Author Archives: Chris Devonshire-Ellis

So China Has Overtaken Japan. Now What?

Op-Ed Commentary: Chris Devonshire-Ellis

Japan. Not quite ready to be overtaken in spending power by Chinese consumers just yet.

Feb. 17 – I’ve spent the past week in Tokyo, evaluating opportunities for our firm to have a presence there. During my stay, the official news (actually it’s been suspected for some time) that China had overtaken Japan as the world’s second largest economy broke. While many of the international newspapers concentrated on the reaction of Chinese nationals, the reaction in Japan was rather more muted. Not in a “we’re now third and the Chinese are beating us” mentality, but more in a shrug of the shoulders style reaction. At the end of the day, does the statistic really matter beyond a bit of international posturing? Continue reading →

Posted in Business, Economy and Politics, Featured | 6 Comments

Setting Up in India Compared With China

An examination of the applicable China – India investment vehicles, taxes, labor costs and available investment incentives

Op-Ed Commentary: Chris Devonshire-Ellis

Feb.11 – As the cost of doing business in China increases, many international investors are looking at alternative locations to operate from, in addition to keeping an eye on new emerging markets. India is an attractive destination as, similar to China before it, it offers two advantages: cheap labor, and an increasingly affluent domestic market. In the former, India now offers a significant discount in operating costs compared to China, and in the latter, a market familiar with and able to afford high property prices, expensive consumer goods, and international standards of merchandise. Continue reading →

Posted in Business, FDI and Foreign Trade, Legal and Regulatory, Markets | Leave a comment

When China Mandatory is Negotiable

Op-Ed Commentary: Chris Devonshire-Ellis

Feb. 11 – Among all the furor in the United States concerning China listing deals being uncovered as fraudulent reverse mergers, it seems that an estimated US$38 billion of value may have just gone up in smoke. A number of Chinese companies have been found to have misled dealmakers in bids to become listed on Nasdaq and related markets, and it appears the toxicity of these discoveries may spread to other markets in Toronto, London and even Hong Kong.

As we reported earlier in the week, a sharp-eyed American small investor spotted that a Chinese, Nasdaq-listed company, reported sales turnover of its entire inventory every week. Further investigation revealed a huge documentary fraud – the original entity, based in Harbin, had apparently managed to inflate its annual sales from its Chinese audit of US$1 million in 2008 to almost 60 times its original figure, reporting annual sales of US$59.7 million to the SEC. Continue reading →

Posted in Business, Finance, Tax and Accounting, Legal and Regulatory | Leave a comment

Applying for China Visas. It’s a Compliance Issue

Op-Ed Commentary: Chris Devonshire-Ellis

Feb. 10 – The issue over obtaining China visas is a perennial question, and China itself is not always consistent in regard to the application guidelines for foreigners wishing to travel to the country on business. In particular, for businessmen, there is often confusion over which of the two pertinent visa types should be applied for.

Here we’ll look at the most common visa types and their usage. In particular, we will go into detail about work visas and the related process of obtaining a residency permit. Continue reading →

Posted in Legal and Regulatory | 2 Comments

Kicking A China Business’ Tires – The Checklist

Part Four in our four part series on China due diligence

Op-Ed Commentary: Chris Devonshire-Ellis and Sabrina Zhang

Feb. 9 – As we have discussed in our previous articles this week (see links to these articles at the end of this post), due diligence is perhaps one of the most important concepts that any investor in China needs to consider. Whether setting up for the first time, taking a look at internal practices after years of doing business on the mainland, or evaluating a company for acquisition or listings purposes, it is important to stay compliant with China and the global business community’s evolving regulations. This means making sure all Chinese documentation is current, accurate and authentic, all financials are properly reported and employee issues and other assets have been properly accounted for.

The concepts presented here should not only be followed when considering investing in China (as they help to identify the real value of any potential China investment), but also should be used as a foundation for conducting reviews in companies already operating in China, where they can help to reduce risk and avoid the sorts of problems that can evolve when not enough attention is paid to internal issues. Continue reading →

Posted in Business, Finance, Tax and Accounting | Leave a comment

Chinese Companies in U.S. Reverse Mergers “Valueless”

Op-Ed Commentary: Chris Devonshire-Ellis

Feb. 9 – Chinese companies in the United States that have been acquiring listings through the “reverse merger” method have been coming under intense scrutiny after an American investor found serious fraud within one of the stocks he had been following. Over 350 Chinese companies have been listed in the United States via this method, in which an operating Chinese company takes over an all-but-defunct publicly traded U.S. shell company. The investor concerned, John Bird, had been tracking the stock of a company called China Sky One Medical, a manufacturer of medical products such as “magnetizing” hemorrhoid ointments and patches that would “dispel fat.” Sky One, according to its annual report filed just a few days earlier, was selling out of its inventory every seven days. Continue reading →

Posted in Business | 2 Comments

Analyzing Chinese Financial Reporting

Part Three in a four part series

Op-Ed Commentary: Chris Devonshire-Ellis and Sabrina Zhang

Feb. 7 – In this article, we will focus on understanding and analyzing the typical accounts of Chinese financial statements, including the balance sheet and income statement. In our firm’s 19 years of experience in China, when called upon to examine accounts prepared by Chinese businesses, we have consistently found accounts have been incorrectly prepared. This can be due to several factors, including incompetence or, in more serious cases, deliberate attempts to deceive. Regardless, accounts can be understood and errors or specific acts of misrepresentation uncovered. We will conduct some simple analysis to demonstrate how errors or acts of misrepresentation can be spotted. Continue reading →

Posted in Business, FDI and Foreign Trade, Finance, Tax and Accounting, Legal and Regulatory | 4 Comments

China Operational Due Diligence

Part Two in a four part series

Op-Ed Commentary: Chris Devonshire-Ellis

Feb. 4 – Operational due diligence is an important tool to utilize when examining Chinese companies, either for confirmation of production capabilities, or potentially as an M&A target. Chinese enterprises often lack useful and reliable operational information, however, and some transactions have not lived up to acquirers’ expectations after discovery of operational surprises or weaknesses. The likelihood of buyers being disappointed by the performance of the target company can be reduced by conducting operational due diligence (ODD). ODD can be a highly effective tool in helping the buyer understand exactly how the target company works, which in turn leads to a trouble-free transition after the consummation of the acquisition. It can also prove effective at assisting the buyer in evaluating how well the target’s current operations support future strategic objectives. Continue reading →

Posted in Finance, Tax and Accounting | Leave a comment