Q & A about Importing, Part II

READER QUESTION:

I have been approached by some Chinese businessman who are requesting that I source and import some items from Europe. I do not have a registered company, but I am able to orchestrate the affair. I am currently in China, but I would really appreciate some insight into how one should perform operations above board. I have a connection in the Port Authority - how do I use him?  Any information regarding the import of luxury products into North China would be appreciated.

.MY ANSWER:Thanks for the comment/question on the blog.In general, I think that if I was going to start a company related to China now (or any time in the last 5 years) I’d be doing importing (as opposed to exporting), so you’re on the right track. The glory days of exporting are over here and for the next decade at least, China will be buying more and more.  I’ve talked about importing on my blog before too--read this for some of the other things to consider when getting started on your own.First, if you have a connection in the Port Authority, carefully gauge how helpful he will be willing to be with you, what exactly he can do for you and of course (very important) how much it will cost you for that help.  Unless you already have an open invitation to use his services/position for your own business/gain, feel this out very carefully and don’t tell anyone else what you’re doing.  A night out over drinks or dinner is the best way to approach this so that it’s not in his office or home.Having said that...Second, When I speak in HK for Global Sources, I always caution people with connections AGAINST using them.  It's just asking for problems on multiple levels.  First, it's likely illegal in both China and your home country.  Second, it's dishonest--you should have personal issues with this.  Third, it's temporary at best.  If your connection leaves, get’s arrested, get’s fired, dies, anything, your business folds as soon as you can’t use his personal position any more. Fourth, it means that you're dependent on a single individual and he can, at any time and for any reason (his kid gets sick, his wife loses a bet, he gets greedy, you name it) take advantage of you (or expose you).But if he can help you do the LEGAL processes more quickly and smoothly, by all means, take advantage of his willingness to help.  But remember, even if it’s a great deal, if it’s illegal you can never know when it will end and you can never know if you’ll get busted and your entire business will be wiped out.Third, you need to get someone with an import license to help you if you’re not planning on getting your own.  To get one on your own, it will probably take a month and (I think) about $250,000 in a bank account—you’ve got to set up a WOFE.  Ask Dan at CBL for the specifics.  Or you’ll have to use someone else’s import license and pay them a % for all that you import.  Again, if you're using someone else, do all the DD that you can to find someone that you can really trust, as they will have copies of ALL your documentation and could easily copy your business model.For the boot-strappers, I know that the even the guys at CLB have suggested that you just get started anyway you can and then form your Chinese company later when you have the cash (Here's link to their latest on WOFE's.) That is what many do.UPDATE:  I told Dan that I'd point out in the body of the post that his firm does NOT advocate doing anything illegal in any way, even if it's "just to get started."  See his complete comments below.Fourth, I would suggest that you talk with EVERYONE you can find that will talk to you about how to LEGALLY import things into China.  I’m sure you’ve got neighbors or friends (or neighbors or friends with relatives or friends) that are importing right now.  See if you can hook up with locals and foreigners in at bars, clubs, church groups, social activities, etc., that can help you out.  There is more than one way to skin a cat, and while you can know every single legal step to take, you still may be starting without enough real experience on your side (this is also where your port connection may come in handy).In talking with others you’re going to get told every way to do it illegally that you can imagine.  And you’ll probably hear a bunch of ways to avoid the law that you could never imagine.  But remember, you’re different—you stand out, your foreign.  You’re easier to follow, easier to kick out, easier to check up on, easier to blame than others. BUT you can learn a lot of tricks from people in the business already.  Just because you’re doing it honestly does NOT mean that you have to be stupid about it.  Just like paying an accountant to help you get out of all the taxes you can in the US, you want to do the same things here.  Because you really are competing on an uneven playing field—all your Chinese competition isn’t going to be paying what you are.  (Just read the first paragraph of this post if you need a second witness.).Fifth, unless you have unlimited amounts of time and no life, you’ll not be able to manage EU suppliers, shipping, importing into China, sales and distribution in China all by yourself. So start thinking about hiring a Chinese person that you trust (or a foreigner that you trust that speaks Chinese).  This may be very very hard to find as people with experience either already have a job and/or know enough about business in China (e.g. more than you) that you’ll have a hard time trusting they’ll keep your best interests in mind.  There is a reason why owners of even the largest Chinese companies usually have a relative over their accounting departments.Sixth, Once you know that you've got all your ducks in a row, meaning: logistically and financially you know that you can do what you want to do, you need to involve a lawyer to help you set up your company in China.  Maybe the lawyers will say you need this first, but if like I mentioned above you don't have the cash to start off with a WOFE, then you'll want to be talking to a lawyer through-out and then finalize and legalize things later on.  But you do want to do this sooner than later.Finally, you’re in luck!  There are two books written specifically about importing luxury goods into China.  Read both (I have), they are definitely worth it.  Here’s my review of the first one.  They are:Elite China, Pierre Xiao Lu Luxury China, Michel Chevalier & Pierre Xiao LuGood luck and thanks for the question.