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IMPORTING FROM CHINA

Your guide
to importing
from China.
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Contents 01.

Importing from China

02.

A changing economy

03.

Minimising the risks

04.

Advantages to importing from China

05.

Barriers to importing from China

06.

Other tips to importing from China

07.

Finding an expert to help

01.

Importing
from China

The economic rise of China has defined the


21st century, with the global powerhouse set
to be the worlds largest economy by 2025.
Driving much of Chinas economic growth has
been its export competitiveness and its status
as the workshop of the world. In particular,
low labour costs, together with suppressed
interest rates and an undervalued currency,
have contributed to the attractiveness of
importing from China.
Australia has enjoyed a particularly productive
trade relationship with China, resulting in the
country holding place as Australias largest
trade partner via a two-way flow of goods
and services worth more than $122 billion in
2012-13. Nearly 20 per cent of all Australian
imports arrive from China, worth $46 billion
(Department of Foreign Affairs and Trade). It
is widely acknowledged that strong ties with
major economic partners in Asia supported
Australias resilience during the global
financial crisis.

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THE ECONOMIC
RISE OF CHINA
SET TO BE THE
WORLDS LARGEST
ECONOMY BY 2025.

... the Australian and


Chinese governments
agreed upon the
commencement of
direct trading between
each respective
currency in April 2013.

In addition, the Australian and Chinese


governments agreed upon the commencement
of direct trading between each respective
currency in April 2013. This development will
enable greater investment between the two
countries and make it simpler for Australian
businesses to buy and sell in the Chinese
market.
Strong bilateral links continue to grow between
the Australian and Chinese governments with
a broad and evolving program of high-level
government visits. Most notably, Australia and
China have recently committed to new annual
meetings of their respective national leaders
and a raft of specific ministerial meetings on
strategic matters including economic issues.
This comes on top of increasing collaboration in
multilateral and regional forums with Australia to
chair the G20 and China to chair APEC in 2014.

03.

Chinas rapid ascent towards


becoming the worlds largest producer
of manufactured goodsovertaking
the USA in 2011has had a major
impact on global trade.

A changing
economy

04.

Providing a solid platform for this growth


has been low salaries, abundant supply and a
strong infrastructure network.
However, recently several major factors
have combined to present a different
outlook for Chinas manufacturing sectors
competitiveness, with a flow-on effect to
countries such as Australia that benefit from
low-cost imports from China. Headlining this
is the Chinese leaderships new direction on
reducing its economic reliance on export to
refocus on domestic consumption.
A rise in input costs and the appreciation of
the Chinese currency renminbi (RMB) are
calling into question the ability of China to
remain as the low-cost manufacturer it has
been. There have already been moves by many
multinational companies, in particular textiles
and apparel businesses, to diversify to other
low-cost producers in developing countries
such as Bangladesh and Mexico.

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The rise of the middle class in China


driven by dramatic increases in its
per capita income will have direct
influence and place pressures on the
manufacturing capabilities of China.
According to research by global management
consultants McKinsey&Company, by 2020,
the income of more than half of Chinas urban
households, calculated on a purchasing-powerparity basis, will catapult them into the upper
middle classa category that barely existed
in China in 2000. A forecast growth in demand
for innovative and higher quality products
from this purchasing group means local
manufacturers will need to lift their standards
in order to capture this market. Together with
this increase in middle class demand will come
a need for greater sophistication in the supply
chain to serve a more affluent market.

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China represents
18.8% total
Australian
imports 2012-13

$122 billion
traded between China and
Australian 2012-13

$44 billion
total imports from China 2012-13

A changing
economy

Chinas manufacturers have been impacted


by uncertain global economic conditions
in the last five years, in particular in those
industries where forward planning and capital
investment is necessary to be competitive.
For example, growth in Chinas steel industry
slowed to three per cent in 2012, after a
decade of double-digit increases.
China remains as Australias largest trading
partner, however a rise in input costs and
growing middle class will force change to
the manufacturing sector, also pointing to an
outlook that sees a reduction in Chinas export
competitiveness. Despite this, it is a vital
exporter to Australian businesses who will be
able to continue to create opportunities in a
changing market.

