The “Chinese economic miracle” seems to have captured the whole world’s attention, especially when it comes to production, manufacturing, sourcing, FDI inflow to China etc’. But do we know about the biggest sector in the Chinese labour market – the agricultural sector?

The PRC inherited a ruined country, exhausted from both man made disasters such as warlords, civil wars, occupation, and natural disasters, droughts, famine, and floods.

During the Mao era, the Chinese government carried out a wide ranging land reform in the rural areas. Farmers with little or no land were given land of their own, significantly arousing their enthusiasm for production. Overall in Mao’s period, China’s agriculture developed slowly, with some golden times such as 1953-57 when the yearly gross output increased by 4.5% on average.

Under Mao, the conceptual role of agriculture was imperative. The Chinese farmer was basically the equivalent to the Soviet blue collar proletarian, thus the importance of the farmers in the class struggle was fundamental.

After 1978 and under the reforms, China introduced the household contract responsibility system, linking remuneration to output, and started to dismantle the people’s commune system, eliminating the links between organizations of state power and economic organizations. Contracting land out to farmers altered the distribution form of land and mobilized the farmers’ enthusiasm for production. As a result, for six years following 1978, agricultural output grew more than twice as fast as the average growth rate over the previous twenty five years.

The reforms made the market play a basic role in adjusting supply and demand situation for agricultural products and allocating resources, and aroused the farmers’ creativeness and enthusiasm for production.

On the whole, the reformist thrust of China’s economic policy since 1978 has benefited agriculture, as it has benefited the economy in general. Nevertheless, after 30 years of reforms, the sector is still behind most of the other sectors in the Chinese economy.

The economic and political role of agriculture in contemporary China -

1. Food security. In an extremely large and populated country like China, the concept of food security is fundamentally important. The task of feeding its people has been perhaps the first priority of its rulers throughout history.

2. Political and social stability. The farmers of China are known to have a “rebellious spirit”, which is well documented in the history books. When famine, war, or other extreme conditions took place, the farmers of China, whom use to be the majority of the population, and remain to be the largest group of China’s people, chose to strike. Thus, there is a consensus that there is no stability without the farmers / agriculture, and in order to avoid “da luan” – big chaos, the farmers must be kept quiet and content. At present still, the farmers of China are the largest, yet under-represented group, which holds the keys to stability in China.

3. Employment tool. The concept of agriculture as an employment tool in China is a bit of a paradox. On the one hand there is a massive scale of labour surplus in the agricultural sector, resulting in underemployment or even unemployment. On the other hand, agriculture remains to be the biggest sector responsible for the employing feeding, and consequently keeping social and political order of around 60% of China’s population.

4. GDP share. The reforms in the early 1980s initially increased the relatively share of the agricultural sector. The share of agricultural output in the total GDP rose from 30% in 1980 to 33% in 1983. Since then, however, the share of agriculture in the total GDP has fallen fairly steadily, and by 2003 it was only 14%. These figures indicate a relatively small share of the agricultural sector, nevertheless a noteworthy one in the overall performance of the Chinese economy.

What are the main obstacles to the agricultural sector in China than?

1. Natural resources and disasters. At the beginning of the 21st century, China has still to face and deal with a number of severe ecological / environmental problems, some are the consequences of human mistakes, and some are simply a result of “mother nature’s” course. The main problems are water supply, i.e. shortage, wastage and quality. In the agricultural context, irrigation is likely to be the most important factor.

2. Education. Chinese policy documents state that national modernization depends on accelerating quantity-quality transition in the countryside, because a large “low quality” rural populace hinders progression from tradition, poverty and agrarianism to modernity and prosperity.

3. Technology. The standard of a country’s agriculture is appraised, first and foremost, by the competence of its farmers. Poorly trained farmers are not capable of applying advanced methods and new technologies. Deng Xiaoping always stressed the prominent of science and technology in the development of agriculture. He said – “The development of agriculture depends first on policy, and second on science. There is no limit to developments in science and technology, nor to the role that they can play….in the end it may be that science will provide a solution to our agricultural problems”.

Accordingly, China is seeking technology transfer in the agricultural sector, formed by joint ventures with international collaborators.

4. Limited investment from government. Between the Second and Fifth five-year plan periods (1958-1962 and 1976-1980), agriculture’s share of capital construction and other relevant forms of investment made available by the state remained a little over 10%. In 1998 agriculture and irrigation accounted, respectively, for less thsn 2% and 3.5% of all state construction investment.

