Shanghai of the Tiger? Doing business in China


In this blog by The Airport Economist Tim visits Shanghai the jewel of the modern Chinese miracle but a city with a rich cosmopolitan history as a vibrant centre of international trade and commerce.

Shanghai has always been China’s international city. As you walk around modern Shanghai today you see the foreign neighbourhoods like the French concession area and in the roaring ‘20s most foreign countries had embassies here (and Australia had its first Trade Commissioner in Asia here in Shanghai). The thriving cosmopolitan business scene in Shanghai also included a successful Jewish community, with one famous member being Vidal Sassoon the original owner of the famous Peace hotel on the Bund.

World War Two and the Cultural Revolution threw the country into disarray and depressed the economy. In the late 1970’s Deng Xiaoping took over as China’s unofficial leader and began an open door policy. His reforms transformed China into a market economy, reignited foreign trade and sparked the growth that’s got China on track to become the world’s largest economy.

Deng also negotiated the handover terms of Hong Kong and Macau and came up with the one country, two systems approach we see in those two cities. Under Deng’s reforms, Shanghai took centre stage as one of China’s key economic zones…and grew the mega metropolis it is today. These days Shanghai is home to the country’s main stock exchange, headquarters many leading global companies and the Shanghai Free Trade Zone.

And weren’t Deng’s reforms so spectacularly successful! China became the world’s second largest economy in 2010 after growing at three times the global average since Deng Xiaoping opened up the closed planned economic system in 1978 It’s only the 76th largest on a per capita basis, but given it has more people than any other country on the planet – teeming with 1.3 billion citizens- that’s a pretty impressive effort.

Chinese economic expansion has slowed from rapid double-digit growth a few years ago, to a more sustainable 6 and a half per cent a year. But now China is undergoing a huge transition. It’s moving being a “nation of shippers” to a “nation of shoppers” – going from export led development to domestic consumption and investment.

Demographics are also changing. Rapid urbanisation has created a string of massive ‘2nd tier’ or ‘3rd tier’ cities of 10 million people plus like Qingdao, Jian, Chengdu, Chongqing and Wuhan…and they’re all creating business opportunities as well. These cities need infrastructure like airports, roads and railway stations for the fast trains that propel people and goods across the countryside. And their emerging middle class consumers want designer goods, electronics, quality health care, and even an overseas education.

But despite it’s overwhelming size, businesses from Singapore to Seoul, and as far flung as Sao Paulo and Santiago, and Sydney are ‘hugging the panda’ and trying to score a piece of the Chinese action… and it’s not as hard as you may think.

For example, Australian health supplements company Blackmores uses its partnership with Alibaba to sell its product on T-mall, as China has a sophisticated online consumer market. ANZ Bank has managed to set up branches all over Greater China – including the second tier and third tier cities and the Government of South Australia has forged a sister province relationship with the Government of Shandong to ensure that SA barley is used in Tsingtao beer, Penfolds wines grace Chinese dining tables and the provinces agriculture and education institutes work hand in glove on Research and Development (R & D) and innovation.

But what about small business in China? Small and medium sized enterprises (SMEs) have a good story to tell. In Australia’s case, there are over 6,200 SMEs exporting goods to China alone plus another 6,300 who go through Hong Kong into the mainland and the majority are successful. In fact, more SMEs have lost money in the USA than China. As the old saying goes – “Whilst you might avoid China for fear of losing your shirt but then lose your pants in America!”

Yes China is a massive market but when you break it down by city, region and industry it is manageable with the right advice and help on the ground. And it’s been a commercially successful market for small players as well as the big guns. So play your cards right and like me you’ll be saying ‘Thanks China” in years to come.

Here are Tim’s Tips for China:

  1. Don’t assume 1.3 billion consumers will do it for you. China is a competitive place and Niche is the new Black
  2. Try the 2nd tier cities like Qingdao, Jian, and Chengdu – it’s not all about Shanghai and Beijing
  3. Get good legal and accounting advice about joint ventures and ‘Wofes’ – wholly owned foreign enterprises
  4. Use the Government badge and the chambers of commerce– embassy connections are respected in China and the chambers also play an important role.

More articles for you: 

The Airport Economist TV show on how to do business in Qantas destinations in Asia and around the world is currently being shown on Qantas Domestic and International flights.

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Setting up in Mainland China