Government and Business to Business in China

It is no surprise that governments support B2B or business to business for various reasons. Government support to business to business (B2B) in China has achieved several milestones with the business to business sector excelling the expectations especially in import and export against stiff competition from traditional global sourcing destinations. Further, major thrust is on online B2B generated import/export and global sourcing orders.

Take a look here. Asian online B2B contribution of 0.05% in 1999 and rose to $440bn by 2005 according to Goldman Sachs. Its prediction that China will become the largest Asian B2B market is coming true with the feverish expansion of thousands of business to business (B2B) and B2C import and export houses rushing for internet presence in order to garner a global sourcing pie.

True, China lacks reputable online business to business (B2B) companies and the largest Chinese B2B websites like alibaba.com lags behind US counterparts in the opinion of global sourcing agents. Business to business requires a huge inventory backup without loosing market appeal. The basic truth is not all established companies facilitate online B2B transactions including import/export, except for serving as quotation points.

PRC, on its part, organizes business to business fairs which facilitate domestic B2B and global sourcing companies interact before getting engaged in import and export contracts. Unlike the direct import/export, online B2B is doing a learning curve with traditional import and export goods.

Trade fairs are organized by both PRC and local governments catering to different sectors of import/export and B2B seeking interaction with global sourcing agents among domestic and import and export companies. The growing interest by global sourcing community is proving that opportunities for Chinese business to business (B2B) are unlimited provided domestic import/export companies build upon their offline reputation.

-Impediments to Online B2B and Import/Export Transactions in China

Online business to business (B2B) transaction thrives on seamless integration of payment processing, e-banking, supply chain network and security concerns unlike in traditional import/export transactions. In addition, online business to business (B2B), either domestic or import/export, has obstacles in preferential patterns of Chinese customers that want to touch and feel besides tasting products reinforcing the feel that indirect is unsafe. The mass dealing format of online B2B doesn't gel well with the Chinese psyche, if you forget global sourcing and import/export customers for a while.

No doubt China enjoys pretty positions in global sourcing circles but as the world shifts to global sourcing through internet import/export transactions, China needs to put in additional efforts.

sourcing destination, thanks to bold steps with regards to import

licensing. Pre-reform import/export policies regarded foreign trade as

necessary evil and global sourcing, a strict taboo, regulated by a few

FTCs. Trade reforms are linked to broader economic reforms and have

two major components:

1. Decentralization of policy making authority

2. Price rationalization supported by market forces

As a result, prices are determined by market forces, which is great

news for business to business (B2B) which trades in the now

deregulated foreign exchange.

The scope of import & export as well as global sourcing now falls with

local authorities without having to go through the rigid FTCs, which

as of now have become efficient. The mandatory policy planning had

changed protocol into more liberal, non-binding guidance boosting

increased business to business (B2B) and global sourcing activities.

-Incentives to Import/Export and Overseas B2B

Reforms to foreign exchange systems reinforced the much awaited boost

to overseas business to business and import and export transactions.

Regulated foreign exchange rates and tabooed imports presented little

incentive to Chinese B2B and import/export operators in the pre-

reforms era rendering earnings on par with domestic regardless of

overseas trading; worst- B2B companies did not enjoy freedom to retain

foreign exchange earned by them. Regulated RMB also meant global

sourcing companies paid unnecessary rates.

The real boost to international business to business came by in three

phases through foreign exchange reforms.

1. Reforms with planning framework (1979-86) allowed for foreign

exchange retention by B2B and devaluation of RMB

2. Dual foreign exchange system (1987-93) allowed market

controlled currency swapping which resulted in significant devaluation

of RMB, welcomed by both global sourcing and business to business

community

3. Foreign exchange rate re-unification (1994 onwards) more or

less stabilized RMB on the basis of stupendous reserves