Sourcing & Import from China Tips and Guide

The China Business Review looks at the implications of China’s move towards a new currency regime.After more than a year of international and heated debate, the People’s Bank of China (PBOC) announced on July 21of this year that it would calculate the value of the renminbi (RMB) against a basket of currencies. It also set the value of the RMB to the US dollar at Â¥8.11/$1, up 2.1 percent from the previous rate of Â¥8.28/$1. China’s move to a new currency regime may be a step toward a true market-based exchange rate, but the immediate benefit to China—and to foreign companies—may be an easing of US political pressure. Indeed, the move appears to signal the PRC government’s awareness of the political and economic pressures for a currency adjustment. Although some observers have criticized the small revaluation, US government officials and leading international analysts immediately praised the change and its timing.

About the change

Although China’s previous currency regime was commonly referred to as a peg to the US dollar, China actually maintained a version of a managed float against the dollar: Since 1994, the RMB was allowed to fluctuate within a narrow band. Under the new regime, the band remains—the RMB may fluctuate 0.3 percent above or below the previous day’s closing exchange rate—but the value will be determined by referring to a basket of currencies, not just the dollar. The bulk of currencies in the basket are those of China’s biggest trade partners: the United States, the Euro zone, Japan, and South Korea.

The economic rationale for the move is strong. China’s rising global trade surplus in 2005 put pressure on its currency. Sterilization measures to prevent inflation were taking their toll. And, as several economists pointed out, the government had put administrative tools in place that would allow it to introduce more exchange rate flexibility.

Implications

Analysts have pointed to a number of other consequences of the move:

Wider foreign exchange reform

The change in the exchange rate determining mechanism appears to have spurred other reforms to China’s foreign exchange regime. PBOC in early August issued rules for the interbank foreign exchange market, which took effect immediately. And the State Administration of Foreign Exchange (SAFE) again raised the amount of foreign currency Chinese companies may keep for current account transactions. PBOC also broadened the use of currency forward contracts and swaps to a wider range of institutions and clients and for a greater number of purposes.

Winners and losers

Deutsche Bank predicted that PRC airlines, autos, and utilities, along with the Hong Kong tourism sector, would benefit from the move, in part because imported oil and imports of components denominated in foreign currency will cost less. The bank also predicted that the move will help multinational corporations (MNCs) that export to China or produce in China for the local market, since exports to China are now slightly less expensive. On the other hand, the change may negatively affect PRC exporters including export-oriented MNCs especially of textiles and electronics, which operate on thin margins. But if future appreciation is gradual, and if other (particularly Asian) currencies start to recalibrate to the new RMB/dollar rate, the negative effects could be minimal.

An easing of US political pressure—but for how long?

In Washington, it is unclear whether pressures in Congress to act on China’s currency practices will ease as a result of these latest moves. If the RMB fails to appreciate, even if in small increments, over the next few months, Congress may give greater consideration to China trade legislation and again press the US Treasury to designate China as a currency manipulator in Treasury’s October currency report.

Source: This is an excerpt from an article originally published in the Sept-Oct, 2005 .issue of the China Business Review.

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If you are doing preaching here, you must be careful since the Chinese government doesn’t allow foreigners to do so. So you need to do it ‘underground’ and keep your bible and spiritual things in bag and with cover. Don’t just put them on the table in the hotel while you are away.

Chinese Bible Study

liveried christian mission in rural area of China

God saw china

By David Foo

Generally speaking, Chinese had a very strong family mindset in their line of thought; “blood is always thicker than water” is a common phrase businessman used to justified for theirs actions. In fact, one of the many bottlenecks and obstacles hindering Chinese industry to soar even higher are the many small to medium family operated enterprises which form the backbone of the business community.

Almost all businessman in China are dedicated and committed to prosper for more than 3 generations, true entrepreneurs are often limited as compared to the western world, majority of the operations are still of smaller scale. There were many reasons, strong family connections was one of them. Chinese prefer to engage someone who is actually blood related in their setup in the key positions, it is rather difficult for them to trust someone who are outside of the family circle.

