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The Business Environment in China

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Natty Koo

on 19 September 2012

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Transcript of The Business Environment in China

Ministry of Environmental Protection Laws Policies Regulations Envl Standards and Monitoring Pollution Discharge and levying Environmental Enforcement Environmental Protection Law of the PRC Law of the PRC on Prevention and Control of Water Pollution Procedures on the Admin of Envl Protection of Construction Project Provisions on Engineering Design of Envl Protection of Construction Projects Circular on Strengthening EIA Management of Construction Projects Financed by IFO http://english.mep.gov.cn/Policies_Regulations/laws/environmental_laws/200710/t20071009_109928.htm http://english.mep.gov.cn/Policies_Regulations/laws/environmental_laws/200710/t20071009_109915.htm Circular on the Jurisdiction to Examine and Approve the Envl Impact Statement of Construction Projects Circular on Mngt of Foreign-Invested Construction Projects Measures of the Mngt of Qualification Certificates for Construction Project EIA Prevention and Control of Water Pollution Environmental Impact Assessment http://english.mep.gov.cn/Policies_Regulations/policies/waterpollutioncontrol/ Regulations on Envl Mngt of Construction Projects http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071120_113168.htm http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071120_113169.htm http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071121_113204.htm http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071121_113205.htm http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071121_113206.htm http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071120_113154.htm http://english.mep.gov.cn/Policies_Regulations/policies/EIA1/200711/t20071121_113212.htm Regulations on the Admin of National Envl Monitoring http://english.mep.gov.cn/Policies_Regulations/regulations/Environmental_Standards_Monitoring/200711/t20071122_113260.htm http://english.mep.gov.cn/Policies_Regulations/regulations/Pollution_Discharge_Fee/ Measures on Admin Penalty for Envl Protection http://english.mep.gov.cn/Policies_Regulations/regulations/Environmental_Enforcement/200712/t20071203_113699.htm Interim Measures on Reporting Evl Pollution and Damage Accidents http://english.mep.gov.cn/Policies_Regulations/regulations/Environmental_Enforcement/200712/t20071203_113704.htm Natural Conservation and Biosafety Regulations of the PRC on Wild Plants Protection http://english.mep.gov.cn/Policies_Regulations/regulations/Natural_Conservation_Biosafety/200710/t20071009_110618.htm Regulations of the PRC on Nature Reserves http://english.mep.gov.cn/Policies_Regulations/regulations/Natural_Conservation_Biosafety/200711/t20071123_113364.htm Implementing Rules on the Law on the Prevention and Control of Water Pollution http://english.mep.gov.cn/Policies_Regulations/regulations/Water_Pollution_Control/200710/t20071017_111495.htm Provisioins on the Admin of Prevention and Control of Pollution in Protected Areas for Drinking Water Sources http://english.mep.gov.cn/Policies_Regulations/regulations/Water_Pollution_Control/200710/t20071017_111500.htm Prevention and Control of Water Pollution Measures on the Supervision of Sewage Treatment Facilities for Envl Protection http://english.mep.gov.cn/Policies_Regulations/regulations/Water_Pollution_Control/200710/t20071017_111499.htm Interim Measures on the Mngt of Water Pollutants Discharge Permit http://english.mep.gov.cn/Policies_Regulations/regulations/Water_Pollution_Control/200710/t20071017_111498.htm Discharge Standard Quality Standard Emission Standards of Pollutants from Rare Earths Industry Water Quality Standard for Fisheries Water Standards Method Standard Water Quality Guidance on Sampling Techniques Quality Standard for Ground Water http://english.mep.gov.cn/standards_reports/standards/water_environment/quality_standard/200710/t20071024_111788.htm http://english.mep.gov.cn/standards_reports/standards/water_environment/quality_standard/200710/t20071024_111790.htm Envl Quality Standard for Surface Water http://english.mep.gov.cn/standards_reports/standards/water_environment/quality_standard/200710/t20071024_111792.htm http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/201111/t20111101_219415.htm Emission Standards of Pollutants for Aluminum Industry http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/201010/t20101027_196732.htm Discharge Standard of Water Pollutants for Pulp and Paper Industry http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/200811/t20081103_130789.htm Discharge Standard of Water Pollutants for Printing Ink Industry http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/201010/t20101027_196730.htm Emission Standard for Pollutants from Coal Industry http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/200710/t20071024_111817.htm Discharge Standard of Pollutants for Municipal Wastewater Treatment Plant http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/200710/t20071024_111808.htm Integrated Wastewater Dicharge Standard http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/200710/t20071024_111803.htm Discharge Standard of Water Pollutant for Dyeing and Finishing of Textile Industry http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/200710/t20071024_111797.htm All Dicharge Standards http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/index_1.htm http://english.mep.gov.cn/standards_reports/standards/water_environment/Discharge_standard/index_1.htm Water Quality Guidance on Sampling Techniques from Lakes http://english.mep.gov.cn/standards_reports/standards/water_environment/method_standard2/200807/t20080708_125178.htm Water Quality Sampling Technical Regulation of Preservation and Handling of Samples http://english.mep.gov.cn/standards_reports/standards/water_environment/method_standard2/200807/t20080709_125365.htm Water Quality Technical Regulation on the Design of Sampling Programmes http://english.mep.gov.cn/standards_reports/standards/water_environment/method_standard2/201010/t20101027_196749.htm Technical Specifications for Envl Monitoring of Groundwater http://english.mep.gov.cn/standards_reports/standards/water_environment/method_standard2/200807/t20080707_125109.htm Technical Specifications of QAQC for Monitoring of Stationary Pollution Source http://english.mep.gov.cn/standards_reports/standards/water_environment/method_standard2/200807/t20080704_125024.htm All Method Standards http://english.mep.gov.cn/standards_reports/standards/water_environment/method_standard2/200807/t20080704_125024.htm Representative Offices Joint Ventures WFOE Conducting research
Promoting their foreign company
Coordinating their foreign company's activities in China
Other activities that do not and are not intended to generate a profit ROs may engage in the following: Chinese law limits ROs to performing 'liaison' activities

ROs cannot enter into purchase/sales contracts or bill customers

ROs cannot supply parts and after-sales services for a fee ROs are not allowed to engage in profit making activities: 'Switching' from a RO to a WFOE is not really a switch at all. Making that switch in China will involve both shutting down the RO and then forming a WFOE pretty much from scratch. Because the cost of forming a RO, shutting down the RO, and forming a WFOE, will be considerably more than just forming a WFOE, forming a RO with the later intention of forming a WFOE does not usually make sense and most companies will be better off biting the bullet and forming the WFOE right away. Discourage RO -> WFOE Some companies believe they need a China RO so their Chinese entity can sell their products into China. But oftentimes, these companies can sell their products into China without having to create any in-China footprint at all. As long as they are not going to have much need for people in China, they can get away without forming a company in China. Selling Products May Not Require a Company US company that sells US made equipment for around $2M each.
Has no plans to start manufacturing in China (no need to form WFOE)
Already has arrangements with a Chinese company to repair its equipment sold into China (no need to form WFOE)
Wants on the ground China presence to improve its sales and let its current and potential customers know that it is serious about China Sample Appropriate RO Case: D is an office for a foreign enterprise set up in China for liaison with Chinese businesses and customers on behalf of its parent company,
is not a separate legal entity.
Because forming a RO in China is faster, cheaper and easier than forming a WFOE, companies oftentimes consider forming a China RO as a way of 'putting their toes in the water' there. These companies typically intend to switch over to a WFOE once it becomes clear China will be viable for them.
Parent company is required to have been established for over 2 years Representative Office: RO applications typically go through the Administration of Industry and Commerce (AIC) though some industries (banking, insurance, legal, accounting, airline, media and others) also require an additional approval from the Chinese government agency with jurisdiction over that particular industry

All applications must be submitted by a designated/ authorized Chinese agent aka Foreign Enterprise Services Company [FESCO] in the locality where the proposed RO is to be established.

The application involves submitting fairly standard corporate documents from the foreign company, along with a copy of the lease agreement showing the RO is leasing legitimate business space in China.

MOFCOM takes ~30 days to approve a RO

RO are not permitted to hire employees directly; they must be staffed indirectly through FESCO

It is the RO's responsibility to make sure its FESCO employees have signed off on RO company policies (ex. confidentiality) and to draft the employment agreements FESCO must use with the employees. Process Some ROs are engaged in operations in a lawful or tacitly permitted way and constitute one of the direct foreign investment forms in China
The tacitly permitted way is applicable to those industries that do not require special material conditions or environment for their operations.
Ex. a consulting business does not need manufacturing equipment and raw materials. It only needs offices, employees and office articles. These physical conditions are necessary for other ROs as well.
In practice, many ROs that are established by foreign consulting companies directly engage in consulting activities. Chinese government does not prohibit them in practice and this is reflected by the fact that the tax authorities collect business tax from these ROs.
In the event that a bilateral treaty provides that certain types of ROs are permitted to engage in operational activities, these bilaterial treaties should prevail over Chinese domestic law.
As of now, only ROs of foreign airlines are allowed to engage in direct operational activities in China under bilateral treaties. No other ROs of foreign companies are so permitted. Exceptions: banks, insurance companies, accounting and law firms ROs are liable to pay corporate income tax (also VAT and BT). Because CIT for resident enterprises is levied on the taxable income, the calculation for RO's Income Tax is different than the one for WFOEs. Without an income, Chinese tax authorities will use a deemed profit rate to calculate RO's Income Tax. The deemed profit rate is based on RO's expenses that sometimes could make the maintenance of a RO more expensive than a WFOE. Tax: http://www.by-cpa.com/english/china/ro_tax.asp http://www.bstarts.com/representative-office/ http://www.chinalawblog.com/2010/10/how_to_start_a_china_business.html http://www.by-cpa.com/english/china/types.asp D a limited liability company wholly owned by the foreign investor(s)
The registered capital of WFOE should be subscribed and contributed solely by the foreign investors(s)
does not include branches established in China by foreign enterprises and other foreign economic organizations WFOE: 2. Determine if the foreign investor is an approved investor. Basically, any legally formed foreign business entity is authorized to invest in a WFOE in China. China especially welcomes investment that promotes the export of Chinese manufactured products. The investor must provide the documentation from its home country proving it is a duly formed and validly existing corporation, along with evidence showing the person from the investor who is authorized to execute documents on behalf of the investor. The investor also must provide documentation demonstrating its capital adequacy in its country of incorporation.

