India China Economic and Cultural Council – ICEC Council - would primarily function in the two complimentary areas of Business Facilitation and Research. ICEC’s major area of work encompasses strategic business research and services through :

Assisting and providing strategic information to promote any business in these markets.

Facilitating businessmen and corporate executives in business development in these markets.

For further enquiries, details and information, please contact us at :
response@icec-council.org

The Chinese government actively encourages foreign investment as part of its overall development and growth strategy. Restrictions apply to some industries and sectors, including permissible ownership, management structures, and shareholdings. The investment laws and regulations are applied to all foreign investment enterprises, however, varieties of different investment zones in China, such as Special Economic Zones and Economic and Technological Development Zones have various preferential policies. Most zones offer tax incentives together with other additional local benefits dependent on the industries investment attractiveness to the local area. There is a wide range of constantly changing incentives offered by the Chinese governments (at various levels) designed to attract foreign capital and technology to their particular areas or regions.

Special preferences are granted to the following foreign investment enterprises:

1. production enterprises whose products are mainly for export
2. production enterprises possessing advanced technology supplied by foreign investors
3. investment in the central and western regions

Detailed rules of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) apply for the approval and control of resident representative offices of foreign enterprises in China. These rules should be examined closely in considering the setting up of a local office. There are four options available when setting up a local office:

The Representative Office is the quickest, easiest and least costly way to establish a legal presence in China and is the most common form of foreign presence in China. A Representative office allows an international company to establish a legal presence in China, to rent office space and to hire local staff. Foreign staff are entitled to work, hold a resident permit, and can obtain multiple entry visas. A representative office can be used for marketing products and services, monitoring trading, sourcing and negotiating issues between the foreign parent and Chinese manufacturers, and acting as a general facilitation office. Companies can also use the representative office as a quasi 'sales office', however, it is restricted in trading activities and are not allowed to receive money directly for goods or services.

An EJV is a company with limited liability established between a Chinese company and a foreign company or individual. An equity joint venture is an independent Chinese legal person. The Chinese Foreign Investment Regulations frequently restrict the level of foreign ownership and management control in EJVs. The registered capital of both parties, may be contributed or subscribed in cash, in kind or in other approved forms such as Intellectual or Industrial Property Rights.

A CJV company may be in the form of a limited liability company, or it may be an unincorporated joint venture. The capital contribution may be made in cash, kind, land use rights, industrial property, non-patented technology or any other approved form of property rights. While popular when Foreign Direct Investment (FDI) was in its infancy in China, this form of investment is now the least significant of all forms.

A WOFE is a business enterprise with Chinese legal person status where the registered capital and management is totally contributed by foreign investors. These companies are usually required to use advanced technology and equipment or export all or most of their products, but this is not always the case. This form of FDI in China is increasingly popular with foreign investors because of the freedoms it gives owners.

China has an official corporate tax rate of 33 per cent. However, there are various tax exemptions offered as part of the investment attraction. Withholding tax of 20 per cent applies to profits, interest, rent, royalties, capital gains or other income derived in China by a foreign enterprise. Again, exemptions for some businesses, eg. high-technology ventures, are available.

After considerable neglect during the central planning period, China is now devoting considerable effort to rectifying shortcomings in its infrastructure. The transport infrastructure in China is gradually improving, particularly port development and capacity, and road and rail networks. But in some areas it is still a problem. Telecommunications is one of China's most rapidly expanding sectors attracting considerable public investment. It is also one of the more lucrative investments, providing high returns to local governments. Telephone diffusion has increased dramatically year by year. Mobile phones are popular, and usage is increasing. Data communications services are also growing rapidly. As telephone and computer diffusion grows, demand for electronic communications is expected to expand exponentially.

The State Administration of Taxation and The Ministry of Finance are responsible for developing China's tax legislation and policy. China's taxes are divided into central government taxes, local government taxes and taxes shared between the central and local governments. Central taxes are those needed for protecting national interests and undertaking macroeconomic regulation. Local taxes are those that are suitable for collection by local governments. Shared taxes are those directly related to economic development. State tax agencies and local tax agencies are established separately. State taxes and shared taxes are collected by the state tax agencies. Local taxes are collected by the local tax agencies.

