True confession. I have been writing too much about foreign companies looking to leave China and not enough about foreign companies looking to get into China. For the last few months, the work lives of the international lawyers at my law firm have been tilted towards those looking to leave China, rather than to get in, for the following reasons:
1. For every phone call or communication we get from a new client, we get 5-10 from existing clients.
2. Existing clients do not call us to say “everything is going great in China, let’s talk again soon.” That is not the nature of the lawyer-client relationship. They usually call us to say, “we have this problem in or with China, can you help us?” Or, “we are making this major change in or with China, can you help us?”
3. The overriding problem our existing clients have with China these days is the US-China trade war. It is important to note that this is true of our European and Australian and Canadian and Latin American clients as well, because so many of those clients import made in China products into the United States.
But at the same time, the number of companies contacting us to do business in China (including US companies) has been much greater the first nine months of this year than the first nine months of last year — by every single possible metric. In other words, as one door is closing, another is opening.
I was reminded of this today after reading an article by Gordon Orr, entitled, Easier to Import into China? Quick aside: Gordon Orr is one of the most knowledgable and most thoughtful writers on Linkedin and if you are not following him, you should go here and start doing so. His post needs no question mark because the answer is that it is easier to import into China today than last year.
Orr answers his own question with “Two parts ‘YES,’ one part ‘NO,’ which translates to an overall “YES.”
Orr begins his article by discussing the “flood of announcements from China’s government” about how China wants to import more and of how it is moving to make imports easier. He then notes how China’s easing its lending requirements means Chinese companies are right now engorged with cash. All true.
Orr then notes how the following have increased and will continue to increase Chinese imports:
1. Streamlined customs clearance procedures to get product through at a faster pace. Investment at ports and airports will reduce logistical costs.
2. Actual tariff reductions from automotive to pharmaceutical will reduce end user prices by almost US$10 billion with collected tariff rates falling to 7.5% from 9.8% last year. Tariffs for electronic equipment and machinery to 8.8% from 12.2%, duties for textiles from 8.4% from 11.5% and for paper products from 5.4% from 6.6%.
3. As trade ministers visit China, they are increasingly handed agreements to take back with them that open up access for products from their home market. For example, over the summer visits by Ministers from the UK led to announcements of the opening up of Chinese markets to UK dairy and beef products
4. Moves to make cross border e-commerce into China easier is an important move for many SMEs, for whom the cost of setting up to export to China has previously been prohibitive. The development of free trade “ports” to hold product in China duty free, the new e-commerce law holding the e-commerce platforms accountable for whether products sold on their platform are genuine, the upgrading of the teams within Alibaba and JD.com to reach out and market to potential exporters to China in dozens of countries globally have all helped SMEs to get to market at lower risk.
Now is a good time to be a seller of foreign products and services into China.
Our China lawyers are seeing how this import push is both directly and indirectly impacting foreign companies. The direct impact shows up with more foreign companies looking to sell into China and more companies seeing their China sales on the rise. The indirect impact shows up with more foreign companies doing brand and technology licensing and distribution deals with Chinese companies looking to leverage foreign technology and branding to their own Chinese customer base. My law firm has (again, by every possible metric) seen a phenomenal increase in legal work for foreign companies doing licensing and distribution deals with China. We have even seen China be more encouraging of WFOE formations this last year than for perhaps a decade, both with tax incentives and by making the WFOE formation itself easier. China also recently liberalized its joint venture laws. And just to be clear, we have neither heard nor seen American companies being treated any differently than other foreign companies on any of these fronts.
So yes, many foreign companies that manufacture in China are feeling pain these days, but foreign companies that sell in China or sell into China are thriving, perhaps like never before.
What are you seeing out there?