To meet these requirements, the following documents are normally needed from the investing business entity:
a. Articles of Incorporation or equivalent (copy)
b. Business license, both national and local (if any) (copies)
c. Certificate of Status (Original)(U.S. and Canada) or a notarized copy of the Corporate Register for the investor or similar document (original)(Civil Law jurisdictions)
d. Bank Letter attesting to sound banking relationship and account status of the company (original).
e. Description of the investor's business activities, together with added materials such as an annual report, brochures, website, etc.
a-d are translated into Chinese. e is either translated into Chinese or summarized in Chinese.
Many investors created special purpose companies to serve as the investor in China . The Chinese regulators have become accustomed to this process. However, the Chinese regulators will still seek to trace the ownership of the foreign investor back to a viable, operating business enterprise. Investor secrecy is not an option in China. However, the corporate register for the Chinese company will merely state the name of the foreign, special entity investing company as the owner. In that sense, as far as public disclosure is concerned, the investor privacy can be maintained. The foreign investor should also understand that this tracing process will add some time and cost to the Chinese company formation process.

3. Chinese government approval for the project. In China, unlike in most countries with which Western companies tend to be familiar, approval of the project by the relevant government authority is an integral part of the incorporation process. If the project is not approved, no incorporation is permitted. The two are inextricably linked.

The following documents must be prepared for incorporation/project approval:
a. Articles of Association. This document will set out all of the details of management and capitalization of the company. Nothing can be left for future determination; all basic company and project issues must be determined in advance and incorporated in the Articles. This includes directors, local management, local address, special rules on scope of authority of local managers, company address, and registered capital.
b. Feasibility Study. The project will not be approved unless the local authorities are convinced it is feasible. This usually requires a basic first year business plan and budget. We typically use the client produced business plan and budget to draft up the feasibility study (in Chinese) that will satisfy the requirements of the Chinese approval authority.
c. Leases: An agreement for all required leases must be provided. This includes office space lease and warehouse/factory space lease. It is customary in China to pay rent one year in advance and this must be taken into account in planning a budget because the governmental authorities will be expecting this.
d. Proposed personnel salary and benefit budget. If the specific people who will work for the company have not yet been identified, one must specify the positions and proposed salaries/benefit package. Benefits for employees in China typically range from 32% to 42% of the employee base salary, depending on the location of the business. Foreign employers are held to a strict standard in paying these benefit amounts. The required initial investment includes an amount sufficient to pay salaries for a reasonable period of time during the start up phase of the Chinese company.
e. Any other documentation required for the specific business proposed. The more complex the project, the more documentation that will be required.
All of the above documents must be prepared in Chinese.

4. It usually takes two to five months for governmental approval, depending on the location of the project and its size and scope. Large cities like Shanghai tend to be slower than smaller cities. The investor must pay various incorporation fees, which fees vary depending on the location, the amount of registered capital and any special licenses required for the specific project. Typically, these fees equal a little over 1% of the initial capital.
On large and/or complex projects, the approval process often involves extensive negotiations with various regulatory authorities whose approval is required. For example, a large factory may have serious land use or environmental issues. Thus, the time frame for approval of incorporation is never certain. It depends on the type of project and the location. Foreign investors must be prepared for this uncertainty from the outset. Process This is a set of standard lease documents for leasing to a Chinese entity or to an already existing WFOE. The lease document makes no provision for dealing with the situation of leasing to an entity in preparation for formation of a WFOE. In fact, the lease document requires you to provide a business license before you execute the lease. Obviously, you cannot do that since your WFOE does not yet even exist.
You should contact the landlord and ensure that the landlord understands your exact situation. If the landlord understands and agrees that it understands and will cooperate, then we can add the language necessary for the lease to be acceptable for WFOE formation purposes. The landlord should be aware that the lease will initially be in the name of the WFOE shareholder and then will be transferred to the WFOE upon successful formation of the WFOE. The landlord must agree to that transfer in advance and must agree to cooperate fully in the WFOE formation process. In addition, the landlord must warrant that the premises can be approved for the use to which you intend to make of the premises and that the lease will be registered with the applicable government real estate administration in _______. Of course, this means that the landlord will need to make all tax payments and provide tax receipts to you as the tenant. Note that the lease cannot be entered into until you know the identity of the shareholder of the WFOE.

The required office need not be large. an office, a desk and an address on the door is often enough, just so long as 1) the address is a unique, separate address that can be registered in the name of the WFOE, distinct from any other entity, and 2) the nature of the WFOE is consistent with the leased space. Note however that under the new tax code there is no benefit to a virtual office. In the old days, people did the virtual office in order to locate in a tax benefited area like Pudong. All that is over. Since there is no real benefit to a virtual office, the only real penalty these days is that government officials will deny the WFOE application because the lease is not right.