1. Tobacco at 30-45 per cent.
2. Alcoholic beverages at 5-25 per cent (some flat rates based on volume - yellow spirits at 240 yuan per tonne, beer at 220 yuan per tonne and other alcoholic drinks at rates of up to 25 per cent).
3. Cosmetics, skin, hair care products at 17-30 per cent.
4. Jewellery at 10 per cent.
5. Passenger vehicles at 3-8 per cent.
As of January 1995, imported consumer items, including furniture, televisions, air conditioners, pagers, personal computers and refrigerators, have been subject to luxury taxes.

The Ministry of Finance sets macroeconomic policy and governing the financial sector.
People's Bank of China has a more direct supervisory role over the financial sector.
China Securities Regulatory Commission is responsible for capital markets.
China Insurance Regulatory Commission is responsible for supervising and developing the insurance industry.
China has the 'Big Four' state-owned commercial banks and a few small commercial and private banks. Foreign banks are permitted to form joint venture banks or finance companies under China's regulations. China's trust and investment corporations are the non-bank financial institutions. The 1998 bankruptcy of Guangdong GITIC has sparked a wave of alarm among foreign bankers with significant exposure in this sector.

China is a complex and difficult market, but Indian companies can consider several possible options for entry:

Direct import via local agents or distributors.
Local investment - joint-venture, partnership or wholly owned.
Manufacturing localisation, including technology transfer.
Development of a strong in-market presence is important to support market development, particularly where products and technologies require service support.
For supply to large projects, local governments sometimes require the establishment of a local presence.
The Chinese design institutes often play a critical role in the approval, recommendation and assessment of new products for infrastructure projects.
Local agents or distributors are the most popular way for imported products to be distributed and marketed in China. The number of companies registered to import products is controlled in China. However, local agents or distributors who do not have import licences can import through an import/export trading company.

As China is a geographically vast country with varying levels of economic development in different parts of the country, it is not recommended to have a single distributor. Multiple distributors and agents with geographically exclusive areas are more effective. China is also very diverse. The establishment of an initial presence in a major urban centre is recommended. Other areas within China can then be 'rolled out' from this entry point. When marketing your products or services it is important to:

Visit China regularly - this is critical.
Provide promotional, technical and service support to distributors and customers.
Host commercial and technical seminars for potential customers, associations and local authorities.
Participate in industry specific trade shows.

There are about 600 tradeshows every year in China and these can be useful information gathering and market entry events.

With the rapid growth of Internet use and penetration in China, particularly in major urban centres, e-commerce is seen to offer considerable potential in China. E-commerce turnover in mainland China increased by 400 per cent in 2000, from about US$8 million to more than US$40 million. Numerous government organisations and companies in China have established their own websites. There are also a number of B2B sites set up by industry associations and professional dot.com companies for electronic business. The majority of these sites are only in Chinese language. While these sites provide a platform for business information exchange, physical transactions are primarily undertaken offline due to China's undeveloped online payment system, and difficulties establishing the business credentials of some companies in China.

A number of cultural and technical constraints in China have led to the development of innovative solutions to further develop online business in China. One example is the major Chinese computer manufacturer, Legend Computers, which plans to produce modified TV sets and use satellites as Internet access devices.

China faces unique and daunting challenges in establishing effective transportation and distribution systems. Its four main transport modes are rail, road, water and air. Transportation and distribution throughout China is still largely undertaken in a low-tech manner. China is geographically vast, over-populated, and plagued by regional linguistic differences, underdeveloped infrastructure and complicated government controls over foreign participation.

A number of freight forwarders and logistics providers can provide value-added freight-forwarding services for companies shipping goods into and out of China. Warehouse space is widely available at low cost but quality is generally poor, with the exception of small warehouses owned by Hong Kong businesses or those operated by foreign manufacturers or third party logistics providers.

The choice of partner is critically important to business success in China. The most important aspect of business partnerships with Chinese companies and organisations is a thorough understanding of their business objectives and that these objectives are matched to those of your company. It is vital that these mutual objectives be understood, agreed and monitored in an ongoing manner. Ideally, your Chinese partner should be in a position to provide a range of possible inputs to the business partnership: