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Posts Tagged ‘china’

This week’s blog post is written by Withum’s International Services Group member, Phyllis Tsai.

Withum’s International Services Team recently welcomed one of our HLB International network firms from China, Baicheng Tax Consulting Services.

Beicheng has been operating as a professional tax service company since 2003. They mainly service large-scale companies and corporations in China. They are based in Shanghai and have braches in Beijing and Shandong Province. All of Baicheng’s five directors (plus one translator) came to visit Withum’s Princeton office to gain an understanding of the U.S. tax system and an introduction to Withum’s culture and various services we provide to our clients. Throughout this meeting, Baicheng also gave Withum some insight of the Chinese tax system and culture relating to marketing.

HLB baicheng

Since most of our visitors do not speak or understand English, May Du (senior tax accountant in Withum’s Princeton office) and I practiced our Chinese skills to try to translate Withum’s, culture, various industry and service niches, and social media involvement, etc. into Chinese terms our visitors would understand. Withum’s attendants also used this opportunity to practice correct business card exchange etiquette in China. The following are some points we learned from meeting our HLB friends:

  • China does not have many social media tools as we do for Baicheng to market their services. They do not have access to Twitter, YouTube, or Facebook. They have limited access to LinkedIn.
  • They have limited internet access so it is difficult for them to download HLB training materials or provide their clients training online. Therefore, they hold many conferences to provide the training to their employees and tax updates to their clients.
  • China does not have individual tax returns currently. Chinese withhold taxes from their paychecks in lieu of filing tax returns (although this policy will change soon).
  • Less than 10% of companies hire accounting firms to prepare corporation tax returns.
  • China revised their transfer pricing rules recently which would be more in line with OECD rules (Organization for Economic Co-operation and Development).
  • Some of Baicheng’s clients would like to invest abroad since Chinese government has been encouraging companies and individuals to do so.

During early 2016, it was reported by news media that due to China’s “Go Global” strategy, Chinese companies have invested more money in foreign locations in the first ten weeks of 2016, compared to all of 2015. Chinese companies invested $110 billion until mid-April 2016, compared to $108 billion in 2015.

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ChinaChina is joining the group of more than 50 developed and developing countries, including all G20 members, which are signatories to the Convention on Mutual Administrative Assistance in Tax Matters. Through the Convention, China will participate in global efforts to combat tax avoidance and evasion by co-operating with other states in the assessment and collection of taxes.

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Located just an hour drive north from Central Hong Kong, Shenzhen (in Guangdong Province) was the first (and most successful) “Special Economic Zone” in China.  This special status allowed western industrialization — more than US$30 billion in foreign investment has gone into both foreign-owned and joint ventures initially in manufacturing but more recently in service industries as well.  One of the fasted growing cities in the work, it is a teaming with a population of 15 million — and all of the traffic that goes with a population that expands faster than infrastructure.  Because of its proximity to the capital markets, legal system and economic stability and diversity of Hong Kong, Shenzhen is the logical first step for many foreign companies into China.  Shenzhen is home to the Shenzhen Stock Exchange, is one of the busiest container ports in China, and has the headquarters of numerous high-tech companies.  Once established in Shenzhen through a representative office, use of a contract manufacturer, or operation of a factory, moving further into mainland China is the next step.

 

300px-Shenzhen_CBDDespite being in Shenzhen for less than 24 hours, I met both with colleagues at HLB Wu Zhou Song De and with a client.   I saw two offices and toured my client’s R&D and Quality Control operations.  One cultural business difference I learned was of “rest time” over the lunch break.  Chinese workers are given about half an hour to rest after lunch.  In one office, this meant turning off the overhead fluorescent lights and literally putting your head on your desk to relax.  In another office, space was found for ping-pong tables, and office-wide tournaments are held daily.

 

HLB Wu Zhou Song De in Shenzhen has worked with over 35 Chinese publicly traded companies.  The firm has experienced tremendous growth over the past few years — what in China hasn’t?