In PRC, there are many kinds of land use right, such as industrial land use right, commercial land use right, residential land use right, etc. Differing from the above, however, the land used by the government— most of the time— is allocated by the government, which means that any of the property above such land are not allowed to use as a commercial purpose. If so, the lease agreement may be deemed as illegal and shall not be registered legally. Leasing Requirements S http://www.pathtochina.com/reg_wfoe.htm Independence and freedom to implement the strategies of its parent company without having to consider the involvement of the Chinese partner
Ability to formally carry out business rather than just function as a RO and being able to issue invoices to customers in RMB and receive revenues in RMB
Capability of converting RMB profits to US$ for remittance to its parent company outside of China
Protection of intellectual know-how and technology
Full control of human resources
Greater efficiency in operations, management and future development http://www.pathtochina.com/reg_wfoe.htm Advantages: http://www.pathtochina.com/reg_wfoe.htm difficulty building up the necessary personal relationships which are of great importance in conducting business in mainland China
inability to engage in certain business activities and limited access to government support Disadvantages: Every company in China must have a stated registered capital. This amount is provided in the Articles of Association of the company and is also noted on the company register. Beginning in 2006, this company register is available to the general public. The registered capital includes all of the components of the initial investment in the company, including its start up cash, contributed property, and transferred intellectual property. Where the registered capital is small, the entire amount must be contributed immediately upon formation of the company. If the amount is large, it may be contributed in installments. There are a number of schedules for the percentage and timing of large amounts of registered capital. It is a crime to state a registered capital amount and then fail to contribute. The purpose of registered capital is to provide some notice to creditors of the capital adequacy of the company. Because of this, Chinese regulators take very seriously the rules regarding registered capital.
Registered capital is an initial investment that is intended to be immediately used in operating the company. It need not just sit in a bank and never be touched. It can be used to pay salaries and rent, to purchase product, or for any other normal start up operating expense. Registered capital may include contributed real and personal property used in operating the business. Many foreign investors think registered capital is some sort of security deposit that they can never utilize. This is not true. On the other hand, some foreign enterprises believe they can simply withdraw their registered capital after the Chinese company begins normal business operations. This also is not true. Once the capital is contributed to the Chinese company, it can never be withdrawn for anything other than paying company expenses.
The only way to get funds from the Chinese company out of China is by repatriating profits or by liquidating the Chinese company. Both of these methods will work, but they both require paying Chinese taxes and meeting other requirements under Chinese law. Investors should also note that the RMB is not a freely convertible currency. For companies that will earn RMB income, the issue of conversion to U.S. dollars or other foreign currency should be carefully considered and a failure to abide by Chinese law all the way along the process will likely lead to an inability to get money out of China at some point down the road.
The real question is what the Chinese authorities will consider as adequate capitalization for the specific project. Of course, that answer varies by type of business and location. For example, it is very expensive to operate a business in Shanghai. On the other hand, it can be very inexpensive to operate the same business in a rural area of China. It is expensive to operate a capital intensive business like manufacturing, but relatively inexpensive to operate a knowledge based consulting business.
The Chinese regulators usually consider all of these issues. To complicate matters, each local regulator has its own basic standards on what constitutes adequate capital for certain types of business activities. These numbers are not published, but when asked they will almost always be provided. They can only be determined through direct contact with the regulator and only after providing a clear explanation of the project. The local regulator virtually never considers the statutory minimum in making a determination regarding adequacy of capital. Rather, the local regulator will determine what it believes is an adequate amount of capital based on all the circumstances. Once the investor has a clear idea of the outlines of a project, it is usually a good idea to engage an attorney to contact the local regulator to see what their response will be to the proposed amount of investment. This initial screening can save a lot of time if the investor's idea of the proper amount of capitalization is dramatically different from that of the local regulator.
In determining what constitutes adequate capital, one needs to consider the peculiar situation in China that building rents are virtually always paid in advance, that payment for products for sale are virtually always paid in advance, and that a reasonable advance reserve for salaries is also required. Thus, the initial start up costs are much higher than in a location like the United States, where credit and time payments are more common. In addition, the foreign investor needs to take into account the risk aversion of the Chinese regulator. The Chinese regulator will not approve a project that looks risky or under-funded. The regulator has no incentive to do this, especially for a 100% foreign owned entity.
The government sometimes permits the minimum capital to be paid in installments over up to two years, though the first installment must be at least 15% of the total amount required and it also must be at least the statutory minimum for total capital. The capital contribution can be made in money, equipment, intellectual property, or other transferable property, but the monetary contribution must be at least 30% of the total capital amount. The government will appraise the value of any non-monetary contribution and our experience has been that it will come in fairly low in its valuation.
We frequently see two big mistakes being made by foreign investors when it comes to their putting in the required minimum capital. Foreign investors hear that assets can be used as a contribution towards the minimum capital requirement, so they go ahead and ship certain assets over to China, with the expectation of then using those assets towards minimum capital. The problem with this approach is that unless the proper authorities have been notified and granted their approval in advance of the shipping, the assets you just shipped to China will not be applied towards minimum capital, and you will have a huge problem on your hands.
The other common mistake we see is the foreign investor putting a value on its assets (including its intellectual property) and assuming the Chinese regulators will put the same value on those assets in determining the contribution towards minimum capital. The Chinese regulators will require their own appraisal (at your expense) l of anything other than monetary contributions towards the minimum capital requirement, and those appraisals tend to come in low, particularly for IP. Minimum Capital Requirements for WFOE: http://www.chinalawblog.com/2009/12/how_to_start_a_business_in_chi_1.html C Sino-Foreign Cooperative Joint Ventures Under Sino-Foreign Cooperative Joint Venture Law and associated implementation regulations.
A CJV can be set up either:
i.with each partner remaining a separate legal entity who bears liability in accordance with the relevant provisions of PRC civil law and with all of the partners cooperating to establish the joint management setup of the CJV; or
ii.with all of the partners putting in their investment and delegating non-investing staff to form a single company with limited liability.
The partners or shareholders can decide on the rate at which the investment is to be recovered, and profits can be shared irrespective of the level of capital contribution that is made by each party
Based on a cooperative joint venture contract in which matters like the terms of cooperation, the division of earnings, the ownership of property upon the termination of the contract term of the CJV, the sharing of risks and losses, etc are set.
The Chinese company usually provides the labour, land use rights and factory buildings, while the foreign company brings in the necessary technology and key equipment, as well as the capital. http://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Mainland_China/types_of_mainland_business_organisation/index.shtml E Established in accordance with the Sino-Foreign Equity Joint Venture Law and associated implementation regulations.
A limited liability entity with legal person status (the company can sign contracts and sue or be sued by the others and the investor or partner is not personally liable for the debts that the company might make in the future) .
Jointly invested in and managed by foreign and Chinese partners.
Involved parties each contributes capital in cash or other forms (equipment, right to use land and office or factory premises)
In general, the foreign company invests no less than 25% of the total investment
Takes a shareholding in accordance with the percentage of equity that the party has invested.
Each shareholder is entitled to receive dividends in proportion to its own equity share Sino-Foreign Equity Joint Ventures: http://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Mainland_China/types_of_mainland_business_organisation/index.shtml http://www.chinaorbit.com/china-economy/china-joint-venture.html http://www.chinaorbit.com/china-economy/joint-venture-in-china.html < While an EJV is always a legal person, and thus a limited liability company, a CJV can be a legal as well as a non-legal person. The latter option is not very common though because it would mean that the partners of the joint venture would be personally liable for any losses the company might make in the future.
In an EJV the distribution of profits has to take place equivalent to the ratio of the capital contributions made by the parties, while the distribution in a CJV can take place according to the parties' wishes. A CJV is thus a lot more flexible than an EJV.
In a CJV a party may, besides contributing registered capital, provide cooperative conditions, e.g. market access rights. Equity Vs. Cooperative Joint Ventures: http://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Mainland_China/types_of_mainland_business_organisation/index.shtml http://www.chinaorbit.com/china-economy/china-joint-venture.html 1 2 3 4 5 6 7 8 9 10 Talk to people who have opened offices in China
Ask about success and failure
Travel to China and start networking
Research state of the industry Get to know the big cities: Shanghai, Beijing, Guanzhou are major business, govt & industrial centres
Find out where the action is happening in your industry Choose an entity status Develop a detailed five-year business plan
Because once the govt approves it, you will be able to operate only within its guidelines
If you start offering a service that is not in your business plan, the govt can shut down your business. The same goes for where and how you operate.
Make sure your business plan is as broad as possible
Include your location, project revenues, service description, expected # of employees and budget requirements in the plan. (wise to tailor your plan to China's five-year plan) Find a qualified liaison who will tell you where you need to go to register and do the talking once you're there. Organize the necessary documents
Application forms may differ depending on who you're dealing with- get it directly from the local authority Intellectual property violations are a big issue for foreign investors in China
In China, the first person to register a trademark owns the rights to it, regardless of whether or not that person is the first person to use the trademark Make sure to have a bank in Canada and in China that have some sort of corresponding relationship so your banking is more transparent Hire a staff
If all things are equal, the language skills can be greatly beneficial but it's far more important to have a smart business person who's going to run the company the way you want it run
Once you have trusted managers in place, they should be able to assist you in hiring the rest of the staff.
You need to have a contract for every employee you hire as well as an employee manual- without either may make it nearly impossible for you to fire anyone Don't jump into quick business deals just to turn a profit.
It takes time to build business relationships
It's much different than America the amount of time spent developing business relationships before the actual deal is consummated http://www.inc.com/guides/2010/07/how-to-start-a-business-in-china_pagen_3.html In order to exercise effective control over JV in China, investors must avoid these mistakes
strive to obtain a 51% ownership interest in the EJV assuming the majority owner has the right to elect the entire board.
allow the local side to appoint the representative director and the company general manager (the 2 key management positions)
It is necessary to have control over the day-to-day management of the JV company from the following:
power to appoint and remove the JV's representative- in order to have sig. control over operations (do not concede the power to appoint a key officer or director to another investor)
power to appoint and remove the general manager of the JV- (do not appoint the same person as both representative director and general manager).
control over the company seal- carefully guard the power to make binding contracts on behalf of the JV and to deal with the company's banks and other key service providers (ceding control over it as a matter of convenience is a mistake)
In most cases, the Chinese side to a JV will flatly refuse to agree to these 3 measures of control. The common argument is that it is more efficient to allow the Chinese side to control day-to-day management of the company. In many cases, the local partners will argue that they cannot bring their political connections into play unless their own people act as the representative director and general manager. This is often a bit of a red herring where the real issue is operational control over the company.

