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Presented by,

Dileep Bajaj 10DM-045

Kapil Sharma 10HR-016

Anoop N 10IB-016

Arif Ehsan 10IB-020

Anshul Jain 10IT-006

Areeb Ahmad 10IT-009

DOING BUSINESS IN

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ConclusionStarting a business is getting easier as a result of Chinas entry toWTO. But it has long way to go before reaching international

standards

Companies should harness the fact that China is not only a low-

cost labor market, but is also a strong export and domestic marketIt is crucial that western companies that are doing business withChina should understand that although Chinese consumers flock to

international products, they remain firmly grounded in Chinese

traditions and beliefs

Businesses must understand that their new market customers willhave a fundamentally different world view than Westerners, and

products have to be placed into that world view.

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HALFHOUR

BEFORE THE CONCLUSION

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GeneralFacts

y Known as Peoples Republic of China

y Single Party Government System

y Population of 1.3 billion

y Beijing is the National Capital

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Chinese Mentality

y Patience, Respect and Politeness

y Age brings increased respect and status.

y Business is often based on Guanxi

y Mianzi -the concept of Face

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Etiquette & Protocoly The accepted form of greeting is the handshake, aside from that, people in China prefer

not to be touched, especially older people.

y People are expected to enter the meeting room in hierarchical order.

y Use both hands when presenting and receiving business cards.

y Arrive to meetings early or on time. Punctuality is very important in Chinese culture.

y Refuse a gift several times before accepting it. If a gift is accepted right away, it can be

seen as being greedy.

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Startinga Business

Indicator China India

East

Asia &

Pacific OECD

Procedures (number) 14 12 7.8 5.6

Time (days) 38 29 39.0 13.8

Cost (% of income per capita) 4.5 56.5 27.1 5.3

Paid-in Min. Capital (% of

income per capita)118.3 188.8 50.6 15.3

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Startinga Business

Regulation is mostly national, but local innovations in implementation can make it moreefficient

Starting a business: which regions are easiest, which are hardest

Northwest

Northwest

Northwest

Central

Central

Central

Bohai Bay

Northeast Northeast

Southeast

Southwest

Bohai Bay Bohai Bay

Southeast Southeast

Northeast

Southwest

Southwest

Procedures (number) Time (days) Cost (% of provincial GDP

per capita)

12.6

13.6

13.7

13.8

13.9

14.0

33

38

40

40

49

42

5.5

5.7

9.1

11.4

14.8

16.3

Source: Doing Business database.8

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MarketCharacteristics A Huge Market

GDP: USD25,000 billion, 4th largest of the world Trade volumeUSD2173.8 billion, Ranks 3rd in the world.

Export USD12,180 billion, Import USD955.8 billion.

A Comparatively Mature Market 30 years of opening up

The global 500 companies settled in China

Strong competition

A New Rich People Market

Numbers of rich people with property over USD 1 million : 35,500

Middle class with income between USD 20,000-100,000 : 60-80million

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Regul

ato

ryFramew

ork

y Forms of Doing Business in China

y Direct Investment Forms

y Equity Joint Venture (EJV)

y Contractual Joint Venture (CJV)

y Wholly Foreign-Owned Enterprise (WFOE)

y Investment Holding Company (CHC)

y Joint Stock Company

y Indirect Investment Forms

y Direct purchase and sales

y Toll/Contract manufacturing

y Licensing

y Financing

y Representative offices

F

oreign InvestmentEnterprise (FIE)

Foreign Enterprise (FE)

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RegulatoryFrameworky China Holding Company (CHC):

Min. asset value US$30m within 2 years, total investment within 5 years

Can make strategic RMB investments into subsidiaries.

y Wholly Foreign Owned Enterprise (WFOE) or Foreign Invested Commercial Enterprise (FICE):

100% shares owned by foreign parties, offshore or holding companies. Different

industries have different registered capital (equity and investment requirements)

y Equity Joint Venture (EJV):

E.g. 70% equity, 70% profit.

y Cooperative Joint Venture (CJV):

E.g. 50% equity, 80% profit. Contract can include many things, therefore flexible.

y Representative Office (RO):

Like an overseas branch, although not allowed to conduct business, only allowed toprovide sales, marketing and support services.

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RegisteringProperty

Local Reform Can Make a Big Impact

36

5054

5954

593.9

4.24.5

6.0

5.3

6.8

20

40

60

80

Southeast Bohai Bay Northeast Central Northwest Southw est

0%

2%

4%

5%

7%

Time (Days) Cost (% of property value)

Time (Days)Cost (% of

property value)

Source: Doing Business database.

