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How to do business in... China

In the latest of our series to help the Scottish business community, Gareth Magee gives an insight into how to do business in China.

Population: 1.35 billion

Currency: Renminbi

Capital city: Beijing

GDP: Approx. $8.2 trillion

It's hardly surprising that UK companies are eager to do business in China - it is, after all, the world's biggest emerging and fastest growing economy.

A recent slowdown may have taken some of the air out of the bubble, but while the 2013 growth rate of 7.7 per cent was the slowest in over a decade it was still the envy of every country in the west.

In other words, its status as a global economic powerhouse and as a target for foreign businesses remains unchanged. UK exports to China have more than doubled since 2009 and in 2013 averaged more than £1 billion a month, according to the UK government. The flow in the opposite direction is even stronger, with Chinese investment into the UK passing the £8bn mark in 2013/14.

China only opened up to foreign investors when it became a member of the World Trade Organisation in 2001, but it is now among the UK's top 10 export partners. While some industries remain off-limits to overseas countries, the Chinese government actively encourages foreign investment in others.

China's burgeoning middle class and the rapid increase in disposable incomes creates particular opportunities for retailers, consumer brands, architects, information technology, financial services and even green technology firms.

In some cases the demand from China would appear to play especially well to Scotland's strengths in certain sectors, not least renewable energy, life sciences and finance.

Companies in sectors in which China encourages foreign investment can benefit from a range of incentives. Among them are reduced or preferential corporate income tax rates and import tariff and import VAT waivers on certain equipment. There are also selective incentives in a number of development zones that are often designed to attract foreign financial and high-tech firms, among others.

The rewards for Scottish companies able to successfully do business in China are potentially very lucrative. The problem, however, is knowing where to begin and how to go about it. Its size is one very obvious reason why it can be difficult - China is a huge multi-ethnic country of more than 30 provinces, regions and municipalities, plus the special administrative regions of Hong Kong and Macau.

Then there's the cultural challenge. Adhering to a few golden rules will serve a foreign company well, not least remembering the importance to the Chinese of saving face, and if circumstances call for it, allowing others to do the same - by paying compliments and giving respect for example.

A humble and polite approach can go a long way, particularly when dealing with those in more senior positions. A handshake and a slight nod of the head is the traditional greeting, but don't be overly enthusiastic, touchy-feely or vigorous - this doesn't go down well and can be interpreted in the wrong way. Small talk is valued, especially at the outset of a meeting, but topics around politics, religion and current affairs are ideally avoided.

The business card etiquette you so often hear about does actually exist. If you are going to do a lot of business in China, it's a good idea to have one side of the card translated, and if you are going all out to impress, print the Chinese letters using gold ink as this is an auspicious colour.

There are other issues to think about. For example, if you're planning to export a product into China or embark on an investment project you should make sure it's not prohibited.

China also has less robust intellectual property protection than most western countries, while there are still considerable problems with corruption, despite a modest recent improvement.

Establishing a foothold can take time and a business venture in China is best viewed with a long-term perspective.

The business opportunities created by the economic rise of China are clear. But with companies all over the world well aware of the business potential the competition can be stiff. Getting it right can take a lot of groundwork, time invested in building relationships, good knowledge of the relevant market, an understanding of the culture and a good dollop of patience.

Gareth Magee is a partner at Scott-Moncrieff, leading accountants and business advisors, which, through its membership of the Moore Stephens network, helps Scottish businesses realise their international potential.

Click here for the full 'Doing Business in China' guide

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