Arran Boote: Rich rewards behind China's door for those with a little patience

New Zealand businesspeople need to get over our beach, boat and BMW mentality, and get on with doing business in China.

Why? For a start, China will overtake Japan this year to be the second largest economy in the world. Eventually, it will be No 1. It officially had 8.4 per cent economic growth over 2009 - in a period of global economic crisis.

Its people have come from poverty and are keen to make money. That creates unlimited opportunity for New Zealand businesspeople, and with recent trade agreements, it has never been easier to get established in this marketplace.

In November our governments agreed new closer economic partnership (CEP) arrangements for Hong Kong and New Zealand. They also entered into new CEP arrangements that provide further relief for wholly owned foreign enterprises entering China via Hong Kong, such as new special tariff relief and investment incentives.

The CEPs serve to make an already attractive gateway into mainland China even more so. On top of strong foundations as an international trade, business and financial centre, Hong Kong has no capital gains tax, no withholding tax, no dividend tax, and no GST.

So what's in demand in the world's emerging No 1 economy?

The need for intellectual property services, systems, and design is rapidly on the rise. Our own firm has a growing practice in Asia advising non-New Zealand clients on business systems, tax matters, and finance. The projects range from assisting a Chinese kiwifruit venture to set up trading operations, to raising €57 million ($110 million) for a Ukrainian company to establish its international operations. We are advising shoe manufacturers in Xiamin city on financial systems and mergers and we have also been consulted by officials of Guangdong province on growth strategy.

With a population of 19 million, plus 80 million migrant workers, Guangdong is a powerhouse. Its exports exceed that of Russia. Its challenge is to maintain 10 per cent growth in an environmentally sustainable way. It wants to move up the production chain from low cost to high tech. The other item on the agenda is they now realise that an economy totally focused on exports leaves them subject to global problems, so they want to emphasise domestic supply.

Professional services, environmental services, education, and agriculture are all sectors making headway in China. There are also great opportunities in design and manufacture. New Zealand business such as Orca - and many others that wish to stay under the radar to maintain a competitive advantage - are enjoying huge success with their Chinese operations.

I met the New Zealand owner of one company who is running a small business, designing and manufacturing in China with a trading arm in Hong Kong. It is turning over $800,000 a year. There are dozens of those types of businesses.

Beyond making use of Hong Kong as an entry point, the other important piece of strategic know-how that New Zealand businesses must learn is patience. You simply can't get used to China until you go there many times, and when those visits pay off with a signature on a contract, that may only be the start of negotiations. But the benefits from patience, and perseverance, will be worth it.

A tax partner with O'Halloran HMT based in Auckland, Arran Boote spends a significant amount of time in Asia and has helped numerous New Zealand businesses establish manufacturing opportunities and trading operations in China, via Hong Kong. He also advises non-New Zealand clients on business systems, tax matters, and finance.