Transcript Diapositiva 1 - Union Internationale des Avocats

Legal Advice
&
Company Internationalisation
Colón de Larreategui, 35
48009 Bilbao - SPAIN
Tel. + 34 94 423 75 42
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[email protected]
SPANISH INVESTMENT IN
CHINA
PRINCIPAL VEHICLES OF INVESTMENT
AND
RECOMENDATIONS / POINTS TO NOTE
Txaber Fernández Beldarrain
UIA Congress –Macau, ChinaOctober 2013
INDEX
1.
WHY CHINA
2.
SPANISH INVESTMENTS IN CHINA
3.
INVESTMENT CLIMATE
4.
SETTING UP A BUSINESS:
a) REPRESENTATIVE OFFICES (RO)
b) WHOLLY FOREIGN-OWNED ENTERPRISES (WFOE)
c) JOINT VENTURES (JV)
5.
RECOMENDATIONS / POINTS TO NOTE
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1. WHY CHINA
 Because its GDP forecast for present year 2013 is still growing at 7,5%.
 Because its the second largest economy, and the most dynamic.
 Because the world economy is moving form western countries to ASIA
1. Factory / Manufacturer
2. Market;
2000; 6 % middle class (16 – 21,000 USD)
2020; 51 % middle class (16 – 21,000 USD)
3. ¥ - $ - €
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2. SPANISH INVESTMENTS IN CHINA
Millions of Euros
Source: Spanish Investment; Ministry of Economic
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2. SPANISH INVESTMENTS IN CHINA
Location of the Spanish companies
There are almost 600 Spanish companies in China, located in the
following areas:
Bohai Gulf
- Beijing; Service companies
and some industrial companies
too
- Tianjin: Tech – industrial
companies
Delta of Yangtze River
- Shanghai: cars components,
chemistry and consume…
Delta of Pearl River
- Guzngzhou: Light industry
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3. INVESTMENT CLIMATE
 During years the Chinese government carried out a system of incentives to
attract foreign capital and technology, and thus China has succeeded in
becoming one of the world´s biggest exporter.
 However, in the last few years the government realized the need for a change
in the growth model, and reflected it in its 12th Five-Year Plan (2011-2015),
which aims to

Reduce dependency on exports.

Enhance the internal market.

Increase the investment in the areas of technology and services.

Promote innovate and green development
 Rising labor costs in China.
 Industry is increasingly relocating from coast to interior.
 Restrictions to setting up Representative Offices.
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4. SETTING UP A BUSINESS IN CHINA
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4.a) REPRESENTATIVE OFFICE (RO)
 Requirements: The parent company must have 2 years’
experience
 Setting up: 8 – 10 weeks
 Capital: No requirements
 Office Space: Only in offices with certificates for RO.
 Chief Representative: Liable to pay personal income
taxes.
 Employment: Can only sponsor 4 expatriates (includes
Hong Kong and Taiwan citizens). Must hire locals through
government agencies.
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4.a) REPRESENTATIVE OFFICE (RO)
ADVANTAGES:
 Being the fastest and cheapest way to get established in China, the ROs
have been a useful vehicle for the first presence into the Chinese market.
DISADVANTAGES:
 Fiscal Pressure: Considering that the RO doesn´t have any income, an
11% of Enterprise Income Tax means an extra cost that must be paid by
the parent company.
 Operational limitations: An RO company may not sign and conclude
contracts with Chinese customers directly and is prohibited from engaging
any direct business operations.
 Labour: Restrictions on recruitment of personnel.
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4.b) WHOLLY FOREIGN-OWNED ENTERPRISE
(WFOE)
 Pre-incorporation: 1 – 2 months
 Incoporation: 3 – 6 months
 Minimum registered capital required: RMB 30,000 – 1,000,000, in
accordance with the proposed business plan. May be contributed in cash or in
kind.
 Deadline for contribution: 2 years from the date of issue of the Business
License.
 Employment: Permitted to hire local or foreign staff directly without using an
employment organization.
 Other requirements:
 Business Plan (Feasibility Report)

Board of directors and independent supervisor

Articles of Association
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4.b) WHOLLY FOREIGN-OWNED ENTERPRISE
(WFOE)
ADVANTAGES:
 Control and autonomy in the operations.
 Can invoice in China.
 Can enjoy tax benefit if certain conditions are fulfilled.
 No restrictions to hire foreign and local employees.
 Flexibility to install the desired corporate culture.
DISADVANTAGES:
Registered capital requirement.
 Complex and time consuming registration.
 The WFOEs are limited to certain sectors, and in some areas the foreign investor
must work with a Chinese partner: , such as Telecommunications, Publishing,
Mining, Automotive, Culture, Medicine, Chemistry
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4.c) SETTING UP A JOINT VENTURE
STEP 1
Application for Establishment
STEP 2
Submission of Feasibility Study for Approval
STEP 3
Submission of Contract and Articles of Association
for Approval
STEP 4
Application for Approval Certificate
STEP 5
Registration
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4.c) JOINT VENTURE (JV)
ADVANTAGES:
 Quick access to the market
 Access to existing sales channels
 Access to relationships (guanxi)
DISADVANTAGES:
 Social risk
 Intellectual Property
 Unequal capital contributions
 Difficulty in unifying strategic objectives and company cultures
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TAXATION
REP. OFFICE
WOFE
J.V.
11 %
25 %
25 %
Business T.
3–5%
3–5%
VAT
17 %
17 %
5 – 45 %
5 – 45 %
11 %
11 %
Company T.
Personal Income T
Repatriation
Of Dividends
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5 – 45 %
5. RECOMMENDATIONS / POINTS TO NOTE
China is one of the most difficult market to succeed due to:






