Volatility no reason to give up on China
Q: I’m looking to export to China but I’m unsure if this is such a good idea given the latest market volatility. What are some things I should consider in making this decision?
A: While the Chinese market volatility has inspired justifiable concern about the impact on New Zealand, it’s important to factor in the difference between what’s happening on the industry, construction and investment side versus the consumer demand side.
If you’re a large producer and exporter of bulk iron ore or copper, the developments in China are a worry. But most Kiwi exporters are more focused on the consumer demand side, mainly selling food and other consumer products to a growing Chinese middle class.
True, New Zealand’s dairy sector, heavily reliant on China, has been stung by a fall in demand due to global oversupply and China stockpiling milk powder. But given the sheer scale of the market, our SMEs – unlike Fonterra – are small niche players, often with a range of premium products for which there is growing demand.
China was the destination for about 19 per cent of New Zealand exports last year. And as New Zealand’s profile continues to build in China, consumers will continue to seek out New Zealand products.
In particular, tourism from China is growing at a massive rate and purchase of goods and services follow tourism.
While analysts have warned that a prolonged Chinese stock sell-off has the potential to impact consumer confidence and consumption (with China’s annual growth rate projected to drop to about 3 per cent), bear in mind this does come off years of significant cumulative growth.
So don’t let market volatility put you off – just be more cautious. Do your homework, thoroughly analysing everything about the market from competitors and levels of demand for your product through to export licences, customs requirements, and bureaucracy protocols right down to issues such as Chinese labelling laws.
Given the complexity of culture, language, regions, systems and regulations, you’ll need to visit the country – ideally several times – prior to committing yourself to any business venture.
It’s also wise to use lawyers and accountants in China who’ll have the savvy to ensure contracts and agreements are negotiated in culturally appropriate ways.
For example, in New Zealand we sign contracts packed with various disclaimers and requirements. In China this is potentially offensive – so you need to work with professionals who understand how to ensure your interests are protected.
Take time to find the right distributor and to structure contracts to ensure you have control of your product: at some stage one party will outgrow the other.