The ins and outs of doing business in China

China remains more than 11,000 miles from our Atlantic shore, and Beijing time is still 12 hours ahead of Eastern Daylight Time in the United States. Yet when an alarm went off from China some five years ago, it caused J. Todd Miller to wake up in Lebanon, N.H.

“One of our customers who’d been doing a quarter of a million dollars a year in business with us told us he wasn’t going to buy from us anymore — he was going to buy from China,” said Miller, president of New Hampshire Industries.

The firm produces power equipment for John Deere, Toro and other large companies with huge markets in the United States and abroad. The word from that departing customer was a wake-up call for Miller. It convinced him he needed to take Horace Greeley’s advice and put it in reverse. He would “Go east, old man, go east.”

“If our customers are shopping in China,” Miller said at a recent conference on trade with the Asian giant, “our mission is that when they get off the plane in China, we’re going to be there to greet them.”

He contracted with a Chinese manufacturer to build the company’s products in that country where, thanks to the lower wages prevalent in the still-developing economic superpower, the products can be sold for much less than the cost of producing them in the States.

“We went to China because our customers want more for less,” said Miller. And their customers, the retailers, also want more for less, “because their customers — all of you out there — want more for less,” Miller told conference attendees. “And the good part is, you’re getting it.”

The March 5 conference, held at C.R. Sparks in Bedford, was titled “Ten Questions You Should Ask About Doing Business with China … and the Answers.” It was sponsored jointly by Citizens Bank and the Bank of China. Citizens Bank is owned by the Royal Bank of Scotland, which also has 10 percent ownership of Bank of China.

Citizens has three executives working full time on loans for trade with or joint ventures with Chinese companies.

The panel featured the bank’s three Chinese trade specialists, along with Miller, Chinese-born Wing Eng, president of Contract Support Group in Belmont, international trade lawyer Kim Newby of JurisN in Friendship, Maine, and C. Bulent Aybar, professor of international finance at Southern New Hampshire University in Manchester.

They explored various aspects of doing business in a nation of 1.3 billion people, the concentrations of various types of businesses throughout a land as large geographically as the United States, the rules and regulations promulgated by the various governments councils and commissions of China and the cultural differences that affect things like negotiating contracts and having products built according to spec.

“‘No problem’ does not mean no problem,” said Miller, who told the roughly 130 attendees that “the golden sample” is often followed by “products that don’t look like the sample.” And what American manufacturers think of as “specs,” their Chinese counterparts are apt to regard as “guidelines.”

A successful experiment

China’s is the second-largest economy in the world, said Professor Aybar, with a gross domestic product of $11.4 trillion and a growth rate of about 9 percent a year. It is the world’s third-largest exporter of merchandise, from toys to increasingly sophisticated products, said Aybar, who provided an historical perspective on the dramatic rise of a capitalist economy in communist China.

As recently as 30 years ago, he said, the world’s most populous nation had a state-run agrarian economy with virtually no private economic activity. The country then was largely isolated from the world economy. Private economic incentives were introduced to peasants working in the farming collectives, and later in the industrial sector, as the Chinese government turned increasingly to manufacturing.

“They introduced the market system step by step,” said the SNHU professor. “As markets succeeded, they expanded.”

The experiment spilled over into world markets, which created further pressures for economic change at home. “Private companies became great exporters and forced the state-owned enterprises to become more competitive,” he said.

By 1992, all of China’s coastland was open to international trade. While the private sector was thriving, China continued to keep unprofitable state-run businesses alive in order to avoid unemployment. That resulted in an increase in the number of nonperforming loans and forced a restructuring of state-owned businesses. During the 1990s, China recognized property rights in the nation’s constitution. In 2006, the nation opened its banks to foreign investment. They recapitalized their financial institutions and transferred the nonperforming loans to private assets management companies, Aybar said.

China has created a thriving private sector in three decades, and as of 2006 became the world’s largest exporter of capital. But huge regional disparities of wealth exist, he said, with about a third of the population still existing on the equivalent of $2 a day.

While China’s vast network of trade and credit spans oceans and continents, global trade requires local contacts, said Wing Eng, the president of Contract Support Group in Belmont.

“To be successful in China, you need a local presence,” said Eng, whose company provides electromechanical assembly contract services and assists customers with sourcing production in Asia.

Born in Hong Kong and raised in the United States, Eng returned for 16 years to his native island, serving as an executive there for Emerson Electric, Ingersoll Rand and Computime, a Hong Kong contract manufacturer. He spoke of the different geographic and economic sectors of China and how a company should determine what part of the country would be good for its business.

“If your product is consumer-driven you should try looking toward the coast,” said Eng, while the inland areas are more open to the manufacture of construction equipment used to build the nation’s rapidly growing infrastructure. Heavy industry is located primarily in the northern part of the country while light industry and commercial products flourish in the south. As industry has expanded, however, many of the migrant workers who had come to the coastal regions for jobs are now finding employment inland, leaving companies on the coast with something of a labor shortage.

“A lot of manufacturers are having trouble finding workers,” Eng said. “As a result, wages are rising.”

And the entrepreneurial spirit has caught on so well in that part of the country that many people don’t want to be employees, he said.

“People in southern China want to be entrepreneurs, they don’t like working for large corporations,” said Eng. “Everyone wants to be their own boss.”

Attorney Newby spoke of the rapid development of a legal system in China that covers the various aspects of business law, governing business operations, contract and employment law. Laws are sometimes tried out in various regions of the country on a pilot basis before expanding the new law or regulation to the rest of the country, she said.

Businesses also must deal with laws and rules promulgated by one or more of the 22 provinces, five commissions and special economic zones throughout the country.

The U.S. Department of Commerce has a Web site offering helpful information about doing business with China, and state trade organizations like New Hampshire’s International Trade Resource Center at Pease are also a valuable resource. But it is essential to get local help for your global enterprise, she said.

“Get a good Chinese business consultant,” Newby advised, “Someone on the ground who can give you good advice.”