advisers in both Australia and China.
• The Internet can be an invaluable tool when it comes to researching country and market information before you even begin to formulate your strategy.

Market entry strategy:

• When determining your market entry strategy, consider recent market trends and keep in mind your long-term and short-term requirements for infrastructure, labour and your customer base. Remember China is changing at a rapid pace and it is essential your research and market information is up-to-date.
• Don’t automatically assume Beijing or Shanghai should be your target markets. Many other regions of China are substantial markets in themselves and competition can be less intense. It is therefore advisable to treat China as a global region in its own right and focus your initial market entry approach on a particular region or city.
• It may be highly beneficial to employ an agent or distributor with marketing skills who has excellent knowledge of local market conditions and preferably speaks English. A good agent can greatly reduce set-up costs and time taken to enter the market. As well as having someone on the ground to look after your interests, you will have access to good local knowledge and contacts.
• It may be highly beneficial to have your own well-briefed interpreter available to assist with discussions, formal presentations and explanation of technical issues.
• Potential Chinese business partners are often more interested in the cost-effectiveness of the product rather than the product itself, so it’s important to be able to demonstrate how the product can save money.
• Choose the right partners. In-market contacts are often more important than product and price.

Negotiations:

• Always seek good quality independent legal, tax, and professional advice before signing anything that could have implications for your company. If you are setting up in China, it is important to get the business and tax structure right from the start.
• Use a qualified legal firm with a presence in China to review all contracts. Failure to gain full information about a potential partner’s credit and professional background could lead to serious problems further down the road.
• If you are concerned that your product is in danger of being copied, seek legal advice on how best to protect your intellectual property (IP).
• Halve your expectations, and double your time and budget. Chinese business people prefer to establish a strong relationship before closing a deal.
• Be prepared for tough negotiations and to deal with grey issues. Be firm, polite, and creative, but be prepared to say no.

Etiquette:

• Building up good business relationships and trust is very important in China, so expect to spend a lot of time at meetings and banquets with your potential business partners.
• Business meetings always start promptly, so it’s important to arrive early for the standard formal introductions. It is usual to be introduced to the most senior person at the meeting first, followed by the others in descending order of seniority.
• A handshake is the standard way to greet men and women, whatever their age or seniority. Note that the Chinese respect their elders, so an extra show of courtesy in the presence of an older person will reflect well on you.
• Business cards (ming pian) are essential in China, and it’s a good idea to have your card translated into Chinese on the reverse side. Present your card with both hands with the Chinese side face up. It’s a sign a respect to spend a few moments examining the business cards you receive rather than putting them away immediately.
• When meeting potential business partners, it is helpful to know some Mandarin. Simple phrases such as ‘Ni hao’ (hello) ‘Zao shang hao (good morning) and Xia wu hao (good afternoon) can go a long way. Note that surnames are placed first, eg. Mr Yao Ming should therefore be addressed as ‘Mr Yao’.
• A great deal of business in China is conducted over dinner, where very senior people may attend who were not at previous negotiations, but are key to the approval of a business deal. However, business dinners or lunches can also indicate a general warming of a relationship, and in this case, their role should not be over-stated.
• Never begin eating or drinking until you host does. It is polite to try all dishes that are offered to you, but you can discreetly leave anything you don’t like at the edge of your plate. Don’t place your chopsticks pointing into the bowl – always place them horizontally on the hold provided.
• Dinner speeches and frequent toasts are standard, with locally produced wines or ‘bai jiu’ spirit the usual drinks for toasts. It is customary for toasts to be made by both sides during the meal.
• The Chinese generally like to give small and inexpensive gifts. It’s a good idea to bring small gifts with an Australian theme for your hosts and wrap them in colours such as red, yellow or gold, which are regarded as lucky in China. It is not customary for your hosts to open the gifts in front of you, unless you encourage them to do so.
• Chinese negotiators are shrewd and know that foreigners will be reluctant to travel home from China empty-handed. They are willing to stretch out discussions, which can wear their foreign counterparts down. Be sure that your interpretations of any business deal are consistent with theirs and that everyone understands their duties and obligations.
• Expect to encounter delays or frustration during your business dealings in China, but it’s important to remain patient and polite. The Chinese don’t like to ‘lose face’ so losing your temper or showing frustration will only set you back.
• If you are beckoning to someone, motion towards you using your hand and palm pointed downwards – never palm up. Furthermore, don’t use your index finger or point when speaking.
• Try to speak with your counterparts in short, simple, and jargon-free sentences.
• Be aware that business in China slows down during the Chinese New Year – usually from late January to early February, and for periods such as National Day (1 October) and May Day (1 May). It’s best to avoid arranging meetings during these times.

Nov. 11 – An issue that frequently crops up at this time of year is the question of getting earned income out of China. As many expatriates look to leave to go home for Christmas, those piles of RMB that have been stacking up nicely begin to look mouth-watering in terms of repatriating the readies. But here comes a catch – for expatriates legitimately employed in China, and paying tax here, there is not a problem. But for those working in China’s grey economy – there is.

China employs strict currency regulations that are designed to prevent large amounts of currency moving out of the country. Your small amount may not seem like a huge deal, but if everyone moved out a few thousand dollars, it would impact upon China’s economy. The movement of illicit cash both into and out of China is known as “hot money” and it can seriously damage a country’s financial stability if not regulated. China controls and monitors the amounts of money coming into and out of the country through a mechanism known as SAFE – The State Administration of Foreign Exchange. In order to legitimately take money out of China (typically wire transfer), an application needs to be made to SAFE (your bank would normally assist with this procedure) with proof of income taxes paid in China, and details of the overseas bank account the funds are to be wired to. The onus is on the applicant therefore to demonstrate the money was legitimately earned and taxes have been paid on it. If so, the money is permitted to be repatriated and there is no daily or annual ceiling limiting the amount an individual can transfer. This should not be a problem for expatriates in China with proper working contracts, visas and tax registrations.

