BizChina
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Ernst & Young is out with a very informative online publication on indirect taxes in China (h/t All Roads). The publication is entitled, "Navigating Chinese Indirect Taxes," and it provides a great overview of these taxes and how they can, and almost certainly will, impact your China business. It starts out with the following general comments regarding indirect taxes in China:
Indirect taxes (specifically Value Added Tax, business tax, customs duty and consumption tax) play an important role in China, accounting for almost 60% of the government’s tax revenue. Newly revised regulations are changing how indirect taxes are treated in China. But these are often the forgotten tax on business. Tax directors may overlook these costs as they are above the line and usually not directly visible within the accounts or financial statements.We are often surprised to learn that many companies have yet to grasp the significance of the indirect taxes passing through the organization. More often than not, indirect taxes are viewed as process-oriented throughput costs rather than as a direct charge to the bottom line that should be managed through proactive and concerted efforts. It is not common for companies in China to employ dedicated resources accountable for the risks and costs that arise from processing indirect taxes. This approach creates risks and results in missed savings opportunities.
I am constantly telling our clients that taxes in China are really not all that different from taxes in the United States. China's business tax system is generally (cough, cough) logical and manageable and is not to be ignored. What this means is that if you are a small to mid-sized company doing business in China legally, you need someone either inside or outside your company handling your financial books and you need a good accountant overseeing it all. Because you are a foreign business and your operations may have tax repercussions not only in China, but also in your home country, it almost always will make sense for your accountant to at least be familiar with both China's tax laws and those of your home country. These people are few and far between and cannot be found at all outside China's bigger cities.
What do you think?
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Sometimes big events can be so complicated, controversial and unwieldy, there is hardly any point in reading current reports because they are likely to be so biased and/or inaccurate as to be of no value. In those instances, particularly when the underlying topic is not of huge interest to me, I generally pretty much stop reading articles on it and just wait for the dust to settle. I think the common wisdom is that real dust settling (and releasing of key documents) and gaining of perspective usually takes around 50 years.
And though I would love to be able to look at China's recent Rio Tinto arrests from the perspective of fifty years hence, that is obviously not possible right now. So instead, I will turn to an excellent FT.com by Arthur Kroeber, somewhat mis-titled, "Rio Tinto arrests reveal China has growing-up to do."
The thrust of the article is that China is a relatively safe place in which to do business, particularly as compared to Russia. I agree. China has done an amazing job making it clear to its higher level government functionaries that routine foreign company filings are strictly off limits for corruption. Here is what I mean by that. My firm has done hundreds of company and trademark registrations in China and not one single time have we ever been hit up for "extra" money and not one single time have we ever felt we were treated unfairly or differently for not making any such offering. Without naming names, I will just say that is absolutely not the case for other developing market economies in which my law firm is active. In one country, where a registration should take a month, we are often told that we should pay a couple thousand dollars extra to speed things up so that it does not take six months. Kroeber's article captures this:
Historically, China has done a good job of not letting its opaque authoritarian political system and vast legal grey areas get in the way of business. Annual foreign direct investment flows that now exceed US$100bn testify to China’s success in creating a stable and predictable business environment, despite well-advertised corruption problems.
He goes on to say that Rio Tinto has not really changed this:
The Rio Tinto detentions, which elevated an acrimonious but ultimately quite ordinary commercial dispute into a matter of national security, threatened to destroy, at one stroke, an imperfect but notable reputation for reliability built at great cost over three decades.The bland denouement averts that catastrophe. The coda will likely be a quick trial in which Stern Hu, Rio’s Australian-citizen iron-ore negotiations boss, will be convicted and then immediately repatriated to Australia, probably on some spurious health grounds; his three less fortunate Chinese-national colleagues will likely receive relatively light sentences of a couple of years.
I agree.
For more on CLB's take on the Rio Tinto case, check out the following:
-- China's Rio Tinto Arrests. Everyone Just Move Along....
-- "China's Rio Tinto Case. Everyone Move Along..."
Read more: China's Rio Tinto Arrests. A Rapid Fire Historical Perspective.
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I have always loved the television commercials where some cheesy guy wearing a crown (presumably the owner of the appliance store or whatever else it is that is being advertised) screams out the discounts you can expect to get by shopping at his store. If my memory serves me right, I've been witness to the King of Cars, the King of Discounts, and the Appliance King. John Grisham wrote a book called the King of Torts and who can forget Rupert Pupkin as the King of Comedy?
