China – Perspectives

Luo-Ho District Mall in Shenzhen, China

Why not? Thousands of people do. A few years ago when I started looking at China for business opportunities I started to look with my American corporate business trained eyes, after some research I learned that there are many ways in which foreigners can do business in China. I say after a while because getting precise information on rules, laws and regulations can be as difficult as getting directions in Chinese-English on how to get from point “A” to point “B” in downtown Beijing.

China is literally writing commerce law as we speak, many laws are not only not existent yet, but the ones that exists are left to interpretation at local levels and many lawyers are actually ex-army people who are given an honorary degree. Most Chinese citizens simply laugh when you ask about incorporation laws, tax laws, banking rules, etc. Now make no mistake, the central government has it’s ways of making sense of all this chaos. For example banks are required to report an all bank transactions involving foreign entities to the central government, thus making very difficult for foreigners to do anything different than what the current rules will allow with the added complexity of the local interpretation. This later fact can lead to disasters if the central government interpretation differs from the local one.

So how can you do business in China? Here is a brief list of the different ways, I will expand on each one of them on future posts, for now this post only gives a perspective on the last one.

• Investing in Chinese companies stock (class B shares)
• Creating a Joint Venture with an existing Chinese business
• Starting a Wholly Owned Foreign Enterprise (not allowed to sell products in China)
• Starting a Foreign Invested Commercial Enterprise (a new modality of a WFOE which is allowed to sell only certain specific products in China)
• Or simply go shopping!

Investing, JVs and WFOEs can be very convoluted and extremely slow to happen. You will spend at least 50% of the time unraveling conflicting directions from each level of government offices and local advisors/consultants. These larger scale options will require millions of dollars and also largely restrict your ability to take the money back out of China to only profits and for possibly up to 20 years. But, the “go shopping option” is simple and many folks from around the world make a living or at least a supplemental income while traveling to China on shopping sprees.

All you need to do is get a tourist visa for China, which is very easy to do. If you are a citizen from just about any country the cost will be $35 USD and if you happen to be a US citizen then it will set you back $130 USD, we are “special” (LOL). I highly recommend that you get your visa before coming to China, if you don’t, then you will have to enter via Hong Kong and not only the price will double for your visa, but you will have to wait at minimum 24 hours (one hotel night in Hong Kong, which could add another $250USD to your expenses, hotel and transportation).

If you are coming to Shenzhen, then traveling to Hong Kong may be actually the best financial option, flights to Hong Kong from the USA are as much as 50% less than traveling to China’s main land. The shuttle from Hong Kong to Shenzhen will only cost you about $30 US dollars and if you take the shuttle, they will actually drive you through immigration and customs, you only relax and enjoy the ride. If you take the bus, it will cost only about $15 US dollars, but at the Chinese border you will have to get off, leave your bags on the bus, go through Hong Kong immigration (exit), then go back to the bus for a few hundred feet, get off the buss and drag your bags through Chinese immigrations, customs and then as you exit face hundreds of cab drivers trying to take you to their cab while you are trying to find someone from the bus company to take you the rest of the way.

The bus company will give you a sticker which you are supposed to wear in a visible spot, but as you exit the cab drivers will try to grab it from you, you must not let this happen as this is the only means for the bus company to know that you paid to go the hotel or wherever else you are going. Once you come out on the Chinese side, the Hong Kong bus and driver will have changed to a Chinese company, so you will not know who is who.

I also recommend that you do your homework, know what products you are looking for and have a good idea of price targets for your re-selling market. By the way, bring only a very small carry on with your clothes, you can buy suit cases across the border for $20 – $30 dollars, these are not high quality, but it will be better than you hassling with large empty suit cases on the way into China or paying the $25 that many US airlines make you pay now for the second bag.

