China is very diverse and because of that it is important for exporters to do their own research on where in China they want to sell to and who are the important players in that region. The following information will provide a basic overview of selling in China however due to the rapidly changing regulation in China each exporter will need to conduct their own due diligence.
TYPES OF STORES
Supermarkets and hypermarkets
Street stalls and markets
Especially in the rural areas, they are replaced by stores in the urban areas.
ONLINE SALES PLATFORMS
eCommerce is rapidly increasing in China and accounts for around 15.9% of all retail sales in 2015. This is estimated to grow to 19.6% in 2016. There are over 688 million internet users in China, of whom 53% are online shoppers. China has over 1.28 billion mobile phone users which is the preferred method of online shopping. eCommerce sales in China totaled $672.01 according to the Chinese government's National Bureau off Statistics. By 2019 it is estimated that one out of ever three of Chinas retail dollars will be spent online, the highest percentage in the world.
Cross Border eCommerce is when consumers buy online from vendors in other countries. Cross border made up 17.3% of all import / export trade in China in the first half of 2015. Products are produced through international market platforms and social media platforms. Popular products to purchase through cross border include: beauty products, baby care and food. The most popular platforms to purchase products through are Tmall Global, JD Worldwide, Amazon and WeChat.
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 authorizations 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 enterprises) can also obtain import and export licenses since 2006.
USING AN AGENT
Using the services of a commercial agent is generally necessary for business in China. China has many local sales agents who handle internal distribution and marketing. Most of these firms do not have import/export authorisation. Localised agents possess the knowledge and contacts to better promote products and break down institutional, language, and cultural barriers and can assist in keeping track of policy and regulatory updates, collect market data and quickly respond to changes. This is particularly the case in a tender process. Given the width of the Chinese territory, It is advised to have recourse to several agents for each region.
Where to Be Vigilant
Employing a third party results in an additional cost and some control and visibility loss over sales/marketing. It also increases the risk of your product being copied or counterfeited.
Elements of Motivation
The commission amount is an important element of motivation.
The Average Amount of Commission
10 to 20% according to the sectors.
SETTING UP A COMMERCIAL UNIT
By establishing a presence in China you are showing your commitment to that market, however you need to be mindful of:
- Cultural differences, difficulties of managing Chinese teams
- administrative difficulties
- Relative absence of legal groundwork (attention copyright)
- Dissensions with foreign partners
For the majority of the foreign companies, the first form of establishment in China is the representative office. For a long time, it was the only possible form of presence involving 100% of foreign assets. It remains today the fastest and simplest presence to establish, as well as the cheapest (in terms of both establishment and operational fees). The representative office does not facilitate trading in Chinese territory, but enables the following: renting offices (only in certain types of buildings), e-recruiting personnel (via FESCO) and organising follow-up actions to market operations (carrying out market research, promoting products of the parent company, generating customer and supplier contacts and supervising and coordinating 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 under Chinese law. In other words, a representative office structure does not allow you, for example, to register a brand (which must be done by the parent company) or to initiate legal actions against a third party. A representative office may employ no more than four foreign representatives at a time. Moreover, the existence of an "X" company representative office cannot prevent setting up an "X" Chinese company in the same city. Finally, the representative office head in China is legally responsible on his or her own behalf for the activities of the structure. The office is however a structure adapted relatively well to the management of local partners, suppliers or distributers.
In the last few years many companies have opted for a wholly foreign owned consulting or service enterprise rather than a representative office, as this offers more flexibility and allows invoicing and collection of RMB payments.
Companies with 100% foreign capital (WOFE): this structure presents, on paper, many advantages, including considerable independence as compared to the local partner, which may lead to various "problems." Today, foreign companies can create a WFOE (Wholly foreign owned enterprise) in trade (import/export activities with due respect for local sales), production/assembly (local and foreign sales for local and/or export resale) or in services (to companies or to private individuals).
The concerned activity type will have to be defined very specifically in your project. For example, a distribution 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. The process of establishing a WFOE is quite long. WFOEs generally have to register capital, unless their scope of business relates to consulting, trading, retailing or information technology. In China, regulations are not the same for everyone; they are arbitrary, complex, in constant change 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 power in negotiations with foreign investors.
Finally, WFOEs are generally set up for a period of 15 to 30 years.
Franchising is still a relatively new concept in China. However, since its debut in the nineties, the number of franchises in the country has become the largest in the world. Currently, China has 4,500 franchises and chain store companies creating over 5 million jobs nationwide. Many foreign companies set up sales outlets which function as franchises. In China, foreign companies that set up franchises generally call upon local partners (in each major city) or sell to a master franchisee which leases and supervises several franchise sectors on the territory. Setting up a franchise in China often proves to be difficult, given the complex legislation and other issues involved. One key aspect of China's regulations governing franchising is the "two-plus-one" requirement, which stipulates that franchisors own at least two directly operated outlets anywhere in the world before being allowed to operate a franchise model in China. One of the most difficult aspects of franchising in China is finding qualified franchisees. Moreover, collecting royalty payments and ensuring that the franchisee maintains the integrity of your brand are formidable challenges.
For more information: CCFA, Chinese association of department stores and the franchise
Market Access 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, before the arrival or in the three days which follow the arrival of the goods in a customs surveillance zone. The Customs authorities will examine the goods directly and will release the goods after their arrival.
Customs declarations can be done via the customs site. Exporters must indicate the place of arrival of the goods and they must complete all customs data. Once the data is analysed by the customs, a receipt will be sent, so that the company can complete the cargo of the goods. Custom duties can then be paid by bank transfer. Documents presented to customs vary according to the products; however there are standard documents to be presented. These documents include: the bill of lading, the invoice, the packing list, the customs declaration, the insurance policy, the sale contract and 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. Certain items are prohibited from entering China: arms, counterfeit currencies, documents which are deemed to be detrimental to the political, economic, cultural and moral interests of China, lethal poisons, illicit drugs, disease-carrying animals and plants, foods, medicines, and other articles coming from disease-stricken areas, used garments, local currency...
Samples (free or not) imported or exported must be declared at customs, where they will be examined and released. All shipments containing samples and advertising articles will be taxed according to their respective commodity HS codes. Tax exemptions now only apply to shipments fulfilling specific criteria. Goods imported in China for display or demonstration at trade shows and exhibitions are exempt from customs duties, provided they are re-exported within six months (extendable). Imported commercial samples subject to import controls should only be imported with licenses. Food and beverage exhibition 'not-for-sale' sample-entry rules are frequently ignored by Chinese authorities. Under the current system, such samples are officially subject not only to full tariffs and taxes, but also to product and labelling registration requirements. For more information contact the Customs General Administration of the People's Republic of China.
CUSTOMS DUTIES AND TAXES ON IMPORTS
Customs threshold (from which tariffs are required)
Shipment value CNY 5,000 and Duty amount CNY 50.
Average Customs Duty (Excluding Agricultural Products)
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.
LABELING AND PACKAGING
It must be in conformity with medical and safety regulations. Packaging materials must not be poisonous or dangerous and must be easily degradable and recyclable. All wood packages should carry an IPPC mark, or they will be subject to further requirements.
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.
Information on the country of origin of the product must clearly be indicated. Name and address of the distributor registered in the country.
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. All wood packages should carry an IPPC mark, or it will be subject to further requirements. Products requiring the China Compulsory Certification CCC mark, in addition to undergoing an application and testing process, must have the mark physically applied on products before entering or being sold in China.