5. Limited inflow of FDI – foreign direct investment. Most sectors in China enjoy an enormous inflow of FDI, which particularly helped in 2 dimensions – technology transfer and capital availability. The lack of an outside funding, accompanied with a reduced local funding contributed to the deterioration of the agricultural sector.

In conclusion, the agricultural sector in China, unlike other sectors in the Chinese economy, is still rather under developed, and requires a substantial boost from both the local and the international community. It is my prediction than, that more and more foreign investors will discover its enormous potential and act accordingly.

How to search for buyers? Many enterprises have asked this question. There is another way to think about this question: If we make the buyers find the suppliers easily, this problem will become easy to settle.

According to the latest research, The major means of network marketing is search engine and its own website, which is much more important than other category of B2B website platform. For business to business (B2B) buyers, search engines are the primary research source, and one of the top influencers on purchasing decisions.

Among the buyers who search for suppliers, technology buyers accounted for 31.8%, and they are sent to ensure that the purchase of a product complies with the technical needs of the company. During the process of looking for suppliers, they mainly rely on four major channels: the mainstream search engine, seller site, B2B search engine and enterprise information site.

In the Business to Business Survey 2007, we found that general search engines topped the list of research sources throughout the purchase cycle, from awareness, through research, negotiation and purchase phases. However, many buyers move toward vertical search engines as they get closer to making a buying decision. The importance of cultivating a strong presence in relevant search results becomes even clearer to B2B vendors. Additionally, the more precise the key word is, the higher probability will the buyers inquiry. On the contrary, the broader of key word cause lower quality of inquiry.

When buyers in the study were talking about using a general search engine, they usually meant Google. A whopping 77 percent of respondents prefer Google, compared to 14 percent who chose Yahoo, 7 percent who chose Microsoft, and 2 percent who chose another engine. This reinforces for B2B marketers the importance of having a presence on general search engines, especially a presence on Google.

For B2B buyers, simpler is better. They want vendors to provide clear information, that’s easy to get to and can be easily transferred within the buying organization. The person doing the searching is not usually the only person involved in making the final decision. The researcher may be tasked with finding the relevant pricing information, technical specs, customer service and support data, which they in turn will need to present to the decision makers. A vendor should use that knowledge to provide researchers with the opportunity to dig down into the details of their products, and make it easy for them to find what they need to move on to the next phase of the buying cycle, with the vendor still in their consideration set.

International iron ore price rise has triggered pains in various industries in China, and many companies have to look for ways to improve their production efficiency to rescue themselves.

Steel price follow suit

As international iron ore price will increase at least 65% in 2008, iron ore imports into China have now increased by RMB 236/ton (RMB:USD = 7:1) on average from 2007 level. Adding in shipping cost increase, raw materials for steelmaking have now increased by RMB 400/ton, equivalent to a total increase of 15%

Jigang Group, a large state-owned steel company located in the eastern coastal city of Jinan, imports more than 60% of its iron ore from Brazil and Australia. “In less than three months’ time, domestic steel price has been adjusted upward for three times, totalling RMB 1000, or a 20% increase,” said Mr Bo Tao, Production Director of Jigang, “In fact, the magnitude of steel price increase has far exceeded the magnitude of raw materials price increase.”

“In March, China’s average steel product price has increased to RMB 5570/ton, up 40% from previous comparable period, and the rise is expected to continue. To some extent, steel price increase is an enlarged effect of iron ore price increase,” said an anonymous person from Jigang, “The strong market demand for steel in China has given steelmakers enough bargaining power on price setting.”

Downstream industries suffered

“We have little bargaining power in front of steel companies,” said Mr Gao Zengdong, a senior manager from Sinotruk, a major heavy duty truck manufacturer in China, “Due to production requirements, we have to purchase a lot of medium and heavy plates. To ensure raw materials supply, it is impossible to bargain on the price.” It is understood that Sinotruk buys more than 20,000 tons of medium and heavy plates from Jigang directly.

“The price for medium and heavy plate was RMB 4800/ton one year ago, but it becomes RMB 6300,” said Mr Gao. Although Sinotruk has long term supply contracts with Jigang, but the price is not fixed. Since January this year, steel companies have been increasing their prices every two weeks, with RMB 200-300/ton per increase. “Not all steel plates can meet our requirements, and due to transportation costs, we have to accept products from the nearby Jigang.”