The Shangri-La Hotel viewed from the Luo-Hu Mall

If you are fairly conservative, not too adventurous person, then you probably should only go to the Luo-Hu District in Shenzhen, you can stay at the traditional Shangri-La hotel across from the Luo-Hu shopping mall, expect to pay around $135 USD per night, it is actually a low rate for this very nice hotel where many of the staff speak English. Or you can look for cheaper rates for hotels that are just few blocks from the Luo-Hu shopping mall, Trip Advisor has  a good selection of them, the critical thing is that you search for Luo-Hu (luohu district), because Shenzhen is a very large city. If you are not careful you can wind up an hour way from the Luo-Hu mall, still in Shenzhen, but in an area where no one speaks a word of English and nothing is written in English either.

Now for the business of shopping! In the Luo-Hu mall you will find just about any thing you can imagine, cell phones, golf clubs, hand bags, shoes, clothing, GPSs, pottery, chinese medicines, toys, etc, etc. Of course all the brand name stuff will be only replicas (copies) you will see brands, like Gucci, Rolex, Nike, Sony, Ping, LV, Armani, etc. Nothing will have a price as everything is negotiable. You will be accosted by “shopping guides” whom speak 10 or 20 words of english, like “hello looky hear” or “DVD movie” or “Rolex watch cheap”, you must be very careful here, in spite of the visible security, there a number of undesirables and a few poor folks that given the opportunity would disappear with you wallet or belongings, but on the other hand if you have your wits about you you will have a great deal of fun here.

A sampling of most consumer products made in China.

Bargain, bargain, bargain, as I said before pricing is not set and varies depending on your face, I am often called “money face” by my Chinese friends, the meaning of this is that whenever we go shopping together all of the sudden the prices for everything curiously doubles in this type of malls. However, you can play the game, remember do your home work, know what these products sell for in your country, many people operate on at least 50% less than back home rule. Carry a calculator, since many of these people only know the basic 20 words, they use calculators to show you the price for the items, usually in Yuan (RMB – Chinese currency). The guides are usually paid a commission by certain stores, so they will steer you to these stores. While using one of these guides can be generally OK, I would advise against it, you will be safer and be able to bargain better on your own.

The products.
As I said Luo-Hu is a good place if it is your first time shopping in Shenzhen or if your nature is not to venture too far. There are much better bargains if you venture deeper in the Guangdong Province, but you will also need a Chinese guide who is bi-lingual, as the difficulty and risks also increase dramatically. Feel free to write to me via my contact page if you want additional help on how to effectively get to the manufacturers or at least the wholesalers, as it is a much better deal altogether.

A word of caution about Luo-Hu. “Not all that glitters is gold”, while there are many good products here at good enough prices for you to take back home and at least make a 25% – 40% profit, there also a lot of “dud” products. So test everything prior to buying, they don’t mind this. There are plenty of USB drives labeled 8GB when in deed they only have 1GB of storage space, I actually found a USB drive labeled SONY  512GB for sale at Luo-Hu, the incredible thing is that their laptop confirms that is 500GB, but in fact it is not, the manufacturer hacked the software to fool Windows into seeing it as a 512GB drive.

The "fake" 512 Giga Byte USB storage device.

You must test Cell phones, DVD players, GPSs, turn them on, check out if they have the ability to switch to English or your desired language, test if they are compatible with your country’s electricity, check if the software (GSM/GPRS) is compatible with you country’s cell phone or GPS providers, if possible buy a local SIM card and have some one call the phones you are looking at buying.

If you are buying shoes or clothing, bring a tape measure and a size guide, Chinese are not only built differently than people in many western countries, but also quite often label clothing only a small, medium, large and extra large and this sizes only conform to some guide that the manufacturer uses not to western standards. If you are a little savvy about the clothing business, there are a number of tailors in the mall that will custom make clothing at a fraction of what you would pay, at least in the USA and Europe. I had a friend buy a traditional long wedding dress, custom made for $125 US dollars, it took one week to produce.

I will expand on these topics in future posts, but feel free to contact me if you are interested in setting up either formal visits to manufacturers or for some specific pointers.