Post on 29-May-2015
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Keeping up with the Needs of Foreign Investors and
Businesses in ChinaPresented by Aloysius Wee
Managing PrincipalDacheng Wong Alliance LLP
Dacheng Wong Alliance LLP
Rise of China as a World Player
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Second Largest Economy in the World A large population – 1.3 billion and rising A growing middle class Fast rate of economic growth in most cities Internal competition for resources Fastest rate of growth for new millionaires Rising superpower
China – A Land of Opportunities
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Dacheng Wong Alliance LLP
• Political Changes• Greater presence in the world stage
• A louder voice in the UN• A stronger military presence in the South China Sea• A more aggressive engagement with ASEAN countries over disputed territories• A more aggressive engagement with Japan over disputed territories• More engagement in Africa and Pacific Islands
China – Changing Landscape
Liaoning - China’s first aircraft carrier
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Dacheng Wong Alliance LLP
• Political Changes• Central Government – New Leadership
• New President • New generation of leaders in key ministries and positions• Expectations of new policies to drive China for the next 10 years• Restructuring and merging of ministries and government departments in an attempt to streamline the administrative machinery
• impact will be a period of settling in and uncertainty for investors
China – Changing Landscape
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China’s Ex-president – Hu Jintao
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China’s new president – Xi Jinping
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China’s new first lady – Peng Liyuan
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• Political Changes• City Government – Change of Leadership• District Government – Movement
• the impact of these changes will be a change in leadership at the local level, relationships or guanxi have to be built again or re-established• there will be a period of uncertainty given that there will be mergers in the ministries which will have impact at the local level• there will be a period of trying to understand the new policies of the Central Government and how to implement these policies
China – Changing Landscape
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• Economic Changes• Move from 3rd largest to 2nd largest economy
• China has to grapple with hot money • China has to deal with and an overheated property market, interim measures in place but cannot be long term solution• China has to deal with employment issues
• Move from manufacturing to higher value manufacturing and services• How to attract such FDI given rising costs and competition from ASEAN
China – Changing Landscape
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Legal Changes • Usually driven by political and economic objectives. With the new central government and the proposed streamlining of ministries, there will be anticipated changes in the legislation to give effect to these changes.
• Legal changes can be by way of new legislation which can be retrospective in nature• Legal changes can be by way of interpretation of current legislation or amendments to current legislation• Legal changes can be by way of administrative changes and application of discretion
• This category is the most difficult to deal with as discretion is involved
Infrastructure Projects – roads, rail, townships and industrial parks development in second and third tier cities which offer good investment opportunities
Services Industry – finance, hotel management, asset management
Green & clean industry – waste treatment, sustainable power generation – wind and solar (however now with possible US and EU imposition of duties may not be viable)
Aerospace Industry – China is aspiring to sell its first commercial airliner within the next 24 months, air space will also be opened up for private use and an anticipated industry in private aircraft and helicopter sales and leasing
Opportunities
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Many Chinese cities and provinces have come to ASEAN to procure investments into their cities.
China moving away from manufacturing to higher value activities.
Largest factory in the world moving to largest value added economic center.
Chinese companies are coming out to invest overseas
Chinese companies are acquiring companies overseas
Opportunities
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Year of Growth…after many years of continued
growth
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China’s Actual Use of Foreign Direct Investment(2003-2011)Year Actual Use of Foreign Direct Investment (billion)
2003 53.51
2004 60.63
2005 72.41
2006 69.47
2007 82.66
2008 92.40
2009 90.03
2010 105.74
2011 116.01http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1
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China’s Actual Use of Foreign Direct Investment(2003-2011)
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
20
40
60
80
100
120
140
year
Act
ual
Use
of F
orei
gn In
-ve
stm
ent(
billi
on)
http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1
Year of Growth…after many years of continued growth
FDI will continue to increase from 2012
China is not short of money, in fact it is curbing hot money
Chinese local companies are facing credit crunch and need funding
Institutional Funding is not cheap in China and hence rise of private funding
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Inward Investment (EU)
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2009 2010 20112012( Jan-
Oct)Number of
newly established enterprises
1578 1688 1743 1418
Actual use of foreign
investment(billion)
5.992 6.589 6.348 5.236
http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1
Inward Investment (The United States)
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2009 2010 20112012( Jan-
Oct)Number of
newly established enterprises
1588 1576 1497 1128
Actual use of foreign
investment(billion)
3.576 4.052 2.995 2.704
http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1
Inward Investment
EU as a trading bloc has significant investments in China, larger than the US but with crisis in Greece, Spain the outlook for further FDI looks like it will slow down.
The US too has significant investments in China but with tensions rising as China assumes the other superpower role, there is a likelihood of investments slowing down. There is also a strong anti China lobby and issues of dumping that are often brought up by the US , eg solar panel industry
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Inward Investment (10 Asian Countries /Regions)
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2009 2010 20112012( Jan-
Oct)Number of
newly established enterprises
18321 22058 22302 15852
Actual use of foreign
investment(billion)
73.148 88.179 100.517 78.028
Hong Kong, Macao, Taiwan, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia, ROK
http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1
Inward Investment
ASEAN and China’s Asian neighbors now account for the largest number of companies to be set up in China as well as the largest amount of FDI.
Some issues with Japan which may impact Japan FDI into China as well as pull out or scale down of investment of Japanese companies already in China.
Greater incentive for ASEAN investment with the DTA between ASEAN and China.
Growth will be potentially from ASEAN countries.
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Inward Investment
In the 1980s there was the coining of the term, Asian Tigers which referred to the emerging economies of Singapore, Taiwan, Hong Kong and South Korea.
