The Australia-China Chamber of Commerce and Industry of New South Wales ACCCI Business Letter No. 1 7 August 2000
CONTENTS Feasibility Studies Require Total Involvement Trade and Investment Opportunities from Chinese Sources Proposals from Australian Companies
In the Chamber's E-Letter No. 22, we asked for readers' responses to publications such as the one entitled : Behind the Open Door: Foreign Enterprises in the Chinese Marketplace, by Daniel Rosen (published by the Institute for International Economics). On the basis of a number of replies, we decided to introduce a new seres of newsletters devoted to how to do business in China. We received a short article from Blake Dawson Waldron's China practice in Shanghai and include it in this first issue. The Chamber encourages similar articles from Australian companies with first-hand experience in China. We expect to produce one Business Letter per month and each issue will hopefully contain a submitted article together with announcements of "trade and investment opportunities" that we receive from the Chinese and from other sources. The E-Letter series that is devoted to analyses of economic, financial and political developments in China will be continued, though we have not been able to maintain two issues per month as we originally intended. At the moment, the mailing lists for the two series are identical with slightly less than 150 in the following groupings: · urban services (consultants, electricity, water, communications, transport, etc.) - 25% · government - 24% · agri-business - 14% · business associations (plus tourism) - 12% · manufacturing - 11% · banking and finance - 7% · academic and research - 7%.
FEASIBILITY STUDIES REQUIRE TOTAL INVOLVEMENT Mary Studdert, Blake Dawson Waldron, Shanghai, Telephone: 8621 6279 8069; E-mail mary.studdert@bdw.com.au Before you establish any kind of foreign investment enterprise (FIE) in China, the Ministry of Foreign Trade and Economic Co-operation (MOFTEC) must approve your application and information documents. One of the most important documents is a feasibility study which provides an overview of the technical and economic viability of the FIE project. This document needs to be lodged early in the approval process. It must contain a detailed description of subjects such as business scope, total investment, registered capital, premises and financial sources and projections. MOFTEC gives final approval of the FIE based on the representations you make in the study and it is important to remember that the FIE is bound by these representations. Therefore any subsequent documents lodged with MOFTEC, such as a joint venture contract and articles of association, must be consistent with it. If you are establishing an FIE as a joint venture, you must insist that you and your Chinese partner work as a team to prepare the study. This approach will ensure that there are no substantial differences between you and your Chinese partner over fundamental aspects of the project and avoid problems that may appear once operations are under way. Local law states that the Chinese party is responsible for submitting the study to MOFTEC. However many Chinese parties insist on preparing the document as well. Stories abound of joint ventures established in Shanghai where the foreign party had failed to become actively involved in the preparation of the study. For one Australian manufacturing company the lesson came too late when the study grossly underestimated the scale of the operation by $US500,000. By that stage, construction of the factory was well under way and the Australian company's entire $US1,000,000 contribution to the joint venture had been spent. The cash-strapped Chinese party turned to the Australian company to provide extra funds to complete the project. In retrospect, the underestimation by the Chinese party was considered deliberate because the Australian company would not have entered into the joint venture if it had known the true construction cost. The second major problem for the Australian company was that it could not realistically walk away with a partially completed $US1,000,000 factory on its books. Translating and checking the contents of the feasibility study prepared by the Chinese party before submission to MOFTEC can be a long and tedious process. For one well known German chemical company it took two and a half years from signing the letter of intent to lodging the study. Every one of countless drafts produced by the Chinese party either understated or omitted vital aspects of the joint venture which had been discussed and agreed to by the two potential partners. Spending time and money in the preliminary stages of any FIE can save time and money down the track. This is especially the case where there is a Chinese joint venture party involved who may have completely different visions of critical parameters of the FIE to your own.
TRADE AND INVESTMENT OPPORTUNITIES FROM CHINESE SOURCES Cosmetics and Health Foods with Natural Ingredients If you have been to China recently, you would have noted the large advertising outlays this sort of product has attracted. The market appears to be growing rapidly and China is experiencing a shortage of relevant products. We received a request from the China Federation of Industrial Economics (CFIE), which is a large association of manufacturing enterprises, for Australian companies that could supply ingredients and/or final products using vegetables, fruits, herbs, or tree oils for either cosmetics or health foods. We gave them the details of Thursday Plantation in northern New South Wales, but other sources are sought. The Chinese are willing to discuss distribution arrangements for products made in Australia, as well as purchases of basic ingredients. Joint ventures are possible for production in China. A similar request was received from Wuhan in Hubei Province and we suspect that other provinces would also be interested. Australian companies should contact the Chamber in the first instance. We will pass along your details to the Chinese. "Boutique" Fish for Beijing Hotels and Restaurants Another request from the CFIE concerns fish farming. A CFIE member company leased 300 acres in suburban Beijing for the purpose of producing fish to suit the specifications of hotel and restaurant chefs. They are looking for an Australian company with the necessary technology and equipment as well as additional investment funds. Ways to Halt the Encroaching Desert in the Eastern Qinghai-Tibet Plateau A new desert is forming on the 2,700-metre-high steppes in northern China. No one knows for sure whether this is due to climate changes that are temporary or are part of a human-induced global warming. The threatened area extends from Qinghai Province through Inner Mongolia and areas to the north of Beijing, which this northern spring experienced some of its worst dust storms in decades. The problem is obviously complex, and any comments, suggestions or expressions of interest from readers will be passed along to the appropriate people in Qinghai Province through the Qinghai Sub-Council of the China Chamber for the Promotion of International Trade. Investment in the Western Provinces The State Economic and Trade Commission listed 225 foreign investment priority projects in central and western China. The list includes projects ranging from agriculture to high-tech manufacturing, mining, electronic equipment manufacturing and technical innovation. Foreign investors participating in the priority projects will be exempted from import taxes and value-added taxes. Anyone wanting additional information should contact the Chamber.
PROPOSALS FROM AUSTRALIAN COMPANIES Setting-Up Venture in the Building Industry Bosco Seeto, of Bosco Seeto & Associates, architects and project managers, informed us that he has been looking into a co-operative trade centre in Shanghai involving Australian companies in the building industry that are seeking to "set up shop" in China. This should be appealing to a number of small and medium sized enterprises that find the initial set up costs in China to be relatively high. The Chamber offers its support in getting something like this started. Anyone who is interested should contact us at: j.zerby@accci.com.au Or contact Bosco directly at: resourcetech@yahoo.com His phone number is 9264-3232. Subscriptions to Reports on China Rod Halsted of IPI Information Service Pty Ltd informed us that his organisation offers subscriptions to a number of reports relating to China. Sample copies are available for inspection. Contact Rod at: Telephone: 9319-7933; fax: 9319-3408; e-mail: ipi@ipi.com.au
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