Expats Heading Away from Coastal China, and Taking on Asia
From Chengdu to Mumbai and from Kunming to Hanoi, a study of where the new China expat entrepreneurs will be heading and the reasons why
Op-Ed Commentary: Chris Devonshire-Ellis
Apr. 5 – As China continues its demographic-driven path to a consumer-based society, it is no surprise to see a shifting of the expatriate population. Many arrived on the back of large MNCs, only 10 years later to find their China jobs localized as returning Chinese with excellent management skills, as well as Mandarin, English and other language capabilities begin taking their place. Many of those expats are now returning back home, their China adventures over. Some have begun consultancies back in the United States or Europe, selling their decade or so of China experience as “groundbreaking.” How long they’ll be able to maintain their China feel is a moot point; time away lessens the expertise. However, new expats are arriving as entrepreneurs, and continue to do so. Yet the nature of the China consumer is changing, and again, Chinese skills have the advantage over Western skills to penetrate what is fast becoming a dynamic consumer market.
Another aspect of China that is changing is tax related, and still poorly understood. Just as Shenzhen boomed in the early 1990s – it had the lowest tax rates in China – so the entire makeup of China trade is also shifting. The reason why is not fully of China’s own making, although the government is well aware of how the country’s age demographics are impacting upon China and how it no longer boasts its former abundance of cheap, young labor. China is becoming expensive. At the same time, ASEAN – a trade bloc of 10 Asian nations, and all of them within easy reach of China’s markets – is flexing its muscles and reducing tariffs on goods across Southeast Asia. That is being fully implemented in 2015, and as China has a free trade agreement with ASEAN, this development will change the nature of supply chains servicing the country, and Asia as a whole. These two changes are altering both the type of expat needed in China, and also where they will best find success in Asia.
Many expats in China today have a fundamental problem – their Mandarin is not up to snuff. That can be hidden in cities such as Beijing and Shanghai with huge foreign populations and locals used to servicing them with English-language skills. Yet these cities are among the most competitive – and expensive – in China, and success is hard to come by. Meanwhile, again, returning Chinese are also searching for the best opportunities. Plus it’s not just the language barrier that presents a problem, China’s consumerism is taking off fastest in its second and third-tier cities – It is harder to succeed in a city such as Changsha than it is in Shanghai as a foreigner. Yet such cities are exactly those that must be explored to capture the new opportunities that China now offers. The new China will belong to those prepared to be adventurous.
There are plenty of exciting cities and places to be in China with a high quality of life, offering new and unique opportunities for expatriate entrepreneurs.
Here are just three:
The city already has a vibrant expatriate culture, yet its not so large as to have become overly cliquey. The city rests at relatively high elevation, so the weather is moderate, and some amazing countryside remains close at hand. Chengdu also boasts Chinese culture at its finest. The city is a hub for China’s aviation and services industry, and has attracted some premium IT companies and other investors as well. A quality of life, and part of the Chongqing-Chengdu-Kunming trade corridor in the heart of the country with access to hundreds of millions of consumers. I’d head here if wanting to sell to the population in China’s heartland.
Interested in Chengdu, Sichuan and China’s consumer heartland? Read more below:
- The Sichuan Question: Chengdu or Chongqing
- Investment Opportunities in Chengdu and Sichuan
- Growth in China’s Own Emerging Markets
Kunming is similar to Chengdu in many ways, but its close proximity to both Vietnam and the wealthy markets in South China and Hong Kong give it access to the developing trade with Southeast Asia and for importing and processing goods from the region. When ASEAN starts to really flex its muscles over the free trade agreements it has with China, Kunming will be a major beneficiary. It is already home to the world’s largest flower market, having outstripped Amsterdam years ago. Access to one of China’s most beautiful provinces, a moderate climate, a high quality of life, and a bohemian arts scene all make Kunming a great place to set up the China end of trade operations with Southeast Asia through to Vietnam, Thailand and beyond.
Interested in Kunming, Yunnan, and China’s trade with Southeast Asia? Read More:
- Investing in Yunnan – ASEAN, Myanmar & India in the Backyard
- China to Support Development of Border Economic Zones
- China’s 12th Five-Year Development Plan For Yunnan & Western China
Perhaps a surprising choice for many, but consider this: Urumqi is Central Asia’s wealthiest city and the distribution hub for goods coming and going throughout the entire Central Asian region. You may need Muslim sensibilities and a smattering of Russian here, but the city is booming. This is the Silk Road, and with plenty of ancient cultures and amazing scenery to discover, this is one for the romantic, yet practical. Two bedroom apartments in the city center can still be purchased outright for US$100,000, and with the market going up 10 percent per year, it’s probably a good property investment too. China’s trade with Central Asia is booming, and if you have the feel for Central Asia, the proper credentials, and a sense of adventure – this is a seriously interesting city and region to consider.
