Fund It, Build It, Grow It

WFOE Business Scope- How to Make a Lot from a Little

PriceRahn — Tue, 05 Oct 2010 03:49:22 +0000

I realized yesterday while talking to a friend of mine mulling over starting a business in Beijing that the WFOE business scope is really a very archaic process. It is like the caste system from the feudal ages in which one cannot venture out of the title he (or she) is born into.

In order to do business in China, one has to classify complicated and varied businesses into one succinct title- business scope- above and beyond which you cannot do business in China legally. All avenues of business must be written down in order to ascertain what is the most fitting over-arching title for the nature of your business. If your company decides to expand in the future, it can cause a headache for your corporate set-up professionals to figure out a way to restructure your WFOE so that you can expand the business scope.

As an example, we have dealt with countless clients who come to us under the guise of a food and beverage company, but who later decided to expand into retail. Of course, since this was not in their original business scope, the extra time required to tack on these services to the WFOE you are creating can be detrimental to the smooth operations of your burgeoning business.

It may seem self-evident but it is best to explain to a professional what exactly you want to do now, and all your future dreams for your business. If you start early, the easier it will be for both you and your market entry firm to best implement your company’s corporate structure.

It is important to recognize that business in China has a steep learning curve, but, unlike in other places, it is so steep that you should ideally know what exactly you want to do from the very get-go.

Wen and CNN

PriceRahn — Mon, 04 Oct 2010 05:55:29 +0000

In 2008, CNN was synonymous with Carrefour: bad name, bad brand. Pro-Tibet riots in Paris during the Olympic Torch Relay, in particular an attempt to grab the Olympic torch from the hands of Paralympic fencer Jin Jing, created enormous aftershocks for French brands in China.

CNN was attacked for similar pro-Tibet tendencies and comments.

Yet, in a rare interview last week with foreign press, Chinese Premier Wen Jiabao chose CNN’s Fareed Zakaria GPS to air his opinions on the global economy and China’s position in the economic crisis (even despite the spottiness of accessing the site from Chinese servers).

In the interview, Wen expressed his desire to work together to solve the global financial crisis and his belief in freedom of speech and press.

The interview was aired in the US on October 3, 2010. Fareed Zakaria also interviewed Wen Jiabao in September 2008.

Weekday Weekends for the October Holidays

PriceRahn — Tue, 14 Sep 2010 10:18:09 +0000

In case you have not been to Starbucks recently, China is once again gearing up for the Mid-Autumn and National Day Festivals. Ample amounts of mooncakes are on display all over the city (predominantly featured at all Western coffee shops), and there has been an inevitable spike in airplane and hotel prices on Ctrip and E-long, signifying the mass short-term exodus from Beijing to come. Of course, the ardent 60-year anniversary National Day fever is missing this year, as are the rumors of tank-filled streets and huge amounts of tourists milling about Chang’An Jie and Silk Street Market.

While considering the lack of excitement in the air for the upcoming holidays, I realized October break 2010 is exactly like Summer 2009. The year after the Beijing Olympics, people transferred their hopes and dreams for Beijing- as a reinvented cosmopolitan city- to Shanghai and Guangzhou. People were once again complaining about mistranslated signage (“Civilized Chaoyang” anyone?) and the continuing air pollution. Is this why we seem more begrudgingly accepting than ever to work two weekends in return for an extra day or two of vacation time?

Of course, this lackluster October holiday reminds us that life in China can have some regularity. Once again, Big Brother has played G-d with our weekends and work schedules. I guess we will have to wait until 2019 for the next major October break in Beijing.

Corruption in China? Not Anymore

PriceRahn — Wed, 01 Sep 2010 06:04:16 +0000

This may come as a huge shock to some of you, but China is actually advocating a business integrity campaign. The nationwide effort begins today and involves the help of many different government members and departments, including the Ministry of Commerce, the Publicity Department of the Central Committee of the Communist Party of China, the National Development and Reform Commission and many more.

This illustrious new campaign will be put in place for one month only, a sufficient amount of time to fully train 1.3 billion people in fair business practices. As an added bonus, the end date comes just in time for October Holiday.

Here is the quote from China Business News:

With the theme “Business Integrity for Prosperous and Harmonious Development,” relevant departments aim to make more people know policies about credit system construction, the importance and urgency of social credit system construction and share enterprises’ experience in successfully expanding sales, improving efficiency and gaining competitive edge through honest business operation.

-http://cnbusinessnews.com/china-calls-for-business-integrity/

Excellent – I guess we should check back in over October holiday and see how many people are not spending their honestly earned cash on luxurious vacations.

