China: Vender

Distance Selling

Most Popular Forms of Direct Marketing

Mail-order selling, e-commerce.

Type of Products

All types of products.

Evolution of the Sector

The turnover of direct selling in China amounted to USD 10,990 million in 2009. Fforeign firms are just beginning to set up. Market seems promising due to the significant population and growth in China. In-home shopping is a means for the rural population (which accounts for 60% of the total Chinese population) of being provided without having to move to the nearest city. Indeed, in-home shopping is addressed above all to the well-to-do population of China, the only ones who have the means to purchase Western outfit. This well-to-do class is fashion conscious and a catalog published 2 to 3 times a year is not enough for them to keep up with fashion trends. The middle-class in China is not comparable to the Western middle-classes. Majority of them do not have the sufficient means to pay for these imported clothing. However, development of e-trade could reverse the tendency since it could offer a larger variety of products. Several sites which are great successes in China are still hampered as credit cards are still not used much in some regions.

Distribution Network

Commercial Intermediaries

Trading Companies

 

• Type of Organization

A foreign company wishing to export products in China must obtain distribution and trading rights. The foreign company can have recourse to a Chinese trading company. These trading companies generally have authorisations to trade a vast range of products. The big trading companies have some offices everywhere in the world and on the Chinese territory. However, transport and diversity of the regions do not allow them to operate on the whole of the Chinese territory. The FICEs (Foreign invested commercial entreprises) can also obtain import and export licenses since 2006.

• Main Actors

China Qingdao Hong Jin Trading Company Ltd, Nexfar Ltd, Wenzhou Nanlong import & export trading company Ltd,

Wholesalers

 

• Type of Organization

In China, distribution comprises services of an agent, wholesaler and retailer services. A commercial intermediary is indispensable for selling products: a wholesaler, an import-export company, etc.

• Main Actors

D2D China, Chinese wholesalers

Using a Commercial Agent

The Advantages

Using services of a Commercial agent is necessary in China in businesses. In an invitation to tender process, a Chinese will prefer to speak with a Chinese. Alternative to be preferred to a local institution in some professions. It is necessary to have recourse to several agents for each region, the Chinese territory being wide.

Where to Be Vigilant

Role and responsibility, capacity to involve or not involve the company, capacity to negotiate prices, etc.

Elements of Motivation

The commission amount is an important element of motivation.

The Average Amount of Commission

10 to 20% according to the sectors.

Breach of Contract

During the end of the agency contract or if the agent ends the contract, the agent is entitled to a remuneration of an appropriate amount.

Finding a Commercial Agent

Finding a commercial agent
Alibaba

Setting Up a Commercial Unit

The Advantages

To be able to locally manage its own presence, its own teams and marketing trends. In other words, one can establish commercial relations with China directly from Europe. But to obtain convincing results, investments must be made in developing relations by establishing a local presence. Whether for purchases or sales, the problems faced are primarily dependent on the execution of services.

Where to Be Vigilant

- Cultural differences, difficulties of managing Chinese teams
- administrative difficulties
- Relative absence of legal groundwork (attention copyright)
- Dissensions with foreign partners

Read the work of Benoit AMS on the difficulties faced by foreign companies in making deals in China.

Different Possible Forms of Settlement

 

• A Representative Office

For the majority of the foreign companies, the first form of establishment in China is the representative office, and for a long time was the only form of presence with 100% of foreign assets possible in China. It remains today the fastest form of the simplest presence, as for its formation, and cheapest (for formation as well as operational charges). The representative office does not facilitate trading on the Chinese territory, but enables: renting offices (in certain types of building only) , e-recruiting personnel (via FESCO) , organising follow-up actions of market operations, market research, information and promotion of products of the parent company, customer and supplier contact, supervision and coordination of the local operations of the parent company).

The representative office of a foreign company is a "hybrid" structure as it does not enjoy any legal status according to the Chinese law. In other words, a representative office structure does not allow you, for example, registering a brand (registering must be done by the parent company), or to institute legal actions against a third party. Moreover, the existence of the average company representative office, cannot prevent setting up an average Chinese company in the same city. Finally, the Representative office head in China is legally responsible on his own behalf for activities of the structure. The representative office is however a structure adapted relatively well to the management of local partners, suppliers or distributers.

• A Branch Office

No possibilities of creating a branch office.

• A Company

Companies with 100% foreign capital (WOFE)this structure presents, on paper, many advantages including considerable independence as compared to the local partner; this may lead to many "problems".
Today, foreign companies can create WFOE (Wholly foreign owned enterprise) in trade (import/export activities with due respect for local sale), production/assembly (local and foreign sale for local and/or export resale or the services (services to companies or to private individuals).

