Doing Business in China
Rossella Gianesin, our senior expert for China, explains how to cope with cultural, historical and political differences between China and the West.
Introduction
China has a surface slightly smaller than that of Europe as a whole and with her 1.340.000.000 inhabitants, most of whom live along the coast, is the most populated country in the world.
The country capital is Beijing, situated in the North East of the country, which hosts the Headquarters of the Communist Party, the single dominant party of the country.
China’s currency is Renminbi (Rmb/ CNY) also called Yuan. A yuan is divided into 10 jiao (角). A jiao is divided into 10 fen (分). The highest value banknote is the 100 yuan. The smallest coin is the one fen coin, (one hundredth of a yuan).
From 1997 to 2005 renminbi has been pegged to the U.S. dollar at a fixed exchange rate of 8,28 RMB per USD. On July 21 2005 Chinese Popular Bank decided to peg it to a basket of International currencies and to replace the fixed rate with a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. One recent study suggests a 37.5% undervaluation which artificially stimulates Chinese export. In June 2010 the Chinese government declared its intention to gradually appreciate the yuan.
Practical Information: China has a temperate climate and the seasons are the same as in Italy and Europe. China is eight hours ahead of Greenwich meridian and seven hours ahead of Italy (six hours with daylight saving time).
In order to visit China it is necessary to get a visa. For a business visa the following documents are required: passport with at least a six months validity, a photograph, a form duly filled, flight reservations, letter of invitation from a Chinese company written on headed paper (fax and pdf format are allowed).
Why invest in China?
For decades China has been one of the most attractive country for foreign direct investments. Since the start of the so called “open door” policy in December 1978 China has based her fast and spectacular development on foreign investments. Thousands of foreign entrepreneurs from al lover the world have invested in China attracted by low production costs and by the dimension of the market.
But a few words of caution are needed. The spectacular growth of Chinese economy, the development of a class of new rich people and the success story of many companies can be misleading: doing business in China is still very complex and risky and mistakes due to ignorance or improvisation can have serious consequences.
But China, in a global economy, is a reality that cannot be overlooked. If it is true that not every company can and must invest in China, it is also true that all companies must evaluate in a rational and competent way if China is an opportunity for them or not.
Today the country offers many localization opportunities: industrial parks are present almost everywhere and compete with one another offering local incentives and special services to potential investors.
Practically every type of industry is present in most areas and the growth of consumptions not only in big cities but also in medium sized cities makes the market more and more interesting.
Legislation has evolved very fast and now it is possible to choose among different types of businesses legal entities.
Business and Culture
There many differences between China and Italy or, in general, between China and western countries. These differences concern not only the size of the population, but also the culture, the traditions, the way of thinking and, obviously, the language.
The millennia-long history of the country has produced communication and behavioural codes that apply also to the business world. To know these “business rites” is essential to create the right atmosphere in dealing with a Chinese counterpart. For instance one should never refuse an invitation to lunch or dinner because, according to Chinese culture, the place where people can really know one another is the dining table which as a consequence is also the real place for doing business.
This is but a small example. In order to learn more about the complex Chinese world we invite you to participate in our Master Class “Doing Business in China”