Joint Ventures in China: Learning from Starbucks and McDonald’s

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By Vasundhara Rastogi

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Americans are feeling less optimistic about doing business in China.

In its latest survey, the American Chamber of Commerce in China found that more than three-quarters of US-based companies expressed doubts about investing in China, while over 45 percent of those already in the country stated that their revenues were dropping.

China’s economic growth has slowed down since 2012. Its gross domestic product rose only 6.7 percent in 2016, registering its slowest pace of expansion in two decades.

Apart from sluggish growth, China’s challenging regulatory environment and fierce market competition makes doing business much harder for foreign companies in the country.

Yet, two global fast-food giants – McDonald’s and Starbucks – continue to expand their operations in China. In this article, we discuss how the two companies have pursued and expanded their operations, and why China is still seen as a valuable market.

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China’s Sharing Economy

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By Jake Liddle

China is fast embracing the sharing economy, having come up with its own innovative resource sharing platforms to rival foreign counterparts such as Uber and Airbnb.

According to a report published by China’s State Information Center, the sharing economy is expected to maintain a 40 percent annual growth rate over the next few years, and is officially forecast to account for over 10 percent of the country’s GDP by the year 2020, and 20 percent by 2025. The sharing economy in China is expected to generate revenues of up to RMB 5.7 trillion (around US$915 billion) in 2017.

Many people see the sharing economy as a logical and positive development because it turns excess supply into revenue, and fits into the state’s larger initiatives to transform the country from an economy driven by manufacturing to one driven by services, by means of nurturing innovation.

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Alibaba’s Second Quarter Revenue, Special Number Plates for NEVs – China Market Watch

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Alibaba’s second quarter revenue surpasses estimates

e-Commerce giant Alibaba has reported a 56 percent revenue increase since the first quarter of this year, surpassing forecasts made by Wall Street. This growth is driven by the surge in numbers of Chinese consumers buying a wide range of products online.

Alibaba’s profits reached RMB 50.1 billion (US$7.51 billion) during the second quarter. 86 percent of this revenue came from its e-commerce services, up from 73 percent during the same period last year. While the increase in Alibaba’s stocks were driven mostly by its e-commerce services, expansion in cloud computing and entertainment ventures diversified its core business.

Revenue from its cloud business grew by 96 percent to reach RMB 2.4 billion this quarter, with paying customers reaching one million, up from 577,000 last year.

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Export Tax Rebates in China

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By Gidon Gautel

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Any exporting enterprise in China should be well versed in its tax rebate policy. The government began to implement the policy in April 1985 as a way to enhance the country’s competitiveness in foreign markets by eliminating double taxation on exported goods. Export tax rebates refer to refunds of indirect taxes paid by exporting enterprises in the production and distribution process.

China underwent significant VAT reform in 2016 when it initiated the national changeover from Business Tax (BT) to VAT. The VAT tax reform mainly covered services; Intangible assets and immovable properties, meaning that VAT tax refunds for exports have not experienced significant upheaval. However, this is still an area exporters should familiarize themselves with.

Whilst a useful channel for recovering the costs of input taxes paid, not all goods are subject to tax refunds upon being exported. Additionally, businesses must register for, and keep tax authorities updated on their exports eligible for VAT tax refunds.

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China Work Permit Calculator: Find Your Tier

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By Gidon Gautel

Applying for a China Work Permit

China’s new work permit system for foreigners was rolled out nationwide on April 1 this year. The new system has introduced a three-tier talent grading system for expatriates. Expats are placed in either Tier A, B, or C, depending on the number of points they earned under the point scoring system, or by fulfilling a condition that automatically places them in a given tier.

Authorities have transparently shared information on the three-tier talent grading system with the public to help employers and expats understand eligibility and tier category requirements. Based on this official information, the International Payroll & Human Resources team at Dezan Shira & Associates has developed a simple calculator to help employers and expats research eligibility and tier category requirements before applying.

New Retail in China: a Growth Engine for the Retail Industry

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By Moliang Jiang

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Chinese e-commerce giant Alibaba opened its first cashier-free retail store, Tao Café, in Hangzhou this July. Customers can enter the store after obtaining a machine-readable QR code entry ticket through their Taobao account, and going through the facial recognition system at the store.

Customers can not only dine in the café, but also purchase various products both physically in the store and online by using interactive screens at each table. Customers pay automatically as they exit through the checkout sensor door. There are no queues at the cashier and no need for cash or even mobile payment.

Numerous other unmanned convenience stores have emerged and expanded rapidly in recent months. The French retail group Auchan has opened dozens of BingoBox stores in Beijing and Shanghai, while F5 Future Store has opened robot-operated shops in Guangzhou.

Are we witnessing the second retail revolution after e-commerce?

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Internal Control Review: Audit and Evaluation in China

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By Dezan Shira & Associates
Editor: Zhou Qian

Whenever foreign investors want to figure out whether internal control exists and is sufficient in their Chinese subsidiaries, an internal control review (ICR) might be the best and very first step to achieve that. In contrast to an annual statutory audit, which mainly focuses on maintaining reliable financial reporting, the ICR cares more about the specific management process.

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Filing Rules for FIEs Revised, Customs Clearance System Reformed – China Regulatory Brief

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All online payments to be processed via a centralized clearing platform

The People’s Bank of China (PBOC) has released regulation which stipulates that starting June 30, 2018, all online payments made in China linked to bank accounts will be processed through a centralized online payment clearing platform.

This will allow financial regulators to protect consumers and strengthen risk control over the third party payment industry as the current system allows such institutions the possibility to misuse consumers’ settlement reserves. Settlement reserves are paid by customers to process authorized transactions before the delivery of goods is made.

The frequency of misappropriation of consumer payments have increased in the past few years with the rise of the e-commerce sector, most commonly being used as working capital invested in high risk projects or wealth management projects, causing significant losses for consumers.

The new regulation will cut out the possibility of funds misappropriation, and circumvent inefficient payment settlement processes.

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Dezan Shira & Associates

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