Mr Gao also used another example of pig iron, a major input for axles. Pig iron price has increased from RMB 2600/ton in 2006 to the current RMB 5000. Especially since this year, pig iron price is almost increasing everyday. To cope with the high cost of casting, casting parts companies have to absorb 60% of the cost increase, while passing the remaining 40% to customers.

“Casting parts companies are facing tremendous pressure,” said Mr Zhang Libo, Secretary-general of China Foundry Association. On one hand, casting parts companies have to bear the pass-on raw materials costs from steel companies. On the other hand, the fully competitive market has forced many of them to absorb the pressure by squeezing their own profit margins. As a result, many small casting parts companies have to close down.

As in another downstream industry, Mr Liu Wei, a supply manager from Jinan Diesel Engine (JDEC), is also feeling the pain. Since February, JDEC’s steel raw materials, such as structural steel, steel plates and general carbon steel, have all become 30% or more expensive. JDEC spent RMB 600 million on raw materials procurement last year, with RMB 450 million for steel materials. The ever-tightening profit margin has affected the healthy development of JDEC, said Mr Liu.

The shipbuilding industry is also a big user of steel in China, and ship plate price has increased by more than RMB 1000 in recent months. “Shipbuilders in China now have delivery orders that are as far as in 2012, and every million ton of ship capacity consumes 40 tons of steel products. So it is impossible for their steel demand to decrease. In fact, some less-capitalised shipbuilding companies are now closing down as they can’t afford the productions costs anymore,” said Mr Bo from Jigang.

Internal solutions

After several rounds of price increases, Chinese steel companies have mostly recouped their iron ore costs. But their downstream customers, most of which are in highly competitive or consumer markets, are difficult to pass on their higher costs. After half-a-year long campaign, China’s white goods companies have now raised their product prices to combat the higher steel price. And auto makers, whose steel cost accounts for 70% of cost base, are also publicly speaking out of their pain.

“Our heavy duty truck industry is extremely competitive, so it is hard to pass down the cost pressure,” said Mr Gao from Sinotruk. Steel products account for 90% of the raw materials used in trucking production. But as many state-owned truck producers are now expanding their capacity to fight for the domestic and international markets, they can’t directly pass down their costs to customers. They can, however, rely on technological innovations, energy efficiency and emission control, in order to contain the production costs as much as possible.

The same cost problem is also faced by the competitive home electronics industry in China.

Mr Wang Zhenggang, Vice-CEO of Haier Group, admitted that “for a competitive downstream industry such as us, we can only digest the high costs by technological innovations, product differentiations, high quality and high value-added products. For example, we have recently launched a premium home electronics set with energy efficient and environmentally friendly features.”

Mr Wang also said that as a result of the rising steel price, many companies are now actively developing new substitute materials, “In addition, we also utilise the global procurement model, which sources raw materials and accessories from the lowest price countries.”

A Bumpy Road Ahead

Figures show the number of shoe making factories on the mainland increased from 20,000 to more than 30,000 between 2002 and 2006, but orders were much slower, leading to an irrational “price war”, experts said.

Industry newcomers, most of them SMEs, were further hit by an unfavorable marketing environment that included the appreciation of the yuan, price hikes of raw materials, rising labor and land costs, the reduction of the export refund rate and revised policy on custom duty deposit, analysts said.

“The industrial reshuffle has just begun. More SMEs without core competitiveness will be washed out and those with better technology and sound internal governance will survive,” Xinhua said.

The Unfavorable Factors Now Facing Shoe Industry

More Cost for Labors

The Uprising in RMB

Raw Material Price Keeping Rising

Foreign Anti-dumping Charges

America Sub-prime Mortgage

The “Red Sea” Competition Within Shoe Manufacturers Themselves

Shoe Export Slows Down

Guangdong, a province in south China, exported 490 million pairs of shoes in January and February 2008, valued at USD 1.59 billion, decreasing 27.5% and 0.6% from one year before, citing customs statistics.

In the meantime, the average price of the exported shoes surged 37% year on year to USD 3.2 per pair. In the first month of 2007, the Beijing authorities reduced the export rebate rate in footwear products by 2 percentage points. The move has been further weighing on shoe makers, whose profit margin are not high, especially in the country’s key footwear production base in the Pearl River Delta region, part of which are located in the province.