Interested in Urumqi, Xinjiang and China’s trade with Central Asia and the Silk Road? Read More:
- Where I’d Head Now if I Were a New Expat in China – Urumqi
- The Man from Ashgabat – China’s Central Asia on the Rise
- The Chongqing-Xinjiang-Europe Railway Opens
China aside, another group is also emerging – the previously China-centric expat who arrived only with thoughts of China and whose career to date has been exclusively within the country. A good China CV can lead to a larger remit, and as China expands, so do some of the responsibilities of the expatriates extant in the country. An example is Stan Abrams of the China Hearsay blog who also discusses this trend, and who has now personally turned from being an exclusively China-focused IP lawyer into heading up AsiaPac for an American MNC. Apparently now responsible for countries including Indonesia, India and Japan, his focus will change, and I hope he blogs about that experience on what he may now need to rename “China Plus AsiaPac Hearsay.”
While expats like Stan may well remain based in China, dependent upon how their HQ has structured their Asia presence, you can be sure that many expats based especially in Shanghai will be asked to take on additional responsibilities for Asia. The expat trend is moving away from being China-centric – there’s plenty of experienced, internationally educated Chinese professionals who can fill that niche – and moving towards becoming a regional player. Be prepared to adapt.
Still, others may use their China experience and knowledge to explore careers elsewhere in Asia. After all, the presumption is that if you’ve succeeded in China you probably have the courage and ability to do it again elsewhere. Ultimately, it’s that expat magpie capability of being able to survive and prosper in different locations that defines the true expatriate entrepreneur. I predict that over the next two or three years, many expats who cut their teeth in China will reappear elsewhere. So which locations are hot at the moment? Where are expats with China experience needed? Here’s a brief breakdown of my own recent experiences.
I mention India first because, quite simply, it’s the elephant in China’s backyard. It’s just next door and yet hardly any expat in China knows really anything about it. That seems a bit weird to be frank, given its geographical proximity, market size and potential.
Many people get India wrong. “It’s dirty, hot and corrupt,” they say. Yes to all – but not to any degrees that are worse than China. Consider this – with a successful business in both China and India, you effectively and strategically control Asia. I began Dezan Shira & Associates’ adventures in India six years ago – fifteen years after having originally set up the firm in China. Thinking I knew all the tricks that people can pull in China, however, was no preparation for India. It’s the same show, but different, and it takes a while to learn their own version of pulling the wool over an expat’s eyes.
India is colorful where I find China grey. Some of those colors are nasty, but many are brilliant, and the experience requires someone who can deal with extremes. The good points about India are that it needs massive infrastructure development, and clients of ours there who originally worked on such projects in China – building airports, subway systems, bridges, and gigantic skyscrapers – are now either in India or are looking at entering the country. It’s for this reason the comparison with China 15 years ago works – India’s opportunity is in its infrastructure needs.
Additionally, India also has a massive consumer market already there, and unlike China, the Indian middle class is not a recent phenomenon. So Porsche and Ferrari dealerships exist, and up-market Indians buy their Hermes and Louis Vuitton just as they do in China. What holds India back is an uneven reform process – almost completely the result of it being a democracy (as Winston Churchill once said, “Democracy is not a good social system. But it’s the best of a bad bunch”). This means that reforms that the Chinese government would push through regardless take time in India – but they are getting there. India also has a massive and complex business administration system in place with seemingly never-ending, small, but necessary processes to go through. It is, in many ways, a nation of clerks.So you’ll need good advisers to check all the boxes and make sure everything is where it should be, otherwise it is easy to get tied up in knots very quickly.
On the plus side, English language usage is common and gets better the higher educated the individual is, typically to higher standards than in China. The Times of India, one of many English-language newspapers in the country, possesses the largest number of online English language readers of any newspaper in the world. Other much-needed processes are also starting to fall into place, such as the new Companies Act due to go through Congress shortly – a bill that considerably eases the administration requirements for operating a foreign business in India. The new GST tax reform is set to be introduced later in 2013, which makes the calculations of VAT and other business taxes more uniform across the country. These developments mean India is finally getting its own business head on and becoming more user-friendly, and the government leadership is made up of the right sort of people to get things pushed through. Mr. P. Chibandaram, currently finance minister, is potentially the next PM and, if so, this is a business-friendly politician open to foreign investment. India’s star is looking up. Dismissing India out of hand – as many China expats do – and not being prepared to consider it or learn about what is going on there would be a strategic mistake. India is the play that will affect China the most, and as a career move if you can crack both China and India – you have the whole of Asia as your future career and business opportunity. It’s tough – but it’s certainly not impossible to pull off.
