2016 Insights from our Offices
Beijing’s New Rules: Opportunity or Challenge?
2016 was an eventful year in terms of regulatory change. For our clients active in industries deeply influenced by government policy– such as the automotive, power, construction, communications, and healthcare sectors – the impact of Beijing’s decisions is never straightforward.
On the one hand, new regulations often create new opportunities. The government’s renewed push for ambitious infrastructure plans in 2016, for instance, brought fresh optimism into construction-related sectors. But the prospect of higher demand has been dampened by restrictive regulations and challenging tender procedures.
Government policy regarding the healthcare sector has been equally bittersweet. China’s public and private healthcare sectors have grown, and transparency in the healthcare system has improved, thanks to Beijing’s policies. But CFDA regulations and reforms such as the “Two Invoices System” have and will pose market access and distribution challenges for foreign players in the pharma, medical consumables, and medtech sectors.
As Stefan Kracht explains, “One lesson that foreign firms learn quickly after setting root in China is this: the biggest challenge is not that the rules of the game here are different; it’s that they never stop changing.”
That is why corporations large and small, new to China or firmly established, continuously rely on advice and support grounded in our nearly 35 years of experience.
Insights from Shenzhen
The Pearl River Delta Kept its Lustre
In 2016, we saw a clear surge in the number of foreign companies wanting to set up in southern cities on the Pearl River Delta.
High-end manufacturing and sourcing companies that would have previously considered setting up in Shanghai were increasingly put off by higher labour and property costs, and lured by the strategic benefits of southern Chinese cities that have moved up the value chain.
Although Shenzhen and Dongguan have also become costlier, both cities offer a convenient proximity to Hong Kong, easy re-exporting, large pools of qualified talent, and beneficial ripple effects from being close to innovators and high-tech giants. Our Shenzhen team helped a record number of companies to set up in the area and make the most out of its many opportunities.
With 40 percent of Shenzhen’s GDP already generated by innovative industries such as biotech and new energy, and given the region’s strong shift towards automation and increased productivity, we believe the Pearl River Delta will continue to attract high-end manufacturing and sourcing companies, keeping its lustre despite rising labour and property costs.
To know whether setting up in this region would be suitable for your business, email us firstname.lastname@example.org. Our China Consulting team helps large and medium-sized foreign corporations find strategic locations for their China operations, while our Corporate Servicesconsultants take care of all the practical aspects of a company set-up – from the preparation of all required documentation to liaison with authorities – to ensure a smooth process.
Insights from Shanghai
2016 Saw China’s Biggest Tax Reform in 20 Years
As of May 1st, 2016, China introduced two big changes to its tax system. In the services sector, it replaced its revenue-based Business Tax (BT) system with a modern Value Added Tax (VAT) system. And in the manufacturing sector, where a VAT structure was already in place, it introduced tax incentives to promote research and development (R&D).
The reforms were widely welcomed: they solved inefficiencies in the previous tax system, eased corporate payments, and reflected the government’s push for innovation and a more service-based economy.
Nevertheless, businesses had to deal with significant adjustments. From our four offices, we helped our clients prepare and adapt smoothly to the changes. Our Shanghai team organised a record number of tax seminars – nine in one year – and grew the reach of its tax advisory services to help national and international corporations adapt successfully. Our Tax Advisory team also supported customers to either reach or retain their high and new technology enterprise (HNTE) status, allowing them to benefit from the government’s R&D tax incentives.