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China Taxation and Incentivesy China is a civil law country. Judges cannot set rules or principles.

y Corporate Income Tax rate is 33% (Central + Provincial)y Special Economic Zone incentives, e.g.

y Shanghai 24%, Pudong 15%

y Guangzhou 24%, Shenzhen 15%

y It Imposes Import tariffs and VAT on goods imported in general

trade.

y It doesn't impose levies on exports with exemption of few types of

raw materials and vital resources

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GettingCredity Firms consistently rate access to credit as among the greatest

barrier s to their operation and growth

y Two sets of indicators of how well credit markets function:

y one on credit registries and

y the other on legal rights of borrowers and lenders.

Getting Credit data Doing Business

2008

Doing Business

2009

Doing Business

2010

Rank .. 59 61Strength of legal rights

index (0-10)

4 6 6

Depth of credit

information index (0-

6)

4 4 4

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EnforcingContracts

y China is rated as number 18 by World Bank

y One of the best systems in the world for enforcement

y Better than the United Kingdom and Japan

y Far better than other developing countries like India and Brazil

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EnforcingContracts

Country No. of Procedures Time (days) Cost(% of claim)

China 34 406 11.1

Russia 37 281 13.4USA 32 300 14.4

Brazil 45 616 16.5

Japan 30 360 22.7UK 28 399 23.4

India 46 1420 39.6

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ComparingIndia andChina

Procedure/Cost China India

Filing and service 21 days 20 days

Trial and judgment 195 days 1,095 days

Enforcement of judgment 190 days 305 days

Attorney cost (% of claim) 3.6 30.58

Court cost (% of claim) 6.3 8.5

Enforcement Cost (% of

claim)

1.24 0.5

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However

Unfortunate tendency to ignore contract terms in dealing withforeigners

They assume that the foreigner will not sue

Leads to the belief that contract terms can be violated with little risk

Many contracts by foreigners are simply unenforceable in China

Not written in Chinese, not subject to Chinese law and provides forenforcement outside of China

Such contracts are not worth the paper they are written on

Many contracts are too vague for effective action by courts Chinese courts are good at enforcing simple, clear contracts Important to use contracts in a way that will produce a good result in court.

Chinese court system is a gift, given other obstacles and difficulties insystem, itll be a mistake not to take advantage of it

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Enforcinga Contract

Local practices can impact cost and time to businesses

230

312322

342 346363

24.925.123.5

29.9

13.811.5

0

100

200

300

400

Southeast Bohai Bay Central Southwest Northwest Northeast

0.0

10.0

20.0

30.0

40.0

Time (days) Cost (% of claim value)

Source: Doing Business database.

Time (days) Cost (% of claim value)

19

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Labor Standards

Foreign companies + investors already there opportunities forexpansion

New entrants opportunities not previously availableReasons Entry into WTO + Olympic games

Risks :Labor laws poor working conditionsChinese laws, politics, culture

Investors, consumers : foreign companies take responsibility forworking conditions. So, important issue

As markets open up more foreign Cos. Easy entry & competehead to head with local Cos.

Impact on Chinese economy and workers

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Labor Standards

Working conditions in China

Key issues:

Poor living conditions, pay failing to meet the legal minimum, andlong hours

Migrants form a great proportion of the manufacturing workforceand face specific problems (discrimination)

Way forward:

Those engaging with Chinese companies must establishbenchmarks on key issues to clarify the level of conditions. But,

lowest level acceptable ?

Doing business - Employing workers - China

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Closingthe Business

Cancellation application includes :

1. Time and registered number of approval of the office

establishment

2. The operational situation after the establishment3. Reasons and causes of the office cancellation

The toughest and most time-consuming part is the tax audit

report made by local CPA (Certified Public Accountant

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ClosingBusinessinChina

Indicator China East Asia & Pacific OECD

Recovery rate (cents

on the dollar)36.4 34.4 69.1

Time (years) 1.7 2.7 1.7

Cost (% of estate) 22 23.2 9.1

DB 2011 Rank 68 DB 2010 Rank 66 Change in Rank -2

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China VS India

COUNTRY Recovery rate (cents on the

dollar)

Time (years) Cost (% of estate)

China 36.4 1.7 22

India16.3 7.0 9

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ConclusionStarting a business is getting easier as a result of Chinas entry toWTO. But it has long way to go before reaching international

standards

Companies should harness the fact that China is not only a low-

cost labor market, but is also a strong export and domestic marketIt is crucial that western companies that are doing business withChina should understand that although Chinese consumers flock to

international products, they remain firmly grounded in Chinese

traditions and beliefs

Businesses must understand that their new market customers willhave a fundamentally different world view than Westerners, and

products have to be placed into that world view.

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Thank You