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Major imports
Number 11
$4.7billion

$4.3billion

$4.3billion

$1.9billion

Chinas principal export destinations

China is Australias largest trading partner with


a two-way flow of goods and services worth
more than $122 billion in 2012-13.
In 2012-13, total imports from China totalled
$44.4 billion. This represents 18.8 per cent of
total Australian imports, growing 2.5 per cent
year on year from 2011-12.
MAJOR IMPORTS:
Telecom equipment and parts $4.7 billion
Clothing $4.3 billion
Computer equipment $4.3 billion
Furniture, mattresses and cushions
$1.9 billion
Australia sits at number 11 of Chinas
principal export destinations with a
1.8 per cent share in 2012.
Source: Department of Foreign Affairs and Trade

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low salaries
and input costs

Advantages to
importing from
China

most competitive
pricing
China presents major opportunities for
Australian businesses seeking to import
manufactured goods. Comparatively low
salaries and input costs in China result in
some of the most competitive pricing for
manufactured products anywhere in the
world, placing it at the top of the list for those
businesses seeking greater profit margins.
Nearly 20 per cent of all imports to Australia
come from China, with the major imports
comprising telecom equipment and parts
(AUD$4.7 billion), clothing (AUD$4.3 billion)
and computer equipment (AUD$4.3 billion).

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greater profit
margins

fostering valuable
relationships

Many Australian businesses already enjoy


long-standing working relationships with
Chinese manufacturers. The key to success
in this market is finding those suppliers and
fostering valuable relationships.
The attractiveness of the Chinese
manufacturing sector is bolstered by the
variety of product that may be sourced.
Primary exports include electrical and other
machinery, data processing equipment,
clothing and apparel, telephone handsets,
textiles and integrated handsets.

09.

Sourcing goods from overseas


markets carries inherent risk.
This is no different when
importing from China.

Barriers to
importing from
China

Fortunately, the Australian government and


business community have fostered firm and
mutually beneficial bilateral relationships
between both countries.
Lead-time
The logistics of importing from China will add
a layer of complexity to business operations.
Lead-time between product order, dispatch
and arrival in Australia needs to be carefully
considered and managed. The quantity of the
order will influence lead-time significantly.
Substandard goods
There are documented cases of Australian
importers receiving goods from China that are
significantly substandard or are different to
what was ordered.

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Informal agreements
Many Australian businesses importing goods
from China are small to medium sized with little
or no experience in importing from this market.

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With this inexperience may come neglect to


complete due diligence on the manufacturer
involved. Smaller businesses are also less
likely to engage the services of a professional
when drafting and signing off on contracts. The
resulting agreement may be informal in nature,
or contain standard terms and conditions
that negate the ability for effective disputeresolution should problems arise.
Regulatory barriers
While negotiations on a Free Trade
Agreement with China have lead to an
arrangement which sees the reduction and
removal of many regulatory barriers that
restrict trade flows between the countries,
it still remains that Chinas legal system is
complex, with countless national laws and
local regulations, interpretations, and local
custom to be considered. Increased activity
between the countries has resulted in more
commercial disputes, of which the Australian
Government is attempting to combat through

its introduction of a Doing business in China


commercial dispute resolution initiative.
Seeking professional counsel early on in trade
relations can reduce the threat of an ongoing
commercial dispute.
Purchasing over the Internet
The popularity of websites such as Alibaba.
com have created instant connections between
buyers and sellers that previously took weeks,
months and years to foster. The downside of
this has been the inevitable penetration by
unscrupulous sellers seeking advantage from
the less interactive nature of online purchasing.
Unknowingly entering into an agreement with
such an operator can result in difficulty in
communication, little to no leverage for the
purchaser, and a dispute that may cost far
more to try to resolve than the value of the
transaction.

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undertake
due diligence
Make sure you know
who you are dealing with.

Minimising
the risks

Undertake due diligence


Knowing exactly who you are doing business
with is crucial to avoiding fraudulent activities
and commercial disputes. Entering into an
agreement with the right business partner
with a good commercial contract will minimise
many risks.
Due diligence can include, but is not
limited to: verifying the suppliers identity
and manufacturing/trading capability;
understanding the suppliers history, structure
and background; confirming the suppliers
authorised signatory; ordering a sample
first to check the quality and to ensure that
the product is what you are looking for; and
searching for complaints or comments records
on the Internet and seeking references from
past business partners.