 

To my eyes, Shenzhen had all of the energy of Hong Kong, without the upscale retail shops and overly expensive hotel rooms.

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In Shandong province, I had the opportunity to visit the provincial town of Jinan — a town of 8 million.  Jinan is known for its springs — underwater aquifers feed 72 named artesian karst springs at a public park in the middle of downtown Jinan called Baotu Quan Gong Yuan.  The most famous of these springs is the 3,500 year old Baotu Spring.  The park is also the ancestral home of one of Shandong’s most beloved poets, Li Qingzhao (1084 – 1151).  Her life story is presented through life-size dioramas in the rooms in her home.  The waters of the Jinan springs are said to be “softer and sweeter” and contain health-affirming properties.

 

While in Jinan, I spent an afternoon meeting with HLB colleagues at HLB Baicheng, a large tax consulting firm with offices in both Jinan and Shanghai.  In addition to learning about Baicheng’s practice and preparing for a conference the next day, we were treated to a “Chinese Banquet.”  I was honored to be received by the head of Shangdong ‘s institute of certified public accountants as well as two members of the international division of the Chinese Tax Authority.  The evening began with toasts (4 by the host, 3 by the co-host, 2 by the protégés of the hosts and then 1 by each of the guests).  The meal included all measure of Chinese delicacies — seafood soup with sea cucumber, eel, chicken (including the head, comb and feet).  How lucky was I to sit next to the host and not have to chose what to eat, but to merely eat what was put on my plate by my host?

 

The next day, my fellow HLB International Tax Committee members and I presented at the Annual Shangdong Tax Conference, co-sponsored by the Shandong institute of certified public accountants and HLB Baicheng.  We presented an overview of the tax systems of the US, Germany and the Netherlands to almost 600 delegates (shown below).   For the first time, I had to work with a simultaneous translator — our presentations were in both English and Chinese, and our translators were excellent.  After one afternoon, they were able to handle complex tax concepts in both English and Chinese.

 

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When I was in Beijing in early September, the European Union announced a trade investigation against China for selling Solar Panels for less than the cost of manufacture.  While the EU continues to seek to determine if in fact China “dumped” solar panels, the news reports (on the one English-speaking channel on the hotel TV) spent over 40 minutes discussing the negative impact on the already-slowing solar panel industry should the EU claims be true.

About 10 days later, the US decided to file a trade complaint with the World Trade Organization over China’s subsidized auto and auto parts exports.  However, the Chinese attacked first by filing a complaint with the WTO over unfair duties the US has enacted on 30 different imports from China, including steel, paper and kitchen appliances.  These accusations of subsidizing manufacturing and dumping export products is all part of tit-for-tat disputes which has been ratcheting up in recent years over the Chinese attitude which fails to protect US intellectual property.   Despite a win in the Chinese courts by Ford Motor Company during the Summer of 2012, it is routine for the Chinese manufacturers to copy American-made goods, especially films and videos.

 

Then, at the end of September, headlines announced what was predicted and almost visible while I was in China — Chinese economic growth slowed for the 11th straight month.  Granted, the economy is still growing (at what from a US perspective is) a health rate of 8.9% (as of August 2012), but is substantially down from a year earlier when the growth rate was 13.5%.

 

The slowing of manufacturing and economic growth in China will have implications far beyond the Chinese borders.  Chinese growth requires inputs of commodities from around the world — countries like Brazil, Australia, South Africa, Russia, Venezuela and even the US are exporters of raw materials to China.  At an anticipated Chinese growth rate of 6 to 7%, countries and companies around the world will need to adapt to a “new normal” (and lower) level of raw material exports to China.

 

It used to be said that when the US sneezes, the world catches a cold.  The Chinese appear to be getting a bug which is giving the world influenza.

