China Law Blog

"It is not the strongest who survive, nor the most intelligent. It is those most adaptive to change."     Charles Darwin

Saw this quote the other day and have been wanting to use it ever since.  Not sure it really applies here, but since it does apply to doing business in China, I'm going with it. 

New report out from the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley's Haas School of Business, saying China's booming economy (and India's too) offers myriad "growth opportunities for small- and mid-sized services firms in California."  No reason this would not be true of service sector SMEs from all over the world also.

In this report, Ashok Bardhan, a senior research associate, and Cynthia Kroll, a senior regional economist, outline the emerging potential in China (and India) for "small- and mid-sized firms in the fields of professional and technical consulting, energy and environmental services, legal services, tourism, software and IT services, banking and finance, architecture and design, transportation and supply chain management, and training and education."  The report sees "options for smaller services firms wanting to play a role in global trade." 

The report says the United States is poised to do well in providing services in and to China because of its "overall competitive edge ... in services; increasing "tradability" of services from one part of the world to another; the easing of restrictions for foreign firms providing services in Asian countries; and the absence or underdevelopment of services in many emerging nations.  Services exports constituted 30 percent of U.S. exports in 2005. 

I would add to the list the weak dollar.  My law firm gets a lot of European business and I have to admit one of the reasons for this is because our rates are lower than most of the European firms, due in large part to the strong Euro/weak Dollar. 

According to the Fisher Center report, the major challenges facing services exporters are the following:

* Price pressure and frequent absence of price history in some services
* The need to modify services to meet new cultural, economic and physical settings
* Potential complications from foreign legal, regulatory and institutional environments

I previously blogged, here and here, on how China's economy is ripe for entry of foreign service businesses.  Just this year, as per the WTO, China greatly liberalized its laws allowing entry of foreign service businesses. 

Co-blogger Steve Dickinson of my firm, recently wrote a chapter for a soon to be published book on China Business by the German Chamber of Commerce.  Steve's article, which served as the genesis for his chapter int that book, notes the following:

• In 2005 service business investment in Shanghai exceeded the value of manufacturing investment for the first time; it constituted 52.9% of total investment in Shanghai.
• Service business investment in Shanghai has increased approximately 30% since 2000.
• In 2005, 1117 foreign invested commercial enterprises were approved in Shanghai, with a total contracted value of USD 1.33 billion. Nearly 4 times the number of previous years, with the dollar value 5.7 times that of 2004. 
• Shanghai approved 327 foreign invested enterprises. The contracted value was USD 1.37 billion, 5 times that of 2004. 
• More leasing companies were approved than in the previous 20 years combined.
• Shanghai has approved for the first time foreign invested companies for financial training, management of non-performing assets, data processing of credit cards and insurance brokers Shanghai plans for this dramatic increase in service business to continue and even to increase. In its Five Year Plan, the government anticipates the city’s service sector will increase from the current 50% of the total economy to 80%. Foreign invested enterprises are expected to be a substantial portion of this dramatic increase. Though the increase in service businesses is particularly striking in Shanghai, similar substantial increases in foreign investment in service businesses are expected for China as a whole.

In part V of this series, we will set out the legal framework for service businesses in China.