Australia-China Chamber of Commerce and Industry of New South Wales
Business Letter No. 1
7 August 2000
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%.
Blake Dawson Waldron, Shanghai,
Telephone: 8621 6279 8069; E-mail firstname.lastname@example.org
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
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
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.
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.
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: email@example.com
Or contact Bosco directly at: firstname.lastname@example.org
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
fax: 9319-3408; e-mail: email@example.com
Send comments to: firstname.lastname@example.org