The Rise of the Yuan

PriceRahn — Wed, 25 Aug 2010 09:41:09 +0000

Assuming you follow news about the steadily increasing strength of the Chinese Yuan (and I do not mean the fluctuating exchange rate), you know what I am talking about when I say that nowadays having some RMB in the bank is pretty powerful. Besides for the QFII and mini-QFII programs, which, while somewhat open to the public, are still a closed field to many would-be investors, the new forms of buying and trading RMB have been major news over the past few months- both the small and the large opportunities.

Just this morning I opened up my usual blogs and was instantly drawn to a travel article touting American Express’ new RMB traveler’s checks and an article listing Citigroup Inc, HSBC Holdings Plc and CIMB Group Holdings Bhd announcing that they will be investing in yuan-denominated bonds. This right after the news that China will begin trading the Yuan against the Malaysian Ringgit. Clearly, we are closer to a time when RMB will be the currency we wish to exchange our dollars for, and not the other way around. It will be exciting to keep track of the global rise of the Yuan, and the way we (the foreign masses) will be able to invest in it.

http://www.worldhum.com/travel-blog/item/travelers-checks-now-available-in-yuan-20100823/

http://topnews.net.nz/content/27615-three-big-banks-plan-invest-yuan-backed-bonds

english.peopledaily.com.cn/90001/90778/90859/7109449.html

Chinese Accounting for Foreign Firms

PriceRahn — Mon, 23 Aug 2010 05:02:39 +0000

Complying with China’s financial reporting system is one of the major issues foreign firms must face. In previous years, loopholes in the systems have encouraged tax avoidance. Multinationals have practiced transfer pricing and “round-tripping” to evade taxes. Though grey areas still exist, there is no doubt the trend for the Chinese government has been to clamp down on such practices.

Now may be as good a time as ever to tidy the books. No one wants to be accused of fishy finances.

Since China does not follow international accounting policies and guidelines, it is important to produce one set of accounts that comply with China’s regulations then adopt this to meet Generally Accepted Accounting Principals of the home country. Although the Chinese Accounting Standards and IFRS are more in line today, there are still differences in tax deductibility and depreciation of capitalized assets. Competent auditors should be able to help companies understand the differences.

Every foreign invested enterprise must be audited annually by an accounting firm registered in the PRC. Auditors must insure that balance sheets and income statements comply with Chinese “Accounting Standards for Business Enterprises”. At the end of the accounting year, an (1) audited financial report, (2) foreign exchange audit report, and (3) annual report are submitted to appropriate government bureaus in charge of trade, commerce, customs and tax. These reports are used for calculating FIE’s taxable and distributable profit.

Hiring competent accounts reduces risk of legal headache in the future. Furthermore, adequate planning can limit unnecessary tax burdens that may result from improper filing.

“Falling in Love with Modern Chinese Healthcare”

PriceRahn — Mon, 23 Aug 2010 05:01:12 +0000

It’s a love story that has sent hearts racing…. well at least those in the healthcare industry.

Aiming to provide basic universal coverage for all 1.3 billion citizens, the Chinese government announced in March an allocation $123 billion toward healthcare reform. The funds will be directed towards the upgrading of facilities and construction of local clinics and hospitals. As Shaun Rein wrote last month in Business Week:

“New facilities need equipment and new patients mean more demand for implants, monitoring devices, and diagnostic machines. For foreign medical device companies, China’s reforms could prove to be a boon by offsetting lagging demand in developed markets. While the U.S. medical device market has been hit by the financial crisis, China’s is estimated to almost double in size between 2006 and 2014 to $28 billion a year, making it a potential growth driver for foreign firms.”

Foreign medical device producers already enjoy a technology advantage as well as greater demand in the high-end market compared to domestic players, who are hurt by the “Made in China” perception. The growing low-end market will provide new opportunities for Western companies that can offer cost-sensitive products. Companies such as GE, Medtronic, and Phillip Healthcare have made headway into this market by partnering with local firms.

In the same vein, Micah Schwalb wrote an article China Law Blog, predicting opportunities for insurance, IT, micro-pharmacies, and other related service providers:

“China’s growing middle class will continue to pay a premium (pun intended) for private insurance and private care, as well as foreign medical brands. Foreign investors will pick up some bargains when local governments sell off more public hospitals.Hospital IT will be huge and centralized purchasing of drugs and devices will be a volume-driven boon for suppliers on the approved lists. Less obvious, perhaps, are the opportunities in micro-pharmacies and micro-clinics, cooperative hospitals, emergency medical services, distance education, telemedicine, home monitoring equipment, and hospital management.”

The honeymoon period for China and Western medicine has just began and it will likely be a long one.