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When I was in grade school, I had a social studies project researching (albeit in encyclopedia NOT on the internet) a country and presenting it to the class.  I chose Hong Kong and all these years later, all I remember is that the old airport was right on the water in the middle of the city and it was the place on earth with the highest population density.

Hong Kong has been long used by multinational companies as a regional base to manage their businesses in the Asia Pacific, particularly in the Chinese mainland.  Based on a government survey in Hong Kong in June 2009, there were 3,580 regional operations of overseas companies in Hong Kong, an increase of 44% from the previous decade. Of these regional operations, 83% have operations related to mainland China. Nowadays, Hong Kong also provides an international gateway for mainland companies wishing to explore financing opportunities, within or outside Asia.

There are many reasons for this success, but probably the main reasons are as follows:

  • A stable government dedicated to the encouragement of free enterprise and opposed to regulation or intervention unless deemed absolutely essential.
  • A respected, independent, legal system based on transparent Anglo-Saxon principles.
  • A free press that is widely-owned, independent, and vocal.
  • A good blend of entrepreneurial skills and a stable, talented, adaptable and hard-working labor force.
  • A complete absence of foreign exchange controls and only minor import duties on a small number of items.
  • Very low levels of taxation by international non-tax haven standards.
  • No restrictions on foreign investment.
  • Superb communications and banking facilities.
  • A location at the geographical center of Asia.
  • The willingness of its businesses to diversify according to international market demands and react quickly to changing trends.
  • The complete range of high quality professional services.

Hong Kong is more than just Hong Kong Island and Kowloon.  It is a series of XX islands and since July 1, 1997 is a “Special Administrative Region” within China.  Having only a morning to “see” Hong Kong, I got only the highlights — beginning with Victoria Peak.  The morning was somewhat overcast, so the pictures are hazy and not the brilliant sun and sparkling harbor as in the postcards.

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Eight days, three office visits and two tax conferences.  I met tax professionals from all over Asia and the Pacific Rim, and delivered a National Geographic Map of the World — that world that got quite a bit smaller over those 8 days in Asia– to colleagues who are now a lot more than an e-mail address or a name in a directory.

Gift giving is an essential part of business in China. You should obey the rules to make certain you don’t offend. The value of a gift can be tricky business — a lavish present could cause embarrassment.  Also, don’t give sets of four, because the number is considered unlucky.  Senior people must always be given gifts that are perceived to have a higher value than those given to junior staffers.  Offer gifts, one at a time, to recipients with both hands, but don’t expect them to be opened in your presence.

Avoid overtly extravagant gifts that could embarrass or negatively affect your business dealings.  Specifically, skip gifts known to be associated with death, like clocks, knives and scissors.  At first blush, a fine writing instrument may seem an ideal present, but if it contains red ink, you’ll offend the person you’re trying to win over.  Presents must be gift-wrapped when presented to business associates in China, and the color of the wrap is another deal breaker.  Red is a lucky color.  Avoid black, white and blue paper, as these colors are also associated with death.

Before the HLB International Tax Committee departed on our recently completed China Tour, we had lengthy discussions as to what gift to present at these meetings — something big enough to be meaningful, but not overly large or ostentatious.  I have to say, we made a very good choice and the pictures below turned out quite nicely. . .

 

 

1.         HLB Candor, Taiwan.  Presented to Rex Lai at the 2012 HLB Asia/Pacific Rim Regional Conference

 

 

 

 

 

 

 

 

 

2.         HLB Hodgson Impey Cheng.  Presented to Raymond Cheng and Jonathan Lai in Hong Kong.

 

 

 

 

 

 

 

 

 

3.         HLB World Sound (Wu Zhou Song De.  Presented to Jessie Jessica and Linda in Shenzhen, China

 

 

 

 

 

 

 

 

 

4.         HLB Baicheng Tax Consulting Service.  Presented to Ziyong Zhu and Ada Gau in Jinan, China.

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