Who is Michael Michelini?
Michael Michelini: I am the founder and host of a weekly podcast, Globalfromasia.com which has turned into a full-on blog, service platform, and builder of global (cross-border) e-commerce businesses.
Global From Asia (GFA) is about the current shift in the world as Asia as the center for doing international business – more specifically called cross border business. As a “foreigner” (non-local Hong Kong-ese) you can still fully own 100% and control your company from Hong Kong SAR (special administrative region), with easy access in China and Southeast Asia.
Due to changing times, Hong Kong has been much more challenging to do banking, and we work with you on the process by sharing in our blogs, and also working on more services and options for you. This is the real core value statement of Global From Asia – to make it as easy as buying a product on Amazon as it is to do international business.
Click here to join our community of business owners and executives doing business in Asia!
Tell us about the Cross Border Summit
Michael Michelini: The Cross Border Summit is an annual conference bringing together top e-commerce cross border business leaders from around the world to share expertise about business strategy, marketing, team building, and other strategies to stay ahead in today’s global world.
While internet and technology have done amazing things to improve society and business, it has sprouted competitors from around the globe.
Keep on top of these trends by attending the Cross Border Summit!
Learn more here & Register here
Starting Your Online Business in South China
What is China’s Pearl River Delta?
Michael Michelini: The Pearl River Delta (PRD) refers to a highly urbanized network of cities within Guangdong Province, and Hong Kong and Macau. This area is an economic hub within China as it is a major manufacturing area, and is generally considered to be a major megalopolis.
Major cities within the PRD include Guangzhou, Shenzhen and Hong Kong.
Guangzhou is the capital of Guangdong province, and resides about an hour and half train ride away from Hong Kong. The city is home to a multitude of small trading markets, particularly textiles and household goods.
Shenzhen has grown quickly within the past three decades, largely due to its manufacturing capabilities, particularly in electronics. Shenzhen is continuing to grow and has gained a reputation as a welcoming city for technology startups and finance.
The more famous of the three, Hong Kong is a special economic region of mainland China. Under the “One Country, Two Systems” policy instilled during the handover to mainland China from the British, Hong Kong maintains its own legislative and financial systems, including its own currency, freer trade than the mainland and lower taxes.
Many foreign manufacturers are active in all three cities at once. A common setup for Hong Kong trading companies includes a sales and logistics office in Hong Kong, a trading office in Guangzhou and a factory based in Shenzhen or nearby factory hub, Dongguan.
What kind of cooperation exist between Shenzhen and Hong Kong?
Michael Michelini: Under the “One Country, Two Systems” policy, Hong Kong companies enjoy preferential policies in the mainland. This has encouraged many to use Hong Kong as a gateway to the larger mainland market. In general, Shenzhen is known for its manufacturing capabilities while Hong Kong is famous for its foreigner-friendly legal and business framework. As a result, many businesses have placed their manufacturing bases in Shenzhen, while also establishing and working in Hong Kong.
The distance between Hong Kong and Shenzhen is only a little over 17 kilometers, making it easy for people to commute between the two cities. However, cooperation seems to be increasing at a steady pace as Hong Kong officials seek to revitalize their economy amidst competition from Singapore and ASEAN.
In particular, the Lok Ma Chau Loop is a proposal for an 87-hectacre technology park built on disputed land between Shenzhen and Hong Kong. The Loop would serve as an incubator for technology companies that want easier access to Shenzhen and Hong Kong.
Is Hong Kong a good place to operate a Chinese factory?
Michael Michelini: It can be for legal and operational reasons.
Many companies choose to first establish in Hong Kong as a limited company and use this Hong Kong entity as the foreign party of a joint venture in mainland China.
Any company can be the foreign owner of a Chinese WFOE, however a Hong Kong entity has certain advantages. Firstly, there is more familiarity between banks, systems and legal processes which can facilitate set up and money transfers. Additionally, Hong Kong companies benefit from reduced paperwork and lead time when setting up in mainland China. For example, in Hong Kong, documents are drafted in Chinese and English, cutting down on translations and notarizations.
Secondly, Hong Kong has clear rule of law and accounting standards, as well as widespread English fluency. For western companies, these factors make it easier to keep track of and audit accounting books, and can make it easier if the company was ever to be put up for sale.
Thirdly, Hong Kong has several preferential tax policies. One such policy states that companies are exempt from tax on profit that are not sourced in Hong Kong.
Finally, Hong Kong regulation on shares is less strict than the mainland. Companies can set the share price, conditions and timeline for payment, and transfers without prior approval from the Hong Kong authorities. Thus, if a company wanted to change the structure or leave the company, a Hong Kong entity would be far easier and faster than through direct WFOE ownership.
Should you start selling on Amazon FBA first?
Verifying Your New Amazon FBA Seller Central Account
Operating a Cross-Border eCommerce Business
What is cross-border e-commerce?
Cross-border e-commerce refers broadly to the international buying and selling of goods online. It implies that the buyer and seller are located in different countries and interact on an online store or marketplace, like Amazon or Tmall. It usually involves multiple currencies and different customs jurisdictions.