Like him or not, Henry Kissinger is the King of Diplomacy and he has a Washington Post op-ed out today, entitled, "Rebalancing Relations With China" (h/t China Hearsay, who also thinks highly of the op-ed) setting out how the United States should be dealing with China. And again, like him or not, the guy does know whereof he speaks and this is his own summary of what should be done:
While the center of gravity of international affairs shifts to Asia, and America finds a new role distinct from hegemony yet compatible with leadership, we need a vision of a Pacific structure based on close cooperation between America and China but also broad enough to enable other countries bordering the Pacific to fulfill their aspirations.
The King has spoken.
What do you think?
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On September 24, 2009, I will be speaking on China labor law issues at Seminar International's Hiring in Asia Seminar in Seattle. I will be sharing the podium with Dave Parker, CEO of 9spaces, a leading China-focused human resources research and services company. Together we will be discussing hiring and retention in the Software Engineering, Manufacturing Services, and Shipping industries. Dave will focus on the business side and I will cover the legal side.
In addition to our talk on China, Chris Gootherts, Microsoft's Staffing Manager for China and Thailand will be presenting with Darryl N. Johnson, the Former U.S. Ambassador to Thailand, on "Choosing the Right Country and the Right Services: Recruiting West to East." Chandrakiran Malarapa of Prithvi Information Solutions, Shaalu Mehra of Perkins Coie LLP, and Madhu T. Rao, an Associate Professorat Seattle University's Albers School of Business, will all be talking on Hiring in India. Davis Bae, immigration lawyer extraordinaire with the Bae Law Group and Craig Chelius, Executive Vice President of Protelus Corporation will talk on "Cautions and Advantages to Hiring in Japan, Vietnam, South Korea, the Philippines, Thailand."
This is shaping up to be a great seminar and if you want to attend, click here to register.
Read more: Hiring In China. The Seminar. September 24, 2009. Seattle.
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Since my using references to Bob Marley songs seems to play so well (see here and here).....
Anyway, just read an excellent and blunt blog post on Chinese brands over at the perpetually insightful Silicon Hutong Blog, entitled, "Brand Reality Check." The post uses a Tom Doctoroff article in AdAge (subscription required) as the starting point for arguing China will "not be producing a bevy of global brands at any time in the near future." I completely agree.
Silicon Hutong convincingly makes the following argument against those those who might list the few fairly well known Chinese companies as proof that China can develop great brands:
Those who disagree with Tom (and manage to eschew ad hominem attacks) point out that Haier has managed to build a global brand entirely without marketing. While that point would be debatable (if you could buy a Siemens fridge for the same price as a Haier fridge, which would YOU buy, and why?), let's not go there.Instead, let us grant for a the sake of argument that Haier is indeed a global Chinese brand. Let's even grant that Lenovo, Tsingtao Beer, and Li-Ning are global brands.
When you look across China's landscape of millions of companies, could it not be said that these companies are at best the exceptions to prove the rule? That China has so few international brands in so few industries that what we are witnessing is not a trend but a statistically irrelevant series of accidents?
Silicon Hutong rightly notes that great brands "are built; they do not happen by executive fiat or by government edict. And the sooner China's companies learn the rules of that game, the better off China will be."
So why are China's companies behind in their branding and what will change this and when?
Why are Chinese companies behind in their worldwide branding? In the last year or so, my law firm has begun to represent a number of very large, very successful, and very well run Chinese companies. Without exception, these companies are doing an amazing job in building their businesses outside China and, for the most part, they are doing an amazing job in figuring out the landscape in places like the United States. But, also without exception, they spend (and I am admittedly making a wild, shot in the dark guess here) about one one hundredth of what their comparable American counterparts on advertising and public relations. And it shows.
I have asked friends of mine in the same or related industries as my Chinese clients if they have heard of my clients and, almost without exception, they have said they have not. Then when I tell them more about my clients and the scope of their operations in the United States and/or their market capitalizations, they look at me like I am totally joshing. They say things like I must be wrong. I must be using a different name in the United States. My client must be lying. In other words, they cannot explain how a company can be doing in the United States what I say my clients are doing without their knowing about it.
Or go ask 100 people at random in Peoria to name two Chinese companies. I'm betting less than a handful (if any) could name two and less than half could even name one. Until Chinese companies start realizing (and by realizing I mean more than just paying lip service) the critical importance of name recognition and reputation, Chinese brands are going to remain mired in relative anonymity. Does anyone think even five people will be able to do it?
What will change this lack of Chinese brand recognition and when will that happen? I do not know but I am certain it will happen eventually (ten years?) and when it does, it will probably come pretty much out of nowhere. I base this prediction on how Japanese (Sony, Honda, Toyota, Nikon) and Korean (Samsung, LG, Hyundai) pretty much all of a sudden went from nowhere (or even disrepute) to reputed.
What do you think?