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FAQ: What you need to know before doing business in China

From cultural differences to foreign exchange and insurance, there are many factors to consider before entering the Asian marketplace. Here, we answer some of the biggest questions Australian merchants have on starting a business in China.

What’s the business climate like in China?


China is Australia's largest trading partner. It’s also our fifth-largest overseas destination for business investment.


The China-Australia Free Trade Agreement (ChAFTA) gives Australian businesses unprecedented access to the Chinese marketplace. Beneficiaries include companies that specialise in healthcare, construction and manufacturing, law and other professional services. With its population of 1.4 billion and a growing middle class, China offers Australian businesses a lucrative opportunity to both develop and diversify.


What are the key cultural differences?


Chinese culture is one of the oldest in the world, with customs and traditions varying between provinces and cities. Nevertheless, there are some universal rules of etiquette that foreigners should observe in order to cultivate good business relations with their Chinese partners.


  • Put personal before business: There’s a preference in China to close business deals only after both parties get to know each other. At the start of meetings and discussions, try to establish a personal rapport before getting down to business.
  • Set aside time to build relationships: Trust and social connection are highly valued in China. Be prepared to spend lots of time in meetings, attending dinners and even singing karaoke while developing business relations.
  • Be discreet with any concerns: If you publicly criticise or disagree with someone, that is known as “losing face”. It's much better to air your concerns in private or through an intermediary.
  • Know your numbers and colours: Eight is considered a lucky number, while four is unlucky. Additionally, never use red ink in business documents, as this signals you are terminating the relationship.
  • Embrace openness: Don't be offended if asked to disclose your age or income. The business culture in China means people are very open about their personal and work lives – the same is expected of potential business partners.


Many of these rules revolve around guanxi, which refers to the network of contacts and relationships that help facilitate business deals in China. Keep in mind that Chinese companies generally won't deal with unknown contacts. This makes it vital that you know someone who can introduce you to potential business partners.


How is their management style different?


According to a Harvard Business Review study, the Chinese approach to management sees firms preferring simple organisational structures, with everyone reporting to the top. There is a great amount of respect for social hierarchy, and conflict with upper management is usually avoided. However, the study also found that many Chinese firms experiment with different management techniques and practices to stay competitive.


What taxes will apply?


The Enterprise Income Tax Law applies to all businesses operating in China, whether domestic or foreign. A value-added tax (VAT) applies to the sale of goods imported into China. This can be up to 17 per cent of the assessable price, so it's crucial that you determine the rate that will apply to your goods when developing your pricing strategy.


How can I manage foreign exchange risks?


Historically, most Australian trade with China has been transacted in United States dollars (USD). However, this has slowly changed since 2013, when the Chinese renminbi (RMB) and Australian dollar became directly convertible.


Fluctuations in the RMB, such as the RMB devaluation in August 2015, can be a significant monetary risk for both importers and exporters operating in China. Foreign exchange options, forward contracts and non-deliverable forwards can all be used to manage currency risk for businesses that trade with China.


What about insurance, tariffs and other regulations?


Austrade recommends that you always stay up to date with tariffs and duty rates in China, as they can change without notice. China also has strict standards around food quality, labelling, cosmetics and other types of products, which makes access to legal experts who can guide you through China's market regulations crucial.


Insurance is also vital. This can include trade, marine, bond or product liability cover. Commercial insurance solutions can be sourced through the government's Australian Export Finance and Insurance Corporation (Efic).


Getting started


At first, the long list of cultural dos and don’ts in China can seem overwhelming. But by putting time into developing cross-cultural awareness and a strong guanxi network, Australian merchants considering a move into China will be tapping into a highly lucrative and fast-growing marketplace.