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CHINA: "China announces details for super deduction of research and development expenses"

CHINA: "China announces details for super deduction of research and development expenses". 6-page article by Ernst & Young.

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back to index backCHINAtalk August,  2005

The Five Biggest Myths About Doing Business in China

Myth: China Will Be The Next Economic Super Power

Reality: Certainly the potential exists, but the jury is still out on whether China's economy can ever reach super power” status alongside the United States. There's no question that China--and its 1.3 billion people--have made great strides towards modernization in the past decade, but it is still decades away from entering the developed world.

China's GDP is today about $1.3 trillion and growing at eight percent per year. That puts China on par with the United Kingdom--and we don't think of the U.K. as an economic super power. At eight percent a year growth, China won't catch Japan until 2015 or the U.S. until 2040.

America's economy is the strongest, most competitive and innovative on the face of the earth. The predictions of America's decline were prevalent in the 1980s, but then Japan fizzled out. Attempts by Europe to unify remain mired in problems. China is still decades away from super power status, and by the time it starts to get there it each employed worker will be supporting six retired people, namely two parents and four grandparents.  

Myth: China's Economy is State-run.

Reality: China's benign-form of Communism has been getting out of the way since the early 1990s. Government realizes it is not good at the business of generating revenue and returns. As a result, many state-run businesses were closed or turned over to entrepreneurs. Government is better at capturing taxes, which have increased from 11 to 17 percent of GDP over the last two years.

The government still retains control of natural assets that impact growth or defense of the nation. That includes utilities, telecommunications and defense.

Myth: It's Difficult for Foreigners to make Money in China.

Reality: It's different, not difficult. Foreign companies that do their homework, recognize cultural differences and are nimble, will do well in China. Net income of U.S. companies doing business in China rose from $1 billion in 1990 to $6 billion in 2002.

General Motors' Chinese operations have been one of the company's few bright spots, accounting for one-quarter of its profits last year. GM's venture with Shanghai Automotive sold nearly 500,000 vehicles last year, an increase of 27 percent from 2003. Today, more Buicks are sold in China than the U.S. Today Gm is the number one seller in the China market ahead of VW.

Myth: Only Fortune 500 Companies can Afford to Penetrate the Chinese Market.

Reality: Small businesses with specialty products or services have been very successful in China. Small business owners tend to be more engaged, hands-on, flexible and patient since they don't have directors and shareholders to please each quarter.

Everybody--big and small--should approach China in a crawl, walk, run” manner because the learning curve is so steep. Start off small and simple to create a core competency that becomes the foundation within the business. Then build on that foundation.

The country is littered with examples of foreign companies that threw money at China before developing a strategy or understanding the cultural differences between East and West.

Myth: You're Required to Form a Joint Venture in order to do Business in China.

Reality: Once true, but today joint ventures are no longer required for most industries. Many Chinese underestimated how sophisticated and established their Western partners were and did not possess the requisite knowledge and business skills. They also failed to leverage their relationships into contracts within the Chinese market.

More and more U.S. companies are establishing wholly foreign owned enterprises (WFOEs) to avoid the headaches of a non performing Chinese partner.

Source: Pacific Rim Alliance - GAI

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