In this age, we do not see these economies playing any significant part in the world economy on their own but now relying on China the sleeping dragon that has awaken.
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Outbound InvestmentThe journey of a thousand miles begins with
one step
…a Chinese Proverb
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China’s Outbound Investment(2008-2012 Jan-Sep)Year Outbound Investment (billion)2008 31.30
2009 32.87
2010 36.27
2011 40.75
2012 52.52
http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1
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China’s Outbound Investment(2008-2012 Jan-Sep)
http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1
2008 2009 2010 2011 2012 20130.00
10.00
20.00
30.00
40.00
50.00
60.00
year
Out
boun
d In
vest
men
t (bi
llion
)
Outbound Investment( 2008-2012 Jan-Sep)
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Countries / Regions
Overseas Invested Companies
Outward Direct Investment
(billion)
2012 126 2941 52.52
2011 129 2526 40.75
2010 118 2426 36.27
2009 112 1612 32.87
2008 112 More than 1500 31.30
http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1
Outbound Investments Chinese companies beginning with State Owned
Enterprises and then private owned companies have started to invest in more countries and in more industries then ever before.
Investments may be in the form of acquiring shareholdings in foreign companies.
Bank of China holding shares in 5 banks
ICBC has plans to purchase the shares of The Bank of East Asia Limited, Standard Bank Argentina, ICBC (Thailand) Limited and ICBC (Canadian) Limited
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Outbound Investments Mergers and acquisition Chinese companies have in the past depended on technology
transfers but in recent years have gone for outright acquisition of foreign companies and using their brands
Lenovo buying up IBM’s PC business. Since the acquisition, Lenovo has grown into an international brand.
Geely automobiles buying up VOLVO. Joint ventures and collaboration
FAW-Volkswagen Automotive Co. Ltd is a Chinese joint venture between the First Automobile Works (FAW) and Volkswagen Group
Xian-Janssen Pharmaceutical Ltd is a Chinese joint venture between Johnson & Johnson and a group of Chinese pharmaceutical companies
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Outbound Investment
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(Geely’s Purchase of Volvo)
2009.10.
28
•Geely was named as the preferred buyer of Volvo Cars by Ford.
2009.12.
23
•all substantive commercial terms were finalized for the sale of Volvo Cars from Ford to Geely.
2010.3.2
8
•definitive agreement was signed at the price of $1.8 billion USD.
200.8.2
• The deal was completed after the approval of relevant authorities.2010.8.2
Outbound Investment
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(Geely’s Purchase of Volvo)
200.8.2
It is an international merger which is the result of globalization. A lot of challenges: e.g. culture difference, different management styles, cost allocation, etc. This business is the biggest overseas acquisition by a local Chinese company. It marks the rising power of China in the world economy. It also reflects the big aspiration of the Chinese to expand in the world market. From the other perspective, it means the world needs to be prepared for doing business with China.
ExpertiseWhat you need to know to help your clients
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understanding cultural differences
understanding language differences
understanding guanxi
understanding legal differences
Different venues and ways of negotiations Dinner table negotiations KTV negotiations
Chinese seldom say “No”. They may say “Problem is not big”.
Chinese may test your credibility before conducting business with you.
UNDERSTANDING CULTURAL DIFFERENCES
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Cultural Differences noticed at the G20 meeting in Toronto ... The Canadian: Self-absorbed and disconnected from reality. The American: Businesslike, unwilling to be distracted. The French and the Italian: "LOOK AT THAT ASS!"
Language Differences There is a perceived advantage that Chinese
speaking Singaporeans, Taiwanese, Malaysians are supposed to have.
Whilst there is some truth in that. Therein lies the problem too. We all speak Pu Tong Hua. We assume that we speak the same language and that we understand Chinese.
We forget that that there are intricacies in the language that are closely related to culture and that we too can misunderstand the Chinese.
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Dacheng Wong Alliance LLP
Language Differences
It is because of such complacency that we too come across as being arrogant and rash. For us if we are not able to do something, we would be upfront and say "No" or "Not possible". There is nothing wrong with being direct.
However, the Chinese rarely use the words "Bu Ke Yi" or "Not possible". Even if they cannot do it they will say "Jing Liang" or "I will try my best". To us hearing this, usually there is some comfort, but coming from the Chinese it would usually be more often than not a “no” rather then a “yes”.
Guanxi -关系 What is guanxi? It is in our western
context a more evolved form of networking. There is nothing mystical about guanxi but it boils down to the fundamental concept of doing business with someone who is known to you. It is often said in China, "let’s first be friends then business partners.”
Guanxi is about relationship building and relationship building takes time. Building up guanxi takes time.
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Guanxi -关系 Make your own evaluations Think medium and long term Do not rush into things Verify from various sources Treat people like how you would like to be treated Work towards an equitable and fair working
relationship for long term cooperation
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Dacheng Wong Alliance LLP
Legal Differences
China is a civil law system, this is different from the common law system that we are accustomed to.
Administrative departments weld great discretion and power over interpretation of the laws.
Relationships and guanxi are important in litigation cases.
When dealing with at least one foreign party and one Chinese party opt for arbitration out of China but in a jurisdiction that arbitration awards are recognized for enforcement in China, eg Singapore.
Important to not only know the law but who is in the law.
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Legal Differences It is important to use local expertise in
handling administrative and legal issues.
GLOBAL NETWORK, LOCAL TOUCH
Dacheng Law Offices offers our clients a global reach with offices across China and the globe and at the same time offering a local touch, with an understanding of local custom, culture and language. 38 offices in China, in every major city with 2000 lawyers.
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Thank you – 谢谢
For more information please visit our website, www.dcwa.sg or contact us at lawyers@dcwa.sg.