Doing business in China-ask us anything

Business Banking
#1

你好 Ni Hao, hello.

I’m Paul Gestro, head of Asia desk for BNZ and I’m just back from China with a delegation of our agri bankers and clients. 

As with last year’s trip, we want to share as much knowledge about doing business in China as we can. The opportunity for New Zealand exporters is huge but not everyone can get to China themselves so we’re bringing China to you.

There’s a articles in the NZ Herald and radio interviews.

Read and listen to them and then if you have any questions about exporting to or doing business in China, we are happy to answer them for you here. You need to register here which will only take a minute.

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New era in Australian (&NZ) Banking
#2

Here’s the first of our articles. Great to have Mike’s success story to kick things off.

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#3

We have definitely come back with a more optimistic slant on the Chinese economy, particularly for the food and beverage sector (where food imports increased by 20% this year). There are massive opportunities for NZ businesses to move up the value chain (away from straight commodities which is a finite play) and enter the minds of the discerning Chinese consumer. Brand ‘New Zealand’ is well understood in the China market, but it’s not enough to distinguish us from the pack. Given the purchase of food & bev is such a personal choice for many Chinese consumers (especially when feeding their children) - investing in marketing and developing  a premium brand that reflects those values is an enormous opportunity for NZ companies. But its not easy! We need to focus on what China wants, not what we want (think warm UHT yoghurt drinks…a Billion Yuan market!)

If you’re in Auckland we’ll be at these free ‘Doing business in China’ seminars so come along to get an on-the-ground insight into some of the challenges and risks of doing business in China  http://www.ajpark.com/ip-central/events-seminars/doing-business-in-china-series/

#4

Hello (ask us anything)
Can you explain China’s currency manipulation that the USA seem to be accusing you of. If China is still manipulating its currency today by devaluing it, how does it affect the NZ economy? According to some articles there are no agreements internationally on what constitutes currency manipulation. Also I hear that China is not part of the TPP. Can you comment.

#5

, China is taking steps to get its currency recognised gloablly (become part of the IMF) so devaluing it and creating a broader trading range is a small step towards that. Going fully free and open in one hit could be catastrophic to China and ultimately the world so a few early measures is a wise approach.

Also while growth was slowing its a measure to make its exports more competitive hence the word manipulation used fairly often. On the surface it certainly doesn’t look fair.

The initial devaluation probably hasn’t had much of an effect on the NZ economy as our dollar has been weakening, however if this becomes a consistent tool used it certainly will have some effects. You are right there are no agreements internationally on setting or moving currencies but if countries keep doing this they won’t be taken seriously in international trade and finance.

China is not part of TPP…yet! Getting the current countries across the line including USA & Japan was no easy feat so having China in the mix would of delayed it by a few more years. China are in RCEP as are NZ but I am sure they are watching TPP developments with interest. They are also creating initiatives such as the Silk Roads and Asia Infrastructure Bank.

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#6

Hello Thanks for replying.
Donald Trump who is running for president wrote a book about China’s currency.
I wasn’t aware of the RCEP. There didn’t seem to be as much publicity around that as there has been around TPP.
It has been said that China will be the “King” of the world soon. My fear is that we will end up totally owned by them and other countries and we won’t have a say in how we as a country live. This has already started happening with the banking systems that are owed by Australians. No offence to them, but they have a lot of influence into the decision making that goes into this country.

#7

@ford
 I like your opening sentence “Donald Trump wrote a book about China’s currency” - that he did that actually speaks volumes!!! RCEP certainly in the background as all the Asian nations plus Aus & NZ are involved. Once TPP gets approval then it will jump into prominence again…or will China look at it differently? It would be interesting to see what the banking landscape would be if NZ banks got into difficulty now and were up for sale as I wondering who will be at the front buying…Australian or Chinese or even Japanese? I think we still have plenty of say in how we work and live and will continue to do so provided we have the law and regulations to do so. We still need foreign investment otherwise it will put pressure on our economy and hit all of us hard but in general the wise investors (including the banks) know full well if they want their investment to be successful they need to integrate and operate in NZ via a local lens…then when developing important markets offshore operate with a global lens.

#8

Hello,
Not everyone is a fan of The Donald, but he’s rating well in the polls for the Republicans.
Our largest banks are of course owned by Australians. I read Alan Bollards book. It wasn’t completely in as much depth as I would like but he did write about the banks and how the Australians like to have their say on our economy. Yes I agree that we do need foreign investment and in a newsletter that came around from one of the political parties that I am a member of advised that we can’t become wealthy just selling to ourselves.
Being a Kiwi I do support our NZ banks.  It certainly is worth considering what would become of them should they face financial strife. I wonder what contingencies they have in place. I think there is still an aftermath from the subprime crash of 2007-2008. Wow that was a huge event.
Regarding the laws and regulations - There are huge issues in those areas that seriously need to be addressed. Sadly banks operating in NZ are involved in certain debt collection practises that don’t appear to be consistent with our laws and regulations. I think there are areas that are being exploited, and need to resolved.

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#9

It’s fascinating watching the republican race. I spent 4 years in the US not long ago and went through an election cycle and was amazed at how passionate they get about politics. He is certainly adding some colour but I’d predict as other candidates pull out he may find himself not winning their followers votes. In saying that another Bush v Clinton presidential race would be a bit boring. All the best.

#10

The story linked to further up this thread about the NZ farmer who made a business connection while attending an expo in China - is this how you’d usually go about initially making contacts in China? Attending expos and trade fairs etc? I imagine it’d be hard to know where to start to make contacts and get a foot in the door when you’re considering branching out into a new market/country.