From September 2007, Guangdong’s export of shoes began to fall, 18.5% year on year in November of the year and 20.3% and 35.7% in January and February 2008. Besides, in the first two months, the number of Shoes exporters in the delta decreased 1,855 year on year to 1,512, due to a rising renminbi, the US’ subprime mortgage crisis and a rise in China’s labor cost.

Footwear Industry Suffers from Anti-dumping Charges

The anti-dumping investigation carried out in 2005 by EU was followed by a recommendation of Italy, France, Spain and other countries to take measures against shoes exported by China and Vietnam.

It was in October 2006, that EU began to impose 16.5 and 10 percent anti-dumping tax on Chinese and Vietnamese leather shoes respectively.

This policy will expire soon in October 2008 but Italy has already urged EU to extend the anti-dumping measure. Statistics from China Customs show that in 2007, the country exported around 180 million pairs of leather shoes to EU, which was a decline by 8.95 percent.

On the other hand, Vito Artioli, Chairman of Associazione Nazionale Comuni Italiani (ANCI) said that in 2007, the export of the shoes made by China and Vietnam to Italy declined by 15.4 percent, while, at the same time, the export of the shoes made by Macao and Cambodia increased by 72.8 and 90.7 percent respectively.

The request made by Italy was essentially on grounds that most of the shoes from Macao and Cabodia are actually made in China and Vietnam.

The Market is Promosing Concerning Female Fascination With Stylish Footwear

Shoes are an inexhaustible source of pleasure for most women.

Shoes Every Women Needs

FLATS: Daytime, comfortable shoes. Fashion notwithstanding, what you need rather than want is a trusty classic shoe – loafer, ballet pump and lace-up brogue all suffice.

HEELS: A low-heeled shoe or boot is good for daytime and a higher heel is awardrobe essential. I’d always pick astiletto heel as the most stylish, until you reach an age when it looks tarty or your feet simply won’t oblige.

TRAINERS: Unfortunately for most women these are wardrobe staples, but opt for simple ones.

SANDALS: Go glamorous if you can justify it, but a few pairs of flip flops for the summer will suffice.

BOOTS: Ankle boots are the winter equivalent of flat shoes. Knee-high versions are indispensable in winter beneath skirts and over jeans.

Boots Series Are a Big Cake

Women need several boots to suit different occasions and clothing. Most of them feel wearing boots could enhance their beauty, and add scores to their temprement. Whether they have a great looking legs or not, they love to wear it, kind of like an addiction. Even in summer, there are still cooler boots to choose from, making women looking sexy and cool.

Boots are practical, warm and weatherproof but are less elegant than shoes and hard to look stylish in. Boots only look as good as the legs that wear them. This is true of boots worn with skirts or boots worn over skinny jeans – please, no, if you have piggy calves and bulging thighs. Boots with jeans are good. Cowboy boots with jeans can look great – sexy and chic without trying too hard – but only if you get the right jeans and boots. Slightly battered and faded on both counts. Boots are also an office-girl’s winter staple, but not with skirt suits.

Four Manufacturer Bases of Footwear Industry in China

Guangdong Province

Many factories Close-downs is the must paid price for the industry transformation

Jingjiang City in Fujian Provice

Who will laugh at last? The “red sea” competition condition for the sports shoe in Olympic 2008 is getting more and more fierce.

Jiangsu Province

Brand cultivating and promotion is the core

China Shoetec – an UFI Approved Trade Show

Dongguan China Shoes.China Shoetec is an UFI approved event and the only shoes fair in Dongguan of PR China. It is the best one-stop sourcing platform in Asia for middle-to-high end footwear, materials & machineries. Dongguan, being the production hub of middle-to-high end shoes in PR China, provided an ideal platform for shoes exhibition and it’s convenience to plan for factory visits after show. To facilitate buyers’ visit, Dongguan China Shoes will be held in the same period of Canton Fair, and free shuttle bus will be provided to ease the traveling.

Being the only UFI approved footwear event in Dongguan, Dongguan China Shoes has been renowned as the most important sourcing platform for middle-to-high end footwear, shining with the world’s largest footwear exhibition, GDS in Germany. The 7th edition of Dongguan China Shoes?China Shoetec, which will be held on April 16 – 18, is expected for a greater scale: More than 600 exhibitors are going to participate, expected to attract 25,000 visitors, among which 7,000 are international buyers, exhibiting area will reach 25,000sqm.