Cross-border e-commerce can refer to multiple business models – such as business to business (B2B), business to consumer (B2C), or consumer to consumer (C2C). Online trade between countries of the same trading or economic bloc, like the European Union, is also considered to be cross-border e-commerce.
Cross-border e-commerce has grown quickly in recent years due to a growing middle class and the rise of online platforms that ease the shopping process. It has also been made popular by large shopping holidays like Singles’ Day in China, Diwali and Christmas.
What are cross border payments?
Michael Michelini: A cross border payment is a transaction whereby money is transferred from one country to another. Payments are done through financial institutions, like banks, that are usually linked together to send and to receive money.
These days, cross border payments can also be done through websites that provide different options. Typically, these websites will charge a flat rate and/or a percentage of the amount that is sent. Cross border payment companies also generally have a minimum amount customers have to transfer, although some have none. Depending on the location and the amount, transfers can be done within a day to four business days.
Additionally, in most cases, exchange rates are locked-in, meaning that the currency rates are fixed against another currency. This guarantee greater stability for customers.
How are cross border payments done in China?
Michael Michelini: While China is a fast growing economy, cross border payments can be difficult due to the country’s complex regulations. The Chinese renminbi (RMB), or “yuan” as it called locally, is strictly regulated and limited in how it can be used. However, in recent years, processing cross border payments has gotten easier due to the signing of a Memorandum of Understanding (MOU) between SWIFT with the China Cross-border Interbank Payment System (CIPS) in March 2016. This MOU helped to internationalize the RMB and ease global trade and foreign exchange.
In China, the main channels for international payments are Alipay and WeChat – the two most widely used tools in China’s e-commerce sector. Both are mobile apps that need a phone or tablet device connected to the internet. Other third party cross border payment providers include Geoswift and Worldfirst.
What is a “fapiao” in China?
Michael Michelini: A “fapiao” can be thought of as an official receipt that issuing parties have to pay tax on. Essentially a fapiao declares the amount of taxable income of the issuing company to the government. It can be thought of as a mechanism to force business to pay tax on transactions.
It is different from the notes that are automatically printed itemizing the product bought. These regular receipts are not connected to the Chinese tax authorities. Additionally, only registered mainland China companies can issue fapiao.
A business fapiao will list the name of the company requiring the fapiao, the amount of the transaction, as well as an official red stamp.
Clients and customers will often ask for the fapiao because a certain amount may be required by their company’s accounting office. For example, in order to receive reimbursements for client meals or transportation expenses, accounting will require a fapiao. Sometimes, the fapiao is needed to offset taxable salary, including sales commission income or base salary.
The Technicals
How do you find import duties for Hong Kong?
Michael Michelini: When importing a product into Hong Kong, the first thing businesses will need is the product category – for example, if you are importing vitamins, then the category will be supplements. You can ask an import broker to find the specific item number for the Hong Kong market. As an open trade zone, Hong Kong has a number of international products in the market.
Each product will have a code specific to that good. This code is called the Harmonized Tariff Code (HTC) and this is what the customs official checks when the shipment enters Hong Kong. The HTC will give the customs official certain information, such as whether or not the importer of record needs a special license to import that good. This mainly applies to goods that could present risks or dangers for the general public.
Hong Kong import duties are much lower compared to mainland China, but some products may require an upfront import duty tax. Importers should check with a customs broker and a logistics company for verification before shipping large value orders.
Potential importers can also check the retail market to see what competitors exist. Checking the barcode and labels of existing products in stores can help with identification of the category, and later, the import duty.
What charges are typically included in a customs bill?
Michael Michelini: A customs bill will include freight and customs charges, but there are also other common fees that all traders should understand. Below is an example customs bill for goods entering the US:
- OCEAN FREIGHT CHARGE: $70.00/CBM
- FREIGHT INSURANCE PREMIUM: $13.50 /CBM
- INBOUND H/C: (handling charge) $65.00
- U.S CUSTOMS ENTRY SERVICE: $110.00
- DUTY: depends on product type(s) refer to the Harmonized Tariff Code (HTC)
- MPF (Merchandise Processing Fee): 0.21% OF COMMERCIAL INVOICE VALUE (MIN:$25.00)
- HMF (Harbor Maintenance Fee): 0.125% OF COMMERCIAL INVOICE VALUE
- SURETY BOND PREMIUM: $4.50 / $1,000.00 (COMMERCIAL INVOICE VALUE) (MIN.: $45.00)
- BONDED WAREHOUSE FORKLIFT CHARGE: $75.00
- PIER PASS: $3.00/CBM
- CUSTOMS EXAM CHARGE: AT COST (IF OCCUR)
- FREIGHT DELIVERY CHARGE: $375.00
- DDC CHARGE (Delivery Destinations Charge): $34.26
Handling Charge is a flat fee. Customs Clearance Fee is a flat fee irrespective of the shipment size. Bond amount is based on the invoice amount, but can have a minimum. Import Duty is the customs fee to the government.