January 21st, 2008 by China Business Success Stories
China has been trying to stem an ever growing trade surplus, manage domestic inflation, move development from the coastal areas to the inland areas and decrease its dependence on heavily polluting industries.
Because of these objectives, manufacturing in China is becoming more expensive as China adds in hidden (and sometimes not so hidden) costs into the sourcing equation.
Here are the top 4 reasons you can expect costs to continue to rise in 2008:
1. Reduced VAT Refund
When Chinese manufacturers purchase goods domestically for use in manufacturing, they pay a VAT (value added tax). For people in the United States or others who are not familiar with the term VAT, it’s essentially a sales tax. Historically, the Chinese government allowed for generous VAT refunds if the final manufactured product is for export. However, as of July 1, 2007, China has changed its refund formula. Many products have had their VAT refunds completely eliminated and many others have been reduced. Since Chinese factories typically take these VAT rebates into account when calculating profit margins, the reduction or elimination of them is likely to… raise prices (or drastically shrink profit margins).
2. RMB Currency Appreciation vs USD
Until mid-2005, China maintained a peg on the RMB to the USD at 8.27. This provided an element of stability and took the currency risk out of the sourcing equation. However, over the past year and a half, China has begun appreciating the RMB against the dollar. As of this blog article, the current conversion is 7.26. Furthermore, many experts are estimating the rate to dip well into the 6’s over the next year.
Here is a chart from Yahoo Finance showing the USD vs. RMB trend:
Chart Yahoo Finance USD vs RMB
While nobody knows for sure what the ‘final’ trading range will be, there are a few interesting commentaries out there. This article from Bloomberg quotes Jim Rogers, chairman of Beeland Interests Inc. and a former partner of George Soros, saying the RMB may quadruple in the next decade.
“The currency has advanced 10.5 percent since the government scrapped a peg to the dollar in July 2005, gains that U.S. officials say are insufficient to reduce a trade surplus that swelled to $23.9 billion in September. Jim Rogers, chairman of Beeland Interests Inc. and a former partner of George Soros, said yesterday the yuan may quadruple in the next decade.
The yuan is “the best currency to buy right now,” Rogers told investors in Amsterdam, adding that he is shifting all his assets out of the dollar and into yuan. China is “going to be the most important country in the 21st century.”
The currency climbed 0.16 percent to 7.4926 per dollar as of the 5:30 p.m. close in Shanghai, according to data compiled by Bloomberg. Non-deliverable forward contracts show traders are betting the yuan will reach 7.0070 in 12 months, a gain of 6.9 percent from the spot rate, and 6.95 by the end of 2008.”
On a side note, if you’re importing to Europe, the Euro has actually been appreciating against the RMB, so for now you guys are ok! Check out a recent Yahoo Finance chart showing the Euro vs RMB trend.
Yahoo Finance Chart Euro vs RMB
3. Increased Costs Associated with Importing Raw Materials
China said on July 23rd, 2007 that it would begin requiring that exporters put down a deposit for half the amount they spend importing 1,853 raw materials. A quote from this People’s Daily article summarizes the policy.
“Enterprises which are engaged in the production of these products are required to have guarantee deposits in the Bank of China, the designated bank of China Customs, for a contracted period of time, according to the statement jointly released by the Ministry of Commerce (MOC) and China Customs.
If these enterprises fail to sell their products within the time scale dictated by the contracts, the customs will ask the bank to keep their deposits and interest for taxation.
“We are striving to improve the development of China’s processing trade in a bid to promote trade balance and reduce trade surplus,” said Wei Jianguo, vice minister of commerce.”
These new regulations will require a larger cash outlay for large contracts by Chinese factories. Therefore, it’s more likely that they will need to borrow money to meet this requirement. Borrowing money costs money and that cost is likely to be passed along.
