You are dreaming to crack into the Chinese market.
You have the next big hit product for China.
You’re back in America right now wondering how to get your products onto Chinese soil. This product or service needs to get into people’s hands here in China.
I know that feeling, and I know how frustrating it is to feel on the “outside looking in” to China business.
Today is your lucky day.
We are going to dig into a few ways to get products into the Chinese market. A general disclosure, these are “on the ground” tips from years being in China and working with these cases in many examples. It does not mean there are other ways, and it definitely doesn’t mean I recommend to do the illegal ways.
The purpose of today’s article is to provide you a full picture of the environment of getting goods into China.
The 100% Correct Way To Import Goods To China
Let’s start with the legitimate and correct way that “shouldn’t get you into trouble”. The tricky part about China is it is developing so fast, rules change and tax rates and procedures change. So always keep extra time and extra budget for unexpected issues.
The correct way to import is you ship the goods via a registered shipping agent to a Chinese port. Let’s say to Shanghai Port. You will have all the proper documentation, proof of where the goods originated (manufactured). Also need invoices to the buyer in China, packing slips, and full specifications and details about the goods. Having a Chinese product description will definitely help.
Once it arrives at port, this is where they will check the goods and classify it. Has anyone imported and sold this product in China before? Will Chinese customs understand what the product is so that they can put a code to it? It is something like HTC (harmonized tariff code) codes in USA, which stands for harmonized tariff code. This code will have a tax rate depending on the policies of the Chinese government at that time. Maybe they want to tax wine higher because there is a political issue with France. It can change. The rate will be higher for luxury items, or goods where China wants its people to buy domestic / local brands.
Besides this variable tax, there is a flat import tax. This is VAT (value added tax), and is at 17%. Europe has similar type system, all goods made in the country or imported into the country have a base tax from origin. This is different from USA sales tax, passed to the end consumer when they buy the goods. In China, it is also known as fa piao, or invoice. Each new buyer takes over this tax and the seller can then get paid back for it.
Many people have asked about importing digestible products such as vitamins and other supplements. These kinds of products are delicate, as China, like any government, wants to make sure they are safe for their people to digest. I recommend before shipping a container to China, find a shipping agent to classify your product. Make sure you can even import it!
Let’s move onto….alternative ways of getting goods into China.
The Grey Way
Grey is always interesting, as it is somewhat legal and somewhat crossing the line of illegal. Let’s go through this procedure now and it is up to you to use this at your own risk! This is a more popular method for smaller business owners who are selling on e-commerce in China such as TaoBao and Tmall.
You can find a registered logistics company that has locations in both Hong Kong and Mainland China. Then you ship the goods to Hong Kong, at their logistics center. Getting goods into Hong Kong is a bit more straightforward, and often at a much lower tax rate. This logistics provider will take care of all, and get it to their warehouse facility.
Once the goods are in Hong Kong, the logistics company charges you an upfront rate for getting your goods across the border into China. This is by truck, but could be air as well. Because these logistics companies do a high volume of goods, they can spread your products into smaller batches across a range of trucks in their company. As these are smaller quantities and going on a land border, the Chinese customs may not be as strict in the procedures of checking. The logistics company will file with customs all the various products in their cargo, which will be your goods mixed with other clients goods.
How much does this service cost? They charge by the kilogram, and by the product type. Mainland China, taxes imported baby milk or cosmetics high in while much lower in Hong Kong. At least 3 US dollars (20 Chinese Yuan) per kilogram in most cases.
What if your products get seized at customs? Discuss this with your logistics provider, but a lot of times they can cover the value with an insurance policy.
Remember, this is a grey way and may not be advisable to at all, or at least not for a long term, scalable solution. As you grow your business in China, it will be hard to avoid doing using the first method in this article.
The Underground Way: Human Cargo
This one is fun for me to write about and share. But because I share it does not mean I endorse it. This is for the completeness of today’s guide and to give you the full picture of how goods get into Mainland China.
Again, this leverages this Hong Kong and China border in most situations. It is also in any border where “humans” are crossing into China. Heck, you can think of this the same as a person flying into America to smuggle in drugs. But here its not for drugs, its for baby milk powder, cosmetics, wine, iPhones, and other taxed items.
There are “logistics solution providers”, or alternative networks who have networks of human…smugglers. They take larger volumes of goods from Hong Kong into China.
They can do it by maxing out the daily limit. Each person coming into Mainland China has a daily limit of certain goods tax free. Let’s use baby milk powder as an example. The limit is 2 cans per person, per trip. So this human network will take pallets of this baby milk powder and distribute it 2 cans at a time to their people to carry across the border. The people then come back into Hong Kong, take 2 more cans, and repeat the process.
This can happen many times per day by the same person! Then you wonder why these borders are so busy! For people who cross the Hong Kong and China border as much as I do, you know what’s up! You’ll notice these long lines with people rolling big luggage packs behind them.
The government has cracked down on how many times Mainland Chinese can enter Hong Kong. As a lot of these people are Chinese, this has then lowered the volume of people who can take such a large volume on the same day.
So this method must be getting more expensive, as there is a lower supply of people able to bring the goods back and forth across borders.
Again, I do not recommend or endorse this way, but always think it is fun to share. I remember crossing Luo Ho border late at night and a woman ahead of me pulled aside. She had maybe 20 or so iPhones takes around her torso under her shirt! It looks scary, as they were black iPhones in clear plastic bags lined up around her body. Looking like the b-o-m-b word which may have gotten her in even more trouble. She was causing a real scene. Wonder what her story was.
