China: It’s not about money – it’s license plates!

Take a top German lawyer who’s been practising for many years with an award-winning international Foreign Direct Investment consultancy in China and you get a unique and valuable take on the wherewithal of doing business in China from an international perspective.  Richard Hoffmann of Dezan Shira in Beijing enlightens Scott Arnell of GenevaRoadShow.TV to such insights as to how money is less of a barrier to buying a car in Beijing than the lottery of securing a license plate.

On the main issue of bringing money in for private investment in China, Richard illustrates the distinction between MOFCOM and SAFE, explains the importance of the government’s five year plans and most crucially, that if you don’t bring the money in according to their rules then the chances are you’ll never get it back.

According to Richard, the Chinese consumer base is underestimated and in Beijing, they are more interested in acquiring their next Apple product than concerned about unemployment.  If you need more information on the business climate in China, contact Richard or Scott through the contact form beside the video window.

Video Transcript:

Scott Arnell and Richard Hoffmann of Dezan Shira

Beijing, China – March 2012

RH:  The Chinese consumer base is still underestimated.  Younger people can afford Gucci, Bulova, you know, you name it, China is still the place to be.  From the people in the street, if you talk with them, they have, pretty much, the feeling that China is, a bit, saving the world.

RSA:  Your watch, is it real?

This is Scott Arnell, GenevaRoadshow.TV.  We’re popping back into Beijing to talk with Richard Hoffmann, working for Dezan Shira.  We’re going to get a few perspectives, and hopefully a few pointers, on how to avoid some pitfalls, tax-wise and legal-wise.  Let’s go.

RH:  I’m a lawyer so I’m working here in China with Dezan Shira.  We help foreign companies who want to set up a business in China, or to optimise their tax efficiency or to do their payroll or accounting.

RSA:   Top 3 issues to keep in mind when bringing your money in for private investment in China?

RH:  So, first of all, make sure that what you do is make it correct and be in compliance with the laws and regulations.  Don’t bring money in under not-legal ways – just under practical way – it’s very risky, you might lose it all.  We had a lot of cases where money like this is just lost and you cannot claim it back, because there’s no legal way you brought it in so there’s no legal way to get it back.  So first of all make sure that what you do is make it correct and be in compliance with laws and regulations.  Secondly, I would say that before you make the investment, you know, you write down in your business plan, in your articles or wherever, you write down an exit strategy, a liquidation strategy.   However, you write it down and you get a approval for that as well when you bring out the money you’ve got that approval in the beginning already when you’ve just brought it in.

RSA:  From SAFE? Is that who you’re talking about when you say ‘the authorities’?

RH:  Well they’re different.  It wouldn’t be in this case, it wouldn’t be the SAFE, that is involved, you know, this case, would be the MOFCOM, the AIC, because this is related to the company setup.  However these are the authorities that also make a lot of problems when you liquidate.

RSA:   And MOFCOM is?

RH:  Ministry of Commerce

RSA:  And SAFE is the?

RH:  The State Administration of Foreign Exchange.

RSA:  In a pre-approval to exit.  Practically, does that work?

RH:  Yes. In our, we, being here since 20 years, in our experience it’s worked.  It’s not perfect, nothing is perfect, right?  But it’s smoothened the exit, it’s smoothened the outflow of money.  I think the third thing, is that you have to, you have to look at the policy of the Chinese government.  The Chinese government is writing every year five years down the five year plan.  This is like a business plan of the government that lines down the strategies for the next five years.  So read that business plan and make your strategy accordingly.

RSA:  Tell me about the man on the street, the view from within China..

RH:  For me to understand China I like to talk to the man on the street.  Now that could be the taxi driver or it could be the man collecting the rubbish I don’t mind, you know, just chatting with them or the cleaning lady you know or whoever is there.  They’re never concerned about unemployment.  But there are issues like for example they want to buy new Apple products, you know everyone is having iPhones and iPads.. or cars.  It’s funny for me that one of the major problems in Beijing when I’m talking to people, is that they cannot buy a car in Beijing.  It’s not because they don’t have the money for buying the car, it’s because of the licence plate.  The licence plate in Beijing is restricted; you have to go through a lottery kind of thing to win the licence plate, and you have to wait maybe a year or so to get the licence plate, so somehow, they all have money.

RSA:  What does it mean?

RH:  What I believe is the Chinese consumer base is still underestimated.  So there’s a lot of, Chinese people like to spend money now.  Maybe the generations have saved for them, we also have the one child policy that six adults putting money into one kid, you know.  Then we have the real estate market that went up a lot.  So if you had a look at real estate somewhere in the downtown area you might be suddenly very very rich, you know, and this is the reason that a lot of younger people can afford a lot of very expensive products, like, for example, cars or Apple products or other products – lifestyle products. Gucci, Bulova, you know, you name it.

RSA:  The view from within China of outside of China.

RH:  We’re talking I think on two levels. If you look at the official, like the public level that you’re reading in the newspapers, that you can see on the TV then I think China is trying to look very carefully where, what is happening in Europe and America these days.  On a more like, again from the people on the street if you talk with them, they have pretty much the feeling that – well I heard – that China is a bit, saving the world, right? You know, they have money, they can go into different European countries, into America, and help these a bit struggling economies to, yeah, to be more sustainable in the future.  I’m German so they always say to me, talk to me about Germany, they say Germany’s doing quite well but Europe is suffering but we’re Chinese, we help you.

So, last weekend I went skiing, with a lot of Chinese I went to a skiing competition.

RSA:  Where?

RH:  Close to Beijing.  In Wanlong, right?  So it was a competition and we are all racing and..

RSA:  You mean you competed?

RH:  I competed as well, yeah.

RSA:  Oh.  And did you win?

RH:  Unfortunately not, no.

RSA:  So what does that say when a German can’t win a skiing competition in China!?

OK that’s it and all for today.  Send us all your comments, we read them all.  Like us on Facebook, follow us on Twitter, link up to our LinkedIn group.  I’m Scott Arnell from GenevaRoadShow.TV and remember if it’s on the internet, if it’s on the internet, if it’s on the internet, it’s gotta be true.