If these 3 control mechanisms are entirely under the control of the partner, the foreign investors will quickly discover that they have relinquished all power. When this happens, the investor should face the reality of the situation and either reduce the investment to a minority share or abandon it altogether. Common JV Mistakes SongHua River in Jilin Water Pollution Water Quality and Standard Most Sewage Discharged into Rivers Country-
Wide Lead
Poisoning Groundwater Underground water in 57 percent of monitoring sites across Chinese cities have been found polluted or extremely polluted
298 million rural residents do not have access to safe drinking water.
In the first half of 2011, of the seven main water systems in China, only the Yangtze and Pearl rivers had good water quality, and the Haihe River was heavily polluted, with all others moderately polluted.
To address poor water quality, the ministry said that no construction projects will be allowed in water source regions unless they have set aside specific protection areas subject to the ministry's monitoring, or they have passed water quality examinations.
China's 2011-2015 guideline on fighting water pollution sets the goal: 60% of the country's major rivers and lakes be clean enough to be sources of drinking water supply by the end of 2015. http://english.mep.gov.cn/News_service/media_news/201205/t20120529_230549.htm May 29, 2012 At the National Inter-ministerial Meeting on Water Pollution Prevention and Control of Songhua River, MEP Minister highlighted the following key tasks in 2012.
1. Look at regions with prominent water environmental problems. Forceful measures will be taken to deal with companies violating environmental laws and regulations including 13 companies which did not operate pollution control facilities as required, discharge excessive pollutants or went against EIA requirement.
2. Continue to enhance capacity for water environmental supervision in river basins. Accelerated steps will be taken to construct sewage treatment plants and supporting networks and reform denitrification facilities in order to ensure steady performance of up-to-standard discharges. Manage drinking water source protection area by removing agricultural planting out of Level I protection zones and actively advance regional rural environmental pollution control and treatment.
3. Promote implementation of planning engineering projects. By the end of this year, all engineering projects supplemented in the 11th Five-Year Plan to be complete, and the planned projects in the 12th Five-Year Plan 2/3 to start construction and 1/3 to be complete.
4. No pilot monitoring of aquatic organisms in Songhua River Basin. Explore methods for comprehensive assessment of water quality, providing support for scientific evaluation of the policy of rehabilitating Songhua River and plan implementation.
5. Initiate assessment and building of small healthy river basins, find a way to protect fragile rivers and rivers with good water quality tributaries of Songhua River Basin May 23, 2012 http://english.mep.gov.cn/Ministers/Activities/201206/t20120601_230743.htm http://english.mep.gov.cn/News_service/media_news/201206/t20120604_230882.htm June 4, 2012 The MEP has brought construction on a railway in northeast China's Heilongjiang Province to a halt due to environmental violations. Construction on the 286-km-long railway began on July 5, 2009.
Further inspections will be conducted for the Harbin-Qiqihar passenger railway, the Heilongjiang provincial environmental protection bureau said.
Construction on the railway has violated several parts of the Environmental Impact Assessment Law, with some areas under construction lacking proper impact assessment approval
Several construction sites have been moved without authorization, threatening the Zhalong State Nature Reserve, a major habitat for cranes
The ministry has asked the builders to submit all environmental impact assessment paperwork before Aug. 1. Halted Project New standards for drinking water, with the number of quality indicators rising to 106 from 35, came into force on July 1, 2012. The number of indicators to test for organic compounds in drinking water will rise to 53 from just five. While that's almost on par with standards used in the European Union, some experts have raised concerns about the feasibility of the new system. Before 2006, the last revision in China was back in 1985.The 2006 reforms unified the water quality standards in the country's rural and urban areas for the first time. But even as plants in the city struggle to meet the new criteria, those in rural areas face an even tougher challenge because their quality standards have always lagged behind. In 2011, the ministry published a report releasing the official safety figure of drinking water 83%. But experts are dissatisfied with the figure and asked for more information but the Ministry turned down requests for interviews on the topic. The rate is actually closer to 50%.
3,000 water companies in China but the number of cities with facilities to test all 106 indicators covers a very small portion of the area served by the industry."By the end of 2009, 98 percent of China's water plants were still employing production processes that have been in use for decades," Lan Weiguang
~6% of pipes have been in use for 50+ yrs
According to insiders from the Ministry of Housing and Urban-Rural Development, the fundamental problem in maintaining water quality is the low level of funding. "Investment is far from sufficient in this sector," they said. Testing all 106 indicators in one sample costs 15,000 to 20,000 yuan ($2,370 to $3,160). However, as all of the indicators must be tested at least once a year, and others on a monthly or weekly basis, that sort of money is beyond most cities at present. http://english.mep.gov.cn/News_service/media_news/201206/t20120604_230884.htm The Intermediate People's Court of the city of Qujing in southwest China's Yunnan province said Tuesday that a case involving two NGOs demanding compensation from a chemical company will be heard soon. The country's first public interest litigation (PIL) filed by grassroots NGOs, according to experts.
The two NGOs have demanded compensation worth 10 million yuan ($US1.58 M) from the chemical company, which was found to have dumped 5,000 tonnes of chromium-contaminated waste near a reservoir from April to June 2011, resulting in the deaths of 77 livestock in Qujing.
According to the draft amendment to the Civil Procedure Law, "legally registered organizations and social groups" are entitled to file lawsuits in instances in which polluting the environment or other behavior infringes on the public interest. Water Pollution Facts http://english.mep.gov.cn/News_service/media_news/201206/t20120605_230992.htm June 5, 2012 Envl NGO lawsuit June 4, 2012 http://english.mep.gov.cn/News_service/media_news/201206/t20120605_230992.htm Town of Wujiang, Hexian county, Anhui province
A statement published by the Anhui Environmental Protection Bureau on May 31, 2012 said that 14 of the Huaihe River's 19 tributaries have suffered from heavy pollution.
Anhui Huangxing Chemical Industry Co.,Ltd., a local chemical company, has been accused of polluting the town's water. The company is the only listed company in Wujiang and has created jobs for about 2,000 local residents.
Villagers have sealed their wells and closed windows due to a pungent odor penetrating the town's air. The city of Haining's water quality plunged below acceptable levels in 2009 and 2010.
The municipal government chose Yanguan township in April 2011 as a "trial area" to test the effectiveness of using local officials to maintain water quality on one of the town's rivers.
Each official (30) was in charge of examining water quality on a given section of the river each week. The river's water quality improved during the trial, leading the Haining municipal government to implement the strategy on other rivers in the city. http://english.mep.gov.cn/News_service/media_news/201206/t20120605_230992.htm More than 100 million fish, including sturgeon and bighead carp, were released in public waterways, including the Songhuajiang and Heilongjiang rivers, along the China-Russia border.
The provincial govt co-organized the fish release with the Ministry of Agriculture.
A record # of about 500,000 of the fish released are endangered and were provided by the provincial aquatic wildlife rescue center.
Provincial authorities have asked fishermen to refrain from fishing in public waters for at least one week to aid in the protection of fishery resources.
Statistics state that during the 2006-2010 period, more than 280 million fish were released in the region's public waters. Fish released in Heilongjiang http://english.mep.gov.cn/News_service/media_news/201206/t20120628_232543.htm June 28, 2012 Successful New Municipal Govt Strategy Anhui Huangxing Chemical Industry Co. Provinces and City Profiles Resources http://www.hktdc.com/info/mi/mpcn/en/Profiles-Of-China-Provinces-Cities-And-Industrial-Parks.htm Ministry of Environmental Protection http://english.mep.gov.cn/
Water Pollution

