International Business

Running Head : International Business

International Business China is the third biggest country in the world in terms of area after Canada and Russia and the most populous nation in the globe with a population of more than a billion or nearly one-fourth of the world 's economy was recognized as the second largest , a fact confirmed by calculations of the Purchasing Power Parity expressed in the GDP amounting to US 9 412 . Calculated in USD-exchange proportion terms China 's GDP was the fourth largest . In 2009 , the Chinese economy is expected

to outstrip Germany . Today , China is the fastest growing major economy , and its continuous progress is precarious and unfavorable to the general state of the world economy and to the well-being of its populace of 1 .3 billion . In 2005 , China 's per capita GDP was about US 1 ,703-US 7 , 204 with PPP . Since 2005 , the share of the national GDP produced in the private sector was 70 . The public sector is dominated by large companies and is currently comprised of about 200 large state firms and businesses focusing mostly on heavy industry , energy resources and utilities . The chart below is a trend of China 's Gross Domestic Product at market prices representing data collected by the International Monetary Fund having (figures are given in millions of Chinese Yuans

The purposes of this study are to (1 ) get acquainted with the requirements for doing business in China (2 ) know the legal procedures for setting up business and the costs in China and (3 ) understand the ways in dealing with Chinese government officials , culture , taxes tariff policies and others

Year Gross Domestic Product US Dollar Exchange Inflation Index (2000 100

1980 460 ,906 1 .49 Yuan 25

1985 896 ,440 2 .93 Yuan 30

1990 1 ,854 ,790 4 .78 Yuan 49

1995 6 ,079 ,400 8 .35 Yuan 91

2000 9 ,921 ,500 8 .27 Yuan 100

2005 18 ,232 ,100 8 .19 Yuan 106 Because of this fast development of China in terms of economy , many investors from other countries got impressed and interested to invest But before they can operate a business in China , they must be able to pass the requirements given by the government of China

Requirements for doing business in China

In a survey made by the World Trade Organization or WTO stated that direct foreign ventures and capital spending in China is getting higher precipitously in comparison to the rest of the world , partially because to the escalating economy and the hypothetical increase in investment values . The said trend has become very powerful with Japanese businesses . In for foreign investors to start a business in China they must follow first a number of registration requirements . Foreign investors must get hold

of innumerable government consents and authorizations to take on investment projects in

China . These comprise the sanction of Ministry of Commerce (MOFCOM ) and of the said ministries which are accountable for administering the industry to which the blueprint belongs . The requirements in doing business in China are as follows

Joint Ventures

The foreign investor and its Chinese associate must submit an application to Ministry of Commerce or MOFCOM or any of its regional divisions which is the approval authorities ' for the authorization to launch and establish a joint venture . The bylaw has compelled the MOFCOM to make a decision within three months whether to allow and sign over the authorization . When the joint is already approved , it should be registered within a month with the SAIC or State Administration and Commerce to get hold of a certification and authorization to set out a business . An equity joint venture is considered and looked upon as having been formally and legitimately recognized after this license is granted .5

2 . Wholly Foreign-owned Enterprises

The authorization and record-keeping requirements to set up a wholly foreign-owned enterprise (WFOE ) are parallel as those for joint ventures with the exclusion of having no joint venture contract . 6

3 . Foreign Representative Offices

The commissioner offices are usually established to execute and accomplish the liaison 's work for the conglomerate overseas . The verdict and resolution by

MOFCOM or any of its regional office which is the approval authorities ' must be issued within 30 days since the compliance of the obligatory and prerequisite official s . When the request of approval is granted , the foreign company will get hold of an approval certificate from MOFCOM or its associates

Required National Participation

In 1978 , China has launched its economic reorganization and modification programmes which foreign stockholders were asked to form joint ventures with the local Chinese businesses . This constraint and prerequisite has been relaxed for many years but at present , foreign businesses are allowed and accepted to have a greater part of interest in joint ventures or to set up WFOEs in specific areas

Taxation

Taxation takes place at the national , regional and municipal level Resident businesses and individuals are taxed on international profits having a credit for foreign tax . Many of the Chinese-source profit of non-residents is taxed . VAT is utilizing to most business deals in commodities and merchandises and the business tax to most service industries . The illustration below shows the flow of taxation and was taken from http /www .deloitte .com /dtt /leadership /0 ,1045 ,sid 253D12620 ,00 .html

Corporate tax rates The highest corporate tax rate is 33

Individual tax rates Progressive rates up to 45

VAT rates 17 standard rate , and 13 and 0 lower rates

Withholding taxes Dividends 0 interest and royalties 10 . Rates may be reduced by tax treaty