There are historical background why Chinese businessman acted they way they behaved. Chinese stress heavily on personal perspective, most inspired to do well for themselves and their off-springs, they work hard to accumulate wealth for their family and the next generations and had high fear of losing one controls which may affected not themselves but also their offspring which to them could be a big disgrace to their ancestors. Good things are kept to themselves rather than share it out to benefit other unrelated people. Frankly speaking, they are rather selfish and would not stop any opportunities to take advantages on others for their own gains and benefits. Most can easily justified their actions by defending themselves saying that “If I do not take care of my family and next generations, I couldn’t face my ancestor”.

For example, Chinese traditional medicines which had many effective cures which are very precious in nature accumulated from thousand of years of application, those who own the formula would not easily share it to the mass public for the general mankind benefits but try all means to keep the benefits within the family, even if they are to pass it on, only few limited who they favored will be benefited, and more often than not, it restricted to their male heir. “Got to keep my blood line strong and well of” most will quote to you. Another example are the many martial art skill sets which were originated from
China were loss in some point of time due to this mindset. The skills which were transferred out of
China at the beginning were then fully valued and developed there.

The same logic are inevitably apply to business operation, to use family members in key positions as it carries a perception of higher trust levels are common practice, however, if this is indeed the case or not , there weren’t straight answers. For thousand of years in history, Chinese authority emphasized a lot more on people than the system, as a results, system were not valued and improved over time. Many dynasty boom and doom along with the rulers, one distinctive advantage of system is consistencies and fairness. Many times, Chinese judge their future prospect in a rather negative manner, as a result, many matters are evaluated from people perspective rather than on the system. Naturally, many key positions are all filled by family members rather than someone else who is proven capable.

In fact, for small scale operation where everything can be monitored closely, it is ideal for a family operated business model, however, once the business get expanded problems will start to appear. Since the system can not be implemented at the beginning, how reliable and dependable of the family members become an even more serious issue. Another even bigger concern is the message it convey to outsiders, even for those employee who are capable (if they somehow manage to get in the company), they will not deliver their best services as they know their places, no matter how capable, one wouldn’t get far in the organization, many will put their own interests upfront first instead of the company. Companies which are operated in similar fashion are very common in
China. It was already in this manner for the past thousand of years, it will most likely stay the same for the next couple of hundred years.

Chinese worship family relationship and clanship (belong to same family tree) more than anything else, concept of one nation was rather weak, many even willing to sacrifice their life to resolve conflicts within clanship, unlike Japanese and Korean who are homogenous, during almost every major conflict in China, one can find a traitor easily to betray his or her clan for their own interests (well, same justification applies, “I got to take care of my own family first”). None willing to sacrifice for the greater nation, the unity of Chinese was weak from a point of view of one greater nation. (Die for the family? Yes, die for the ancestors and clanship? Yes, die for the country? Eh…let me think about it first…)

A strong nation need thousand or million of people to work hard and smart not in short term but in a time scale of 15 to 20 years before bearing fruits, Chinese need to develop and cultivate the strong nationhood rather then limited to only within the family or clans. Most would think they had already achieved maximum results by bringing honor to their families rather than to their country. (There are over 50 ethnic groups in
China alone)

In summary, many dynasty rise and fall in the past thousand of years, lately China was on the full steam ahead as in typical cycle of life, the maximum prosperity had yet to achieve, it is like a gigantic pendulum swing, it was swung to the extreme negative direction for the past 50 years during the recent Chinese revolution follow by the communist regime, the ball had now reverse it’s direction ever since China open her door in the 1980s. The swing could easily last 50 to 100 year in the right direction.

So, As a trader like yourself who might want source and procure products from China to auction on internet commercial platform or other distribution channels, one must always understand the background of the average Chinese businessman, why do they react the way they did and how to take advantages of it to achieve lowest cost and best quality merchandizes for yourself through skillful negotiation with the Chinese suppliers and manufacturers.

Following are the 7 ways to take advantage of the Chinese Family Business operation; it could be Factories, Suppliers, and Distributors and so on.