Social

Law & Governance/ Enforcement

Water Standards

Endangered Species

Water Scarcity/ Efficiency/ Mngt

Groundwater

Energy

Infographic

Nation-Wide

Expert Opinion

Corruption Wilson Center- China Envt Forum http://www.wilsoncenter.org/program/china-environment-forum BON- Chinalogue http://www.bon.tv/chinalogue/ NYT- Choking on Growth Series http://www.nytimes.com/interactive/2007/12/29/world/asia/choking_on_growth_10.html NYT- China & the Envt http://topics.nytimes.com/top/news/international/countriesandterritories/china/environment/index.html China Law Blog http://www.chinalawblog.com/ Timeline: Water Pollution Event & Protection Policies http://www.circleofblue.org/waternews/2011/world/infographic-chinas-water-pollution-events-and-protection-policies-2004-2011/ Map: Water Scarcity, Pollution, National Pipelines http://www.nytimes.com/interactive/2007/09/28/world/asia/choking_on_growth_2.html#story4 Map: Hydropower in China http://www.circleofblue.org/waternews/2012/world/map-major-hydropower-in-china/ Map: Pollution in China's Rivers http://www.circleofblue.org/waternews/2011/world/infographic-map-of-pollution-levels-in-chinas-major-river-basins/ 100M Endangered Fish Released http://www.nytimes.com/2011/08/15/world/asia/15dalian.html August 14, 2011 Petrochemical plant shut down by municipal govt after thousands of protesters confronted riot police and demanded that it be closed because of safety concerns
The chemical factory in Dalian manufactures paraxylene, a crucial ingredient in the production of polyester. Paraxylene can cause eye and nose irritation and in high concentrations lead to death
The protest began a week after a tropical storm pushed ocean waves against the wall of a factory (50 yards behind a sea wall), breaching the barrier and raising worries that chemicals might leak from the factory.
In 2007, protestors persuaded the govt to close and move the factory but it is still in operation Petrochemical Plant
Closed After Protests Protests Force Closure of Smelter The Shifang municipal govt promised to abandon the construction of a copper & molybdenum refinery after bloody street protests.
Hongda Group/Chemical (privately-owned) planned to refine copper ore from Tibet and Australia, and to process molybdenum. $1.7B project, to be one of the largest copper smelting complexes in the world.
A June 30 signing ceremony for the project unexpectedly became a trigger for three days of demonstrations, involving tens of thousands of local residents. Thousands of riot police deployed, 13 demonstrators injured and 1 high school student killed, 27 people arrested. Shares of the company plunged 9.2% in Shanghai trading.
Background: Hongda bought large govt-owned chemical firms and mines, now one of the 500 largest share market-listed corps in China. The smelter was supposed to be the centerpiece of a planned economic revitalization of an area devastated by the 2008 Sichuan earthquake. July 11, 2012 http://www.wsws.org/articles/2012/jul2012/chin-j11.shtml http://www.nytimes.com/2012/07/05/world/asia/chinese-officials-cancel-plant-project-amid-protests.html?_r=1&ref=environment September 2011, a solar energy company in Jiaxing, near Shanghai, was closed after demonstrations objected to chemicals used in the manufacturing process Green Tech does not = Environmental Compliance http://www.nytimes.com/2012/07/05/world/asia/chinese-officials-cancel-plant-project-amid-protests.html?_r=1&ref=environment Through activism, citizens are finding it easier to prevent environmentally threatening projects from getting started than shutting down existing ones. Internet and Censorship China has more Internet users than any other country — the protests appear to have resonated across the country.
“Shifang” was the most-searched term on Sina Weibo, a Twitter-like microblogging service, on Tuesday and again on Wednesday morning, before abruptly disappearing entirely from the list of frequently searched terms in a possible sign of censorship.
Several posts praising the Shifang protests on Tuesday evening had been deleted by Wednesday morning, another sign of censorship. But more posts had replaced them. Rare Earth Resources in China 3% 3% Shandong: 7.7%, Inner Mongolia: 83% National Reserves Environmental activists and local residents are reluctant to challenge illegal rare earth mining operations, which are frequently connected to organized crime syndicates with well-deserved reputations for intimidation and even murder. But the government has been closing down even legal rare earth refineries all over China requiring them to install new emissions control equipment, after years of tolerating heavy emissions of toxic and radioactive waste. http://www.nytimes.com/2012/07/05/world/asia/chinese-officials-cancel-plant-project-amid-protests.html?_r=1&ref=environment http://www.nytimes.com/2012/07/05/world/asia/chinese-officials-cancel-plant-project-amid-protests.html?_r=1&ref=environment June 5, 2012 June 5, 2012 More than 9.5 billion tons of the sewage, or 75.8 percent of the total sewage generated in Guangdong last year was directly discharged into local rivers, the province's Department of Water Resources reported.
The amount of sewage discharged reached 12.53 billion metric tons in 2011, up 110 million tons from 2010.
Of the sewage discharged: 55% is industrial wastewater, 45% is domestic sewage.
The major river systems in Guangdong are the Pearl River Basin, the Hanjiang River Valley, and rivers in the eastern and western parts of the province. The water quality of rivers in eastern Guangdong is the worst, with 30 percent of them heavily polluted.
And the water quality has become even worse in the Pearl River Delta region, which borders Hong Kong and Macao.
More than 54.8 percent of the sewage that has directly been discharged into rivers in 2011 was reported in the affluent Pearl River Delta, one of the economic engines on the Chinese mainland.
The cities of Guangzhou, the Shenzhen special economic zone, Dongguan and Foshan each discharged more
The province's worsening water pollution may be attributed to the lack of investment in sewage treatment in some areas, particularly in the under-developed and remote cities and counties in western, northern and eastern parts of the province.
Deputy director of the provincial department of environmental protection said Guangdong will increase its daily sewage treatment capacity by 1 million metric ton this year and build another 1,000 kilometers of sewer networks.
"Our goal is a daily sewage treatment capacity of 22 million tons and 12,000 kilometers of sewerage networks by 2015," Chen said. "Apart from the Pearl River Basin, we will also work on improving the water quality of the Hanjiang River Valley and the tributary rivers in eastern and western Guangdong." http://english.mep.gov.cn/News_service/media_news/201207/t20120710_233283.htm July 10, 2012 Survey of Wildlife The forestry administration of Hainan announced on Sunday that it will launch a survey of wildlife on and around the South China Sea Islands.
The one-month survey is China's first of its kind covering the entire ecosystem of the South China Sea Islands and will cover marine life, birds and amphibians on the islands and their neighboring waters.
Researchers will work to establish a database and develop an information management system with the survey materials so as to help better protect the wildlife and habitats in the area.
"We welcome non-governmental environmentalists and volunteers to join our investigation," added Jiang, also professor of life science at South China Normal University. http://english.mep.gov.cn/News_service/media_news/201207/t20120710_233280.htm July 10, 2012 In May 2011, more than 200 people in Meingxi village gathered at the entrance to the Zhejiang Haijiu Batter Factory, maker of lead-acid batteries of motorcycles and electric bikes. They shouldered through an outer brick wall, swept into the factory office and, in an outpouring of pure fury, smashed the cabinets, desks and computers inside.
News had spread that workers and villagers had been poisoned by lead emissions from the factory, which had operated for six years
233 adults and 99 children were ultimately found to have concentrations of lead in their blood, up to seven times the level deemed safe by the Chinese government.
In recent months there is discovery of case after case of mass lead poisoning— together with instances in which local governments tried to cover them up.
Enforcement is spotty at best. Shen Yulin, the environmental protection director for Deqing County, where the Haijiu factory is located, said 65 inspectors were responsible for a region of nearly 400 square miles, with more than 2,000 factories.
Haijiu breezed through six years of inspections, even though many workers say they were repeatedly hospitalized for lead poisoning. Only after last month’s protest did authorities criticize the plant for a host of violations and order the plant closed and production lines razed.
At the Haijiu Battery Factory, which exports to the United States, regulation of lead emissions was not so much lax as nonexistent. The factory’s opening in 2005 brought more than 1,000 jobs. Local authorities allowed the plant to expand to within a rice paddy of the village. They also ignored the breakdown of ventilation equipment and the building of a hostel for workers and their spouses and children on factory grounds.
Workers say managers simply slowed down production lines when inspectors came. One worker said he had watched a supervisor cover a device that tests for lead emissions in the air with his cap, then whisk the inspectors away for tea.
It did not take long for problems to surface. Workers said they repeatedly had tested above the occupational limit for blood lead levels and were sent to the local hospital, where drugs were injected intravenously to reduce the level and toxicity of lead in their bodies.
Zhao Guogeng, vice president of Zhejiang Haijiu Battery Co., said the company is covering the medical bills of lead victims. Authorities said the factory’s legal representative has been arrested and eight officials disciplined. “This will never happen again,” Zhang Linhua, spokesman for Deqing County, declared last Thursday.
In a town 55 miles southeast of Mengxi Village: 103 children and 26 adults were found to be severely poisoned and 494 Moderately poisoned by lead pollution from tinfoil processing plants. http://www.nytimes.com/2011/06/15/world/asia/15lead.html?ref=environment Lead Poisoning June 15, 2011 In the past two and a half years, thousands of workers, villagers and children in at least 9 of mainland China’s 31 province-level regions have been found to be suffering from toxic levels of lead exposure, mostly caused by pollution from battery factories and metal smelters. One 2001 research paper called lead poisoning one of the most common pediatric health problems in China. A 2006 review of existing data suggested that one-third of Chinese children suffer from elevated blood lead levels.
Some local officials have reacted to mass poisonings by arbitrarily limiting lead testing, withholding and possibly manipulating test results, denying proper treatment to children and adults and trying to silence parents and activists.
The government has not ordered a nationwide survey of children’s blood lead levels, so the number of children who are at risk is purely a matter of guesswork. Mass poisonings like that at the Haijiu factory typically come to light only after suspicious parents seek hospital tests, then alert neighbors or co-workers to the alarming results.
High levels of lead can damage the brain, kidney, liver, nerves and stomach and, in extreme cases, cause death. Children are particularly susceptible because they absorb lead more easily than adults.
The lead-acid battery industry has grown by 20 percent a year for the past five or six years, and is expected to expand further. China now has some 2,000 factories and 1,000 battery-recycling plants.
Chinese leaders have acknowledged that lead contamination is a grave issue and have raised the priority of reducing heavy-metal pollution in the government’s latest five-year plan, presented in March 2011. But despite efforts to step up enforcement, including suspending production last month at a number of battery factories, the government’s response remains faltering.
PM Wen Jiabao scolded Environmental Minister Zhou Shengxian for the lack of progress http://www.nytimes.com/2011/06/15/world/asia/15lead.html?ref=environment June 15, 2011 Near Jiyuan City, in Henan Province, nearly 1,000 children from 10 villages were found to have elevated blood lead levels in 2009. Government officials ordered the children treated, families relocated and the smelters cleaned up. More Lead Poisoning http://www.nytimes.com/2011/06/15/world/asia/15lead.html?ref=environment June 15, 2011 The Communist Party is fully aware of the problems. A new water pollution law is under consideration that would sharply increase fines against polluters. Different coastal cities are building desalination plants.
Multinational waste treatment companies are being recruited to help tackle the enormous wastewater problem.
In north China, pilot projects are under way to try to reduce water loss from winter wheat crops.
Some cities have raised the price of water to promote conservation, but it remains subsidized in most places. Already, some cities along the route of the transfer project are recoiling because of the planned higher prices.
Cities like Beijing and Tianjin have shown progress on water conservation. For example, in the rural areas of the SE province of Sichuan, only 20 indicators were being measured in 2011.
Despite this, Sichuan is seen as something of a role model in the improvement of water quality, having undertaken a large number of projects to provide safe drinking water to its rural population, which is geographically dispersed over vast distances, with many people living in inaccessible mountainous regions.
Meanwhile, the situation in provinces such as Yunnan and Guizhou is much worse. http://english.mep.gov.cn/News_service/media_news/201206/t20120604_230884.htm June 4, 2012 National In Shiajiazhuang, the underground water table is sinking about four feet a year and municipal wells have already drained two-thirds of the local groundwater. Some city wells must descend more than 600 feet to reach clean water. In the deepest drilling areas, steep downward funnels have formed in the water table that are known as “cones of depression.” There are more than 800 illegal wells.
Population growth: around 1900, Shijiazhuang was a collection of farming villages. By 1950, the population had reached 335,000. This year, the city has roughly 2.3 million people with a metropolitan area population of 9 million. More people meant more demand for water, and the city now heavily pumps groundwater.
Groundwater quality also has worsened. Wastewater, often untreated, is now routinely dumped into rivers and open channels. Roughly three-quarters of the region’s entire aquifer system was now suffering some level of contamination.
For now, Shijiazhuang’s priority, like that of other major Chinese cities, is to grow as quickly as possible. The city’s gross domestic product has risen by an average of 10 percent every year since 1980, even as the city’s per capita rate of available water is now only one thirty-third of the world average. The Communist Party, leery of depending on imports to feed the country, has long insisted on grain self-sufficiency. But growing so much grain consumes huge amounts of underground water in the North China Plain, which produces half the country’s wheat. Some scientists say farming in the rapidly urbanizing region should be restricted to protect endangered aquifers. Yet doing so could threaten the livelihoods of millions of farmers and cause a spike in international grain prices. Rising water demands in the North China Plain make it unfeasible for farmers to continue planting the second annual winter crop but local farmers say, "We would lose 60 percent or 70 percent of our income if we didn’t plant winter wheat." Water usage in China has quintupled since 1949, and leaders will increasingly face tough political choices as cities, industry and farming compete for a finite and unbalanced water supply.
Nationally, groundwater usage has almost doubled since 1970 and now accounts for one-fifth of the country’s total water usage, according to the China Geological Survey Bureau.
Industry in China uses 3 to 10 times more water, depending on the product, than industries in developed nations. The North China Plain, an economic powerhouse with more than 200 million people, has limited rainfall and depends on groundwater for 60 percent of its supply. But aquifers below the North China Plain may be drained within 30 years. A century or so ago, the North China Plain was a healthy ecosystem; farmers digging wells could strike water within eight feet. Swamps, natural springs and wetlands were common.
Today, the region, comparable in size to New Mexico, is parched. Roughly five-sixths of the wetlands have dried up and most natural streams or creeks have disappeared. The largest natural freshwater lake in northern China, Lake Baiyangdian, is steadily contracting and besieged with pollution.
Background: In 1963, a flood paralyzed the region, prompting Mao to construct a flood-control system of dams, reservoirs and concrete spillways. Flood control improved but the ecological balance was altered as the dams began choking off rivers that once flowed eastward into the North China Plain. The new reservoirs gradually became major water suppliers for growing cities like Shijiazhuang. Farmers, the region’s biggest water users, began depending almost exclusively on wells. Rainfall steadily declined in what some scientists now believe is a consequence of climate change. Before, farmers had compensated for the region’s limited annual rainfall by planting only three crops every two years. But government policies pushed for higher production, so farmers began planting a second annual crop, usually winter wheat, which requires a lot of water. By the 1970s, studies show, the water table was already falling. Background: China has about 7 percent of the world’s water resources and roughly 20 percent of its population. It also has a severe regional water imbalance, with about four-fifths of the water supply in the south.
The Plan: One of Mao’s unrealized plans- the $62 billion South-to-North Water Transfer Project to funnel more than 12 trillion gallons northward every year along three routes from the Yangtze River basin, was approved in 2002. The project, if fully built, would be completed in 2050. The eastern and central lines are already under construction; the western line, the most disputed because of environmental concerns, remains in the planning stages.
Uncertainties: No one knows how much clean water the project will deliver; pollution problems are already arising on the eastern line. Cities and industry will be the beneficiaries of the new water, but the impact on farming is limited. Water deficits are expected to remain.
Needs: Roughly 41 percent of China’s wastewater is now dumped in the Yangtze, raising concerns that siphoning away clean water northward will exacerbate pollution problems in the south. Mr. Liu, the scholar and hydrologist, said that farming would get none of the new water and that cities and industry must quickly improve wastewater treatment. Otherwise, cities will use the new water to dump more polluted wastewater. Shijiazhuang now dumps untreated wastewater into a canal that local farmers use to irrigate fields. September 28, 2007 http://www.nytimes.com/2007/09/28/world/asia/28water.html September 28, 2007 http://www.nytimes.com/2007/09/28/world/asia/28water.html September 28, 2007 http://www.nytimes.com/2007/09/28/world/asia/28water.html North China Plain September 28, 2007 http://www.nytimes.com/2007/09/28/world/asia/28water.html Agriculture: Grain September 28, 2007 http://www.nytimes.com/2007/09/28/world/asia/28water.html Govt'l Efforts September 28, 2007 http://www.nytimes.com/2007/09/28/world/asia/28water.html Water Usage USER GUIDE Available on egnyte: http://pecg.egnyte.com/webdav/Shared/Business/Business%20Development/Overseas/Completed%20Reports LEGEND Opportunities China is investing more in restoration programs. Ex. Heilongjiang's endangered fish species release. PECG can step in to help conduct fish presence/absence studies, habitat assessments, and monitoring fish populations and the effectiveness of the program over time.
Some municipalities, such as Jilin, has identified key watersheds that must be protected. PECG may help such municipalities with water quality studies in order to determine sources of pollution and create management systems to protect fragile tributaries.
As environmental protests and civil resistance is becoming more common, companies are becoming more aware of their environmental impacts. Protestors are finding more success in stopping a launch of a new facility vs. halting an operating business. Therefore, PECG may help environmentally and socially-conscious companies establish an environmental management system before they operate in order to avoid resistance from locals. This is a great business opportunity as water pollution is of great concern in China. In addition, the Chinese company may wish PECG to 'advertise' its efforts (the 'foreignness' of PECG also helps).
Many municipalities are unable to process sewage and thus, a large portion is dumped into rivers (ex. Guangdong province). Although PECG may help with water management and water quality, the main issue here may be the technical capacity and ability of the treatment plants.
Restoration programs range from being fish-focused to watershed-focused. An example of a waterbody restoration program is the Keluke lake in Qinghai. PECG may help such initiatives design 'compensation programs'.
As the North is becoming a massive coal and renewable energy power-house, PECG may help these industries in the already dry and water-deprived region. As these Northern provinces already have a water conservation program in place for cumulative effects, PECG may fit in nicely to help with water management systems and also a monitoring program (probably non-existent).
With the rise of new drinking water standards, China is lacking significantly in facilities that can test the new parameters. Although PECG cannot help with the lab portion of the business, water collection know-how could be valuable for water companies with raising standards.
Bundle services: PECG may team up with high tech environmental companies such as BioTeQ (Vancouver-based) to provide Chinese companies/municipalities with engineering and aquatic biology services.
As EA processes are becoming enforced more strongly. PECG may provide case studies and best practices from a Canadian point of view to regulators. Gansu, with $18B investment in wind power alone, hosts one of the largest clean energy zones on Earth. The goal is to install enough capacity to generate 20 GW of wind-powered electricity and 20GW of solar generating capacity nationwide by 2020.
