Author Archives: China Briefing

‘Bad Faith’ Trademark Registration in China

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Having decided to formally enter the Chinese market several years ago, electric carmaker Tesla was surprised to discover that they could not register or officially use their trademarked name, as another party had already registered it. Faced with no legal grounds for cancellation, the company was forced into prolonged negotiations to purchase it from the Guangzhou-based business man who had been granted the rights in 2009, or otherwise face the prospect of an entire China rebranding campaign. The RMB 2 million (€250,000) Tesla offered to buy the rights was turned down and eventually, after further negotiation, an undisclosed settlement was reached, presumably far higher than the former offer.

This kind of situation is far from out of the ordinary and while stories of large international companies experiencing this problem are common, cases of small and medium sized businesses facing the same difficulties are even more frequent. Prior trademark registrations, also called ‘bad-faith registrations’, involve a Chinese company first registering the trademark of a foreign company in China with the express intention of selling it back to the foreign company at an inflated price. Discovering that a Chinese company has registered a trademark in bad faith is one of the biggest complaints of European Small and Medium Enterprises (SMEs) trying to enter the Chinese market. These prior registrations can limit the foreign company’s freedom to operate by restricting its ability to enter the China market or even to source goods from China.

A sound knowledge of the instruments available to protect your company’s intellectual property is of utmost importance. It is worth remembering that trademarks not only protect particular products, but also the company’s wider reputation. Continue reading…

Dezan Shira Partners with Surmang for Maternal and Child Health in Qinghai

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2511-1569-Drogha22By Amelia Tsui

According to the World Health Organization, last year 6.3 million children died before reaching the age of five. That translates to approximately 17,000 deaths of children under five each day. While infant mortality has been steadily decreasing across the globe, this has been unevenly distributed between certain regions. In 2012, the global number of under-five deaths was 6.6 million, but almost 99 percent of these took place in low to middle-income countries. In developed nations, the majority of deaths by non-infectious diseases are among the elderly, whereas in developing nations, the majority occur among children.

Recognizing the graveness of this problem, Dezan Shira & Associates has launched a corporate social responsibility (CSR) initiative with the Surmang Foundation, a non-profit organization dedicated to combating infant mortality in rural China. Specifically, Surmang works to improve maternal and child health in Yushu Prefecture, Qinghai Province. The organization’s founder, Lee Weingrad, stresses that the combination of lack of access to health care services and the outsized responsibilities of women is the direct cause of the region’s high infant and maternal mortality rates.

“Over the years our firm has quietly gone about supporting a number of China-based charities and we are pleased to become more actively involved in the Surmang Foundation,” says Chris Devonshire-Ellis, Founding Partner of Dezan Shira & Associates. I know Lee Weingrad and his team are doing a fantastic job under very difficult circumstances and recommend that other foreign-invested businesses not yet involved in CSR give something back to the Chinese community – the results are both tangible and beneficial.”

Located in southwestern Qinghai Province, Yushu Tibetan Autonomous Prefecture covers an area of 267,000 sq km and is the source of three of Asia’s longest rivers: the Yangtze, Mekong and Yellow River. Yak herding remains the fundamental way of life for Tibetans living in the region, which is home to dozens of peaks rising above 5,000 meters and a plethora of wildlife. While this might seem an outdoor enthusiast’s dream, Yushu’s remoteness creates difficulties for getting aid to its residents, as experienced in the 2010 earthquake.

This is where the Surmang Foundation’s organizational structure steps in to fill the gap. Surmang runs a private, stand-alone clinic in Yushu, staffed by a corps of 40 Community Health Workers. These workers, who attend births in remote villages and nomadic encampments, are the eyes and hands of Surmang, reaching those in even the furthest nomad camps. The success of the organization is manifested in the absence of maternal mortality in the Yushu region for the past three consecutive years.

Surmang has been active in Yushu for 23 years and its clinic in full-time operation since the year 2000, treating a total of over 150,000 patients. Currently, the clinic is staffed by two local Khampa Tibetan doctors, Phuntsok Dongdrup and So Drogha. In recognition of the exemplary services provided by the clinic in the wake of the 2010 Yushu Earthquake, the governmental Yushu Prefecture Public Health Service has partnered with Surmang to export its model of rural health care to four township hospitals.

Historically, the Chinese government has been wary of NGOs in ethnic minority regions like Qinghai and the influence of foreigners entering China for humanitarian work. The undeniable benefit of organizations like Surmang, however, has been promoting the gradual liberalization of restrictions in this respect, and boosting the viability of CSR projects in China.


About
Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira provides pro bono accounting and audit support services for specific NFP clients across Asia, ranging from expatriate cricket and rugby teams to international charities. To learn more about this program please contact the practice at asia@dezshira.com.

Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN.