4. Labor Costs Continue to Rise
Labor, once assumed to be endless in China, has been ‘drying up’ for a number of years now. China’s factories depend on a constant supply of new migrant laborers coming from the countryside. Typically every Chinese New Year, as many people return to their home town as can afford to do so. And each year, some old and many new laborers come to the cities in search of work after the holidays.
However, as villages have become more prosperous, with more family members making and sending money back home, this endless supply of new labor, has began to shrink. Because of this and other factors, labor costs continue to rise. China’s National Bureau of Statistics reported that in the first half of 2007 wages were up 18.5% compared to the year earlier period alone!
In addition, China as of January 1, 2008 enacted new labor laws that allow for much more worker protection, but of course at a cost. Global Labor Strategies has an article with many links to other blogs and newspaper articles discussing the reaction worldwide to the new law.
source from: http://www.chinasuccessstories.com/
Sunday, April 27, 2008
China Speaker Bureau
Does your event or association need an expert that knows well about Chinese economy abd China marketplace? Look no further, contact Mr. Brian Su at http://www.midwestUSAChina.com today.
Mr. Brian Su has extensive experience in international trade, business development, marketing management, and strategic planning. Prior to founding Artisan Business Group, Mr. Su served Illinois governor Jim Edgar and assisted him in his trade mission to China in 1996 and helped him host a numbers of Chinese government and trade delegations.
Before coming to the U.S. in 1989, Mr. Su worked as a marketing manager for China Non-Ferrous Metals Import and Export Corporation. He has a MPA degree from the University of Illinois at Springfield in the U.S., and a Bachelor degree in English from Guizhou University in China. He is fluent in Chinese Mandarin and English. His extensive network of Chinese government and business connections, together with the amalgam of his Chinese background, US education and multinational work experience, leaves him well placed to bridge the business knowledge gap between the two cultures. Mr. Su is able to give its clients a unique inside view of what is happening in China found nowhere else. Mr. Su is also a public speaker, speaking on a wide range of China-related business and culture topics.
Mr.Su will speak at events organized by Illinois Soybean Association (August 2008), the 28th Annual Conference of the Association of Small Business Development Centers (Sept 2008).
Event organizers may bear the cost for travel and accommodation. Contact http://www.midwestUSAChina.com today.
Mr. Brian Su has extensive experience in international trade, business development, marketing management, and strategic planning. Prior to founding Artisan Business Group, Mr. Su served Illinois governor Jim Edgar and assisted him in his trade mission to China in 1996 and helped him host a numbers of Chinese government and trade delegations.
Before coming to the U.S. in 1989, Mr. Su worked as a marketing manager for China Non-Ferrous Metals Import and Export Corporation. He has a MPA degree from the University of Illinois at Springfield in the U.S., and a Bachelor degree in English from Guizhou University in China. He is fluent in Chinese Mandarin and English. His extensive network of Chinese government and business connections, together with the amalgam of his Chinese background, US education and multinational work experience, leaves him well placed to bridge the business knowledge gap between the two cultures. Mr. Su is able to give its clients a unique inside view of what is happening in China found nowhere else. Mr. Su is also a public speaker, speaking on a wide range of China-related business and culture topics.
Mr.Su will speak at events organized by Illinois Soybean Association (August 2008), the 28th Annual Conference of the Association of Small Business Development Centers (Sept 2008).
Event organizers may bear the cost for travel and accommodation. Contact http://www.midwestUSAChina.com today.
Beginner’s Guide to Sourcing From China
Blog Post Note: I came cross a good article written by Thomas at innovatize.com, and would like to share with you. - Brian
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Beginner’s Guide to Sourcing From China (Author:thomas at innovatize.com)
Your first step should be to locate some suppliers or agents. Hit the internet and start looking around. Send some emails and make some contacts. But be forewarned...lots of Chinese suppliers will ignore your emails completely. Don't feel bad, they do this to just about everyone. You can even pick up the phone and call them, and most of the time you will not be able to reach anybody, or you will leave a message and they will never call you back. This is China! (T.I.C)
Once you have located a few, check out their online catalogs which are usually lousy. Ask them to send you a regular paper catalog. Consider ordering a sample or two of their catalog items to check out the quality. Expect to pay at least for the sample freight (which is not cheap if they use DHL or something like that).
