Atradius’ Chief Market Officer Andreas Tesch explains: “Growing affluence within China is stimulating private consumption and this creates real opportunities for foreign exporters, provided that they understand the nature of the market and take sensible measures to protect their assets”.
For instance, Chinese import tariffs, usually levied on the importer, can for some types of product be as much as 270%, proving an expensive disincentive to buy. It is therefore advisable for foreign suppliers to take account of this in their pricing, but also ensure that their supply agreements protect against these costs being passed on to them by the importer.
Foreign suppliers should also be aware that, whatever country’s law is agreed with the importer to cover the contract of sale, certain aspects of Chinese law always have to be complied with, including China’s competition laws such as those relating to misleading advertising and predatory pricing.
Beware of import restrictions
Not all goods can be freely imported into China. The Ministry of Commerce – the government department in charge of foreign trade in China – regularly revises its lists of restricted or banned goods. It is therefore advisable for foreign suppliers to first clarify whether their goods are subject to any licensing or quota requirements. Otherwise, there is a risk that the goods will not be allowed into the country.
Observe foreign exchange administration regulations
Importers must report payments to the Chinese State Administration of Foreign Exchange if the value of the goods and the amount paid differ by more than the equivalent of US$ 10,000 for a single contract. Although it is the importer’s responsibility to comply with foreign exchange laws, foreign suppliers should take into account the risks associated with the Chinese foreign exchange control regime, as it can hinder or prevent payment: for example, some importers are not entitled to make advance payments or to pay the purchase price by way of letter of credit.
Protect your credit sales
Even when a foreign supplier takes all practical steps to ensure a successful outcome, there are always financial risks. “That’s why we advise companies to agree on adequate security of payment with their Chinese customers”, says Mr Tesch. “And, of course, trade credit insurance can alleviate the worry of possible non-payment, allowing the exporter to focus wholly on the growth opportunities that China has to offer. What’s more, in a country as vast as China it is easy to confuse two similarly sounding company names. A reputable credit insurer will ensure that a customer is correctly identified and its creditworthiness accurately assessed.”
Atradius’ report on trading with China is the third in a series, with similar reports on Russia and Turkey already published and reports on India and Brazil scheduled for later this year. Each published report can be downloaded free of charge at http://www.atradius.com.
The Atradius Group provides trade credit insurance, surety and collections services worldwide. With a presence through 160 offices in 45 countries, it has a market share of approximately 31% of the global trade credit insurance market. Atradius has access to credit information on 100 million companies worldwide and makes more than 20,000 trade credit limit decisions daily. Its products help protect companies throughout the world from payment risks associated with selling products and services on credit.
Source: Atradius N.V.