UCD session provides tips for business with China

China – now the world's second largest economy – has helped make Margaret Wong a millionaire, and she shared some of her secrets Tuesday at "China, The Next Gold Rush," a workshop at the UC Davis Graduate School of Management.

China's exploding middle class "is hungry for brand-name luxury goods," Wong said. "A Chinese goes into a shop and asks, 'Why don't you give me the most expensive thing? I don't know what's good or bad.' "

That means Chinese want the best California wines, foods, medical supplies, biotechnology, information technology and universities for their kids, said Wong, founder of Sacramento-based McWong International and McWong Environmental and Energy Group, with factories throughout China.

Doing business in China remains a challenge that takes time, patience, cash up front, legal advice and a trusted local partner, said Wong and a dozen other experts.

But the potential payoff is huge – U.S. exports to China rose from $16.2 billion a year in 2000 to $92 billion in 2010, Wong said. Meanwhile, she said, China's direct investment in U.S. business is at $1.56 billion a year, with more projects in California than any other state.

China has 800 million mobile phone users, 26 million private cars and 485 million Internet users – all areas with room for growth, said Charlene Yu Vaughn, founder of the Algonquin Group, specializing in global investment.

Along with cashing in on China's demand for green technology and medical equipment, California can profit from tourism.

"The average Chinese tourist spends $6,000 here, and there are 100 million Chinese tourists projected for 2015," said George Tastard, director of the U.S. Export Assistance Center in Sacramento.

In the next 10 years, 40 percent of the 1.3 billion Chinese will be part of the middle class, Tastard said. They're already investing heavily in their children – 130,000 attend college in the U.S. – and taking care of their aging parents, Tastard said. "They're spending their wealth for health."

It's hard to do business in China without the help of a trusted local partner who can navigate the bureaucracy, negotiate with public officials and explain customs, such as where to sit at the table and when to speak, Tastard said. His office can help businesses find Chinese partners; its website is http://export.gov/ california/sacramento.

The Small Business Administration also has a State Trade and Export Program that offers $30 million a year in grants to small businesses seeking to export to China – www.sba.gov/content/state-trade-and-export-promotion-step-program-fact-sheet.

Local partners can help interpret mixed messages, said Del Christensen, chief of global business development for the Bay Area Council. "If they say, 'That's good, we can look at that later,' that means no; 'We agree' means yes."

Christensen described a conference last October in Shanghai at which he gave remarks before a group of Chinese business leaders. Instead of an upfront, negotiated honorarium, “they handed me an envelope of money – this is how it's done," he said. "It's a pay-as-you-go system, not a credit model."

Be careful not to fall for "China-phoria," Tastard said. "Overnight success is uncommon. You don't have to sign a contract if there's a knot in your stomach. It's very easy to jump into a relationship in China, and not easy to get out."

One water treatment company got Food and Drug Administration approval for its technology and signed a deal to manufacture in China but didn't protect its intellectual property, Tastard said. As a result, the Chinese partner began exporting the product around the world.

Old-world customs still apply – if you're a man, you're expected to drink to seal the deal, said Wilson Chandra, CEO of TransAccel. "Go into it with Vitamin B and a full stomach."

There's plenty of opportunity in lesser-known cities, Tastard said. "There are 160 cities in China with at least 1 million people, and by 2020 there will be 220."

China's the world's largest construction market, and the third largest for medical equipment, but Chinese firms don't face the same audits and scrutiny as their American counterparts, said Betty Yee, a member of the State Board of Equalization.

The potential risks for doing business with China include environmental challenges – 760,000 Chinese die prematurely from air pollution every year – and unsafe working conditions, Yee said.

"Consumers in China want more access to the global market place, and that bodes well for California," Yee said. "Be nimble, flexible and establish relationships with Chinese government officials – they are going to be your best friend." About 100 people attended the event, which was co-sponsored by the California Asian Pacific Chamber of Commerce.

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