The industry is growing so fast, that China’s two national transmission companies are not keeping pace. About a quarter of the generating capacity is not connected to the grid in 2011. In 2010, China said it was spending $590B over the next decade to expand and modernize its electrical transmission system, including $75B in the first five years for high-voltage power lines.
China’s other big wind regions—Xinjiang, Inner Mongolia, Jilin, Hebei, and offshore in Jiangsu—also are developing rapidly.
In 2007, China established a new “water intensity” requirement that calls for industry and agriculture to cut the amount of water they use per unit of GDP by 20%. In 2009, that target was increased to 60%. Energy Water 2010 2020 Total electrical generating capacity to double, reaching 1,900 GW. February 22, 2011 http://www.circleofblue.org/waternews/2011/world/new-wind-and-solar-sectors-wont-solve-chinas-water-scarcity/ Gansu Renewables Renewables Coal National Renewables Coal National Renewables Coal National Produced 3.15B tons of coal, most of it to produce electricity
80% of generating capacity of China
Coal, the largest industrial water consumer 960 GW of generating capacity China’s coal mining, processing, and electrical generating industries consumed over 120B m^3 of water annually (~20% of all national water consumption).
The driest northern and western regions—Inner Mongolia, Shanxi, Xinjiang—are precisely where the vast new reserves of coal are located
For the time being, most of those new reserves can’t be tapped because there is not enough water. 500 GW increase of electrical generating capacity.
Coal production and use could grow to over 4B tons per year by 2020. Renewables Coal National Annual water use: 599B m^3 Annual water use: 670B m^3 The largest share of annual water use increase (15B m^3 a year) is due to the increase in coal mining and processing, along with cooling coal-fired power plants. Renewables will consist of 13% of the national generating capacity. Renewables consist of 6% of the national generating capacity.
$738B promised by government authorities in 2010 to spend on non-fossil fuel power generation
A burst of seawater-cooled nuclear power plants under construction along the eastern coast. The new wind, solar, and seawater-cooled nuclear plants will replace roughly 100 big coal-fired generating stations, which equates to a savings of 3.5 billion cubic meters of water annually. Over the next decade, the water savings from solar, wind, and seawater-cooled nuclear power will not be nearly enough to compensate for the water scarcity caused by China’s coal production and combustion sector, and its national economy. Energy Mix and Water Today and in 2020 The government also mandated that taxpayers share in the cost of developing renewable power with a small fee on their utility bills.
Electric utilities are required to buy power from renewable energy producers, which were provided with low-interest loans from the government.
China also protected its manufacturers, requiring that at least 70% of wind turbine components be manufactured in the country. Five of the 15 largest wind turbine manufacturers in the world, as a result, are now Chinese. February 22, 2011 http://www.circleofblue.org/waternews/2011/world/new-wind-and-solar-sectors-wont-solve-chinas-water-scarcity/ A powerful transition is occurring in China, the dry northern and western provinces (Gansu Province, Inner Mongolia, Xinjiang, Ningxia, and Jilin) are attracting new pioneers and growing at a faster rate (10.3% in 2010) than the national GDP. The new regional growth has been spurred partly by clean energy production and manufacturing. The New Energy Equipment Manufacturing Industry base is the largest non-carbon energy manufacturing center in the world.
China enacted the world’s most aggressive renewable energy law in 2005. China’s National Development and Reform Commission declared that, by 2020, 15% of the country’s energy would be produced by wind, solar, biomass, and hydropower—up from 7% at the time. Northern & Western Provinces
- The New Renewables Powerhouse February 22, 2011 http://www.circleofblue.org/waternews/2011/world/new-wind-and-solar-sectors-wont-solve-chinas-water-scarcity/ Renewable Energy Incentives February 22, 2011 http://www.circleofblue.org/waternews/2011/world/new-wind-and-solar-sectors-wont-solve-chinas-water-scarcity/ Huo Youngguangdrop, a professor in the Center for Envt and Modern Agriculture Engineering at Xi'an Jiaotong University in Shanxi Province, proposes a first-of-its-kind transcontinental pipeline that he believed could be a breakthrough in developing more fossil energy from Xinjiang and China’s other northern coal-rich provinces, while conserving the region’s scarce freshwater reserves.
A pipe into the Bohai Sea in China’s east to draw more than 340,000 m^3 of seawater a day into a complex of coastal desalination plants, and then pumped 1,400m uphill for more than 600km to Xilinhot, where it will be used for coal mining operations.
The Xinjiang government submitted a project proposal to China’s State Council in 2006. The Council’s research office produced a report the next year, concluding that the project was technically feasible. The pipeline is being reviewed by China’s National Development and Reform Commission, the government body in charge of economic planning.
At a sustainable development conference in Beijing November 2011, a panel of water resource experts from China opposed the idea. Xilinhot’s proven and unproven coal reserves to contain 1.4 trillion metric tons. At China’s current rate of coal production (more than 3 billion tons annually)—the Xilinhot reserves alone could power the country for the next 425 years.
Leaders are pressing the region to double current coal production capacity to 200 million tons of coal per year by 2015. But developing coal reserves, along with the power and processing infrastructure to consume coal, uses tens of billions of gallons of water each year—water that isn’t available in a region that receives just a few inches of rain annually and where climate change is reducing snow pack.
In 2010, China produced 3.15 billion tons of coal—3x more than in 2000—much of it mined and processed in six northern China provinces.
Inner Mongolia alone produced 782 million tons, ahead of the 741 million tons produced in neighboring Shanxi Province. At current levels of growth, the country will need to produce over 4 billion tons annually by 2020 to keep up with demand.
Although China’s coal imports are on the rise, they made up only a fraction of the more than 3 billion tons that the nation consumed in 2010.
China is intent on providing energy with its own domestic supplies, which is why China is counting on ever-increasing coal production from the dry north. In addition to exploiting its abundant coal reserves, the Chinese government also plans to make Xinjiang—desert home to the Uyghur ethnic minority—the center of its oil and gas industry. China National Petroleum Corporation will spend nearly US$30 billion in the province by 2020, with a goal of increasing production capacity more than 60%.
Yet one barrier to all this growth is water. Xinjiang has few local water sources, and even those are complicated by international politics. The Irtysh River and the Ili River originate in Xinjiang, before flowing through Kazakhstan and Russia—both of which are concerned about China’s use of the rivers. Next to agriculture, the production and consumption of coal is the largest industrial user of fresh water. In 2010, the coal sector used 120 billion cubic meters (more than 1/5 of the 599 billion m^3 of water that China used nationally). All that water was devoted to mining and processing coal, cooling power plants, powering cement and steel plants, and turning an estimated 470 million metric tons of coal into fuels, chemicals, synthetic gas, and other products.
China’s big 1,000-MW coal-fired power plants use more than 3,800m^3 of water per hour for operations and cooling. This equates to 76,000m^3 a day, or 26 million m^3 a year.
The growing coal-conversion sector will increase water use. Depending on the product—diesel fuel, chemicals, natural gas—for every ton of coal converted, 3-15 tons of water is used. China’s coal conversion program is currently consuming more than 5 billion m^3 of water annually and will continue to expand.
The increasing level of technology and sophistication of China’s power plants are requiring a higher quality fuel. More coal than ever before is being washed with water to remove impurities.
55% of all coal is now washed, up 30% from a decade ago. Washing coal takes 0.11 to 0.15 m^3 of water per ton of coal, or 178-238 million m^3 of water annually.
From 2004 to 2009, Inner Mongolia lost 46.8 million m^3 from its total freshwater reserve (-15%). During the same period, Xinjiang lost 95.5 million m^3. http://www.circleofblue.org//Waternews_MultiMedia/BYU/COB_Bohai/index.html Coal/Water Relationship Since 2000, when China launched the “Go West” program to encourage industrial development and job growth in 11 western provinces and autonomous regions, Ningxia’s income levels have been steadily rising. In the last five years, Ningxia’s economy has grown by more than 100%, while its energy production and the value added by industry more than doubled.
The province’s lifeline is the Yellow River, which drains a region that receives a mere 300 millimeters of rain annually. And last year, total water resources in Ningxia were 35% less than in 2000. Agriculture uses about 93% of Ningxia’s water resources, or roughly 3.4 billion cubic meters. But, by the end of the decade, agricultural water use is projected to drop to 78% in order to provide more water to cities and to coal production, coal combustion, and coal-based chemicals.
The Ningdong Energy Base is an example of growing industrial development that also focuses on new policy and practices designed to conserve water.
When the Ningdong Energy Base is completed in 2020, its full complement of mines, along with 20 power plants and coal-to-chemical facilities, are expected to employ 20,000 workers, provide 20,000 megawatts of electrical generating capacity, manufacture millions of tons of chemicals and produce more than 200 million metric tons of coal a year. The ambitious water conservation and transfer program started in 2003. Water trading in China does not operate on free market principles. Instead, the “water rights trading” programs in Ningxia and Inner Mongolia only transfer the right to use the water from agriculture to industry. The project enables new industries to invest in lining and repairing irrigation canals, and the water that is saved by the repairs is then transferred to that industry in the form of a fixed water quota from the Yellow River for 25 years.
Farmers have no direct role in these transfer agreements, which are carried out by the local irrigation districts and Water Resource Bureaus and are overseen by the Yellow River Conservancy Commission (YRCC). In theory, farmers do not lose any water; rather, they irrigate with less wastage to seepage and evaporation. Today, it is the only way new power facilities can get approval to operate. A similar program has been operating in Inner Mongolia, the largest coal-producer in China.
The water transfer program is viewed as a lifesaver for many new facilities, which generally are unable to secure a direct Yellow River water quota. New industries in Ningxia, as a result, scramble for water from the trading program that comes at a hefty price of $US 0.80 to $US 0.86 per m^3.
The changes occurring in water rights in the north are seen by government and industry leaders as essential to solving some of the critical water stresses in northern China, where unclear water rights and low water fees have led to decades of rampant overuse, leaving the Yellow River so depleted it once ran dry for hundreds of kilometers short of its delta at the Bohai Sea. Renewables Coal A new facet of China’s coal-fired power industry is air-cooled power plants, like the Lingwu Power Plant in Ningxia, which save billions of gallons of water a year.
Like other newly-built industries in the region, Daba was required to use dry cooling, a more advanced technology that is 70%-80% more water efficient than conventional wet cooling, but consumes more energy and is more expensive to install. The facility consumes 4 million m^3 of water a year, about 40% of which comes from water rights trading. In comparison, wet cooling would use about 12 million m^3 annually. The Daba Power Plant invested close to $US 55 million for the air-cooling system. In comparison, the power plant invested around $US 5 million to receive 15 million to 18 million m^3 of water annually from water rights trading.
From an economics perspective, it’s cheaper to buy the water rights, pay the resource fee, and use wet cooling than to invest in installing dry-cooling infrastructure. But not from an environmental perspective Coal 2. Pre-Water-Trading 1. Background http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ INFOGRAPHICS ON 8 March 2011 http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ INFOGRAPHICS ON 8 March 2011 3. Water-Trade Metrics http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ INFOGRAPHICS ON 8 March 2011 The Ningdong Energy Base—where construction started in 2003, the same year that a pilot water-trading program was launched in Ningxia and Inner Mongolia—is central to the province’s economic turnaround.
According to its builders—among them Shenhua Group, the world’s largest coal company—Ningdong will eventually use 100 million m^3 of water annually. Though the mines will recycle 100% of the water needed to process coal, and the power plants will recycle more than 95% of the water used for operations, that’s still a lot of water in a dry, expanding, food-producing province that is limited by a 1987 law.
The law states that no more than 4 billion m^3 can be withdrawn annually from the Yellow River for all uses by Ningxia’s farmlands, cities, and businesses.
The Yellow River Conservancy Commission (YRCC) enforces the 1987 plan in Ningxia and the other Yellow River provinces. They are bound by an annual water allotment that serves industrial, agricultural, residential, and ecological needs for 140 million people and 15% of China’s irrigated lands. The YRCC controls this allocation with an extensive network of remote monitoring stations and sluice gates.
The 1987 plan to allocate and enforce specific allotments of water to each of the 9 provinces in the Yellow River Basin is based on an estimated river volume of 58 billion m^3. This estimate, however, has proven faulty: in 2010, the river volume fell to 53 billion m^3, and, in 2003, it dropped below 45 billion. Though enforcement has reduced inter-provincial water disputes and made it possible for the Yellow River to reach the sea—something it did not do in the 1990s—water levels in the river are low. The new program advocating water conservation is not always efficient or universally enforced.
For example, while new coal-fired power plants are required to make water-saving investments, many old plants do not need to renovate. Local authorities also report problems in collecting the water resource fees from some of the big companies. Since 2005, Ningxia and Inner Mongolia have collectively saved about 330 million m^3 of water. That’s enough water to begin tapping some of the big, new coal reserves in the arid north as well as to operate the Ningdong Energy Base and others like it in northern China.
The first three projects under the water trading program remodeled more than 60km of centuries-old canals and about 170 km of substreams, along with rebuilding more than 2,500 ancillary buildings in Ningxia, which freed up 50 million m^3 of water a year for coal-fired power plants at the Ningdong Energy Base and elsewhere. The application and acceptance standards to participate in the program are high. Polluting and water-intensive industries cannot apply, and many have been forced to restructure to use less water. Since 2005, provincial authorities have shut down around 60 paper mills, along with a number of small power plants and fertilizing companies. Out of the 30 to 40 companies that have applied to trade water in Ningxia since 2004, only seven have been approved by the YRCC.
The directive to secure water prior to construction has taken firm hold in all of northern China’s provinces, and especially in Ningxia.
Shenhua and its South African partner Sasol announced they were pulling out of a plan to build a coal-to-liquids plant—capable of producing 94,000 barrels of transportation fuels a day—at the Ningdong Energy Base. The companies have been unable to gain approval for an $US 8 billion to $US 10 billion plant from China’s National Development and Reform Commission, the economic management agency. The NDRC’s reluctance to approve the plant is due in large part to its huge thirst for water. If built, the plant would use 152,000 cubic meters of water a day and would be one of the largest industrial users of water in the nation. 6. Example http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ INFOGRAPHICS ON 8 March 2011 4. Results http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ INFOGRAPHICS ON 8 March 2011 5. High Standards http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ INFOGRAPHICS ON 8 March 2011 7. Problems http://www.circleofblue.org/waternews/2011/world/from-agriculture-to-industry-efficiency-upgrades-transfer-water-use-rights-on-china%E2%80%99s-yellow-river/ 8 March 2011 Map: Yellow River Basin- Water Allocation http://www.circleofblue.org/Waternews_MultiMedia/BYU/CPC_YellowRiverMap/index.html China's Water Governance http://www.circleofblue.org/Waternews_MultiMedia/BYU/CPC_YellowRiver/index.html Across the northern provinces, Chinese energy companies and utilities are constructing state-of-the-art coal-fired power plants. More than 20 “supercritical” and “ultra-supercritical” coal-fired power plants, which produce 10-20% more electricity per ton of coal consumed and use 15-20% less water by burning hotter and at higher pressure, have been built.
In the Ningxia Hui Autonomous Region, several other coal-fired power plants have been built, each one saving 70-80% of the water needed to cool a conventional coal-fired plant by using an air-cooling system instead.
In the city of Tianjin, south of Beijing, a consortium of coal companies and utilities is building the $1 billion, 650-megawatt GreenGen Power Plant. The coal-fired gasification plant—which has the capacity to be cooled by freshwater or seawater—is a demonstration project to produce energy more efficiently, as well as to capture and permanently dispose of climate-changing carbon emissions. The provincial government of Inner Mongolia is following a trend set by Shanxi Province, the country’s second-largest coal producer. Inner Mongolia will, over the next three years, shift the scale of mining operations from many smaller mines to a small number of large mines.
Inner Mongolia has 353 mines in 2011. That number could be reduced to 20 large-scale coal mining companies by 2013.
Experts said the restructuring would benefit the regional coal industry because the larger companies will be more efficient in using financial and water resources. Additionally, the Inner Mongolia government said that a number of the new and larger coal companies will have the capacity to produce more than 100 million tons annually, which makes access to water essential to the government’s plan. Coal vs. Water April 5, 2011 Fossil Fuel in XinJiang April 5, 2011 http://www.circleofblue.org/waternews/2011/world/desalinating-the-bohai-sea-transcontinental-pipeline-could-open-chinas-northern-coal-fields/ Changes in the Coal Sector April 5, 2011 Coal Production Bohai Sea Pipeline Could Open Northern Coal Fields April 5, 2011 http://www.circleofblue.org/waternews/2011/world/desalinating-the-bohai-sea-transcontinental-pipeline-could-open-chinas-northern-coal-fields/ http://www.circleofblue.org/waternews/2011/world/desalinating-the-bohai-sea-transcontinental-pipeline-could-open-chinas-northern-coal-fields/ April 5, 2011 http://www.circleofblue.org/waternews/2011/world/desalinating-the-bohai-sea-transcontinental-pipeline-could-open-chinas-northern-coal-fields/ http://www.circleofblue.org/waternews/2011/world/desalinating-the-bohai-sea-transcontinental-pipeline-could-open-chinas-northern-coal-fields/ Water Efficiency April 5, 2011 http://www.circleofblue.org/waternews/2011/world/desalinating-the-bohai-sea-transcontinental-pipeline-could-open-chinas-northern-coal-fields/ Map & Timeline: South-North Water Transfer http://www.circleofblue.org/Waternews_MultiMedia/BYU/CPC_WaterTransfer/map.html The Chinese government often isn’t really interested in forging genuine partnerships. It simply wants a vehicle to gain access to foreign technology, capital, and know-how while retaining Chinese control of the venture. This is why Chinese law requires joint ventures in key sectors like finance, insurance, auto production, and telecommunications.
If your industry requires joint ventures for access to China, proceed cautiously. Expect that you and your partner won’t see eye to eye. Foreigners use joint ventures to learn how to do business in China and to access the China market. The Chinese will use the joint venture to learn the business. If you take those motivations as inevitable, then you can structure the business for peaceful coexistence. Get a clear majority ownership and management control, especially in personnel and finance. If you must settle on fifty-fifty or a minority stake, prepare for an adventure that will consume enormous amounts of management time and make your attorneys rich.
In a perfect world, the manager of your China operations would speak and read Chinese, understand Chinese culture and history, enjoy strong support at headquarters, be steeped in the corporate culture and ethical standards, and have significant industry and management expertise. Such people are rare. The good news is that it is even more important for your China manager to be a true leader, a true expert, and a tough-minded mentor. Chinese people are eager to learn, and they learn very fast. They want to be led, but they will only follow and respect leaders who have the skills and intelligence to deserve it. Show Chinese employees that they have a path to top management. Build systems that put your Chinese and expatriate executives on equal footing. Too often, the Chinese side assigns its best and brightest to the joint venture while the foreign partner picks people based on their willingness to live in China, which often brings inexperienced foreign managers of deadwood pushed out of headquarters. Send your most creative and driven entrepreneurs, not your risk-adverse corporate bureaucrats. Caution: One Billion Customers by James McGregor China as a Governing Body PECG Chinese Operations China 'on the Ground' China's Environmental Legislation PECG Working in China China's Business Policies Hurdles Power Ups Don’t hire the party secretary’s kid. Those political connections can also be turned against you and spoil your corporate culture. If you need such help, consulting contracts with time limits are best.