Business practices and Chinese culture
State Control , Centrally Planned Economy
Labor issues
Corruption
Legal issues
Environmental problems
Only 10% of the Spanish Companies have achieved their goals
and expectations
European Chamber of Commerce: Percentage of companies
that made profits in China:
Year 2011:
75%
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Year 2012:
64%
6. BUSINESS PRACTICES; CHINESE CULTURE






Language / translators problem
The necessity of having good consultants in China, with a long
experience.
Having a trusted Chinese national, is a key to success
Negotiations
 Western business mentality doesn´t really work in China.
 Terms of the negotiations
 Establish close and long-lasting personal ties (Guanxi).
 Who is the decision maker.
 Keep and maintain the Social Status:
 Always allow the Chinese partner to maintain face.
Bureaucracy
In accordance with the World Bank “Ease of doing business index”
China is on the 91st position
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7. STATE CONTROL, CENTRAL PLANNED
ECONOMY

China is very capitalistic and “wide open” BUT Not to foreign
companies.

China retains many characteristics of a planned economy, with five-
year plans 5YP setting economic goals, strategies, and targets.

Provincial and local authorities applies those mandates.

This strong degree of government intervention in the economy, results
in a dominant position of state-owned enterprises, and unequal access
to subsidies and cheap financing.

Discrimination  European Chamber of Commerce

Subsidies; currency exchange value (apreciation / depreciation ¥ )
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8. LABOR ISUES

The cheap labor that has made China’s factories nearly unbeatable is
not so cheap anymore.

A national plan for 2012 – 2015 propose the maintenance of 13%
growth in the annual minimum wage in China.

Salary increases will have a direct adverse influence on companies’
profitability, especially the
profitability of certain
manufacturers that only rely
on cheap labor to gain
competitive advantages.
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8. LABOR ISSUES

China’s population has been steadily aging; 2020; > 200 M people > 60 years old.

Labor Legislation has been tightened.

Increasing demonstrations and strikes in China.

Difference attitude among the Chinese young generation.
Consequence  Repatriation of Production

BCG forecast; around 2015 it will be as economical to manufacture many goods for Europe
consumption in Europe as in China.

BCG points to seven industries that are nearing that break-even point: electronics,
appliances, machinery, transportation goods, fabricated metals, furniture, and plastics and
rubber – all products with relatively low labor content and high transportation costs.

Some companies have already started to repatriate their production:

General Electric relocated the production of water heaters from China to Louisville

Ford Motor Co. is bringing up to 2.000 jobs back to the US from China.

15 % of the Spanish textile companies have came back to Spain
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9. CORRUPTION

On 2012, China was ranked 80th out of 176 countries in Transparency
International Corruption Perception Index.

China’s economy remains “mostly unfree”.

The legal and regulatory system is vulnerable to political influence.

Corruption is widespread.

The growing need of the Chinese government to intervene in the market
has seen a corresponding increase in officials´ powers, which has
helped spread corruption.

In the corruption the close and long-lasting personal ties “guanxi “ plays
an important role in the sense that goods, services or personal favors
can be exchanged for anything of value and benefit to the relationship
parties.
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10. LEGAL ISSUES

China does not have an independent judiciary or a government
structure based on the separation of powers

Implementation of the law is inconsistent

Laws and court judgments are essentially applied with minimal
transparency and at times arbitrarily

Problem with Dispute Resolution Clause; Applicable Law and
Jurisdiction

The contract agreement is not the end of the negotiations, but first
step.

Lack of effective protection of IP Rights
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11. ENVIRONMENTAL PROBLEMS


The traditional Chinese growth model of export-driven,
capital-intensive, energy-intensive and commodity-hungry
production and depressed levels of private and public
consumption is unlikely to be environmentally sustainable.
China's Top 6 Environmental Concerns:








Air pollution
Water pollution
Desertification
Biodiversity
Habitat loss
Cancer villages
Strong doubts in the sustainability of an economy growth
based on resources and environment destruction;
The cost of environmental degradation in China was about
$230 billion RMB in 2010, or 3.5% of the nation’s GDP and
three times than in 2004.
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THE QUESTION IS
Shall we come / remain in China
or
just leave it?
¿ ?
非常感谢您的关注
THANKS
FOR YOUR TIME AND PATIENT
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