India Travel Tips:
- Hotel: The Imperial is the place to stay. Most major five star hotel chains are in the city.
- Food: In 10 years traveling extensively around the country, I got sick just once, and that was my own fault for taking a risk on some street-side water vendor. It’s not a problem, just be sensible. Otherwise, Indian cuisine is world famous, hotter in the north than in the south, so dig in.
- Expat Hangouts and Living Areas: Around the Hauz Khas and Khan Market areas. Both have a bohemian atmosphere and are packed with international restaurants and stores catering for expats.
- Chambers of Commerce: Most chambers you’d expect to be present are, and all arrange regular functions.
- Hotel: The Taj epitomizes opulent splendor, even if you just go for a drink. Otherwise, all major five-star hotel chains are here, with the Intercontinental on Marine Drive being the pick with a rooftop bar looking out onto the Arabian Sea.
- Food: Many world class Indian and international restaurants. Indigo is a personal favorite.
- Expat Hangouts and Living Areas: Around the Juhu Beach area, Bandra and Fort.
- Chambers of Commerce: More fun maybe than in Delhi, and all major chambers are extant. Mumbai’s social scene for expats is lively.
Interested in India? Read More:
- Intra-Asia Trade Flows to Lead Global Economic Growth – China-India Trade Leading The Way
- India Poised to Compete for China FDI
- Indian IT Companies Double Global Market Share
Vietnam has taken a lot of light manufacturing industry away from China, and this will continue. In fact, the country is about to reduce its corporate income tax rate to 23 percent to directly compete with China’s 25 percent and attract even more as a result.
Naysayers may protest about relocating manufacturing to Vietnam, with many citing infrastructure problems, however Dezan Shira & Associates has four offices in South China and two in Vietnam, and we see this movement occurring – it’s why we are in the country and have been since 2008. Many of our light manufacturing clients have been moving there for the past five years and are increasingly doing so. For new-to-Asia manufacturers, Vietnam is now a credible China alternative.
There are several reasons for this. The country is also set to take advantage of the TPP Agreement – a trade bloc led by the United States, and bitterly opposed by China – that seeks to help other Asia-Pacific countries develop their manufacturing industries to meet U.S. quality standards and lessen American dependence upon China. That deal is expected to be signed off later this year.
Meanwhile, infrastructure continues to improve – as anyone who has arrived recently at Hanoi airport and driven downtown will attest. There are buildings everywhere and the new highways are a huge improvement. With Vietnam increasing its port capacity, developing a number of free trade zones along its coast, and introducing lower taxes, it’ll be the first port of call for many China expats involved with manufacturing who are looking for lower costs. It’s also a nice place to live, with access to many unspoilt beaches from Hanoi to Ho Chi Minh City. Just as 10 years ago many of China’s smaller eastern and southern ports such as Beilun and Qinzhou were relatively unknown, Vietnam’s will develop. Light manufacturing is moving here, and with Vietnam as a member of ASEAN, the free trade agreement ASEAN has with China means many Vietnamese-manufactured goods will find their way into Chinese markets. Be prepared for “Made in Vietnam” to start showing up on your clothing in a couple of years, even when actually purchased in Shanghai or Chicago.
The other benefit of Vietnam is the exposure it gives to the alternative plays of Cambodia and Laos. Many expats in Vietnam already have, or are exploring the establishment of, satellite operations in these Indochina countries as well, and we previously commented on this in our piece Cambodia, Laos and Vietnam – Indochina and China Today.
Vietnam Travel Tips:
- Hotel: The Metropole is the place to stay, and an institution. Most five star brands also extant.
- Food: Excellent. Vietnam has been turning away Chinese produce recently as “unfit.” The cuisine relies on the freshness and purity of ingredients, you’ll have no problems.
- Expat Hangouts and Living Areas: Around West Lake, it’s quieter than downtown and has its own charm full of expatriate small restaurants and bars. Many expats also rent villas by the coast for weekend use.
- Chambers of Commerce: Still developing, with the American and French dominating. Tip: Head to the Hanoi Press Club on Thursday and Friday nights – that’s the main draw and has 20 percent discounts on drinks. Everyone goes. Next door to the Metropole.
