Beware of bust before China boom, says trading adviser

China has many export success stories, says GoGroup managing director Murray Painter, but new traders need awareness of pitfalls. Photo/Duncan Brown

While New Zealand's free trade agreement (FTA) with China has been a boon for Hawke's Bay businesses, beware new-trader pitfalls, says trading adviser GoGroup's managing director, Murray Painter.

China was the largest export market for Hawke's Bay and there were many success stories, but the unsuccessful stories could be "terminal".

He said the two main issues were lack of international trade knowledge and the cost of Chinese terms and conditions not covered by early returns.

He was asked to assist with an inquiry for 300 pallets of apples to be delivered "deep into inland China" and delivered by air in November.

"They want the New Zealand party's owners to go to China and sit down with the buyer's owners see the facilities, agree price and terms, sign an agreement for supply and then shipments can commence. They also want other products like manuka honey, wine, meat, infant formula, green-lipped mussels and pinus radiata logs.

"This is a typical example of the inquiries that are received in Hawkes Bay on almost a weekly basis."

Research revealed the buyer was an import/export manager of an electrical engineering company.

While the intent may be real the likelihood of success was marginal because the company knew little about importing foodstuffs, did not have permit and phytosanitary procedures in place and airports were not approved entry ports for fresh apples, so the order could only go by sea.

"The buyer seems unaware of Incoterms which define an international trade deal, so each party is unclear on what their responsibilities are and who pays for what."

Another client became involved in one of several free trade zones in China where food and beverages were held in duty-free warehouses for display to Chinese buyers.

"Of course, under the China-New Zealand FTA most of our products are duty free, so why use a free trade zone for under-bond purposes?"

Mr Painter said before he became involved the exporter had visited the centre's promoter twice, sent several thousand dollars' worth of products as samples for approval, and drew up a contract for supply.

"Details of the proposals reveal a need to rent space in the food city and arrange consignment stock into the bonded warehouses, or make a sale with impossibly long payment terms for food and beverage products."

Two years later a significant sale had not eventuated and the exporter was in financial difficulty.

"Too often we are called in as the ambulance at the bottom of the cliff and it is just too late."

Mr Painter said a market similar to New Zealand - such as Australia - would be better to "cut your teeth with".

He said many marketing experts advised to start trading with China after multiple visits to the market.

"I would agree, if you have a marketing plan for a specific channel of business into China, that you do visit the market regularly and establish working relationships with buyers.

"However, there is certainly nothing wrong with concluding an initial shipment remotely and spending time and effort making sure that you have the basics correct."

There was no need to commit to a visit to the market before sending the first order.

"Chinese buyers will tell you they prefer to do business face to face, however, they are the largest online buyers in the world and there are very few companies who will send their owners to New Zealand for the first couple of orders they export here - those will certainly all be concluded by email."