By Andy Clayton
China represents an attractive market for overseas manufacturers. Many are drawn by the opportunity and set up an entity or appoint an agent to be able to supply the market locally. Working through import and custom procedures is a challenge. The good news is that most issues can be prevented, and there are ways to make it easier for newcomers.
The challenges
Import price. If you’re bringing your own product into China, there can be some difficulty in setting the import price. Should it be cost price, and thereby leave margins in the China business, or sales price, and so take profits out of China?
Keep it real and start as you intend to continue. Importing the same item again at a different price will be challenged by customs, especially if it’s a downward adjustment. Customs keeps a record of historic prices. Significant swings by the same importer will get flagged.
Ports. Your ability to bring goods in as well as the speed and cost of doing so varies according to which port you’re importing into. We have seen clients transporting goods by bonded truck from a seaport to a landlocked city inland to clear customs there, or adding significantly to trucking costs by first clearing customs at a “friendly” sea port, then distributing overland.
There are no hard and fast rules regarding which ports to use. It depends on product category. The correct solution goes hand in hand with the next item.
Customs clearance agents. This is one of the most important decisions to make. Customs clearance is a very localized business in China. Clearance agents have two areas of expertise: product category and locality. There are agents that are very good at certain product categories, and those that have strong networks in a certain port, or even both (e.g. “cosmetics in Shanghai”).
Don’t assume the customs broker attached to your freight forwarders are the right ones for the job. Test their credentials.
Getting the documents right. And getting them right the first time. Sounds obvious, but thoroughly preparing the documents required to clear customs is the only way of getting goods through customs without incurring storage charges. Be aware of three levels of documentation: importing entity documentation, goods documentation and exceptional documentation.
Timing. Chinese New Year and the National Day Holiday can be anticipated. Your goods must arrive three weeks before, or three weeks after. The airlines shut down airfreight to China, so when the holiday is over, there is a backlog of airfreight, and a massive backlog at customs. These periods must be noted and factored into any delivery promise.
Easier alternatives
In many product categories, opportunities exist to reduce import barriers and costs by importing raw materials or parts, then undergoing a manufacturing process so that the goods are labelled as “Made in China.” Barriers to imputing your finished product may be high taxes, but may also be non-monetary. For example, the requirement on animal testing prevents many foreign cosmetic brands entering China.
The degree of complexity of local manufacturing varies considerably. Find a specialist workshop suited to making your product. How to find them is a whole other topic.
China’s new free-trade zones (FTZs) present another opportunity for bringing goods into China. FTZs do not represent a backdoor means of bringing goods into the market. To get goods from the FTZ into the mainland, they still need to go through the same import channels as normal.
The opportunity arises in that goods can be held in the FTZ, close to end markets. This will appeal to companies with significant inventory (e.g. online retailers) who can import the product, hold it in the FTZ pre-sale, then complete the full import, and pay relevant import taxes once the goods are sold through.
Andy Clayton is the CEO of LNP China, leading the company's growth from LNP China's UK office.