doing business and investing in china

Download Doing business and investing in China

Post on 14-Feb-2017




2 download

Embed Size (px)


  • Doing business and investing in China

    A compilation of insider knowledge and advice, whether youre entering the China market for the first time or growing your existing business.

  • The content in this book is rich, well organised and detailed. It offers a uniquely independent and practical perspective, showcasing PwCs professional standards and extensive on-the-ground experience in the China market. It serves as a solid reference for foreign investors looking to grow their operations in China.

    Mr. Huaicheng XiangFormer Minister of Finance

    The China market has tremendous growth potential. By sharing our experience and perspectives, we look forward to collaborating with investors from all over the world to grow and develop this market.

    Mr. Silas YangPwC Asia Pacific Chairman

    China and Hong Kong Executive Chairman

  • Welcome

    Doing business and investing in China 1

    In my discussions with global CEOs around the region, I find our conversations inevitably returning to one prevailing theme: every year is more challenging than the last. With the continuing global economic recession and rapidly changing market, businesses are operating in uncertain economic times. Closer to home, Chinas economic growth has begun to slow, and the regulatory landscape remains challenging for foreign investors.

    The good news is that we operate in one of the most dynamic economies in the world. With new leadership and promising recovery signals, Im confident that over the longer term, China will continue to deliver tremendous opportunities for global investors. China, however, is a market like no other. Its size and regional diversity call for a sensitive and sophisticated market approach, and its re-emergence as one of the worlds foremost economies has set off an unprecedented pull for companies to invest and do business here.

    For business owners and executives across all industries looking to enter or grow their China operations, weve developed this book by listening to you tell us what concerns you most. Organised into a series of separate, stand-alone chapters, this book presents perspectives from PwC industry professionals and specialists in China, shaped by their real, on-the-ground experience in China. For a good understanding and workable foundation to build on your China strategy, focus on a topic that resonates with you most and your current business cycle.

    We hope youll find context for some of your immediate concerns here, from a PwC perspective, about doing business in China. Should you have more specific questions about your particular industry or situation, please feel free to turn to our professional advisers at any one of our 22 offices across China.

    We look forward to helping you succeed in one of the fastest-growing and most promising parts of the world.


    Frank LynManaging Partner, PwC China and Hong Kong

  • 2 Doing business and investing in China


    Executive summary 6

    New leadership, new agenda for growth Foreign investment in Chinas new political and economic landscape 10

    Domestic consumption, green projects and a movement towards central and western parts of the country should be the focus for foreign investment.

    Major cities: Population and economic data 18

    Market entry and growth 20

    China is not a single market. Investors looking to enter or grow will need appropriate market analysis, capability building and investment structuring.

    Doing deals 38

    Good deals in China are hard to come by. Investors need to be flexible, patient and persistent.

    Managing risks 50

    Adopt a holistic and China-specific risk management framework one that addresses both strategic and sustainability drivers.

    Internal control 66

    Consider incorporating internal audit functions in an advisory role during due diligence and post-deal integration.

    Human resources and talent management 78

    Chinas talent market is competitive. Begin succession planning early, and make sure theres a clear path for career advancement.

  • Contents 3

    Finance and treasury 90

    A dynamic and flexible treasury strategy is needed to account for constantly changing business agendas and regulatory policies.

    Supply chain strategies 106

    Cost considerations should be balanced against other China advantages such as performance, flexibility and responsiveness.

    Government relations, regulatory compliance and stakeholder alignment 122

    Map out your stakeholders there may be more than you initially expect.

    Tax management: planning and compliance 134

    Take tax implications into account when choosing an optimal business model and transaction flows. Your tax and overall strategies should be aligned.

    Accounting and reporting 146

    You should have at least a general understanding of the differences among the various accounting regulation systems in China.

    Appendices 160

    City tier and regional overviewCAS and IFRS comparison chartIllustrative financial statementsBrief summary of China tax categories, tax rates and tax basesBrief summary of tax filing patternsSummary of withholding taxes for foreign companies resident in treaty countries/regionsMinimum registered capital of a foreign-invested enterprise (FIE)

  • 4 Doing business and investing in China

    How PwC can help

    For a deeper discussion about doing business and investing in China, please contact:

    Market entry and growth

    Angeline Cheng |

    +86 (10) 6533

    Doing deals

    Ken Su |

    +86 (10) 6533

    Managing risks

    Jasper Xu |

    +86 (21) 2323

    Human resources and talent management

    Johnny Yu |

    +86 (10) 6533

    Human resources and talent management

    Yongling Sun |

    +86 (21) 2323

    Treasury and finance

    Robert Vettoretti |

    +86 (21) 2323

  • How PwC can help 5

    Supply chain strategies

    Craig Kerr |

    +86 (21) 2323

    Government relations, regulatory compliance and stakeholder alignment

    Anthea Wong |

    +86 (10) 6533

    Internal controls and sustainability reporting

    John Barnes |

    +86 (10) 6533

    Tax management planning and compliance

    Matthew Mui |

    +86 (10) 6533

    Accounting and reporting

    Baolang Chen |

    +86 (21) 2323

    Tax management planning and compliance

    Amy Cai |

    +86 (21) 2323

  • 6 Doing business and investing in China

    Executive summaryOne transformational change seen this past decade is that of China as a sourcing destination evolving into China as a market. While locating key parts of your supply and value chain in China still offers many benefits as a part of a regional and global strategy, the focus for businesses has clearly shifted from an emerging labour pool to an emerging middle class. It is no longer about benefiting from low cost anymore, but about tapping the worlds strongest sustainable growth market.

    Rapid changes in demographics and market forces are opening up exciting new sectors and opportunities that would never have been thought possible a few years ago, much less open to foreign investment. And foreign businesses need China, a need reinforced by concerns over the recent global economic slowdown. We asked over 366 CEOs in the Asia Pacific Economic Cooperation region to what extent a drop in Chinas GDP below 7.5%

    would affect their organisation: 56% said it would affect their organisation to some extent, while 32% said it would affect them to a great extent.1 A majority of foreign businesses are now clearly tied to the Chinese economy, with 43% of CEOs ranking China as the most important growth market for their companies.

    Chinas simultaneous catalysts an ageing population, growing wealth, changing consumer attitudes, rising environmental awareness, greater mobility, urbanisation, and decreasing household sizes are pushing the country through a process of great change. To keep up, market reform is moving a growing number of sectors and markets towards liberalisation. And Chinas new leadership is committed to deepening reform and opening up its markets.2

    1. PwC. APEC CEO Survey: Addressing challenges, expanding possibilities. 20122. A broader discussion on Chinas new leadership agenda can be found in New government leadership, new

    agenda for growth in this book

    The message from early entrants is clear: make sure you are fully prepared and commited before investing. The reality of the China environment is oftentimes several degrees more nuanced and complex than what new market entrants or investors initially expect, so they should pay careful attention to on-the-ground risks. The key to success is to have fully assessed your markets and risks, and be invested-really invested-in knowing your customers and partners, your government touch points and stakeholders.

  • Executive summary 7

    A market beyond your comfort zoneWhile the reasons for entry are compelling, finding the right path into the China market has its challenges. Businesses expanding into China are pulled by demands that are tethered to this country, unique from the culturally related regions of the West. Many have discovered that success in their markets does not necessarily equate to the same outcome in China. This book takes you through some critical hurdles and success factors.

    Several themes weave thr