"GONG XI FA CAI"

February 9th, 2005 marked the beginning of the year of the Rooster (9.2.2005 - 28.1.2006).

With this talented and confident sign guiding the year of 2005, the forecast is for a year of restoration of order and spirit of solidarity between individuals.  Roosters are extrovert, intelligent, dramatic, reputable, hardworking, resourceful, popular sociality, outspoken and take good care of their family and money.

This year, old traditions will return and social life will improve.  Love will be favoured; we will be open to and desirous of encounters.  Hard work, perseverance and support will be the keys to career success.  Finances maybe problematic; we must control our lifestyles and save money.  Yet we will have opportunities to make fruitful investments.  We should take heed of details and seek advice from competent specialists.

This year will bring us some difficulties but will also offer great opportunities in several fields.  It will be a decisive year in a positive sense and we will be favoured in any quest for happiness.

If you would like to know your individual fortune in the year of the Rooster, please come and visit
www.fiducia-china.com/Information/Tips/

May the year of the Rooster bring you success, good health and happiness!

Whatever your Chinese Horoscope is...
Fiducia Management Consultants is happy to help
your China business and investments flourish!

The Fiducia Management Consultants Team
Beijing ● Hong Kong ● Shanghai ● Shenzhen 

Last Year, the Chinese Ministry of Commerce (MOFCOM) introduced new rules marking a significant liberalisation of China’s trade sector. They also signify far-reaching changes and thus new opportunities for foreign-invested companies in China. Foreign enterprises have been allowed to set up majority joint-venture trading companies since June 2004, and wholly foreign owned trading companies (WFOEs) since 11 December 2004. Of particular note are the low entry thresholds, the opening up of the distribution sector and the permission given to medium-sized companies.

In line with the new rules there are two options for foreign-invested companies that want to start import and export trading businesses:
 Extending the business scope of an existing entity;
 Setting up a new trading WFOE

Currently, there are difficulties with the first option as the authorities hesitate to deal with the tax issues arising from the different treatment of manufacturing and trading activities. They have not yet found an appropriate tax ruling for WFOEs active in foreign and domestic trade and manufacturing. 1

The application of the new regulations for the setting up a new trading WFOEs is clearer, meaning this option is the more likely to be accepted by the authorities. Most business needs the approval of both the provincial and state administration level.2 It has been reported that a handful of trading WFOEs have already been approved at the provincial level; none has yet been approved at the state administration level. According to our information, MOFCOM has loosely specified a four-month approval process, which includes one month of approval at the provincial level and three months at the state level. Taking Chinese New Year and administrative delays into account, it is expected that the first approvals will not be issued before June.

Problems in connection with applications for trading WFOEs have also been reported:
 Some regulations can be interpreted broadly. As a result, the provinces are still unsure about the appropriate taxation of companies. The recent adjustments of the VAT laws have led to different taxation of small- and medium-sized companies on the one hand and bigger companies on the other. This is an important, unresolved issue.
 Provinces refuse to approve companies that produce goods in China, and then export them. They do not want to refund VAT on raw material sourced from another province.

Due to the dissension between the Ministry of Finance and MOFCOM about issues like taxation the situation is uncertain. The first approvals are expected in June, but the approval process may slow down or stop, leading to further delays.

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1 Manufacturing companies enjoy a 100% tax exemption for the first two years of positive net profit. For the following three years they have to pay only 50% of the applicable tax rate. Trading companies do not enjoy such a preferential treatment.

2 There are only few exemptions e.g. small retail projects, trademarks/ business names owned by Chinese JV partner or a Chinese investor with controlling shares.

Many Controllers and Financial Managers of Foreign Invested Enterprises in China face the problem of slow or no-pay clients in China. Receivables exceeding their terms of payment by 180 days or more account for a large part of annual earnings. So what does one do if one has the thankless job of recovering receivables from clients? Does one sue them? Or are there other methods in China one simply has not considered yet?

There can be many reasons for large amounts of receivables exceeding their payment terms. First, there is a general lack of credit- and sales-control systems in many China operations. This often stems from negligent management, who do not apply proper care or thorough procedure. Often, payment terms are automatically extended from 30 to 60 to 180 days or more because "it just takes a little bit longer in China".

This general lack of control often opens the floodgates to fraudulent or unethical behavior: in some cases one might be dealing with single employees providing their in-laws' companies with contracts with preferable payment terms; in others one may have employees pocketing the money. There are a growing number of cases of employees systematically building complex structures of intermediaries to defraud their companies. These are cases that can really hurt the company and jeopardize the success of the entire China operation.

So what are the options of collecting receivables in China? A standard method that can also be used in China is a letter of warning by a law firm. Using this method should be considered carefully, though, because it might have negative consequences and adversely affect your chances of collecting the debt in question. Statements made in such letters, or their wording, can be used against you in court. In addition, a warning letter usually lowers your leverage in finding an arbitrational solution to the problem.

Civil proceedings do not usually have an impact on Chinese entrepreneurs, who may even claim that one is trying to intimidate them. This can put the claimant in a defensive position and endanger the chances of collecting receivables.