1) Who is the real boss? When engaging business negotiation and dealing, dig out as many information on the organization chart, who can make the final decision, how is the salesman related to him or her, ask the following questions;

1. Who do you report to? How long had you been working in this company? Please refer me to your immediate superiors.

2) Always show genuine respect on the senior member of the organizations, demonstrate you have the same respects to your own family as well as superiors. Convey the following messages to their mindsets, the impression of “reliable, strong family mindset, dependable” had to be imprint on their mind. So you can be closer to becoming their family member (although it is neat impossible)

1. I understand the absolute respects we must have for our elders and seniors.
2. I value my family relationship more than anything else
3. I take full responsibilities on my filial duties

3) Quote example of strong understandings how Chinese family business operate their organization, this will more or less increase the “trust level” between you and the suppliers. (of course, you need to make sure the one you engaging is in the family circle of the company you dealing with)

1. I had dealt with Company a 2 years back, I met the owner, Mr. B and had dinner together, he treated me like his brother and we are still in touch on and off.

1. Last time, when I had meeting with the senior Manager, Mr. C, we had long discussion on
   China politics and he became a good friend of mine. He had some issue with his brother on running the business, but they resolved it. Hey, I know how difficult it is for you to give me the 5% discount on my orders. Mr. C had the same issues.

4) Once you know you are talking to the right guy who is one of the key people in the family circle, you need to establish some common interests, put aside the negotiation first and develop the relationship. You can always start from 3 common topics; Money, Job, and Family…..

5) Always remember, the best speaker is the one who always listen, ask general personal questions like holiday plan, children education, investment tips…….

6) Provide some intangible benefits, like an interesting websites, a jokes, chat casually using all the latest online tools, like Msn, Yahoo and Skype. Building a trust level take times, usually 5 to 10 weeks will do the job, imagine, you are depositing money into his/her emotional bank account, you have a plan to withdraw it one day with interests.

7) Demonstrate you admired Chinese cultures although you think there are some aspect can be improve, be humble and in no times you will get the best attractive deals you ever imagined possible

Good luck

David Foo

David is a professional Engineer; he has this opportunity to extract the practical hands on experiences with proven track records from Kelvin and together with his unique experiences, put up this e-guide to bring you one level deeper into the effective sourcing techniques and approaches in china.

http://www.china-import-guide.com

Q & A: A new business mediation center offers US and Chinese companies a dispute resolution alternative

F. Peter Phillips, senior vice president for Committees and International Programs, the International Institute for Conflict Prevention and Resolution recently discussed the US-China Business Mediation Center with Paula M. Miller, assistant editor of the China Business Review (CBR).

CBR: Who founded the US-China Business Mediation Center, and what is its mission?

Phillips: The Conciliation Center of the China Council for Promotion of International Trade (CCPIT) approached the International Institute for Conflict Prevention and Resolution (CPR) about two years ago to develop a new mediation center that would make American businesses feel more comfortable resolving business conflicts in China. The goal was to provide US and Chinese trade partners that come from different backgrounds and different legal systems with an alternative to arbitration and litigation that would still allow effective resolution of disputes. Mediation and arbitration are both dispute resolution processes that use a neutral third party to help settle the dispute. In arbitration, a private judge decides the issue. Mediation tends to be more flexible, is nonbinding, and seeks a consensual agreement that engages the parties more fully.

CBR: How does the Center work?

Phillips: CPR is based in New York and CCPIT is headquartered in Beijing. The US-China Business Mediation Center does not have one office in a specific city but co-administers projects by sending mediators wherever commercial disputes arise. Applicants can submit dispute forms by mail, by fax, or though our websites. [See www.cpradr.org or adr.ccpit.org; applications must be accompanied by a $2,000-$4,000 registration fee and a $8,000-$16,000 deposit, depending on the monetary value of the disputed claim.]

The Center asks the parties to choose a mediator. But when the Center created its rules, it knew PRC companies might want assistance from Chinese mediators and US companies might prefer assistance from American mediators. We therefore devised a method that would permit the use of two neutral mediators: one Chinese and one American. And we developed a training system and trained the neutrals together.

