Q4 2018 China Business & Law Update for Busy Executives
Topic 1: Trade War Briefing: What we are seeing on the ground in China and opportunities for your business.
In the news these days you are hearing a lot about how manufacturing is moving from China to Vietnam due to Trump’s tariffs on Chinese goods. Some factories are indeed moving and many international companies are certainly exploring Vietnam as an alternative production base. But I think many of the reports making the news are not fully putting things in context.
For example, based on what I am seeing, the majority of the manufacturing that is leaving China these days for Vietnam and similar destinations was already on the way out before Trump. And the trade war just sped up the migration. It is no secret that policymakers in Beijing want to move production towards more value-added products (think iPads and machinery) and they aren’t too concerned when low tech stuff leaves (think socks and underwear).
Back in 2007-2008, when the global slow down hit, China got hit hard, because their economy was primarily export-focused and very dependent upon the US market in particular. As a direct reaction to that experience 10 years ago, in the time since China has made great effort to pivoted their economy towards consumerism and today, they are not nearly as dependent on exports. The current leadership in China appears to believe that increased globalism and even freer markets are the way to economic stability. That set up also serves as a buffer from the whims of whoever is the sitting US president at a given time. So while Trump pumps up the trade war, China is doing some interesting things these days:
- There is talk they will increase the VAT rebate for exporters in a range of industries. This VAT rebate increase could help offset some of the tariffs facing international companies manufacturing in China. If you are buying from a factory or broker, you would be wise to keep a close eye on the VAT rebate situation and don’t assume your supplier is going to let you know they got it! Most will simply put the new rebate in their pocket rather than pass it on to the customer unless you bring it up!
- They are making it easier (not harder) for international companies, including US companies to set up manufacturing in China. It’s is far from “easy” but it is “easier” than in the past.
- China is investing big time in the “one belt-one road” global infrastructure. Not only aiming to create a China-centric Asian trade block but also furthering integration with the EU economies. That means less dependence on the US economy and less exposure to US whims.
- China continues to raise the minimum wage for everybody (local and international factories). The logic is that if all those factory workers have some change in their pockets, they can go out and buy stuff, thus stimulating the economy. That’s part of what this “China dream” is all about. And that’s great news if you are selling to China.
- It’s getting easier to sell products to China. A lot of barriers remain, but many have come down. This is proof of China’s commitment to freer trade and how important view consumerism in the re-balancing of their economy.
- The USD has gotten a lot stronger. That makes China exports easier to buy. Offsetting some of the tariffs. China is not moving to strengthen the RMB at this time. That’s welcome news for many importers.
I’m betting that Beijing is watching the US mid-term elections very closely in hopes that the winds of trade war may die down.
Topic 2: China Scams & Bad Suppliers Exposed
I’m an avid reader of www.SupplierBlacklist.com
because it helps me stay away from the bad suppliers and the tricky scams. Here are a few examples:
Typical “bait-n-switch then switch again” scam: This buyer paid for one thing but got another. The product received is similar to what they needed so the buyer maintains the (false) hope that the supplier can make some adjustments and get it right on the next order. The buyer makes another payment. Guess what? Yep, a different product shows up, but it’s still not quite the requested one. Repeat. Repeat. Repeat. Supplier collects lots of money. The buyer goes broke. Don’t make the same mistake.
This Italian buyer learns why it is so important to have a warranty clearly stated in the contract. In their case, they got 10,000 USD worth of batteries that worked great at first. Then fell apart in the marketplace after use. Make sure your quality standards state the expected lifetime in actual use.
Who really owns the factory? This guy claims to be the factory boss, but when the defects start to roll in from the buyer, he just leaves as he was only a salesperson! The actual owner won’t stand by the promises made by the sales guy. Lesson learned: get your bilingual contracts chopped by the actual owner. And do some due diligence so you know who actually owns and runs the factory!