As China reopens its borders to the world after three years, it is more likely to see a surging trade with other countries. In this guide, we have put together some useful tips to help digital businesses trade smoothly with China.

1. Manage FX risk

It is essential to have a holistic risk management practice in place to protect your profit margins from unfavourable market movements. 

Globalisation opens doors to new markets, opportunities and customers, but a lack of clear strategy can shrink your profit margins. Suppliers usually set their export prices considering USD/RMB exchange rate movements. As an e-commerce merchant, you are increasingly vulnerable to FX market fluctuations. 

Three simple ways to get started:

• Speak to an expert who will help you build a holistic risk management solution based on your business needs and objectives
• Fix your RMB rate avoid to keep your profit margins intact – consider entering into a forwards contract with a financial solution provider
• Re-evaluate your risk management strategy periodically to keep up to date with market dynamics

2. Always negotiate prices

Bargaining might not be common in the West, but it is a widespread practice in China. 

Chinese suppliers expect prices to be negotiated, so overseas buyers don’t need to be shy about it. Failing to do so could cause unnecessary losses if you pay over the odds.

Here are some negotiation tools which you can leverage for a win-win situation:

• Build the expectations of establishing a long-term relationship
• Increase order volumes over time 
• Offer to help with other client referrals 
• Pay your Chinese suppliers in their local currency to negotiate better

3. Communicate like a local

Approx. 1.3 billion people worldwide use WeChat, of which more than 1 billion are located in China. As of 2020, 78% of Chinese aged between 16-64 are using WeChat.

WeChat is China’s most common communication tool and a popular means of doing business. Suppliers might take longer to reply to an email, but most of the time, they will reply promptly on WeChat, even during non-working hours or weekends. Here are the benefits of using WeChat for communication:

• Facilitates smooth communication with suppliers 
• Helps you build strong relationships 
• It is likely to speed up response times significantly

4. Develop personal ties beyond business

To succeed in China, you must cultivate personal ties and earn their trust.

The Chinese way of doing business is that business partners are often deemed friends with a more significant mixing of personal and work relations. For example, it is common for Chinese businesses to host you in their office with a team ceremony, whilst business deals are often discussed over a restaurant table. 

Treating your suppliers as friends and going the extra mile will bolster your business relationships and lubricate further negotiations. Here are a few ways to do it:

• Research their professional, academic and personal background
• Think long-term relationship building
• Identify the key decision-makers in the business
• Send them regards for the Chinese New Year or invite them to your country

5. Understand local market practice

The language barrier, Chinese market and cultural differences are significant hurdles for Western businesses to overcome when trading, which sometimes can make conversations difficult.

China is often seen as an opaque market, with many particularities defining how to do business. However, as China’s economy grows, we also see various initiatives to increase its international relevance and open up to the West.

Businesses need to get some Chinese-specific resources and support to understand the supplier side better and facilitate the negotiations. There are different options that businesses can investigate depending on the size and resources available.

• Use a local purchasing agent in China to centralise communications with suppliers
• Set up your own China office with local staff 
• Employ Mandarin-speaking staff in your country to help manage the suppliers

Some trends worth looking at are the increasing digitalisation in China and its impact. E-commerce has experienced exponential growth, initially focused on B2C but is also evolving to the B2B side. In addition, the introduction of the digital yuan will also change how international trade is settled. It is expected that it can eventually be used in cross-border trade between China and the West.

📩 If you are trading with China and need to manage your FX Risk, get in touch with us at [email protected] or +44 (0) 20 3872 6670.

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