An Introduction to Double Taxation Avoidance in China

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By Chris Devonshire-Ellis, Zhou Qian and Matthew Zito

CB 2014 10_Double Taxation Advoidance in ChinaChina has made significant strides in the past five years in building up its regulation in the area of double taxation avoidance, as well as implementation assurance techniques. Following the 2008 Corporate Income Tax Law, which laid the basis for anti-avoidance in China, the State Administration of Taxation (SAT) issued a flurry of related circulars stipulating reporting requirements for offshore transactions, describing qualification as a beneficial owner, and dictating protocol for claiming treaty benefits.

Before it will grant DTA relief from Withholding Tax on dividends, interest or royalties, the SAT must be satisfied that the applicant company in a DTA partner jurisdiction (for example, Hong Kong or Singapore) is indeed the “beneficial owner” of the Chinese subsidiary. The SAT bases its judgment on a principle of “substance over form” – that is, it is not enough that the applicant company is a tax resident in the DTA partner jurisdiction in question.

This can pose a significant problem, especially for companies that were established many years ago through a holding company in Hong Kong, and thus did not consider their future qualification as “beneficial owners.” Therefore, conducting a preliminary assessment of a company’s situation is typically the first step taken by Dezan Shira and Associates professionals to determine the likelihood of approval prior to submitting an application for DTA relief. Continue reading…

China Regulatory Brief: Injury Insurance in Guangzhou, Annual Inspections in Dongguan and Container Export Refunds

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China-Regulatory-BriefAustralia to be Exempted from China’s New Tariffs on Imported Coal

On October 22, Australia’s Treasurer Joe Hockey announced that Australian coal will be exempted from China’s new tariffs on imported coal based on the Free Trade Agreement (FTA) in negotiation between the two countries. On October 15, China restarted its levy of import tariffs on coal after nearly a decade of suspension, aiming to boost its domestic coal industry and curb carbon emissions. Australia, the largest exporter of coal to China, was severely threatened by this new policy and opened an urgent discussion with China last week to seek a reversal of the decision. During the meeting, the Chinese government urged Australia to relax restrictions on Chinese investment in return.

Guangzhou Releases Provisions on Work-related Injury Insurance

The Guangzhou municipal government recently released the “Provisions on Work-related Injury Insurance in Guangzhou (Hui Fu [2014] No.30),” which took effect on September 1, 2014 and will be valid for five years. According to the Provisions, work-related injury insurance premiums are to be levied based on a rate of between 0.5 percent and 1.5 percent of an employee’s gross wages in the previous year. Further, employees suffering a work-related injury will be able to apply for a paid recovery leave of no more than 12 months.  Continue reading…

With Reboot of Import Tariffs, A Sooty Future Awaits for Foreign Coal in China

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By Rainy Yao

SHANGHAI – China, the world’s biggest coal producer and consumer, is facing a poignant dilemma: whether to turn up its effort to tackle air pollution and curb carbon emissions or boost its flagging coal industry to prevent a sharp economic slowdown.

In 2013, China produced roughly 3.7 billion tons of coal and consumed 3.61 billion tons at a declining growth rate of 2.6 percent. Meanwhile, the country’s growth in coal imports hit a record of 13.4 percent with 327.1 million tons imported last year – more than twice the amount of coal imported in 2010, according to CapitalVue.

As a result, more than 70 percent of Chinese local miners are losing money and struggling to survive. Further, due to declining coal prices and rising costs of production, the economies of some coal-dependent provinces such as Inner Mongolia, Shanxi and Shaanxi have substantially slowed.

In order to sooth the country’s jittery coal market, the Chinese government has released a slew of policies to ban or limit coal imports in recent years. In the latest of these, on October 15, China rebooted its levy of import tariffs on coal after nearly a decade of suspension, and announced plans to ban the import of coal with high ash and sulfur content from 2015. Continue reading…

Investing in China’s Education Industry

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The-idiom-illustration-2

By Roy K. McCall

China has the longest education tradition of any country. Beginning in the Han Dynasty, education formed the basis of China’s meritocracy for climbing the social ladder into the emperor’s presence. Educational rigor has fundamentally shaped China’s ambitious spirit and tenfold economic growth in the past two decades. This may never have happened without China’s respect for competitive pressure fostered by its long veneration of education.

One of the fastest growing education market segments in the country is K-12 (after school tutoring for kindergarten through 12th grade). Spending on K-12 has been growing faster than the Chinese economy and in 2014 may amount to around US$66 billion. Chinese households now spend 30 percent of their income on education, higher than both Korea (22 percent) and Japan (10 percent).

Yet, the proportion of households with children enrolled in additional K-12 education is only 30-35 percent, compared to 70-90 percent in Korea. In China, no one company dominates the market, with none controlling more than 1 percent of the total share and the top five sharing just 3 percent. China’s K-12 education market is large, growing and fragmented. Continue reading…

End of the Line: Terminating an Employee in China (Part 1)

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By Zhou Qian

Heightened pressure in China’s labor market means that employers are commonly required to terminate employees to optimize their business operations. Legally speaking, this is by no means an easy thing to do, especially under the comparatively stringent regulations on terminating employment contracts since 2008.

