Doing Business and Investing in China

Doing business and investing in China A compilation of insider knowledge and advice, whether you’re entering the China market for the first time or growing your existing business. www.pwccn.com/investchina 本书内容详尽丰富，独立成章，实用性强，同时充分中国市场有着巨大的增长潜力，我们期望和世界各展示了普华永道的专业水准和对中国市场的深刻认国的投资者分享我们的经验和专业知识，精诚合知，是外资进入中国并在中国市场发展的很好的参作，把握机遇，共同发展。考材料。项怀诚杨绍信前财政部部长普华永道亚太区及中国主席 The content in this book is rich, well organised The China market has tremendous growth and detailed. It offers a uniquely independent and potential. By sharing our experience and practical perspective, showcasing PwC’s perspectives, we look forward to collaborating professional standards and extensive on-the- with investors from all over the world to grow and ground experience in the China market. It serves develop this market. as a solid reference for foreign investors looking to grow their operations in China. Mr. Huaicheng Xiang Mr. Silas Yang Former Minister of Finance PwC Asia Pacific Chairman China and Hong Kong Executive Chairman Welcome 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, China’s 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, I’m 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 world’s 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, we’ve 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 you’ll 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. Regards, Frank Lyn Managing Partner, PwC China and Hong Kong Doing business and investing in China 1 Contents Executive summary 6 New leadership, new agenda for growth Foreign investment in China’s 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 China’s talent market is competitive. Begin succession planning early, and make sure there’s a clear path for career advancement. 2 Doing business and investing in China 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 overview CAS and IFRS comparison chart Illustrative financial statements Brief summary of China tax categories, tax rates and tax bases Brief summary of tax filing patterns Summary of withholding taxes for foreign companies resident in treaty countries/regions Minimum registered capital of a foreign-invested enterprise (FIE) Contents 3 How PwC can help For a deeper discussion about doing business and investing in China, please contact: Market entry and Doing deals growth Ken Su | 苏啓元 Angeline Cheng | 郑安淳 +86 (10) 6533 7290 +86 (10) 6533 7409 [email protected] [email protected] Managing risks Human resources and Jasper Xu | 徐世达 talent management Johnny Yu | 于晨 +86 (21) 2323 3405 [email protected] +86 (10) 6533 2685 [email protected] Treasury and finance Human resources and talent management Robert Vettoretti | 范瑞迪 Yongling Sun | 孙永玲 +86 (21) 2323 3223 [email protected] +86 (21) 2323 2200 [email protected] 4 Doing business and investing in China Supply chain strategies Internal controls and Craig Kerr | 柯磊 sustainability reporting John Barnes | 彭亦斯 +86 (21) 2323 8686 [email protected] +86 (10) 6533 2601 [email protected] Government relations, Tax management – regulatory compliance planning and and stakeholder compliance alignment Matthew Mui | 梅杞成 Anthea Wong | 王細芳 +86 (10) 6533 3028 +86 (10) 6533 3352 [email protected] [email protected] Accounting and Tax management – reporting planning and Baolang Chen | 陈保郎 compliance Amy Cai | 蔡晓颖 +86 (21) 2323 2555 [email protected] +86 (21) 2323 3698 [email protected] How PwC can help 5 Executive summary One transformational change seen this would affect their organisation: 56% past decade is that of China as a said it would affect their organisation to sourcing destination evolving into China some extent, while 32% said it would as a market. While locating key parts of affect them to a great extent.1 A majority your supply and value chain in China of foreign businesses are now clearly still offers many benefits as a part of a tied to the Chinese economy, with 43% regional and global strategy, the focus of CEOs ranking China as the most for businesses has clearly shifted from important growth market for their an “emerging labour pool” to an companies. “emerging middle class.” It is no longer about benefiting from low cost anymore, China’s simultaneous catalysts – an but about tapping the world’s strongest ageing population, growing wealth, sustainable growth market. changing consumer attitudes, rising environmental awareness, greater Rapid changes in demographics and mobility, urbanisation, and decreasing market forces are opening up exciting household sizes – are pushing the new sectors and opportunities that country through a process of great would never have been thought possible change. To keep up, market reform is a few years ago, much less open to moving a growing number of sectors foreign investment. And foreign and markets towards liberalisation. And businesses need China, a need China’s new leadership is committed to reinforced by concerns over the recent deepening reform and opening up its global economic slowdown. We asked markets.2 over 366 CEOs in the Asia Pacific Economic Cooperation region to what extent a drop in China’s GDP below 7.5% 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. 1. PwC. “APEC CEO Survey: Addressing challenges, expanding possibilities.” 2012 2. A broader discussion on China’s new leadership agenda can be found in “New government leadership, new agenda for growth” in this book 6 Doing business and investing in China A market beyond your China has changed and is still changing. When incorporating risks into strategic comfort zone While some markets are opening up to planning, you should examine every level foreign investment, Chinese companies of risk, throughout all business functions. While the reasons for entry are are demonstrating abilities to innovate, You will find that they are often compelling, finding the right path into develop new proprietary technologies, intertwined, and such an analysis affords the China market has its challenges. and expand beyond their borders. a bird’s eye view of the local business Businesses expanding into China are Foreign companies may not be as environment and practices. An pulled by demands that are tethered to attractive as they were a couple of integrated China strategy must therefore this country, unique from the culturally decades ago, and recent economic woes address risks that stem from both related regions of the West.

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