One method that should be considered when others look unlikely to succeed is the political or arbitrational process. Use all diplomatic resources to influence the outcome to advantage. Try to find out the intention of the parties involved and ask what concessions one is willing to make in order to recover at least part of the debt. Sometimes, presenting your case to government officials can help, as can diplomatic intervention.

All in all, there are many variables influencing which method will be successful. Different approaches can be appropriate, depending on one’s relationship with the customer, the intentions of those involved, the size of the receivable and the kind of underlying transaction. Sometimes a good mixture of methods will help one recover money. But regardless of what the stakes are, one must think strategically and be patient.  Last but not least, implementing control procedures and setting up an efficient system are critical success factors. Here are some suggestions: reduce the margin for corruption and misconduct by keeping a tight grip on the balances and cash flows. Advise Sales Managers that their job does not end with a signed sales contract, but that it also includes collecting the money. Make them responsible for receivables that exceed payment terms by introducing incentive systems that tie salaries or bonuses to actual cash-flow measures. Introduce credit ratings for clients that result in different payment terms.

The national TV station, CCTV recently conducted a poll to viewers the opportunity to vote for China’s most popular manager. 25 million people participated and the result is impressive. Mr. Li Jinhua, Head of National Audit Office scored as number one!

Source: China Press Reports

Following upon our travelling tips in the December issue, herewith a report is written by our colleague, Mr. Markus Hammelsburger.

Yangshuo - a backpackers’ paradise and long famous among Chinese and foreigners for its spectacular scenery.  Everything revolves around West Street, which is famous among backpackers and knowledgeable travellers all over China who use the town as a regular retreat from urban China. Once settled in, you cannot help noticing the laid-back atmosphere of the town or the friendliness of its inhabitants.  At about noon, if you walk to the little Yangshuo port, you will see an armada of boats from Guilin unloading tourists into the city and instantly tripling prices for local food and merchandise, as well as turning the town into a bustling bazaar.  To explore the landscape, this is the best done by bicycle with one of the local guides.  Another hot place is Moon Hill, which allows spectacular views over the landscape. From there, in the afternoon, you can rent a bamboo raft and float down a tributary of the Li River, and swim in the clean water. Another attraction is the Buddha Water Caves, through it you can hike under the hills.  A boat ride up Li River is popular that you can see water buffalo swimming, and sometimes farmers fishing using trained cormorants. The  nearby village of Fuli is the other one: a snapshot of an unchanged China of centuries ago. Huge, hand-painted fans are the specialties of the area.

Yangshuo-Kunming - about 1,000km west, to Kunming, in Yunnan province.  The building of the railway track between Guilin and Kunming was one of the most expensive infrastructure projects undertaken in modern Chinese history.  Taking the train from Guilin to Kunming lets the passenger see a plethora of landscapes, giving him a glimpse of the greatness of the country’s natural gifts.  Kunming is a large industrial city that at first sight resembles many others in the region. To see its real beauty, look closer. Known in China as the “City of Eternal Spring”, Kunming has a troubled history of conflict involving Westerners, Muslims and Han Chinese, whose influence is still visible everywhere, especially in architecture and local cuisine.  Although much of the old city has succumbed to the wrecking ball, there are still some alleys and sights worth exploring, such as the Tang Dynasty pagodas, Green Lake Park and several of the mosques. Try some of the culinary specialties such as qiguoji (herb-infused chicken cooked in an earthenware steam pot) or noodles served in a meat broth with chili sauce.

Dali - another highlight is the ancient town of Dali. It lies about 300km west of Kunming.  Dali, like Yangshuo, is a perfect place to tune out for a while, take a stroll through the beautifully restored old part of the city and enjoy a cappuccino, a Chinese tea or a pizza in one of the small cafeterias. The old Dali is a miniature city with restored gates, buildings and cobbled streets that can easily be explored on foot. A walk from the south gate to the north gate takes about half an hour, and the city walls allow excellent views. Although there are a few points of interest spread around town, as well as some pagodas in the area to visit, the real attraction of Dali is the town itself. If you are looking for a gift or a souvenir, you might consider the tablecloths traditionally handcrafted in the region.

Lijiang - north of Dali, bordering Tibet, Lijiang is the last but certainly not the least interesting place on our agenda. Travelling from Dali to Lijiang by minibus, you pass through beautiful valleys and over high mountain ridges – usually with a cage of agitated chickens or other animals tied to the roof of your vehicle.  Lijiang is home to the Naxi (or Nakhi) minority, a matriarchal society descending from ethnic Tibetan tribes. Walking around the old part of Lijiang, it is obvious the Naxi women still run the show, maintaining their hold over men with flexible arrangements for affairs. They can be identified by their blue blouses and trousers covered by blue and black aprons and T-shaped capes.  Make sure you don't miss Naxi architecture, the Naxi orchestra at the Naxi Music Academy. Performances are held in a beautiful old building; the Naxi and Taoist temple music played disappeared elsewhere in China during the Cultural Revolution and the local specialty, by the way, is over-the-bridge-noodles.  By far the most popular and stunning sight is Tiger Leaping Gorge.