Ho Chi Minh City
- Hotel: The Rex – It’s historic and we love its huge upstairs open floor. Other five star hotels all as normal and close together.
- Food: As for Hanoi, and with amazing coffee shops. What’s not to love?
- Expat Hangouts and Living Areas: District 1 for convenience and the best facilities, District 3 for old world charm and colonial villas.
- Chambers of Commerce: Still developing, with the French, Germans and Italians dominating. HCMC, like Hanoi, has a vibrant expat lifestyle and is even more party based. Like Hanoi, beaches are never far away.
Interested in Vietnam? Read More:
- Vietnam to Lower Corporate Income Tax Rate
- China Set to Lose Out to Vietnam as TPP Deal Looms
- Hedging China – Manufacturing & Selling in India, Vietnam & Myanmar
Singapore is the de facto capital city of the ASEAN trade bloc and has taken the role of the financial and services hub for Asia. It is the busiest and largest port in the world today (a statistic often claimed also by Shanghai, but Singapore just shaded it last year). If you need to be in the heart of Asia, you need to be in Singapore – one reason why I relocated there last year. Yet be warned – it is not an easy place to get into as an expat. It is small, and work permits are hard to get. Singapore immigration requires extensive background checks, including possession of university degrees, relevant experience to the local economy (so no fly by night English teachers) and minimum salary requirements from your employer (guidelines suggest a monthly income declared of at least US$6,500). The upside – individual income tax at 20 percent and a high quality of life, with international schools, medical facilities and private clubs all long in place. It’s a service center for expats managing businesses throughout Asia, so if that’s your thing, and you have experience, it’s one of the wealthiest cities in Asia to live.
Singapore Travel Tips:
- Hotel: Raffles for colonial old world charm and the Singapore Sling, or the Fullerton. Marina Bay Sands for wow factor entertainment. Otherwise, everyone is here, take your pick.
- Food: Gourmet heaven. You can get everything in Singapore, from a lunchtime bowl of noodles costing 5 bucks to a Black Pepper Crab feast running to hundreds of dollars.
- Expat Hangouts and Living Areas: Singapore is expensive, although there are cheaper places out of the CBD and the subway system means an easy commute. For nightlife, Clarke Quay is where it’s at.
- Chambers of Commerce: Everyone is here, and the scene is vibrant. It is, after all, the heart of ASEAN and everyone wants to be in on that and learn.
Interested in Singapore? Read More:
- Singapore – European Union Conclude Free Trade Agreement
- China Implements Mutual Recognition Program With Singapore
- Singapore as a Holding Company Domicile for Your China Investment
The landscape for expats in China is changing. Above are just some examples I have personally explored. If readers would like to share their experiences in other Chinese and Asian cities, please do so in the comments section below – we’d love to hear from you in order to build up a bigger picture of where is hot in China, and what the alternative Asian options are.
Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates, starting the practice in 1992 in Shenzhen. It now has 17 offices across Asia, and after 20 years in China, Chris relocated to Singapore last year. For more information, email firstname.lastname@example.org or visit the practice at www.dezshira.com.
Expanding Your China Business to India and Vietnam
The March/April issue of Asia Briefing Magazine discusses why China is no longer the only solution for export driven businesses, and how the evolution of trade in Asia is determining that locations such as Vietnam and India represent competitive alternatives. With that in mind, we examine the common purposes as well as the pros and cons of the various market entry vehicles available for foreign investors interested in Vietnam and India.
Trading With China
This issue of China Briefing Magazine focuses on the minutiae of trading with China – regardless of whether your business has a presence in the country or not. Of special interest to the global small and medium-sized enterprises, this issue explains in detail the myriad regulations concerning trading with the most populous nation on Earth – plus the inevitable tax, customs and administrative matters that go with this.
India’s Taxes for Foreign-invested Entities
In this issue of India Briefing Magazine, we provide an overview of India’s taxes on business, which includes a section on India’s double taxation avoidance agreements, and then discuss individual income tax rates and deductions. Finally, we discuss India’s tax reforms in 2013.
Annual Compliance and Audit
In this issue of Vietnam Briefing Magazine, we address a number of annual compliance topics relevant to foreign investors in Vietnam. Namely, annual reporting for foreign-owned enterprises and representative offices, as well as annual tax finalization (corporate income tax and personal income tax), and annual financial statements (structure, general accounting treatments, deductible expenditures, submission).
- Previous Article China Releases New Standards and Expert Advice on Asset Valuation
- Next Article China Cancels Import Duties for Major Technical Equipment