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Tips for doing business during China’s Lunar New Year

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The 2022 Spring Festival holiday and unpredictable Covid-19 flareups mean that businesses should keep track of the fast-changing developments on the ground and plan for possible disruptions. Here’s what to be aware of over the period if you’re new to doing business in China

Lunar New Year, also known as the Spring Festival, is the most anticipated and celebrated Chinese holiday, this year arriving on 1 February and ushering in the Year of the Tiger. But for many businesses, it can be a disruptive time that requires advance planning and strategy. It is important to be aware that the effects of LNY will be felt long before 31 January, as firms start to wind down their business a week or so prior to the first day of the festival.

Here we list four key considerations for business in China during the LNY period.

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Prepare inventory stock

In order to ensure that business operations are not adversely affected, inventory managers should obtain a detailed schedule of opening and closing dates well in advance of the LNY and order enough stock to see their business through the holiday period. Foreign companies should also bear in mind that the LNY public holiday is one of the year’s biggest shopping festivals, comparable to the Christmas season in many overseas markets.

Riccardo Benussi, Head of European Business Development at Dezan Shira & Associates’ Munich-Milan Office, comments that, “In the days and weeks leading up to the New Year, Chinese shoppers will rush to online and offline points of sale to purchase gifts for loved ones as well as delicious foods and drinks to greet guests at their homes.”

In many consumer goods industries, businesses achieve their highest sales figures around LNY. “Foreign companies should prepare for a surge in demand at this time of the year, and appropriately stock up their China warehouses to ensure the rise in consumption is met in a timely and orderly fashion,” Benussi explains.

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Quality control

Meanwhile, as pre-festival production is increased to fill the ‘new year gap,’ and pressure on suppliers rises, the quality of products can often suffer.

Issues in product quality control can sometimes spill over after the holiday period as high employee turnover requires new workers to be found and trained to replace those that didn’t return – meaning that delays are also possible. To avoid this, it is advisable to increase monitoring and communication in the months leading up to, and after, the holidays in order to minimise any potential lapses.

Similar bottlenecks can occur in the shipping or logistics industries, so it is important to ensure that shipments are booked and at port well in advance of the shipment date. Most Chinese port areas will be closed completely or will be operating at a limited capacity, so they are best avoided as much as possible at this time. During this period of the year, most fields of Chinese logistics are faced with a staff shortage as people return home, and thus transporting goods can also become significantly more expensive.

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Settle payments beforehand

To add to these difficulties, during the long holiday period, limited payments can be processed to and from China or Hong Kong depending on banks and local policies. Often the most suitable course of action is to settle all payments before LNY to avoid any potential problems with late payment fees. Communicating with suppliers and planning ahead will go a long way toward ensuring that effects on cash flow are minimised as much as possible.

Red packet etiquette

Red packets (‘hongbao’ in Mandarin and ‘lai see’ in Cantonese) are commonly given during the LNY Period. The significance of these red packets relates to the red envelopes themselves, which are seen to symbolise happiness, and good luck. Therefore, when a red envelope is given, this is seen as sending good wishes, happiness, and luck to the receiver.

Traditionally, if you have started earning an income, you should be giving red packets to close family members that are unmarried and younger than you or retirees. However, this is a general rule only, and there is no hard-and-fast rule on who to give a red packet to as well as how much to give.

In Chinese companies, however, red envelopes are often given as a form of a 13th-month salary — through issuing double pay in January, issuing a bonus over the Lunar New Year or via WeChat red envelopes. This is typically given on the last day of the working day before the Lunar New Year holiday.

Any company doing business in China should be prepared to adopt local practices over this festive period.

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Prepare for the holiday season

Lunar New Year is a significant time of the year for not only individuals and families, but also businesses in China, as it is often a time to re-group, re-strategise, and re-staff for the upcoming year. Planning in advance for this festival can help set your company apart from the rest, reducing significant problems in supply chain and logistics, while also maximising opportunities that the festival can bring to your business.

A version of this article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world

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