The concerned activity type will have to be defined very specifically in your project. As example, a distributive firm cannot manage logistics, including storage or delivery (logistics is a closed sector to foreigners) and  thus delivery must be sub-contracted to a specialised logistics company. In China, regulations are not the same for everyone; it is arbitrary, complex, changing and opaque. Also, general terms presented by the central administration are only a reference base requiring negotiations on a case-by-case basis with authorities responsible for industrial parks, provinces or districts of municipalities which enjoy broad discretionary powers in the negotiation of foreign investments.

Finally, the WFOE are generally set up for a period from 15 to 30 years.

Franchising

Evolution of the Sector

Many foreign companies set up sales outlet which function as franchises. In China, foreign companies which set up franchises, in general call upon local partners (in each major city) or sell to a master franchisee which leases and supervises several franchise sectors on the territory. To set up a franchise in China proves to be difficult, being given the legislation and the complications involved. However since its appearance in the Nineties, the number of franchises in China is most significant in the world.

Some Big Franchises

Mc Donald's , fast food
Subway , fast food
Century 21 , real estate agencies
Franchises present in China
Franchise Trade Fair in China

For Further Information

CCFA, Chinese association of department stores and the franchise

Finding Assistance

Export Trading Companies

Be-long Corporation
Anhui Imp. & Exp. Co., Ltd.
Chamber of commerce for medicinal drugs import export
Chamber of commerce for import export of machines and electronic products
Chamber of commerce for import export of agricultural products
Chamber of commerce for import export of textile products

Recommended Resource

NEW STEP INTERNATIONAL LIMITED - INTERNATIONAL BUSINESS CONSULTING

Customs Procedures

Import Procedures

To reduce customs clearance time, certain companies can, in cases where description, specifications and quantity of import of goods are determined, declare to the customs in advance and present the documents after the imports are dispatched or before the arrival or in the 3 days which follow the arrival of the goods in a customs surveillance zone. The Customs will examine the goods directly and will release the goods after their arrival.
The declaration can be done via the customs site, by indicating the place of arrival of the goods, as well as all the customs data. Once the data is analyzed by the customs, a receipt will be sent, so that the company can complete the cargo of the goods. Custom duties is then paid by bank transfer.
Documents to be presented to customs vary according to the products. However there are standard documents to be presented: the bill of lading, the invoice, the packing list, the customs declaration, the insurance policy, the sale contract or the inspection certificate of the AQSIQ (General Administration of the PRC for Quality Supervision, Inspection, and Quarantine) or other licenses of safety and quality.

Specific Import Procedures

Food processing products require an examination by the department of health

Importing Samples

Samples imported or exported must be declared at the customs (free or not). The customs examines and releases them.

Customs Duties and Taxes on Imports

Average Customs Duty (Excluding Agricultural Products)

8.37% according to UNCTAD. A relatively low rate.
Consult customs duties of various products by clicking here.

Products Having a Higher Customs Tariff

Duties vary from 3% to 80% depending upon whether imports are encouraged or not (import of automobiles is for example discouraged) by the authorities.

Preferential Rates

Granted to imports coming from countries with which China has signed trade agreements.

Customs Classification

China applies the Customs Harmonised system (on the basis of the international 6 figure key). 

Method of Calculation of Duties

Customs duties are calculated Ad valorem on the CIF value representated an average of 15.3%. Besides that, it seems that Chinese Authorities use more and more often minimum prices as references to determine the customs value of the goods.

Method of Payment of Customs Duties

Paid by the importer while importing the merchandise.
Payment in cash.

Import Taxes (Excluding Consumer Taxes)

Business Tax (BT): 3% or 5% on services and transfers of intangible goods and real estate property. If you pay BT, you do not pay VAT, on the other hand, consumption tax is added systematically to one or the other tax. Moreover, contrarily to practise, these taxes cannot be recovered. Hence they are final charges.

Labeling and Packaging Rules

Packaging

It must be in conformity with the medical and safety regulations. Packing materials must not be poisonous, and dangerous and must be easily degradable and recyclable.

Languages Permitted on Packaging and Labeling

All products sold in China must have their labels or notes in Chinese.

Unit of Measurement

The metric system is used in China, but Chinese measuring units are also used.

Mark of Origin "Made In"

Information on the country of origin of the product must clearly be indicated.

Labeling Requirements

Name and address of the distributor registered in the country.

Specific Regulations

Labels for food products must contain the net weight, the list of ingredients, the address of the Chinese distributer, the date of production and the expiry date.
The General Administration of the RPC Condition for the Supervision of Quality, the Inspection and the Quarantine (AQSIQ) must be competently handled by the labeling management.