Once you are satisfied that the supplier is a viable candidate, ask them for a sample of your specific item (you may need to send them an original sample to copy or at least some design specs). Some suppliers will agree to send you ‘counter sample’ (a copy of your original sample) only after you have placed an order and made a down payment. In 90% of the cases, I would advise against this, but if your product is a complicated thing that must be custom made, then this could be the only choice.
OK, you have now found a supplier and are ready to place an order...now the scary part. They want 100% cash advance payment. Or maybe 50% on order placement and the other 50% when the goods are ready to ship. Should you do this? It's a tough question to answer. If it was me, and if I was based outside of China, I would not do it. It is just too risky! T.I.C.
Some factories might agree to 50% down payment and 50% AFTER you receive the goods. But I would have to wonder about a factory like this...why would they dare to take this risk with a stranger they do not even know? Either their factory is lousy, and they are desperate for business, or their profit margin is higher than 50%. Either way, I would avoid them.
Your other option is to use an agent (probably from the very beginning of the sampling process listed above). With an agent, at least you have a third party in the middle that should increase the chances of a smooth transaction. Especially if the agent physically travels to the factory to inspect the goods before shipment.
Another benefit of an agent is that they may know the factory and therefore be able to get better terms...perhaps even the 50% down, 50% on receipt of goods deal. (There are pages and pages on the internet about opening Letters of Credit (LCs) which are another payment option, but I think this is too complex for small buyers).
But you should also keep in mind that there are many disreputable and lazy/stupid agents out there. They write nice emails, promise the world, claim to have tons of experience, and then they rip you off. T.I.C.
So you need to check the background of any agent before signing up with them. This means calling the references they give, but also doing some checking yourself via the internet. Do google searches for their email addresses or phone numbers and see what pops up. You can learn a lot about potential agents using this method. It may take a few hours, but it is worth the investment of time.
Now, I would like to jump backwards a bit and mention another first step that you could take...buy a cheap ticket on a Chinese airline (via a Chinese travel agent in your home country...bargain like crazy for the lowest price!) and come to China to look around. You can do this as a first step, or you could wait until you have a few contacts established and then come to visit them.
Some tips for your visit:
a. When lining up your initial contacts, try to focus them around one area such as Shanghai or Guangzhou or Shenzhen. That way you will have a lot less traveling to do when you visit them. Also your eventual agent will have a much easier time managing your suppliers if they are all based in the same area.
b. When you visit China, don't dress like you are going on safari in Africa. Wear comfortable but business style clothes, e.g. slacks and dress shirt. Ideally a sports coat type jacket. Look nice and professional. Go without a tie if the weather is warm. But please don't dress like all those westerners who travel to China in khakis or shorts and a polo shirt. ( I know that many westerners will disagree with me on this, and they will say that the Chinese understand, etc., etc. But I would still say they are wrong. As proof, look at how the experienced language-proficient westerners who are based long-term in China dress. You will have a hard time finding any such China-savy westerner dressing in casual clothes for business meetings or even for factory visits).
c. Get ready to bargain for everything. Don't be shy and don't feel sorry for the seller and don't believe a single word that the seller says to you during the negotiation. Here is a secret tip to know when sellers in China are telling you a lie: Their lips will move...
d. Don't follow any standard rules of negotiation that your uncle or friend may pass along to you. Just because they got ripped off and didn't even know it, doesn't mean that you should too. Example of a rule not to follow: "Try to pay only half of the initial offer price of the seller". You must know how to calculate real costs of production in China in order to know what price you should pay...
