Freeman, Lawrence and Tang, Anita: The Ten Commandments or the Do’s and Don’ts of Doing Business in China

  • The International Tax Planning Association Library – The Ten Commandments or the Do’s and Don’ts of Doing Business in China by Lawrence Freeman and Anita Tang
    • The Ten Commandments or the Do’s and Don’ts of Doing Business in China by Lawrence Freeman and Anita Tang
      There is an old saying ?When in Rome, do as the Romans do.? The same applies to China ? ?When in China, do as the Chinese do.?
      1. Determine if China is the right market for you. Don’t go just because others are there or going there
      A. Define what you want to do: manufacture, buy production, sales, trading, distribution, wholesale, etc. Conduct and prepare a feasibility study of exactly what you want to do.
      Location: geographically area, compare specific costs, labor availability, near by customers, or supply chain, logistics, specific site, costs, tax incentives, FTZ considerations.
      Market research ? most people do not fully investigate the actual market situation, do not perform the necessary risk assessment, and fail to get qualified counsel.
      Required information, identify and target top customers, do a personal profile of customers, current suppliers, channels, pricing, decision drivers (quality, delivery price, etc.) projected buying, how to compete, key influences, ideas, strategy ? differentiation of pricing, ?packaging.?
      B. Hire someone who is qualified in your industry, who reads, writes and speaks fluent Mandarin and English, and who is also a team player. These people should have business and functional expertise as well as a good understanding of the cross-border business and functional issues that must be addressed. Do not make the mistake that an ethnic Chinese, who was not raised in Mainland China, will understand or be able to understand the PRC way of thinking, pressures and system. It is unreasonable to expect them to do so, because their backgrounds may have varied from those of the Mainland Chinese.
      C. Understand that the Ministry of Commerce (MOCOM) is responsible for the formation of policies and regulations in attracting foreign investment. The ?Catalogue of Foreign Investment Incentives? is essential reading. Is your intended project classified as ?encouraged,? ?restricted,? or a ?prohibited? industry? Thoroughly understand the specific industrial policies set by the supervisory authorities of the relevant industry.
      D. Understand how local authorities interpret and implement these policies, what their attitudes is towards the proposed investment, so that the necessary approvals can be obtained.
      2. Line up your Chinese professional services ? Legal, Accounting and Banking team
      A. Basic criteria for the team qualified member would be someone who can read, write and speak fluent Mandarin and English. B. Include in your team someone, an ethnic Chinese, who has lived and trained both inside and outside of the PRC, so that this person is familiar with more than one system.
      3. Conduct ?Your Due Diligence? as soon as possible and do it thoroughly
      A. Take nothing on face value. B. Test the validity of everything you are told because some things change frequently. C. Conduct thorough background checks on the people you are dealing with so you know who they are. D. Know the decision structure ? make sure the person you are dealing with has the absolute authority to make decisions.
      4. Establish your China business plan based on the business environment
      A. Plan your strategy to determine how your China play fits into your overall business strategy. B. Take the various levels of governmental planning into consideration ?
      Central government
      Local governments
      C. Continually update your market intelligence as it constantly changes. D. Determine if your project is economically viable. E. Search for problems before they materialize. F. Do a complete risk analysis of your venture.
      5. Understand the Chinese Legal System, the Foreign Investment Regulatory Framework, Chinese Tax System, and the Incentives which are offered
      A. The government departmental regulations ?
      1. Foreign Investment Enterprise Income Tax Law 2. State tax incentives, Local tax incentives 3. Exchange-control rules
      B. The industry regulations ?
      1. Administrative measures for free trade zone 2. Administrative measures for export processing zone 3. Administrative measures for State level Economic and Technological Development Area 4. Administrative measures for Hi-Tech Industry Park
      D. Learn How to Protect your Intellectual Property Rights ?

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