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seek legal advice


The Chinese legal and regulatory
system is vastly different from
Australias.

trial shipments
Will you get what you ordered?

To help answer these questions, it is a


good idea to seek the help of a local agent
or representative who can obtain this
information on the ground.
Seek legal advice
The Chinese legal and regulatory system is
vastly different from Australias. It is vital
to seek legal advice on the terms and nature
of any sizeable contract you are entering.
While not able to provide formal legal advice
on Chinese law or provide representation in
Chinese court, international firms are able to
advise on the Chinese legal environment and
assist in preparation of contracts and other
legal documents, or otherwise introduce you
to local Chinese law firms.

Trial shipments
Order a sample or trial shipment initially to
check the quality and determine that what you
will get is what you have ordered. This will help
avoid you ending up with a large shipment of
incorrect or substandard product. Employing
the services of a local agent for a factory
audit, production inspection and pre-shipment
inspection will also minimise this risk.

13.

know your costs


Ensure you can price
your products effectively.

Minimising
the risks

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Calculate the landed cost of your product


An estimation of your landed cost of product
by the time it reaches your warehouse
will ensure you can price your products
appropriately and profitably, and determine
whether you will be able to compete in the
market effectively. These costs will be
determined by the size of the products,
container shipping costs, cartage costs,
insurance (2-4 per cent of shipment value),
government duties (5 per cent of total
value) and GST. Also be aware of currency
fluctuations that can increase the cost of
importing the same product considerably.

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protect your IP
Be cautious of the potential risk
of IP infringement.

Protect your intellectual property rights


The legislative framework around intellectual
property (IP) in China has improved
significantly, however businesses planning
to manufacture their product in China
should be cautious of the potential risk of
IP infringement. To protect themselves, it is
recommended that Australian businesses
register their trademarks in both English
and Chinese and consider seeking patent
protection in China.

ensure safe terms


of payment
PayPal provides good protection
for buyers.

Ensure safe terms of payment


There are multiple methods and terms for
paying suppliers in China. One of the more
common for newly acquainted buyers and
sellers is a 30 per cent deposit via telegraphic
(bank) transfer in order for factories to buy
materials for production. Less common, and
more riskier for the buyer, is 100 per cent
up front transfer. A Letter of Credit is a
recommended method for larger transactions
but is prohibitive to small and medium
businesses due to its complexity. Transfers
through Western Union are not recommended
due to higher risk of fraud. Payments made
through PayPal or an escrow third party
payment service provide good protection
for buyers.

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The opportunities to
make your business more
competitive through
importing and exporting
are too great to ignore.

Other tips to
importing from
China

Be familiar with local business customs


Anyone seeking to do business with Chinese
suppliers should be familiar with local
business culture and practices. If not, it is wise
to engage the expert of an adviser to help
guide you through the process. One example
of local business practice to be aware of is
negotiation as the primary solution to dispute
resolution. Failing to negotiate and pursuing
other means to dispute resolution will cause
significant insult and result in exacerbating
the problem.
Chinese business culture is characterised
by relationships (guanxi), self-pride and
continual social functions. It is important to
acknowledge these practices in order to build
a long-term partnership.

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Finding an expert to help


The opportunities to make your business more
competitive through importing and exporting
with Australias major trade partners are too
great to ignore, yet identifying markets for a
product can be overwhelming. China is perhaps
the market most widely used by Australians,
yet it is also the hardest to navigate.
VECCI Global is a specialised team providing
consultation on international trade
opportunities for established Victorian

opportunities. The team can provide one-off


consultations or guide businesses through the
entire international trade.
Over many years facilitating international
trade, VECCI Global has designed a process
to reduce the risks of trading with an
international partner where possible, while
efficiently sourcing suppliers and arranging
delivery of products and components.

businesses, bringing together some of


Australias most well-regarded import and
export professionals. With an extensive
international network of contacts and teams
on the ground in China, they maintain a
deep understanding of international market

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Contact
VECCI Global

If youre ready to take the next step, our teams


in Victoria and China can walk your business
through the import process.
Eddie Zhao
VECCI International Business
Development Manager
Email ezhao@vecci.org.au
Phone 03 8662 5234
www.vecci.org.au

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