Exporting to China

Once your firm bas an invitation to visit China you need consider carefully which executives should form the delegation. Two key personnel should be included: the first should be one who has the authority to make on-the-spot decisions the second should be a person (or persons) able to provide detailed answers to technical quest ons about the company’s product or service. If you do not include both types of people in your negotiating team, you may unnecessarily prolong the negotiations, increase the number of visits that your firm will have to make to China, and even jeopardise the chance of negotiating a successful contract.

If the above personnel do not also possess the appropriate financial expertise do not understand letter-of-credit (L/C) sales, and are not able to negotiate the financial aspects of the deal, then an additional member must be added to the team.

Separate sections have been provided on the problems that can be associated with Chinese L/Cs and also on the financing of sales to China (see “Payments” and “Financing Exports to China” sections, below). In particular, you should note that Chinese L/Cs made out for foreign exporters are usually “advised” and not “confirmed.” If a foreign exporter allows the advising bank to act as collecting agent, it means that credit is extended to the Chinese buyer by a period of about 20 to 30 days the time taken for the advising bank to negotiation with the Bank of China. If the foreign exporter requires immediate payment, he can sell his L/C to the advising bank at a discount. Most banks will discount the L/C only with recourse to the exporter, although some- times it is possible to arrange a discounted payment against a L/C without recourse.

When developing a financial package keep in mind that China has access to inexpensive buyer’s credits available from various national export/import banks (Known by different names in different countries). Usually the Bank of China is offered a financing package which is a mixture .provided by the national Export/Import Bank and a group of commercial banks, the buyer providing 15 percent of the total purchase cost. Short-term credit is available for Chinese purchase from major U.S. and European banks able to tap the Eurodollar market and pro- vide short-term Eurodollars at the London Inter-Bank offering rate (LIBOR.). Medium-term Euro-dollar loans are also available.

Many U.S. and European banks can also offer short-term credit at loss than LIBOR market rates, so you should make inquiries with your bank prior to negotiating the contract in China. Although the Chinese authority importing the products from your company will usually be expected to pay 15 percent of the total contract price, some of them will be interested in a 100 percent finance package, so you should explore this aspect during negotiations.