Mr. History was a true business developer. He brought me to a bunch of Ningbo sharks. The first few sharks to whom he introduced me were an export-import company. This meeting taught me why there are so many rich people in China.
Essentially, the company wanted me to partner with it and I would have to put a hundred thousand U.S dollar initial investment into our joint venture. I found find out later that the reason for this was so that they could take advantage of the tax incentive structure in China. The Chinese government has special policies in place to encourage import and export. One such policy activates when your company reaches a combined import/export total of a hundred thousand U.S dollars. At this golden dollar value for the year, you are instantly eligible to receive 17% of that hundred thousand and amount above this threshold.
One way Chinese businesses profit from this incentive is to sell below cost. This is one of the rare instances that one can make money by losing money. To illustrate this further, if you are an exporter, and you have a widget that costs $110 to make and deliver to the client, you can actually sell it to the client for a loss at $100 dollars. This means you lose $10, which would normally mean you are doing business wrong. But, thanks to the government policy mentioned above, you get $17 back from the government. This means that you actually make $7 dollars! This is how people are able to sell below cost.[1] So, every import-export company in Ningbo or in China reaches this quota and they try to do these JVs, the new company buys a hundred thousand dollars’ worth of goods to “start up” and the parent company is laughing all the way to the bank.
This example really illustrates the point that there is no reason to complain about the systems that are in place. It is far more interesting and profitable to make use of them.
[1]http://www.prosperousamerica.org/2011/07/15/cpa-white-paper-how-chinas-vat-massively-subsidizes-exports/
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Swimming with Asian Sharks - Business Secrets from the Pacific Rim
Non-FictionEver wonder what it takes to do business in Asia? How do Asian business executives behave and think? Do you want to create a business from scratch in under 24 hours? If so, this is your guide. This book is a compilation of over one hundred business...