However, many expats in China fall into a different category. Either by design or default (Chinese employers sometimes take advantage and do not fully explain this issue), there are expatriates in China who are not properly registered with the authorities, are not paying taxes, and who have nonetheless acquired a bundle of RMB. Here, there is a problem. Firstly, such individuals cannot meet the SAFE requirements, and this becomes a block. Chinese banks will not allow you to exchange and wire overseas any amount over the RMB equivalent of US$500 for you without SAFE approval, and if there is no tax paid receipts (employers should provide this) or no work permit or visa, this route is barred.

It should be noted, though, that foreign nationals can transfer any amount under or equal to the equivalent of US$500 once per day without providing proof that the money was legitimately earned or that taxes have been paid on it. Chinese nationals are able to transfer the equivalent of US$2,000 per day into a foreign bank account, however Chinese nationals face a US$50,000 annual ceiling when exchanging RMB into foreign currencies while foreign nationals do not face such restrictions.

Under these circumstances, the only practical ways to solve this are as follows:

1. If you thought your employer has misled you over your status, you may have a case. In which case, you’ll need to find a local friendly lawyer to assist. However this may take time to resolve.
2. China does permit the traveling outside of China with up to RMB20,000 or equivalent. You may pack up to this amount and be safe (any more and you face confiscation of all the money if caught). The problem with this is that RMB is not freely exchangeable, and it may be hard to convert it when back home. Hong Kong does provide such facilities – although be warned – the exchange rate issue will be a killer.
3. If more than RMB20,000, you may divide the total up among friends to limit the amount each carries. But make sure they’re good friends!
4. If you have a Chinese friend that you trust, you can transfer the money to their Chinese bank account and they can wire a maximum of US$2,000 per day to your overseas bank account. You can also do this yourself, but foreign nationals are limited to US$500 per day.
5. If you intend to return to China, deposit the money into a bank and withdraw up to the legal amount each time you leave.
6. Convert your RMB into a saleable asset that you can convert to cash back home. China does limit the amount of goods value being exported from the country, but are less likely to question personal belongings. Buying and shipping items from a reputable Chinese fine art dealer may be a solution.
7. Next time, be aware that working in China without paying tax is illegal. It can impact on even realizing the money earned. If in doubt, get a friendly lawyer to look at your employment contract terms and ensure that hard won income can be readily – and legally – repatriated.

In terms of item (6), I can relate a recent anecdote. Admiring a hugely expensive diamond necklace in a Chinese jewelry store recently, I enquired about who was going to be lucky enough to wear it. The carefully worded reply was “Oh Sir! This necklace will never be worn.”

This article is by Dezan Shira & Associates. For further information please contact the practice at legal@dezshira.com, or visit the firm’s web site at www.dezshira.com.

Listed below is a detailed summary of the bureaucratic and legal hurdles an entrepreneur must overcome in order to incorporate and register a new firm, along with their associated time and set-up costs.

China's e-commerce companies may yet turn a logistical nightmare into a dream business opportunity.

Massive government investment in road, rail and air infrastructure means that China's transport network is approaching developed-world standards. But the cost of moving goods from A to B remains high. Logistics costs as a percentage of GDP are around 21%, compared with 10% in the U.S. and 13% in India.

Part of that gap is explained by China's focus on manufacturing. But beyond that, the country has a fragmented system, high tariffs for road transport and multiple providers piling on fees. Even outside the manufacturing sector costs are high. A Chinese government investigation found that two-thirds of the retail price of vegetables represents logistics costs.

And even though costs are high, service is often poor. Local logistics providers are famously slow and unreliable. Assuring end-to-end delivery of products across provincial boundaries is a real challenge. That's a particular problem for e-commerce companies such as Alibaba Group, 360buy and Joyo Amazon, which rely on guaranteeing delivery of goods from supplier to customer.

The central government says it is committed to the development of a modern, efficient logistics network. But ambitious goals set in Beijing are running up against a difficult reality at a local level. Provincial governments benefit from local firms that contribute tax revenue, even if they are less efficient than larger national players. State-owned firms often run their own in-house transport and distribution services, reducing the size of the market for specialist logistics firms.

For third-party logistics providers, working through the tangle of local regulation has proved difficult, if not impossible. Jeffery Wong of global advisory firm KPMG says even the bigger players remain mainly confined to provincial markets. But for e-commerce firms, the rapid growth in online sales is providing both motive and opportunity to get to grips with the problem.

For Amazon in the U.S., efficient distribution has been the key to keeping prices low and gaining market share. The aspiration for e-commerce firms in China is to do the same. Online retailer Alibaba has invested in its own system of warehouses and is working with existing logistics providers to stitch together a national system, and 360buy is partnering with Wal-Mart to build a network.

The rapid growth of e-commerce means that major players can take advantage of scale in their operations. On a single day in November 2010, Taobao Mall, the business-to-consumer arm of Alibaba's online empire, shipped 15 million packages. Building an efficient logistics system won't be easy, especially for e-commerce firms whose core competences lie elsewhere. But the Chinese market is wide open. For companies that can get it right, the solution to a business problem could turn into a driver of future profitability.