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Investing in China

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” (https://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” (https://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” (https://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” (https://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” (https://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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Investing in China

Investing in Starting a Manufacturing Business in China

Investing in a manufacturing project in China is no easy task.  Simply financing a domestic company carries the risk of the investment, as well as liability in some instances.  In China, however, there is the added problem of their regulations on businesses, which are myriad and in many cases arbitrary.

Of the vast array of rules and regulations established by Chinese government, there are some that American businessmen should pay particular interest to.  Before any joint venture can take place, one must go through the process of “…the examination and approval authorities” (https://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384083.htm) which “…shall decide to approve or disapprove the venture within three months” (https://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384083.htm).

Any investor who wishes to “…open factories or set up various economic undertakings… Guangdong Provincial Committee for the Administration of Special Economic Zones, which shall issue them registration certificates and land use certificates upon examination and approval” (https://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384060.htm).  Similar to the two above mentioned certificates and committees’ one must get approval from, there are more similar in nature that must approve of those who wish to do business in China, with relation to the specifics of the business.  For the entire list of all Chinese laws, visit (https://www.npc.gov.cn/englishnpc/Law/Frameset-index.html).

There are, however, some benefits to business in China.  The most obvious is their income tax rate which “…in the special zones is 15 percent” (https://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384060.htm).  For a point of comparison, the US corporate tax rate at its highest (net income $15M+) is 38%, over double the tax of China. There is also “Special preferential treatment… with an investment of U.S.$ 5 million or more, or those involving relatively high technology” (https://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384060.htm).

While the tax situation is promising, the government will not offer any direct loans to investors.  In fact, according to the law “…the People’s Bank of China may not provide loans to … non-banking institutions, other units or individuals” (https://www.npc.gov.cn/englishnpc/Law/2007-12/12/content_1383712.htm).  The State Council can, of course, approve exceptions, though it does not state how.

While there is a good labor force, resource pool, and market to gain, it is not a simple task to enter into business in China as a foreign entity.

By – Domenic Gabriella for ChinaExports.com