New Opportunity Especially for Sports Shoes Market: Beijing 2008 Olympic Games

With the approaching of Beijing 2008 Olympic Games, more and more Chinese customers attend in various of sports, athletic sports gradually become one of the parts which can’t lack of in common people’s life, Sports Shoes market will be more and more larger. Besides townsman’s professional demand to sport shoes is advancing.

The influence of Beijing 2008 Olympic Games to science and technology content of sports shoes product. Nowadays the current of product with the same quality is more and more serious, who can keep ahead of technology and make out larruping and suitable product for customers, who will be favorite. Besides, sport shoes manufactures need improve professional capability, at the same time enclose with athletic sports requirement, via reduce cost to supply bargain gym shoes product for person.

Compared with burgeoning markets such as Vietnam and India, experts said China still has advantages in terms of cheap power and water supply, excellent infrastructure and an integrated industry.

There are several reasons for a given company not to invest in a foreign country, i.e. inadequate domestic market, economic system, government policy, infrastructure, supply of skilled labour, and so on. Therefore, very often the location advantages of a country are simply too few to attract foreign investors.

However, this rule clearly does not apply to the Chinese case. What makes China such a desired place for foreign investments?

1. Relocation overseas to Third World production sites is often the result of rising domestic costs (especially wages costs). This factor is crucially important for export oriented FDI. Currency appreciation together with higher levels of rents and labour costs in the home country can cause a loss of international competitiveness, and China’s labour intensive market compensates that.

2. Taxation reasons. China encourages special incentives of low taxes and subsidized infrastructure. China has signed a tax treaty with a few countries in order to avoid double taxation. In addition, a preferential taxation policy is applicable for investment in China’s development zones.

3. Availability of locally established component suppliers is extremely important for foreign investors. China is very experienced in manufacturing, hence finding suitable local suppliers and establishing links with these entities is relatively simple compare to other Third World Countries.

4. There is an existing and growing domestic market in China.

5. China’s political and social situation is very stable.

In conclusion, despite the cautious approach of multi national companies to undertake business ventures and inflow of FDI in China, the motivations and reasons to invest in China are of a great number, and foreign companies are now moving ahead at full steam to capitalize on China’s fast growing market and more investor friendly environment.

Blood enrichment products possess some special characteristics in China’s healthcare market. Firstly, they are one of the most developed products in the Chinese healthcare market, as blood enrichment products have now been divided into two regulatory categories: medicine and health foods.

Secondly, ingredients of blood enrichment products have three main categories, namely chemical compounds, generic food ingredients and Chinese herbs such as angelica and donkey-hide gelatin. Thirdly, due to constant marketing campaigns, people have now accepted that there are three types of blood enrichment products in terms of effectiveness: pure blood enrichment, blood and energy dual enrichment and female body strengthening.

It can be said that China’s blood enrichment product market is a result of extensive consumer education in the last 10 more years. Currently, the medicine part of this market is worth approximately RMB 2 billion (US$ 260 million), while the health food part is about RMB 2 – 2.5 billion (US$ 260 – 330 million).

Products

In terms of blood enrichment products, the health food category has made better contributions to the industry so far. According to a survey in early 2006, there were about 600-700 blood enrichment food brands in China, with leading national players such as Red Heart King Group, Joincare Pharmaceutical Group, Hong Fu Loi International, Harbin Pharmaceutical Group Sixth Pharm Factory, Hengan Group and Yangshengtang Group, and tens of leading regional brands.

The blood enrichment medicine segment was relatively less competitive compared to blood enrichment food segment. There were only a handful of serious national players, such as Dong-E E-Jiao Group, Jiuzhitang Group, Jilin Xiuzheng Pharmaceutical and Shandong Fujiao Group, and there were rarely any leading regional brands. Dong-E E-Jiao Group had been the dominant player in this market with 43% domestic market shares and 75% of export market shares for three consecutive years.

Among blood enrichment medicines, donkey-ride gelatin-based products had been gaining more and more popularity, with more than 45% market shares in mid-2006.

