The Misconceptions about Doing Business in China
And what the realities might mean to you
By Cheryl Coupé  

Oregon Bioscience Association Executive Director Dennis McNannay recently returned from a U.S. Department of Commerce-sponsored trade mission to China. By all accounts, the trip was successful and eye-opening. China is a vast country, and Dennis is quick to state that there are no absolutes in dealing with a country this large and with such complex social and political issues. But he also says that it’s easy to hear stories of the difficulties of doing business in China and decide not to make the effort. This might be the easy decision, but Oregon bioscience companies could be walking away from significant opportunities. Dennis gives us his top four misconception about doing business in China, brief insight into the realities and what those mean to biotech companies who should at least be considering doing business in China.

Misconception #1: China is a 1.3 billion person market.

Reality: China is more demographically diverse than most Americans realize. For example, there are significant cultural differences between the North (bureaucratic) and the South (entrepreneurial). There are also significant variations in the distribution of each region’s populations and buying power. The majority of the population – approximately 60% – still lives in rural China.

What this means to you: You can’t address all of China in one huge bite. Companies selling products into China need to recognize that it is a fragmented market that requires trading partners to identify specific regions or cities (over 40 million people live in China’s three largest cities) to break into the market. You can minimize your initial risk by leveraging local partners to help you identify where to start with a logical and limited entry point. Once you gain experience and knowledge, you can expand as appropriate.

Misconception #2: China’s economy is going to take over the world.

Reality: Although the Chinese economy is destined to become at least the second largest in the world, it will face serious demographic challenges over the coming decades. One significant issue the country faces is the demographic bubble created from the one-child rule. Though no longer in effect, the population growth anomaly will cause a disproportionately large number of older citizens within a little over a decade – 598M over 50 by 2025. That, combined with the fact that China’s $5 trillion economy must support 1.3 billion people, means that they are still on average worse off than many other mature industrialized nations. (Compare this to the U.S. population of about 300 million people and GDP of $14.6 trillion.)

What this means to you: Certain technologies are being fast-tracked by the Chinese government and you need to know what they are. Healthcare technologies – especially those that address an aging population, a broad rural distribution and a shortage of trained medical personal – have strong opportunities.

Misconception #3: China is not entrepreneurial.

Reality: There is no denying China’s history as a communist country with a centrally managed economy. In fact, this reality is still present in the form of Five-Year Plans that the government publishes to help guide economic development and other aspects of economic activity. However, the Five-Year Plan process is now driving entrepreneurial opportunities in the areas of healthcare, technology and manufacturing. The current Five-Year Plan identifies providing healthcare to 90% of the country’s population as a key objective. Additionally, the government has identified a list of disease states (cancer, diabetes, stroke, etc.) that warrant special consideration—including a fast-track governmental approval process.

What this means to you: The aging population will put a tremendous strain on China’s healthcare infrastructure, but it is also an excellent opportunity for some Oregon Bio member companies. Don’t underestimate the Chinese propensity for government-driven planning – unlike the many U.S. plans that are developed, revised, evolved and often abandoned, the Chinese execute on their plans. That can make China a more predictable environment than you might think. Talk to experts who have analyzed the current Five-Year Plan to see where your solution may fit.

Misconception #4: China’s legal system doesn’t protect intellectual property rights.

Reality: At the BioChina 2011 tradeshow in Shanghai, several of the most popular panel discussions were on the topic of intellectual property rights. These panels of experts consisted of both Chinese legal experts as well as U.S. attorneys representing multinational companies doing business in China. The surprising message from these experts was that the legal mechanisms for protecting intellectual property rights have been largely modeled after the Europe and the U.S. systems. Most of the U.S. attorneys believed (with some narrow exceptions) that the problem was primarily one of enforcement. Infringement penalty judgments are too small to be an effective deterrent. In general, people see this issue improving as the Chinese apply for and win more international patents – thus making their enforcement something they are more affected by.

What this means to you: If you have a product that can be easily counterfeited in volume, China may not be the right market for you. But if you have a sophisticated product that fits in a targeted fast-track area, the opportunities may outweigh the risks. The reality is that if your IP is easily stolen, there may not be much you can do about it – other than to do as much legitimate business in China as you can, while you can. Remember that, while there’s less you can do about counterfeit products made and sold within China, you have more leverage regarding products that are counterfeited in China for export.

For those hoping to work through a Chinese partner, Hong Kong represents a unique opportunity. When mainland China negotiated the assimilation of Hong Kong in 1997, the Hong Kong legal system was allowed to preserve the primarily British-inspired legal system. Joint ventures established in Hong Kong can provide stronger legal protection, an established trading partner familiar with getting things done in mainland China, and the convenience of English-speaking partners.

What’s the final message?

There are Chinese researchers, government officials and business people interested in doing business with U.S. companies. However, unless you are very experienced, working with a joint-venture partner who has experience in bioscience as well as Chinese business practices and technology needs can help you identify and explore your opportunities. 

Cheryl Coupé is a freelance technology writer, editor for EE Catalog (www.eecatalog.com), and the editor-in-chief of the BiO quarterly newsletter. Find more information at www.scribo.net or contact her at cheryl@scribo.net .