I was interviewed by a reporter yesterday who is doing a story on legal pitfalls for companies doing business in China.
I listed out some of the more common ones that American companies in China encounter, including the following:
- Not realizing beforehand that what they are seeking to do in China is illegal for foreign businesses. See Want To Succeed In China Business? Make Sure Your Business Is Legal.
- Leasing space that will not work for a WFOE in China. See Leasing Requirements For A China WFOE To Be
- Incorrectly defining the scope of their business when they register a WFOE in China. See How To Form a China WFOE. Scope Really Really Matters.
- Failing to realize that you need to protect your IP in China and then losing the right to use it. See China: Do Just One Thing. Trademarks.
- Failing to use written contracts with your employees/failing to have an employee manual so that terminating your employees is relatively (and relatively is the key word here) easy. See China Employment Contracts. Get Them In Writing Early.
- Failing to pay your taxes. I talked of how this is a big one and of how China is really cracking down on foreign companies that do not come completely clean on this front, particularly on the transfer pricing front. See China Transfer Pricing. The Basics.
- Failing to deal properly with AQSIQ or with China customs. See China Importation 101, Part IV. AQSIQ.
- Failing to draft your contracts in Chinese. See Your China Contract Should Be In Chinese. Here’s Why.
At the conclusion of my litany, the reporter said something to the effect of “why does anyone do business in China at all?” My response was because of the opportunities and then I told her of how I think that about 90 percent of my firm’s clients actually do quite well in China. I then mentioned that I thought that virtually every AmCham survey reveals that American companies in China have higher profits there than in the United States. I then talked about how everything is relative and that overall and as compared to most other emerging market countries, China is a relatively easy country in which to do business.
That was borne out for me today upon reading the World Economic Forum’s latest Global Competitiveness Index (2013-2014), which ranks China 29th out of 148, right behind Ireland and right ahead of Puerto Rico (since when did Puerto Rico become its own country?). Not bad.
The report has this to say about China:
China leads the BRICS economies by a wide margin, well ahead of South Africa (53rd), Brazil (56th), India (60th), and Russia (64th).25 The Chinese institutional framework is improving slightly (47th), but weaknesses—including corruption (68th), security issues (75th), and low levels of accountability (82nd) and ethical standards (54th) among businesses—remain. In addition, problems endure in those areas that are becoming increasingly important for China as it becomes wealthier and can no longer rely on cheap labor: its financial market (54th) is undermined by the relative fragility of the banking sector; technological adoption by firms (86th) and by the population at large (79th) remains very low; and the efficiency of its goods market (61st) is seriously undermined by various barriers to entry and investment rules, which greatly limit competition. On a more positive note, China’s macroeconomic situation remains favorable (10th). Inflation was back down to below 3 percent in 2012 (from 5.4 percent the previous year), the budget deficit is moderate, China’s public debt-to-GDP ratio at 22.9 percent is among the lowest in the world, and the gross savings rate represents a staggering 50 percent of GDP. However, this rate is probably too high in light of the need for China to rebalance its economy away from investment and toward more consumption. Although China receives good marks in health and basic education (40th), the assessment is more negative when it comes to higher education (70th) because of China’s low tertiary education enrollment, the average quality of teaching, and an apparent disconnect between educational content and business needs (54th). Finally, China’s innovation capacity has been improving recently, but much remains done for it to become an innovation powerhouse.
Seems about right to me. What do you think?