By Alexander Chipman Koty
Recent reforms to China’s foreign investment regime have lifted ownership restrictions and offered new preferential policies in a number of industries.
The updated Catalogue of Industries for Guiding Foreign Investment (Catalogue) and Free Trade Zone (FTZ) Negative List, both released in June 2017, remove a variety of restrictions on foreign investment, offering new opportunities for businesses previously handcuffed from doing business in China.
New opportunities arise in different contexts. Domestic demands, such as environmental and energy needs, have led the government to remove restrictions on certain industries, while policies to encourage the development of strategic sectors have driven other reforms.
This article outlines some of the intriguing new industry opportunities emerging because of the latest regulatory changes.
By Chet Scheltema
Chinese family members entered the offices of the foreign trading firm and refused to leave. A China-based employee on assignment in Southeast Asia had suffered a severe injury in a motorcycle accident and lay hospitalized in a coma. The family sought tangible assurance of financial support.
Evening approached. The employers called Shanghai police, but the police refused to intervene, dismissing the matter as a non-criminal dispute. Around 8 p.m., the employers made a frantic call to advisors: “What do we do?”
New Retail’s epicenter: Hangzhou’s “More Mall”
Alibaba is reportedly building a five-story shopping complex in Hangzhou. The development marks the fruition of “New Retail“, a term coined by Alibaba founder Jack Ma to describe “the integration of online, offline, logistics, and data across a single value chain.” According to media reports, the five-story shopping complex will host several Alibaba brands, such as the Taobao retail brand and the Hema grocery brand, with innovative features, such as unmanned stores and virtual fitting rooms.
Can e-commerce giants like Alibaba do brick and mortar retail better than traditional retail players? Retail industry observers will closely watch for early signs of the success or failure of More Mall, which will be located near to Alibaba’s headquarters. Some observers believe the combination of e-commerce, physical space, and high-tech logistics will become the future of retail, but other analysts note that New Retail may only mark e-commerce’s peak: e-commerce sales have begun to slow.
By Melissa Cyrill
Less than three months after a border standoff began at Doklam, China and India agreed to de-escalate the situation in favor of talks and military disengagement.
The standoff caused some strain in bilateral trade and business relations. Yet, eventually, economic and commercial interests trumped geopolitical concerns, leading to the relatively swift resolution of border tensions.
Indeed, a week after the disengagement, India’s Prime Minister Narendra Modi attended the ninth BRICS Summit in Xiamen, and met separately with Chinese President Xi Jinping for bilateral talks.
The latest issue of China Briefing Magazine, titled “China’s Investment Landscape: Finding New Opportunities“, is out now and currently available to subscribers as a complimentary download in the Asia Briefing Publication Store.
In this issue:
- The New Investment Catalogue and Negative List
- Investing in Free Trade Zones
- The Business Reform Agenda
The UK has been in the business of negotiating free trade, or what were previously known as “Treaty Agreements” with China since 1842. The Commonwealth of Nations, meanwhile, has its roots way back in 1887, when the first of several British Imperial Conferences was held in London. These roots are of interest, as despite subsequent negative historical coverage, and much hand wringing among the politically correct, the British Empire ultimately led to the creation of modern India, Hong Kong, and mainland China. Without British influence at that time, these countries and territories would not be in the same format as they are now.
The first Treaty Agreement the UK had with China, the Treaty of Nanjing, covered the following clauses as concerns trade (others dealt with war reparations and other unfair impositions upon China, however for the purposes of this article, I concentrate purely on the trade aspect and leave the political material elsewhere). The Treaty of Nanjing’s trade clauses’ fundamental purpose was to change the framework of foreign trade imposed by the previous trade agreement, known as the Canton System, which had been in operation since 1760 – some 82 years – and had not been negotiated directly by the British government, but by appointed agents (The British East India Company). Those 82 years even then were a long time in underlying trade protocols between two large economies, even if one was the dominant world power.
By Stephen O’Regan
Senior Associate, International Business Advisory
Dezan Shira & Associates, Guangzhou
The Chinese government has launched a three-month campaign to crack down on pyramid schemes. The campaign follows a series of frauds that recently led to four deaths, and associated protests that erupted in downtown Beijing this summer.
The campaign, which will last until November 15, 2017, aims to eliminate gangs and scammers that lure and mislead job seekers into participating in pyramid schemes. The government’s announcement of the crackdown sent stocks of Multi-Level Marketing (MLM) companies – such as Herbalife and Nu Skin – tumbling, due to fears that the campaign could disrupt their operations.
By Chet Scheltema
Foreign investors reviewing Chinese financials may find themselves at a loss to ascertain the standard for booking revenue and expenses. Confounded, they may simply conclude that local accountants are engaged in cash-based accounting.
International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) dictate revenue and expense recognition standards. While often complex, the core principle requires matching completed work with corresponding revenue in a way consistent with the business arrangement of the parties.
Chinese GAAP is much the same: it’s accrual-based accounting, not cash-based. But here’s the challenge. The onerous demands of China’s value-added tax (VAT) system may mean that practical VAT system considerations dominate the ordering of business transactions, and deprioritize GAAP financial reporting standards.