US Government Restrictions on Investing in China

American businessmen are always looking for new markets, cheaper labor and resources to expand their market share.  Investing into China is a great opportunity.  The few US laws and regulations on foreign investments seem Laissez-faire when compared to the regulations of China.

America has a standing policy to, “supports U.S. economic prosperity by strengthening the external environment for U.S. growth” (http://www.treas.gov/offices/international-affairs/offices.shtml).  The government will readily give loans to businesses and corporations to help expansion and promote business.  As a primary capitalist economy, there are few limits on what one can invest in, including foreign investments.

There are tariffs on particular goods from China to promote and protect domestic markets and jobs from Chinese competition.  A recent example would be the “…35 percent tariff on automobile and light-truck tires imported from China” (http://www.nytimes.com/2009/09/12/business/global/12tires.html?_r=1&fta=y).  This was stemmed from the US policy to, “safeguard provision, American companies or workers harmed by imports from China can ask the government for protection” (http://www.nytimes.com/2009/09/12/business/global/12tires.html?_r=1&fta=y), and was a safeguard put in place when China entered the WTO in 2001.

There is, of course points to encourage investments in domestic markets.  The largest is the tax ‘loophole’ for companies doing business overseas.  This ‘loophole’ is  “…a feature of the U.S. tax code that allows domestic companies to defer taxes on … revenue that companies earn through their overseas subsidiaries …as long as it stays off the company’s U.S. books” (http://www.factcheck.org/askfactcheck/what_kind_of_tax_breaks_does_the.html).  The closing of a tax haven will have a similar effect of promoting more domestic investments rather than foreign ones.

A large point of concern for investing into a foreign market such as China is the ‘risk of doing business’ presented with any international financing.  While there are forms of ‘insurance’ one can purchased for China they can only, “…be furnished by insurance companies established within the territory of China” (http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384083.htm).  The rules and regulations of China, being more bureaucratic and arbitrary, can change according to the expediency of the moment.  This risk, along with the lack of ‘private property’ in China can easily make an investor uneasy about entering the market.

By – Domenic Gabriella for ChinaExports.com


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