Tax treaties China has more than 75 tax treaties

Capital gains Gains of companies are taxed as income . Individuals are taxed at 20 on gains with certain exemption

Dividends Dividends are generally taxable , with some exemptions

Revenue protection There is transfer-pricing legislation

Groups There is no provision for group taxation with certain exemption

Incentives Special economic zones export , high-tech and infrastructure projects

Other key taxes Business tax construction tax consumption tax import duties land appreciation tax local land use tax stamp tax vehicle and vessel license tax urban real estate tax deed tax Taxes on Imports

China enforces import tariffs and import-correlated value-added tax or VAT on commodities and merchandises imported in an overall trade Import-related consumption tax is also taxed on specific commodities

Taxes on Exports and Tax Rebate /Exemption

Tariffs- China do not enforce taxes on exports with the exception of several kinds of unprocessed materials and fundamental resources

VAT and consumption tax- China operates a zero-tariff proportion on exports which has an exception of specific limited and constrained commodities and technologies which means that it does not require VAT fees or consumption tax on exports and tariffs

that are already paid will be refunded . In July 1 , 2004 , the State Taxation Administration specified that commodities exported by the foreign trade operators having export production capacity are qualified for export refund /exemption under the VAT exception , deduction and refund ' system . The commodities that are sold abroad by the foreign trade operators lacking of production capacity are for export refund /exemption according to current code of practices on export rebate for foreign trade businesses . Moreover , commodities that are sold abroad by foreign trade operators acknowledged as small-scale VAT taxpayers are excused from VAT and consumption tax according to current code of practice . Currently , the export refund policy is appropriate to FIEs under the VAT exception , deduction and refund ' system

Chinese Business Culture

In one survey entitled Do 's and Don 'ts of Doing Business in China written by David Hannon , May 18 , 2006 , stated that one of the buyers at the U .S .-based manufacturer said : Culturally , Chinese companies and workers do not like to say no ' and other said , We spent months trying to get out of a supplier what we thought they agreed to in a meeting . 12

Dos

Do grip every business card- yours and theirs- with both hands and carefully . Chinese businessmen normally equate on how you treat their card with the amount of delight and respect you have for them

Do your own business cards in printed with English on a side and Chinese lettering on the other side . And make sure that your card is checked by somebody who comprehends Chinese language

Do wear conservative suit for business meetings . China is a very reserved nation culturally

Don 'ts

Don 't use a green hat as your gift to a Chinese Businessman . A director of purchasing at Delta Education named Pam Trunca stated that when a man wears green in China , it indicates his wife has been unfaithful

Don 't be late in a business meeting if you desire to make a positive notion . Chinese Businesses consider lateness more critically compared with U .S . businesses do

Conclusion

Anyone willing to do business in one of the world 's most promising economies should brace oneself for a complex yet rewarding environment Knowing the details of how to form a joint venture , the regulations of the Ministry of Commerce , taxation issues , and similar things can save a businessman a lot of trouble . The basic choice to make is one of the form : setting up a wholly-owned enterprise , a joint venture or a foreign representative office can make all the difference . Whatever the form of business , it is important to consider cross-cultural differences . A foreign businessman who learns all the intricacies of culture will be rewarded with friendliness and great business opportunities

References

China . Grolier Encyclopedia of Knowledge ,

. 329 vol . 4 , 1991

Economy of the People 's Republic of China . Wikipedia , the free encyclopedia

http /en .wikipedia .org /wiki /Economy_of_the_People 's_Republic_of_China

Doing Business in Mainland China http /www .deloitte .com /dtt /leadership /0 ,1045 ,sid 253D12620 ,00 .html

Humberg , C . Successfully Moving IN and Setting Up Business in China HYPERLINK "http /www .us .tuv .com /news /newsletter_pdfs /related_articles /janfeb03 /su ccessfullymoving .pdf http /www .us .tuv .com /news /newsletter_pdfs /related_articles /janfeb03 /suc cessfullymoving .pdf

Guide to Doing Business in China (2004-2005 . HYPERLINK "http /www .tdctrade .com /chinaguide /eng /02 /2-2 .pdf http /www .tdctrade .com /chinaguide /eng /02 /2-2 .pdf

Hannon , D . DOs and Don 'ts of doing business in China ' May 18 , 2006

http /www .purchasing .com /article /CA6333247 .html

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INTERNATIONAL BUSINESS

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