OK, OK, I admit it...I once wrote a post about a negotiating rule of thumb in China. But at least I have more experience in China than your uncle.
A great time to visit China of course would be during a tradeshow focusing on your products. You can find schedules for these shows in the internet. There is a also good English-language magazine in Shanghai called "shanghai biz review" that lists upcoming events but you need to have a subscription to get this info.
Hmmm...I guess that is all I can think of for now. Good luck!
For more information about our Effective Sourcing From China webinar, please contact us at info@midwestUSAChina.com or visit our site at http://www.midwestUSAChina.com
=====
Beginner’s Guide to Sourcing From China (Author:thomas at innovatize.com)
Your first step should be to locate some suppliers or agents. Hit the internet and start looking around. Send some emails and make some contacts. But be forewarned...lots of Chinese suppliers will ignore your emails completely. Don't feel bad, they do this to just about everyone. You can even pick up the phone and call them, and most of the time you will not be able to reach anybody, or you will leave a message and they will never call you back. This is China! (T.I.C)
Once you have located a few, check out their online catalogs which are usually lousy. Ask them to send you a regular paper catalog. Consider ordering a sample or two of their catalog items to check out the quality. Expect to pay at least for the sample freight (which is not cheap if they use DHL or something like that).
Once you are satisfied that the supplier is a viable candidate, ask them for a sample of your specific item (you may need to send them an original sample to copy or at least some design specs). Some suppliers will agree to send you ‘counter sample’ (a copy of your original sample) only after you have placed an order and made a down payment. In 90% of the cases, I would advise against this, but if your product is a complicated thing that must be custom made, then this could be the only choice.
OK, you have now found a supplier and are ready to place an order...now the scary part. They want 100% cash advance payment. Or maybe 50% on order placement and the other 50% when the goods are ready to ship. Should you do this? It's a tough question to answer. If it was me, and if I was based outside of China, I would not do it. It is just too risky! T.I.C.
Some factories might agree to 50% down payment and 50% AFTER you receive the goods. But I would have to wonder about a factory like this...why would they dare to take this risk with a stranger they do not even know? Either their factory is lousy, and they are desperate for business, or their profit margin is higher than 50%. Either way, I would avoid them.
Your other option is to use an agent (probably from the very beginning of the sampling process listed above). With an agent, at least you have a third party in the middle that should increase the chances of a smooth transaction. Especially if the agent physically travels to the factory to inspect the goods before shipment.
Another benefit of an agent is that they may know the factory and therefore be able to get better terms...perhaps even the 50% down, 50% on receipt of goods deal. (There are pages and pages on the internet about opening Letters of Credit (LCs) which are another payment option, but I think this is too complex for small buyers).
But you should also keep in mind that there are many disreputable and lazy/stupid agents out there. They write nice emails, promise the world, claim to have tons of experience, and then they rip you off. T.I.C.
So you need to check the background of any agent before signing up with them. This means calling the references they give, but also doing some checking yourself via the internet. Do google searches for their email addresses or phone numbers and see what pops up. You can learn a lot about potential agents using this method. It may take a few hours, but it is worth the investment of time.
Now, I would like to jump backwards a bit and mention another first step that you could take...buy a cheap ticket on a Chinese airline (via a Chinese travel agent in your home country...bargain like crazy for the lowest price!) and come to China to look around. You can do this as a first step, or you could wait until you have a few contacts established and then come to visit them.