CBR: Does the Center specialize in certain industries or investment forms?

Phillips: The Center does not specialize in specific industries—nor is there a limit on the range of matters the Center will mediate. But the cases should involve “substantial” amounts of money—for example, an argument about a minimum of $100,000. The mediation panel is made up of heads of major US and PRC law firms, corporations, government agencies—including former members of the PRC Supreme Court—and law schools. They are well-respected people who know business, understand how to act as a neutral, are trustworthy, and will maintain privacy.

CBR: How developed is mediation in China?

Phillips: The practice of conciliation, as China refers to it, is deeply ingrained in Chinese culture and the maintenance of productive relationships is far more sophisticated there. By comparison, Americans are more individualistic and tend to rely on the compulsion of law, such as contracts, to settle disputes. That said, modern business mediation is rarely practiced in China. For example, in the West, companies are accustomed to directly seeking mediation of a problem, independently of any adjudicative process.

By contrast, Chinese conciliation frequently occurs in the course of litigation or arbitration—when an arbitrator or judge acts as a conciliator—and independent mediation is much less common.

CBR: When does mediation work best? When do you recommend companies try mediation instead of arbitration or litigation in China?

Phillips: Some people in the Center’s coalition of members will mediate any case—after all, mediation costs little and may succeed. Other members are more selective about what they will mediate or take to court. But some cases, for example those that involve criminal fraud, embezzlement, or “bad acts,” should rarely be mediated. And some industries may require a judicial outcome, for example, if there is a challenge to the validity of a patent. Also, some insurance companies will go to court to get a legal interpretation of what certain language means if they think the language is unclear.

These exceptions aside, mediation is appealing because it focuses on the immediate problem and how to resolve it instead of strictly focusing on legal issues. Often, in business, the quicker the solution is reached, the better the outcome. Mediation saves time, and the partners themselves decide the outcome and can keep working with each other. People increasingly recognize that lawsuits are not a way to make money.

CBR: What are some of the main problems with China’s mediation sector?

Phillips: Well, mediation is clearly for “big players”—when lots of money is involved. For those familiar with mediation, the process is very user friendly. But one of the main challenges is that many participants are still unfamiliar with mediation. A lot of people think mediation means “compromise” or that something will be paid over a party’s objections. But after mediation occurs, the business environment usually improves. The process adds value—it does not “split the baby.”

CBR: What laws and standards does the Center follow?

Phillips: There are many international standards for arbitration, but because mediation is not a legal process, not many laws cover it. The United Nations Commission on International Trade Law has released international standards, and the United States has promulgated uniform mediation acts. The European Union has issued ethical codes and draft directives for EU states to encourage mediation. Also, CPR has promulgated standards for practitioners.

The practice of commercial mediation is growing internationally, and farsighted multinational corporations that practice mediation are well ahead of the game.

This street is one of my fav. shopping areas in Guangzhou. It has absolutely everything; cheap clothes, good food and even a little history.. there is a display of the original road from the song dynasty (960 - 1279 A.D)You can find awesome mens, womens and childrens clothing for really good prices. I especially recommend ladies heading here to shop, I love the clothes and shoes .. not to mention the purses and other accessories!

Pretty much any type of clothing you could want: trendy womens and mens fashions, childrens clothing, sporty stores and a ton of shoe and purse stores. There are also some book stores and superstore/department stores just off the street. oh and not to mention the infamous fake watch stalls.. you’ll get hounded quite a bit but these men on the street ( a little annoying) ~ don’t just stay on the main street area if you look in what seem to be alley ways full of small stalls and shops ( often quite full of people) thast where the best bargaining shops are.. you can get some really great clothes for cheap!

I would defiantly say you shouldn’t be spending more than 100 yuan for most things here ( well bargaining stalls, price tag items are different can be up to 500 yuan but better quality) just be ready to bargain because they really put up the prices for foreigners often more than triple what a local would pay!

Beijing Road

Beijing Road