#11

Attending trade fairs and expos is only one tool to learn about your market, create awareness and ultimately make connections. You should never have the expectation to sell stuff at a trade fair. It can take many years before you are seen as committed to the market then people will start buying off you. We deliberately introduced the farmer to an opportunity on the 1st Agri tour and the timimg was perfect. He was able to maintain the contact, negotiate terms when he got back to NZ and then supply. This was a bonus of his trip. He went there to learn and came back with an opportunity. The overall message is that if you work with the right partners in the market that understand your business then they will know who, where and when to introduce you to their contacts.

#12

Let’s not subvert the thread with references to Donald Trump now. Sideshow excluded, this is a candidate who thinks gun ownership is a right in America, in the face of overwhelming & incontrovetible international evidence to suggest otherwise. His credibility is void.
Back to the topic…I think it’s essential that businesses take advantage of the Chinese market. We need representatives in NZ to facilitate our understanding of the Chinese market. The so called ‘imminent take over’ is just xenophobic scare mongering. But if this is a primary concern to NZs sovereignty - then it is all the more important that we make wise investment and business decisions in these markets. Take for example the Australian owned NZ banks - these are listed on the stock exchange, they are profitable, so it makes sense for NZ to invest in these shares (and thus yielding counter directional investment flow).
So the essence of it all is this - how can NZ maximise its position, by making smart business and investment decisions in the Chinese market - mentors, educators and our top financial academics creating strategising this plan

#13

Our outward direct investment is very low, actually painfully non-existent. I’d love to see more and always promting the necessity to NZ’s wellbeing (& balance of payments). Capital is one constraint and we (banks) have a role to address this but it needs heavy lifting right across the NZ business and government environment. Any ideas @EugM? Keen on your thoughts on investing into the Chinese market specifically?

#14

I don’t know enough about Chinese values or their law to know what is possible. But maybe if Auckland University or Auckland Grammar reached higher international standards they could set up private institutions in China, as education is important. Not sure if their laws are prohibitive however

#15

Thanks, Paul. Would be great to see more NZ businesses expand overseas to markets like China - especially small/medium businesses with growth plans - with the original owners. Instead of selling a successful small business for $X to a corporation or similar overseas entity, if we supported growth and expansion into places like China we could see NZ businesses worth $XXXXX and still have them be NZ based and owned.

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#16

Have you ever been told how you should choose your milk in the supermarket? We as kiwis don’t think much of it, but for the Chinese (where milk hasn’t traditionally been part of their diet) – some guidance is needed. The photo below was on the wall of ‘Bright Dairy’ processing plant in Shanghai, and reflects the changing consumption patterns for Chinese consumers towards dairy products. The reason for the education drive seems to be because of recent food-safety scandals, lactose intolerance amongst many Chinese, and an increasing demand for protein based products as wealth increases.

How to choose milk in supermarket.png

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#17

Here’s the second and third of our articles. Interesting take on NZ/China trade trends, and good insights into how the Chinese youth are purchasing products today. Is the youth demographic the answer to increasing our trade with China?

#18

Expanding overseas - well lets get moving and support businesses so they can do that. There is a huge lack of general business knowledge especially with regards to small businesses and sole traders. Small businesses need to learn how to create cashflow positive businesses, so they can expand bigger and move offshore.  At a council meeting soon, I’m hoping to be able to speak to some of our community board members about adopting standards in our community that can enhance small businesses and expand our communities.

#19

Completely agree with you, and it would be interesting to hear what discussions you are having at your local government level. If we are we are going to reach the government’s growth target of lifting exports to 40% of GDP by 2025, we need to support our small businesses which form the back-bone of the New Zealand economy. New Zealand is perceived to be this great export nation, but the stats are dominated by our larger players, and it’s not easy for many small businesses to get a foot-hold in the international markets. Learning how to manage cash-flow properly is important, and adopting standards, or certain business models as you suggest is a good way to go. Bankers are trained to critically assess cash-flow issues, and have a really good understanding of what cash-flow should look like compared to other small businesses in the same industry. Accessing international markets can actually help open up new revenue streams and spread the risk beyond the home market – but small businesses need a kick-start in this direction. Funding is an obvious business enabler, but encouraging collaboration to build scale, going premium and leveraging the ‘New Zealand Story’ should also form part of the ‘go-to-market’ model for success. There are also a lot of resources available now days for small businesses going offshore  - including incubators and accelerators such as the Icehouse China development hub, and the Kiwi Landing Pad in San-Francisco that help kiwi companies accelerate growth in international markets.

#20

We need to change the definition of what it means to be a small business owner in NZ. Some of the banks in NZ do run small business workshops. They need substantially overhauling. The standards I am referring to are standards of behavour by residents, community groups and businesses. Large businesses can set the tone of how people behave in our community and it needs changing. I am lucky that I have had the opportunity to work as a treasurer for Crimewatch Chch Inc. We are one of the community patrols that operate here in Chch, so I see first hand the standards of behaviour that operate at all levels of our society and how they affect the residents, customers and businesses. Community safety and wellbeing of the residents should be paramount along with health and wellbeing but unfortunately it isn’t. When people are safe and secure they thrive, our businesses thrive. I have been hearing stories about companies targeting lower socioeconomic areas and selling them poor quality imported goods.  Corporate crime doesn’t seem to get much attention, notwithstanding the money that leaves this country in the form of cybercrime. The formation of standards I will be discussing with our local government will include strategies that will ensure people aren’t taken advantage of, as well as setting up structures to support better our community organisations that empower people to improve their lives. The stats I have looked upon thus far are the bankruptcy and insolvency statistics and the household debt levels that are on the reserve bank website. We need workable reliable standards that businesses and the communities can use to guide them along their journeys through life. We all need to work together for the good of the entire community.