Some tips for your visit:
a. When lining up your initial contacts, try to focus them around one area such as Shanghai or Guangzhou or Shenzhen. That way you will have a lot less traveling to do when you visit them. Also your eventual agent will have a much easier time managing your suppliers if they are all based in the same area.
b. When you visit China, don't dress like you are going on safari in Africa. Wear comfortable but business style clothes, e.g. slacks and dress shirt. Ideally a sports coat type jacket. Look nice and professional. Go without a tie if the weather is warm. But please don't dress like all those westerners who travel to China in khakis or shorts and a polo shirt. ( I know that many westerners will disagree with me on this, and they will say that the Chinese understand, etc., etc. But I would still say they are wrong. As proof, look at how the experienced language-proficient westerners who are based long-term in China dress. You will have a hard time finding any such China-savy westerner dressing in casual clothes for business meetings or even for factory visits).
c. Get ready to bargain for everything. Don't be shy and don't feel sorry for the seller and don't believe a single word that the seller says to you during the negotiation. Here is a secret tip to know when sellers in China are telling you a lie: Their lips will move...
d. Don't follow any standard rules of negotiation that your uncle or friend may pass along to you. Just because they got ripped off and didn't even know it, doesn't mean that you should too. Example of a rule not to follow: "Try to pay only half of the initial offer price of the seller". You must know how to calculate real costs of production in China in order to know what price you should pay...
OK, OK, I admit it...I once wrote a post about a negotiating rule of thumb in China. But at least I have more experience in China than your uncle.
A great time to visit China of course would be during a tradeshow focusing on your products. You can find schedules for these shows in the internet. There is a also good English-language magazine in Shanghai called "shanghai biz review" that lists upcoming events but you need to have a subscription to get this info.
Hmmm...I guess that is all I can think of for now. Good luck!
For more information about our Effective Sourcing From China webinar, please contact us at info@midwestUSAChina.com or visit our site at http://www.midwestUSAChina.com
China and Asia Relocation Services
Are you relocating to Asia or China? Our friendly advisory services cover the following areas: visa information, travel and transportation, risk and security, political and legal issues, culture and language, relocation assistance, province/city profiles, health care, education, and more. Please contact us at http://www.midwestUSAChina.com today for complete relocation services.
Saturday, April 26, 2008
Artisan Business Group presents "Attracting Asian Investors to EB5 Projects" Seminar
The webinar is programmed for federally approved regional centers (EB-5 investment projects) and law firms that handle immigration cases. Topics include: Overview of Asian Outbound Immigration Investments; Major EB-5 Projects Available in Asian Market; the Characteristics of Asian Investors; Asian Investors' Decision Making Process; Developing Effective Marketing Strategies; Partnering with Asian Marketers; Cultural and Legal Issues, Q &A., etc.
When: May 11, 2008 2:00-3:30 pm CST or by individual appointment;
Registration: http://www.midwestUSAChina.com
When: May 11, 2008 2:00-3:30 pm CST or by individual appointment;
Registration: http://www.midwestUSAChina.com
Chinese English Translation Services
Artisan Business Group provides Chinese/English translation services to companies and individuals. We can handle most any size project in simplified Chinese. We are committed to providing the most accurate translation service available with fast service. We can handle any project type including but not limited to business brochure and cards, website contents, legal contracts, financial documents, sales literature. We specialize only in Chinese and English translation to create the most accurate translation possible. We also provide on-site interpretation services for companies that are hosting Chinese trade missions. Please inquire today at http://www.midwestUSAChina.com
Friday, April 25, 2008
China Briefing with Illinois Soybean Association
Mr. Brian Su, President of Artisan Business Group, has been invited to present "China Briefing" to the board of directors of Illinois Soybean Association on August 12, 2008. ISA receives a number of Chinese trade delegations each year. Illinois soybean is one of the largest agricultural exports to China. For details on how we can help you learn China market, please contact us at http://www.midwestUSAChina.com.
Monday, April 21, 2008
Meeting with Anderson Hendrix
Mr. Brian Su met with Ms. Sharon R. McDade, President and CEO of Anderson Hendrix, Inc. Anderson Hendrix Inc. is a global management and marketing consulting firm that specializes in business growth strategies, brand optimization strategies, and integrated marketing and business development solutions for emerging, growth-oriented, and multi-national companies. For details about the firm, log on http://www.andersonhendrix.com
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