Prices

Wholesale prices of blood enrichment products in China exhibited the following characteristics: health foods higher than medicines, oral liquids higher than syrups, branded products higher than non-branded products, and prescription products higher than OTC (over the counter) products.

In terms of retail prices, there were also three distinctive characteristics. Firstly, branded products, despite their higher prices, had smaller profit margins than non-branded ones. For example, for the same donkey-ride gelatin-based oral liquids, products from Dong-E E-Jiao had a gross margin of only 20%, while products from the lesser-known Jiangxi Yuxin Pharmaceutical could reach 85%. Secondly, competition in the retail end was maturing, as manufacturers and distributors tended to achieve a rational balance between promotional expenditure and product pricing in many geographical regions. Thirdly, although blood enrichment products had originated from rural areas in the 1990s, amid the short-sighted competitive environment, currently there was a shortage of products that could satisfactorily meet the demand from rural populations.

Retail competition

As more than 80% of blood enrichment products were sold as OTC medicine in China, the real driving force in this market would be the competition among OTC outlets (mostly pharmacies). Survey statistics showed that among the top three factors that influenced consumers’ purchasing decision of blood enrichment products, “in-store recommendations” ranked the highest, followed by “doctor prescriptions” and “brand awareness” each with 21% respondents, and “previous experience” finished the last with 12% respondents.

From the above statistics we could conclude that a product’s competitiveness was largely determined by its word-of-mouth recognition, which was in turn developed from factors including retail outlet development, in-store sales personnel, unique selling points of a product, packaging and promotional campaigns.

Market strategy solutions

The above analysis indicates that there are two major themes in the current blood enrichment product market: retail outlets and rural demand. These two themes could therefore form the basis for a company’s development breakthrough.

Retail outlet strategies

Retail strategies have to be differentiating, emotional and communicative. Differentiating means product innovation and operational advantages, in order to achieve an optimal combination of performance, products and prices.

An emotion-appealing marketing campaign is important for blood enrichment products, as their target purchasers are mostly female customers, who are relatively more emotional. Therefore, a detailed, considerate and comprehensive promotional campaign, coupled with effective execution, will be the key factors to secure good sales volume.

A communicative strategy means companies have to establish long term relationships with their target customers, by means of regular and diversified communications and messages, so that consumers can improve their understanding of particular products and manufacturers.

Promotions key to rural market operations

The definition of rural market here also covers county-level markets (the third and fourth tier markets). Compared to urban market, rural market has the following three advantages. One is their better understanding of the danger of blood deficiency, due to their suboptimal nutritional intake. Rural consumers buy blood enrichment products not only for beauty purposes, but also for real blood supplementary purposes. The second advantage is that rural consumers typically have more “sheep mentality’ when it comes to consumption, easier to be manipulated by well-executed promotional campaigns. The last advantage is that in rural markets, promotions and sales activities are normally tied together, while companies may have to sink more marketing money to please the more cherry-picking metropolitan consumers.

Distribution channels and promotional campaigns will be the keys for opening up the rural demand of blood enrichment products. It is important for a product manufacturer to partner with those commercial distribution companies with rural supply qualifications. And promotional campaign should not only be targeting end customers, but also grass root-level pharmacies and shops.

It has not been long before China was seen as a nation specializing in low cost replicas with absolutely no focus on quality and value. China however had no intention of remaining just a low-cost source of third class imitated products. With steps taken by their Government like revolutionizing their educational system and giving benefits to the companies that bring technology to the country, China has successfully managed to break the notion. According to PRC General Administration of Customs, the top exports of china in the year 2007 were electrical machinery & equipment and power generation equipment respectively. That’s a significant shift from agriculture sector to industrial. China is now world’s largest exporter of technology goods. Even the country like Japan is among the top 5 countries, importing from China.

Although, importing from China with such positives may look like a source of easy money, it has its fair share of negatives. So before you embark upon the idea of starting imports from china with dreams of huge profits in your mind, you must not overlook these problems which might occur once you get into this trade.

1. Finding Suppliers:

While finding a supplier from China seems like a walk in the park (there are so many on internet and yellow-pages), it isn’t that easy. Reason, you cannot just trust any supplier which comes your way while searching on the internet. Check for credibility; find some well known company rather then just choosing the one with lowest price quotes.

2. Payment Issues:

Most important thing when striking out a deal with some Chinese exporter is to finalize the payment method with him. Issues like payment method, currency in which payment will be made, how much will you pay in advance? Should be discussed and settled as soon as possible, to avoid complications in future.

