With 17 bustling cities and a population of more than 94 million, Shandong province in eastern China offers British businesses a world of potential, writes Andrew Cahn, chief executive of UK Trade & Investment (UKTI).

With 17 bustling cities and a population of more than 94 million, Shandong province in eastern China offers British businesses a world of potential, writes Andrew Cahn, chief executive of UK Trade & Investment (UKTI).

A report commisioned by UKTI and carried out by the China-Britain Business Council (CBBC) and Leeds University identified 35 cities across China each with a population of over a million as business friendly. Of those 35, seven are in Shandong which offers the highest density of opportunity in a single Chinese province.

Shandong is in a good position geographically, enjoying a long coastline and just over 300 miles from Beijing (close, by Chinese standards). It is a rich province with oil fields, and its city clusters can be served from a single location, providing cost effective access to 17 major cities.

The province is less developed than the Pearl or Yangtze river delta regions, and exporters have a greater chance of gaining a first-mover advantage. Its main imports include steel, machinery, plastics, rawhides and skins, man-made fibres, chemicals, other raw materials, computers and complete sets of equipment and technology.

So what is the scale of the opportunity? In 2008, bilateral trade between the UK and Shandong amounted to US$2.75bn, of which exports to the province were US$430m. Imports accounted for US$2.32bn, making the UK Shandong’s third largest EU trade partner.

Key to this opportunity are the seven cities identified by our report. Chief of these, from an economic perspective, is Qingdao, the business hub and the base for foreign companies, which produces electrical machinery and equipment as well as the popular Tsing Tao beer. Shandong’s capital is Jinan, which specialises in the processing of ferrous metals as well as construction. Dongying is important in oil extraction and petrochemicals, while Weifang, a major port, also has strengths in agriculture and chemical raw materials. The remaining three cities are Yantai (coastal, agricultural, ICT); Weihai (food processing and electronic equipment); and Zibo (processing natural resources and construction).

All these seven cities show rapid economic growth; they also have relatively low input costs, strong local government support, and large and developing consumer markets, with most industries covered. Tesco has stores in Weifang and Jinan and just recently opened a shopping mall tied to a store in Qingdao.

Inevitably, like all good things, entry to a region offering so much won’t be easy. China Food Company makes soy sauce, consumer condiments and animal feed, and is based in Weifang and Shouguang. An AIM-listed business, it is backed by privately-owned Albany Capital which specialises in investing in pre-IPO Chinese companies. CFC’s non-executive chairman John McLean, who is also chairman of Albany Capital, comments on doing business in the region: ‘Success will not come overnight and companies have to take a long term approach, working with the right partners and building a strong localised team.’

As McLean hints, the newcomer may need patience to develop contacts and navigate local regulations and red tape. The business culture is less westernised than in, for example, Guangdong. Talent pools are smaller than in Beijing or Shanghai, so local recruitment could be hard.

A lot of people who do business in China warn that being paid on time can be an issue. Another difficult area is intellectual property (IP). The government realises the importance of this and has introduced a full legal framework but more needs to be done to improve IP rights enforcement. Those seeking to do business in China should conduct full due diligence on any potential partners and seek legal advice on how best to protect and ensure effective enforcement of their IP rights.

However, the Shandong report shows there are plenty of ways of mitigating or avoiding these challenges. A starting point is getting in touch with CBBC, UKTI’s trade services delivery partner for mainland China, which can provide guidance on carrying out due diligence. It can also point to the successes in China of such companies as Tesco, PricewaterhouseCoopers, Unilever, Nestle, Chaucer Food, Albany Capital, HSBC, Standard Chartered Bank, DCK Concessions, P&O Nedlloyd and CSX World Terminals.

UKTI and CBBC lead numerous trade missions each year to raise awareness of commercial opportunities beyond China’s traditional commercial centres. In Shandong this year these will include a CBBC-led mission to Jinan and Weifang in September and UKTI-led missions in October to Dongying, Qingdao and Yantai.

At a glance: opportunities in Shandong

* Sustainable development, planning, and design
* Engineering consultancies
* Joining a supply chain of companies involved in large scale projects
* Architecture, training and consultancy
* “Intelligent” building and urban regeneration
* Transportation networks
* Shipping, ports
* Trade finance
* Restructuring industries the government has identified as inefficient
* Helping Chinese businesses go global through financial/professional services
* Investing in high-tech firms in the government’s development zones
* Wealth management in Dongying which has Shandong’s highest per capita GDP