To avoid the onerous and costly labor disputes that can arise from improper termination, foreign-invested enterprises in China must understand the governing framework and key issues behind employee termination and consider taking preventative measures from the start of the employment arrangement.

In Part 1 of this two-part article, we introduce the different types of employee termination in China; in Part 2, we detail the methods of calculating severance payments and provide practical guidance for FIEs. Continue reading…

Is Your China Manufacturing Business Ready for Next Year’s Flood of Cheaper Vietnamese Products?

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CDE Op-Ed Commentary

Has your business factored in the implications of the China-ASEAN Free Trade and China-Vietnam Double Tax Agreements?

Next year will be an important one for manufacturing businesses in China. Fast approaching is something called the “ASEAN Economic Community” (AEC) 2015 deadline, which entails Cambodia, Laos, Myanmar and Vietnam all coming into line with the ASEAN community on tariff reductions. Of these, Vietnam is the big player, with a well-developed border with China, ports up and down its east coast and very close proximity to South China. Vietnam’s AEC compliance means that, under the ASEAN Free Trade Agreement with China, 90 percent of all Vietnamese manufactured products will be permitted to enter the China market duty-free.

With even Xinhua on the ball with what is about to happen, your business had better be as well. Vietnam’s lower operating costs – in terms of both land-use rights and worker salaries – mean that inevitably, production of low and medium tech products will leech away from China into ASEAN, and Vietnam in particular. In fact the shift is already taking place – while China’s trade with the rest of the world has grown by 1.6 percent this year, bilateral trade with ASEAN grew by 6 percent.

This latter figure has grown by leaps and bounds in recent years, in line with the development of the China-ASEAN Free Trade Agreement. In 2002, when the FTA was signed, trade between the two jurisdictions was just US$55 billion. This year it is expected to reach US$420 billion, and AEC compliance is expected to push it further, up to US$500 billion in 2015.

RELATED: The Competitive Advantages of Manufacturing in Vietnam

Here is a checklist of the issues your China manufacturing base will face as a result of this:

1)     Are the products you are manufacturing in China also included under the China-ASEAN FTA?

2)     Have you examined the implications for your China business of the China-Vietnam Double Tax Agreement?

If not, then it would be wise to seek professional advice to examine its implications for your China manufacturing operations. This should include:

3)     A briefing on the implications for your company of the China-ASEAN FTA and Vietnam-China DTA;

4)     Cost analysis of manufacturing overheads as a comparison between China and Vietnam

5)     Infrastructure analysis on production capabilities between China and Vietnam

Based on these, you will need to make a corporate decision on what to do next. Typically, we have found that China-based manufacturers relocate part – not usually all, although it does happen – of their production to Vietnam. Less complicated component parts can be imported from Vietnam, with total assembly using more complex China-made parts being conducted in China, then resold onto the domestic market.

The harsh reality is that the supply chain is shifting – fast – and your China manufacturing base may start to become uncompetitive as early as next year. Now is the time to be examining the possibility of this, and looking hard at the Vietnam option. Your future as a profitable business depends on it. 


Chris Devonshire-Ellis
 is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email china@dezshira.com or visit www.dezshira.com.

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Manufacturing in Vietnam to Sell to ASEAN and China In this issue of Vietnam Briefing Magazine, we introduce our readers to manufacturing in Vietnam as a key part of their business strategy within the ASEAN region and beyond. Specifically, we explain the new ASEAN Free Trade Area, outline what foreign investors can look forward to when creating their manufacturing presence in the country, and introduce the country’s key tax points.
 

ASEAN’s Investment Horizons: Key Industries for AEC 2015 In this issue of Asia Briefing, we forecast the effects of ASEAN Economic Community on foreign investment into the region in the lead up to 2015. Following this, we highlight what is happening in some of ASEAN’s hottest industries for investment, including electronics, information and communications technology, textiles and medical devices. Lastly, we examine the growing potential of bilateral trade between ASEAN and India in light of recent historic developments in the latter.

Double Taxation Avoidance in China: A Business Intelligence Primer In our twenty-two years of experience in facilitating foreign investment into Asia, Dezan Shira & Associates has witnessed first-hand the development of China’s double taxation avoidance mechanism and established an extensive library of resources for helping foreign investors obtain DTA benefits. In this issue of China Briefing Magazine, we are proud to present the distillation of this knowledge in the form of a business intelligence primer to DTAs in China.

Manufacturing Hubs Across Emerging Asia In this issue of Asia Briefing Magazine, we explore several of the region’s most competitive and promising manufacturing locales including India, Indonesia, Malaysia, Singapore, Thailand and Vietnam. Exploring a wide variety of factors such as key industries, investment regulations, and labor, shipping, and operational costs, we delineate the cost competitiveness and ease of investment in each while highlighting Indonesia, Vietnam and India’s exceptional potential as the manufacturing leaders of the future.

Asia Briefing Bookstore Catalogue 2013