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(0) [ By Andy Scott, Managing Editor, China Briefing ] China?s booming economy is drawing foreign investors in record numbers. However, for some, that has meant having to deal with volumes of ever-changing regulations, high initial capital expenditures and shifting political alliances. Some of China?s most highly regulated industries have come to represent the last, great Holy Grail for foreign investment in the mainland. Whether it is banking or energy, these sectors continue to remain elusively out of reach for all but the biggest and most patient of the large multinationals. In this article, we focus on three very different industry sectors to examine how the regulations affect being able to do business in China. Banking China?s banking industry has seen major changes over the past decade. Merely five years ago, China?s banks were all large, entirely state-owned and cobbled by massive debt. When the government wiped away much of that dept, many of the banks on the mainland transformed themselves into the darlings of Hong Kong, raising billions in initial public offerings. In 2007, China?s banking sector rose to RMB52.6 trillion, up from RMB43.9 trillion in 2006, according to statistics released by the China Banking Regulatory Commission (CBRC). China?s five big state-owed banks ? Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of Communications ? accounted for 53.3 percent of the total assets. Eyeing the potential market on the mainland, foreign banks are now also increasingly moving in to set-up their own, locally-incorporated branches, giving them the ability to conduct both foreign currency and local RMB business. By the end of 2007, more than 20 foreign banks had received permission to operate on the Chinese mainland with corporate status. The banks, including Citibank, Deutsche Bank, Standard Chartered Bank and Mizuho Corporate Bank, can conduct comprehensive business in foreign currencies and the RMB, and since late 2006, RMB business for Chinese residents. In November 2006, the CRBC promulgated the Regulations of the People?s Republic of China on the Administration of Foreign-funded Banks, paving the way for foreign banks to enter the Chinese market, but putting in place restrictions on business scope and capital requirements that foreign funded banks must first fulfill. Currently, branches of foreign banks are allowed to engage in local currency retail business with local residents if the branches incorporate locally, however, in order to do so, they must acquire a local currency business license. To do this, foreign bank branches must individually apply to the CBRC for the license. Foreign banks must also meet significant capital requirements before they are allowed to operate on the mainland. According to the regulations, the minimum operating fund requirements for foreign bank branches is RMB200 million to conduct foreign currency business and RMB300 if they want to conduct both RMB and foreign currency businesses. For locally incorporated banks of foreign banks, the register capital required is the same as domestic Chinese banks, RMB1 billion, while the minimum operating fund requirement is RMB100 million. To establish a foreign-funded bank, an applicant must first apply for preparatory establishment and submit the following documents to the banking regulatory institution in the location where the foreign-funded bank is to establish:
Joint venture structuring in restricted industries
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Practical financial, tax and accounting issues affecting international SMEs during the early stages(0) [ By Echo Jia, Manager, and Alberto Vettoretti, Managing Partner, Dezan Shira & Associates ] Foreign companies have long looked to China as a means of lowering manufacturing costs and gaining access to a large, developing market. Abundant natural resources, cheaper labor, big local markets and a developed supply chain base combined with local government incentives including tax breaks, special investment treatment and repatriation of profits have been attracting international small-medium sized enterprises (SMEs) to China since the early 80s. Investing halfway across the globe is not without its challenges though, and there are many problems and difficult issues a China ?first-timer? will encounter. For SMEs especially, understanding these problems and issues will be the difference between making and losing money on the mainland. Recent economic factors affecting international SMEs 1. New policies announced by the Chinese government Over the past year, the Chinese government has announced several new customs policies and taxation policies, including a new corporate income tax law that took effect on January 1, 2008 and a VAT rebate reduction on some 2,891 types of products in July, 2007. Regarding foreign direct investment, the aim of these measures is to encourage high, value-added foreign industries into China and move away from pollution-causing, low-tech manufacturing. In the future, the Chinese government will become increasingly selective of foreign investors. Local governments will welcome high-tech, high value-added, low-polluting, low-natural-resource-consuming foreign investors; and be more restrictive over low-value-added, low-tech, labor intensive and resource intensive industries. Furthermore, from 2008, foreign companies no longer receive preferential tax treatment, as they did under the old Foreign Enterprise Income Tax, unless they qualify as a high/new technology enterprise, in which case the company?s tax rate will be 15 percent. 2. Influence of RMB?s appreciation From a global viewpoint, possible influences may be:
Financial, tax and accounting issues
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