Full interview… Kazakh official reveals details of trade relations with China

 ASTANA , 11 th June 2024 : – A senior Kazakh trade official revealed the details of trade relations with the Republic of China, identified strategies for their success and development, gave advice to Kazakh businessmen to achieve greater expansion and success, and explained in detail effective and successful ways to promote Kazakh trade products and promote the “Made in Kazakhstan” slogan in Chinese markets.

Regional Director of Export Credit Agency of Kazakhstan JSC in China, Sergey Salmanov, said in full interview:” Entering Chinese markets is one of the most promising factors for development, and this is facilitated not only by the strong economic relationship between the two countries, but also by a number of other favorable factors”, and here is the interview:

Q: What about the current situation of Kazakhstan’s exports to China?

A: China is one of the most important, but at the same time the most complicated partners of Kazakhstan in foreign trade. In 2023, trade turnover between the two countries reached $31.4 billion, of which $14.7 billion were exports from Kazakhstan and $16.7 billion were imports from China.

The structure of Kazakhstan’s exports to China is dominated by raw materials, but the urgent task is to increase the share of non-raw materials products. Kazakhstan’s exports can be roughly divided into two categories: manufactured and food products. Manufactured goods include oil, gas, uranium, fertilizers, metals and ferroalloys, of which a significant portion are raw materials or semi-finished products. In the category of food products, Kazakhstan mainly exports agricultural and livestock products.

Currently, Kazakhstan cannot offer China a wide range of non-resource industrial goods. This is due to China’s dominant position in the global market as a producer and exporter. However, the situation with food exports is somewhat more favorable.

Q: Why has this trend developed? After all, China, with its population, should be as interested as possible in importing food products.

A: China is certainly interested in cooperation, but by export of finished products we mean exactly the development of Kazakhstani brands, export of “Made in KZ” products, deep-processed products packaged in Kazakhstan. Our main task is to increase the recognizability of Kazakhstani brands.

At the same time, China is primarily interested in developing its own brands. Take vegetable oils, for example. It is more profitable for China to import oil in bulk and then bottle it on its territory under its own brand names. This applies to products for which there is a natural demand: oil, flour, meat, etc. That is, where the brand plays a secondary role, and the main importance is the value of the product for the human diet. The situation with more deeply processed products, such as candy, chocolate, cookies, and various beverages, is even more complicated.

Q: But aren’t the world’s famous brands sold in China?

A: The Chinese market does have products from all over the world, and Kazakh producers entering this market have to compete with companies from different countries. Kazakhstani chocolate on the supermarket shelf will be next to Swiss chocolate, Kazakhstani wine – to French wine, and there is no guarantee that the price of Kazakhstani product will be lower.

It is important to note that the Chinese consumer is generally conservative and not prone to experimentation. Flavor preferences in China are also very different from ours. For example, Kazakhstani chocolate may seem too sweet to Chinese consumers. Even for everyday products such as flour and vegetable oils, the Chinese have their own preferences. Very often they prefer to buy such products abroad in the form of semi-finished products and mix them with their own ingredients to get a certain taste and smell.

Is it now possible to find Kazakhstani products on the shelves in Chinese retail chains?

Unfortunately, Kazakhstani brands are rarely found on the shelves of Chinese stores. More often you can see goods under Chinese brands, but produced from Kazakhstani raw materials. This is due to several factors. First, production volumes: a single Kazakh producer is not able to satisfy the demand of Chinese retail chains, even in small cities. Second, harsh terms of trade: to enter Chinese retail chains, one must pay for shelf space and “entry” fees.

Q: Do you mean that Chinese companies buying products from Kazakhstan are not engaged in its promotion?

A: As I mentioned earlier, promoting products in China is costly and requires competing with global corporations. A company that has purchased $50,000 worth of merchandise often has to spend several times that amount on promoting it. These are advertising costs, various promotions, tastings, etc. For Chinese companies, investing in the development of their own brands is a more logical step. It is not uncommon for a company that buys and promotes a brand to lose a contract with an exporter who begins to cooperate with another offer at a more favorable price.

COVID-19 pandemic demonstrated the fragility of supply chains. Many Chinese companies importing foreign brands have found themselves unable to deliver products due to restrictions, while still bearing obligations to their customers. In contrast, a company promoting its own brand has more freedom of maneuver. If it cannot purchase raw materials in one country, it can find them in another or, at most, in China, making it less dependent on external factors. For most Kazakhstani companies, promoting products in China on their own is an impossible task.

Q: Where can you find Kazakhstani products in China after all?

A: I will not talk much about the bazaars in XUAR, where most of the goods are imported “in vain”. These products are mainly sold in Khorgos, Yining, and Urumqi. It is impossible to compete with it on price: even if the importer buys the goods at cost price, he will have to pay customs duty and VAT. It is not possible to sell such products through official channels, so the market is very limited. There are small private stores, mostly in XUAR, where some goods (confectionery, flour products, beverages) can be found. For a wider range, there are many online marketplaces, i.e. online sales. In China, digitalization is developing very fast, delivery even between the farthest regions takes no more than 3-5 days. The big plus of online sales is that there are no restrictions on the sales location, you can sell to the whole of China at once. But buying offline in the supermarket, there is a chance of coming across the products, even if they are not in the most prominent place.

Such pavilions have an operator who fully takes over its maintenance: makes repairs in the national style, fills it with various items of culture and art, and necessarily products of the country. The problem is that the creation of such pavilions no longer has a commercial but a political purpose. They are usually opened in special economic zones, ports, logistics parks. By doing so, China demonstrates that it is not only interested in the “From China” model, but also “To China” under the “One Belt, One Road” program.

Q: What other barriers exist for the export of Kazakhstani products to PRC?

Huge difference in culture, mentality, language barrier – all these can be an obstacle for successful export of products. Before planning to enter the Chinese market, I always recommend that our manufacturers visit the country themselves. Visit local supermarkets, compare the range, prices, quality of packaging and the product itself, talk to local people.

Chinese companies are often reluctant to advance such contracts for fear of default by exporters. Typically, importers require payment upon delivery of products to a port in China or payment by letter of credit. For the majority of Kazakhstani companies, it is problematic due to lack of working capital and unwillingness to work on the letter of credit form of payment. In such cases, deals fall through: the exporter is not willing to grant a deferral and the importer is afraid to advance. The Export Credit Agency offers a solution to this problem – an advance payment insurance tool. It guarantees that if the exporter receives an advance payment and defaults on the contract, KazakhExport will compensate the importer.

Q:Do you have your own vision on how best to enter the Chinese market and promote your products there?

Entering Chinese market, especially to promote your own brand, is a long-term strategy that requires careful preparation and significant investment. The plan to work with China should be integrated into the company’s development strategy for the next few years. The development of this area requires specialists who speak Chinese and understand the local mentality. They will be responsible for attracting potential customers, partners and increasing collaboration in the local market. In addition, budgets are needed to develop this market, including investments in promotion and product recognition, as well as adapting the product itself and its packaging to the preferences of Chinese consumer.

We need a company-operator for the promotion and realization of the brand “Made in KZ”, which will act on behalf of the state with all related competencies, and will be able to solve all issues in practice being in the thick of things, doing market research, interacting with local government agencies and businesses.