Trade risks of doing business with China

As doing business with China, like all cross border commercial activities, carries certain risks that businesses might not be aware of, should businesses investigate the market and the culture before establishing business relationships. 

Business risks

The possibility of inadequate profits or even losses due to uncertainties or some unforeseen events in the future, can cause businesses to fail. In order to be aware of the business risks the businesses should be aware of certain risks, which include commercial fraud, breaches of contract, intellectual property infringement and theft, bullying, intimidation and threats to physical safety, restrictions on movement and criminal charges for engaging in activities that may not constitute crimes under their own country’s law. 

China's corruption

Legal and regulatory risks

Regulatory risk in China is considered to be high. Although many sectors of China’s economy have become more market oriented, numerous restrictions and a massive bureaucracy still hinder full implementation of regulations and make the approval process unpredictable. Foreign-invested enterprises that plan to operate or invest in China or partner with a Chinese company need to understand how the regulations apply to them before entering into any agreements. 

Social and cultural risks

The concept of business ethics is still fairly new in China. In China’s changing economy, material gain, with little regard for how it is acquired, is often the measuring stick of individual success. Also, in many privately owned Chinese companies, one individual is still the only person responsible for all corporate governance issues. To prevent ethical breaches, companies should institute ethics training programs and perform due diligence on partners, vendors, and investment targets (US-China Business Council, 2006). Besides the business ethics itself, the legal system is ill-equipped to keep pace with this tide of misdirected entrepreneurship. Extraterritorial compliance regimes aggravate the risk for foreign companies operating in China. 

Minimising risks and difficulties for external companies

Australian Trade and Investment Commission (2016) mentions that the risk of doing business with China can be managed, as long as the knowledge about doing business with China is provided. There are a several ideas which should be thought of, to name; seek professional legal advice, undertake due diligence checks, seek trial shipments and arrange pre-export inspections, be aware of local business practices and be sensitive towards them.

Minimize the business risks

As they are all important, the third one will be one of the best solutions to make sure the shipments and transportations will be correct, as you will be able to ensure that the goods you ordered meet the quality requirements and that the business you are dealing with is a legitimate one. Employing a good local agent to consolidate, sample and verify goods prior to export can also help to ensure that what you have ordered is what you get.

References
Australian Trade and Investment Commission (2016). Minimising Risks. Exports markets – China. [Retrieved from https://www.austrade.gov.au/Australian/Export/Export-markets/Countries/China/Doing-business/Minimising-risks on the 7th of October 2016]

US-China Business Council (2016). Managing Business Risks. [Retrieved from http://www.chinabusinessreview.com/managing-business-risks/ on the 7th of October 2016]