China’s Reformed Patent Law

PriceRahn — Mon, 23 Aug 2010 05:00:09 +0000

October 1st marked the 60^th anniversary of the People’s Republic of China. For those following IP law, this date is noteworthy for an additional reason. The third and widely anticipated revision of China’s patent law went into effect just as the massive possession of patriots, armor, and banners parade down the streets of Beijing. While festive theatricalities will showcase China’s nationalist fervor and military might, it’s legal reform does a better job in highlighting how far the country has come in transforming itself into a modern economy.

The latest iteration of the patent law was adopted to enhance the quality of domestic innovations and to strengthen patent protection. Here are some features relevant for foreign enterprises:

Absolute Novelty Requirement for Patentability

Under the new novelty standard, prior publication or public use of a model anywhere in the world invalidates the patent application. As mentioned in the first paragraph of the previous blog, a loophole in the current law resulted in cases of “patent hijacking”, which is the patenting in China of another’s invention that is not currently used in China. The absolute novelty standard plugs this hole. Nevertheless, early registration is still recommended to prevent the possibility of infringement.

Improvements on Design Patents

Design patents will be subject to the same absolute novelty standard as invention patents. In addition, they must exhibit a prominent difference from prior art designs. This should decrease the number of cases of Chinese applicants who register design patents to shield against enforcement by the trademark owner.

Foreign Filing Possible with a State License

The new law provides that inventions completed by foreign-owned R&D centers may be filed directly outside of China without first filing in China. However, prior to filing outside China, applicants are subject to security clearance for the purpose of protecting State secrets.

Overall the amendments demonstrate the PRC’s interest in improving its patent regime and the quality of patent filings. While it remains to be seen how the law will play out, the latest amendments make significant progress in establishing a system of registration and enforcement that is on par with international procedures.

Protecting Intellectual Property in China

PriceRahn — Mon, 23 Aug 2010 04:58:35 +0000

Stake a Claim on Your Idea

When it comes to protecting your intellectual property in China, experts agree: prevention is key. Because patent and trademark rights are territorial, a company must register with appropriate Chinese agencies for those rights to be claimed in China. IP rights in China are granted on a “first to file” system that does not require the filer to be the original inventor. In contrast, the US follows the “first to invest” rule. The truth is even before your business has entered China, your secrets could’ve ended up in the hands of potential competitors in the Chinese markets. Once a product is made public before patent rights are secured in China, there is risk of a competitor placing his name of the product by applying for the patent first. Filing early in China can serve as a deterrent to piracy.

First consider whether to register your company in China. While Representative Offices of foreign businesses must go through a licensed Patent Attorney for any patent applications, FIE’s and WOFE’s can apply directly to the State Intellectual Property Office. Now when securing patents, keep in mind that China has three types: 1. invention patents, 2. utility model patents, and 3. design patents. An invention patent protects a new technical solution for a product or process. A utility model and a design patent protect a solution or design related to a product’s shape/structure. An invention patent has a 20 year term, while the latter two are protected to 10 years, and is also subject to stricter patentability requirements and examination. The type and number of Chinese patents applied for should be part of an overall well-crafted, global IP strategy that is tailored to your business and industry.

China’s Green Revolution

PriceRahn — Mon, 23 Aug 2010 04:51:59 +0000

In recent months a spew of articles have been published on the Green Revolution underway in China. What’s the buzz about and how sustainable is the revolution? Some naysayers are skeptical of Beijing’s ultimate commitment to cleaning up the country, but it seems unlikely that the government will be putting the issue on the back burner any time soon. Furthermore, evidence is mounting that Chinese citizens, themselves, have become the major life-force for the industry. In large cities, China’s growing middle-class is opting to purchase ebikes instead of oil-guzzling cars (90% of the 23 million e-bikes sold worldwide ended up on the streets of China). Not to be left out, even rural villagers are adopting energy efficient appliances.

It’s obvious the country has been hit by the green bug and foreign companies are recognizing the bright prospects. In July, Arizona-based ECOtality, Inc signed a $15 million dollar JV to manufacture and distribute charging systems for electric cars. Last week, First Solar Inc., also based in Arizona, announced plans to construct the world’s largest solar field in Inner Mongolia. A Mckinsey report published in February 2009 highlights other opportune sectors: property, waste and water management, transportation, industry, power-generation, agriculture and forestry. As a country that often has been called an ecological disaster site, China seems like an unlikely leader for the Green Revolution. Challenges certainly should not be underestimated. Coal remains the dominant source of power and a lack of funding, poor infrastructure, and weak IP protection are problems clean-energy companies must face when entering the market. But with Beijing targeting a larger amount of stimulus money to green technology than any other country, investment in renewable energy is likely to remain on a growth trajectory.