An entrepreneur in China must understand politics but cannot directly participate in politics. Your company also has to help solve the country’s problems. Layer your management. Your top managers will surround themselves with their own kind, be they Hong Kong Chinese, Taiwanese, Shanghainese, or Beijingers. For your corporate culture to dominate, instead of the ethnic culture or Chinese pecking order rivalries, place foreigners and Chinese from various places at all levels in the management structure.
Top-down management under a benevolent dictator has been the encoded social order in China for thousands of years and by far the prevalent business management model in the country. Even today, the Chinese respond well to charismatic and visionary leaders who can tell them what to do to be successful and who will take care of them. In many cases, the boss is even a substitute for the law, handling any problem that arises, including disputes between employees or family problems. So far, that approach has been reasonably successful, especially in manufacturing economy. But once a company’s reach extends beyond China’s borders, or it needs creative talent in areas like research and development, the Chinese model falls short. Without professional management systems, few companies can survive beyond the lifespan of all-powerful founders. China is not one market, but a collection of many local markets, each with its own practices, traditions and methods for local protectionism. It is often best to start your business at a provincial level where officials are more entrepreneurial and often resent control by BeiJing. They can be very loyal and protect you.
When introducing a new product in China, you need to combine a perfect sales pitch, a perfect political pitch and unbelievable persistence. Long-term mentoring is the single most effective technique for foreign companies to build an effective Chinese executive corps. Mentoring should involve real projects where people make decisions and can learn how to make them in the future. Management Market Politics Nurturing Resources One Billion Customers by James McGregor Enterprise-Type Comparisons LEGEND Conducting research
Promoting their foreign company
Coordinating their foreign company's activities in China
Other activities that do not and are not intended to generate a profit ROs may engage in the following: Chinese law limits ROs to performing 'liaison' activities

