8 Oct 2015
Bohai "Going Out" Case Studies (2): Overseas Investment Services a Priority for Chinese SMEs
As the demands of the China market continue to grow, many export-oriented Shandong businesses are capitalising on their foreign trade networks and importing raw materials from foreign countries in order to directly meet mainland needs. At the same time, as international trade increases, such companies are also making direct investment in foreign countries to strengthen their sourcing ability. Among these industry players, the demands of small and medium-sized enterprises (SMEs) are strong, particularly with regard to such services as project financing and tax arrangements. This is largely because they hope to make use of the cost-effective professional services offered by Hong Kong in order to expand their outbound investment and import-export business interests.
Increasing Outbound Investment and Purchase Activities
Located in Pingdu, Qingdao’s county level city, Tongren Foodstuff is an agricultural products processing, production and export business, largely producing sweet peppers, chilli peppers, garlic, and dried tomatoes. It has an annual processing capacity of more than 5,000 tons of agricultural products. Its production and processing facilities have been awarded ISO9001, ISO22000, HACCP and Kosher certifications and have also obtained the US FDA’s registration certificate. It mainly exports to Europe, the US, Canada, Korea and Japan.
In view of the rising demand in China for various kinds of high quality wood, the Tongren group has recently established Tongren Wood/R&S International. Capitalising on the trading networks the company has established overseas, the new business imports wood for distribution across the mainland. The company has also made a direct investment in the US, ensuring it can cultivate the trees required to ensure a future supply of wood, including cassia grandis (pink shower), Chinese hemlock spruce, western yellow pine and cypress.
Lixian Song, General Manager of Tongren said: “Today we have 3,200 mu of woodland in North America and hope to further expand investment so as to increase supply. However, as our overseas investments and import-export businesses grow, our level of related international payments and foreign exchange settlements are also increasing. As the foreign exchange market often fluctuates, we are facing greater foreign exchange risks. Although currently we have little contact with Hong Kong, we hope to use Hong Kong’s financial and professional services to both lower our level of risk and raise funds. This will allow us to further develop the above mentioned investment and import-export trade, while expanding and strengthening such businesses.”
Seeking Hong Kong Professional Services
According to Song, at one time an overseas company had been willing to invest in Tongren and work in conjunction with it. The deal faltered, however, as the company was unwilling to dilute its equity. Now, though, Tongren hopes to use bank loans and other alternative financing channels, rather than share participation, to fund its future development and finance individual overseas investment projects.
Looking beyond financial requirements, Song said: “Funds aside, we also need to obtain timely information on foreign countries. Whenever there are transport and dock workers’ strikes in the US, for instance, these may impact on our wood imports, as well as on other aspects of our business.
“If we can get to know about relevant developments promptly, we can make early arrangements to alleviate any impact. We also have to pay quite heavy taxes on our investment and purchasing activities in the US. We hope that Hong Kong’s professional service providers can help optimise our tax arrangements and reduce any unnecessary burden.”
In order to further enhance its offer, Tongren Wood has now set up an office in California of the US. Aside from growing and handling the relevant trees and lumber supplies, it also sources widely in order to ensure a steady wood supply for its mainland clients.