Those iPhones are definitely lost and confiscated. That is part of the risk of a smuggler.
Tip: Find Out If It’s Classified In China Already
So if you’re still reading this you’re pretty serious, good job! A good tip is to first see if someone has imported or sold this product in China before. Ask a logistics provider who deals with imports into China. There are tons doing export from China, but it is getting more and more common to find those who help you import into China.
If this is the first time anyone will have imported and sold the product in the Chinese market, you’ll have a bit of a process to go through. I’d recommend you get some samples sent over and working with your import broker. Ensure that the Chinese officials classify it and give you an idea of how much import duty (i.e. tax) you’ll need to pay.
Keep a buffer. Both in time and money. Especially for the first time. I would say it will take a month or so to clear customs the first time. I have friends who have imported beer from Australia and it was stuck in Chinese customs for over a month! And these are goods are perishable. He explained to me and a group of us (over many beers) that he wished he has done a smaller initial shipment. He would have worked the kinks out before sending a large container shipment.
Patience is a virtue, anywhere, but especially in the Chinese market. Budget this extra time and costs as product development.
Dealing with Shipping Vitamins to China
So – Shipping Vitamins to China
A ton of people have been emailing me on the blog here asking about the process of importing vitamins into China. While I do agree healthcare products have a huge potential to sell to the Chinese consumer, it is a very long and expensive process. We have cross-border lawyers in our GFA network that we can introduce you to and limiting your liability. Especially before selling any digestible in China (well, anywhere for that matter) – where even if this is an approved product in a Western marketplace – it is unknown in China. If you have experience with importing vitamins into China I’d love to hear your experience in the comments below so we can all learn together.
Tip: Leverage Chinese Free Trade Zones
China has opened up FTZ (Free Trade Zones) to better deal with the growing number of imported products in China.
This is because quite a few people were using the “underground” way of getting products into China and pushed the Chinese government to make a proper system to deal with new products getting classified faster.
More and more cities in China have these FTZ, and if you want to read more on the zones, check out our 5 Things You Need To Know About Chinese Free Trade Zones guide.
Tip: Leverage Hong Kong
As the theme of this Global From Asia site states, Hong Kong is a powerful tool for your Asia business. That is especially true for doing business in China in the import and export arena.
So don’t leave this tool underutilized! Ask your logistics provider if they have a Hong Kong warehouse facility. They can help with cross border between these 2 regions. Most will, but also you’ll get a more clear idea of their capabilities.
Confirm this and then send a shipment over to their Hong Kong facility. Have them open some up. Try sampling them in the Hong Kong market. Send a couple by courier into Mainland China. Ask their customs specialist for China to check into how the product classification. They should be able to give you an idea of other similar products costs and taxes.
If you’re still sure China is a great market for this product, send some shipments into China. Or, you may always leverage Hong Kong first and JIT (just in time) inventory to Mainland China as orders come in.
I love Hong Kong as a center of my Asia business, and would love to hear how you also leverage this financial and trading center.
Importing Cars To China
We have a question from a blog reader today that I’d like to answer for everyone, about importing cars to the China market:
I would like to import cars to china. Any advice?Mike, blog reader
This is something I have had many consulting calls with entrepreneurs about. There is definitely a demand in China to buy American made cars, but like any venture, there are obstacles. The biggest is the importing process into China. The taxes on used cars is huge – I feel it is because the Chinese government worries that the emissions and potential pollution the car may emit to the environment is high.
Plus, while the Chinese people want American cars, especially exotic antique cars, the Chinese government wants the people to buy local brands and local goods. So that is another reason they put up high tariffs and imports.
To add to this, there is a huge underground smuggling market of importers getting these used American / foreign branded cars into China without paying any/all of the taxes due. They have “guanxi” at various customs points and are able to get these cars to the Chinese market at a much lower price than is legal – and a much lower price than you would most likely be able to get it in for.
So these factors make me normally recommend you stay away from going into the business of importing used antique cars from USA into China. What I do recommend is you can sell it FOB USA – meaning, the buyer has to worry about the importing process into China. You can have a logistics partner you refer them to – and get yourself out of the middle.
If you take this advice, then you can focus your efforts on marketing to Chinese customers via Wechat and other Chinese marketing. When you get a lead (potential customer) you can then sell to them and they would pay you outside of China via bank transfer and contracts. They would bare quite a bit of risk, so they would have to have a big trust level with you (which you would build up over time). You’d focus on educating the Chinese market on your cars, the market, and maybe even do some trade shows and events in China for your distribution brand.
Heck, once you get this going, you could later invest time and energy into properly importing the cars to China. Distribution and marketing is the key for any business, so focus on that first, good luck!
Step By Step To Crack the Chinese Market
For over seven years I have been able to “survive” in the Chinese market. The first couple were the toughest. This is because as a Westerner (or maybe more specifically American) I wanted to rush into the market and make things happen. My staff and other local Chinese friends told me over and over to take it slow. I didn’t listen.
Everyone thinks China is so cheap.
Yet you can burn through a ton of cash fast if you want to rush it. And China won’t blink an eye. Westerners for centuries have come in thinking how inefficient the market is and how they are going to take over. Only to leave with their tales between their legs.
The real way to make a lasting business in China is to take it step by step. Listen to the market, listen to the locals. Be open and willing to change your product and your business model to fit into the market. Not to force or “teach” the Chinese consumer how they should interact with your product.
Sure, this is easier said than done. And I’m still a student myself. We need to realize it is a different world, and our rules don’t apply.
Agree with me? Or am I crazy? I’d love to hear your comments and feedback in the comment section below.