3. Communication:

Another hurdle which has been there for long is communication problem. Although more and more Chinese now seems interested in learning English to expand their opportunities, it will take some time before they start getting familiar with English language norms. Till then you have to rely on your communication skills and ability to convey your message clearly. Know the terms used in this part of the world. When making an order, be very clear in your product specifications. Re-check by inquiring, what they understand of your instructions. Clearly state what should be produced and how it should be produced. Give crystal clear instructions on what material should be used, or you will end up having “lead painted toys”.

4. Quality Control Problems:

Very recently issues like kid’s toys having lead paint, or livestock and pet food having chemicals, injurious to animal’s health have raise eyebrows over quality of China’s exports. Problem lies partially at Chinese manufacturer’s side and partially in drastic efforts to cut cost to its minimum. While your prime reason for importing from China is “low-cost”, make sure you are getting products which don’t fall below standards of your market. Arrange for some agent or third party in China which will ensure quality check on your part before your order is shipped to you.

Since a nation’s VAT (value added tax) has a direct impact on price and profits, it is important to understand the VAT of the country where manufacturing and products are being sourced. Here is a look at China’s VAT and how it affects China sourcing.

How VAT works and how it applies to China sourcing.

While VAT works differently in different countries, it is basically a tax paid on the value added to a product as it moves down the supply chain to the end user. For example, the raw materials of a widget are purchased by a manufacturer and a tax is paid. Then, when value is added to the materials by turning them into a widget, a tax is paid on the added value. Finally, a tax is paid on the final added value of the widgets when they are sold to the final consumer.

For example, if the VAT is 10% and the manufacturer pays $50 the materials, $5 goes to the government. Then, if the manufacturer sells the widgets for $80, $8 go to the government ($3 additional dollars since $5 was already paid). Finally, if the widgets are sold to the final consumer for $100, $10 goes to the government (an additional $2 since $8 has already been paid). VAT can also be looked at as a kind of a sales tax that is paid in part before the goods ever reach the final end user. Because the tax is being paid earlier and more often, it is more difficult to avoid than a regular sales tax.

In China, the VAT rate is 17% on most goods. However, the government often refunds at least part of the VAT when the goods are exported. The amount refunded varies with the product, and the Chinese government uses the VAT as a tool to influence industry. Usually, the refund is highest on those goods the government wants to encourage production of in China (e.g. higher value-added products) and lowest or non-existent for products the government is less interested in seeing manufactured in China. An example of this was seen in 2007 when the VAT system was changed and VAT refunds for many high-energy, high-polluting goods were greatly reduced or eliminated.

In its most simplified form, the VAT refund for an exported product works like this. If the VAT rate is 17%, and the refund rate is 10%, on a $17 VAT paid, $10 would be returned to the exporter while the government would keep $7.

Why understanding the VAT is important for importers

Importers who do not understand the VAT system are exposing themselves to the following potential problems and extra costs:

The best pricing starts with transparency. When breaking down pricing, comparing between suppliers, negotiating etc., it is critical to know the suppliers true costs. Without an accurate breakdown of the costs with the VAT rate clearly stated, the supplier has more room to manipulate the price.   Some manufacturers may not tell the purchaser about the VAT refund or tell them the refund was a lower rate that they actually received and pocket the difference (it is also sometimes possible to negotiate the customs classification and therefore the VAT rate). To get all the cost saving due through VAT refunds, every importer needs to be fully away of the classification and rebate for the products being purchased.   If a manufacturer lacks the proper import-export rights or VAT processing abilities, they may be forced to rely on third parties that will likely inflate the price and make the relationship with the manufacturer more complicated.   In a gray area of the law, some suppliers are able to avoid the VAT for smaller orders. While this will give the purchaser a lower price in the short term (although this runs the risk the goods will be trapped in China without proper documentation to export them), the importer will suddenly be hit with the tax when their business grows and the order size reaches a point where the VAT cannot be avoided. This tax increase will likely to be greater than any discount from larger order quantities.

With these point in mind, when doing business in China or any nation with the VAT, is imperative to know the classification and VAT for every product and ask the supplier to outline their VAT policies. Doing so will enable the purchaser to avoid unexpected costs or other problems while getting the best price possible.