ROs cannot enter into purchase/sales contracts or bill customers

ROs cannot supply parts and after-sales services for a fee ROs are not allowed to engage in profit making activities: 'Switching' from a RO to a WFOE is not really a switch at all. Making that switch in China will involve both shutting down the RO and then forming a WFOE pretty much from scratch. Because the cost of forming a RO, shutting down the RO, and forming a WFOE, will be considerably more than just forming a WFOE, forming a RO with the later intention of forming a WFOE does not usually make sense and most companies will be better off biting the bullet and forming the WFOE right away. Discourage RO -> WFOE Some companies believe they need a China RO so their Chinese entity can sell their products into China. But oftentimes, these companies can sell their products into China without having to create any in-China footprint at all. As long as they are not going to have much need for people in China, they can get away without forming a company in China. Selling Products May Not Require a Company US company that sells US made equipment for around $2M each.
Has no plans to start manufacturing in China (no need to form WFOE)
Already has arrangements with a Chinese company to repair its equipment sold into China (no need to form WFOE)
Wants on the ground China presence to improve its sales and let its current and potential customers know that it is serious about China Sample Appropriate RO Case: RO applications typically go through the Administration of Industry and Commerce (AIC) though some industries (banking, insurance, legal, accounting, airline, media and others) also require an additional approval from the Chinese government agency with jurisdiction over that particular industry

All applications must be submitted by a designated/ authorized Chinese agent aka Foreign Enterprise Services Company [FESCO] in the locality where the proposed RO is to be established.

The application involves submitting fairly standard corporate documents from the foreign company, along with a copy of the lease agreement showing the RO is leasing legitimate business space in China.

MOFCOM takes ~30 days to approve a RO

RO are not permitted to hire employees directly; they must be staffed indirectly through FESCO

It is the RO's responsibility to make sure its FESCO employees have signed off on RO company policies (ex. confidentiality) and to draft the employment agreements FESCO must use with the employees. Process Some ROs are engaged in operations in a lawful or tacitly permitted way and constitute one of the direct foreign investment forms in China
The tacitly permitted way is applicable to those industries that do not require special material conditions or environment for their operations.
Ex. a consulting business does not need manufacturing equipment and raw materials. It only needs offices, employees and office articles. These physical conditions are necessary for other ROs as well.
In practice, many ROs that are established by foreign consulting companies directly engage in consulting activities. Chinese government does not prohibit them in practice and this is reflected by the fact that the tax authorities collect business tax from these ROs.
In the event that a bilateral treaty provides that certain types of ROs are permitted to engage in operational activities, these bilaterial treaties should prevail over Chinese domestic law.
As of now, only ROs of foreign airlines are allowed to engage in direct operational activities in China under bilateral treaties. No other ROs of foreign companies are so permitted. Exceptions: banks, insurance companies, accounting and law firms ROs are liable to pay corporate income tax (also VAT and BT). Because CIT for resident enterprises is levied on the taxable income, the calculation for RO's Income Tax is different than the one for WFOEs. Without an income, Chinese tax authorities will use a deemed profit rate to calculate RO's Income Tax. The deemed profit rate is based on RO's expenses that sometimes could make the maintenance of a RO more expensive than a WFOE. Tax: http://www.by-cpa.com/english/china/ro_tax.asp http://www.bstarts.com/representative-office/ http://www.by-cpa.com/english/china/types.asp C Sino-Foreign Cooperative Joint Ventures Under Sino-Foreign Cooperative Joint Venture Law and associated implementation regulations.
A CJV can be set up either:
i.with each partner remaining a separate legal entity who bears liability in accordance with the relevant provisions of PRC civil law and with all of the partners cooperating to establish the joint management setup of the CJV; or
ii.with all of the partners putting in their investment and delegating non-investing staff to form a single company with limited liability.
The partners or shareholders can decide on the rate at which the investment is to be recovered, and profits can be shared irrespective of the level of capital contribution that is made by each party
Based on a cooperative joint venture contract in which matters like the terms of cooperation, the division of earnings, the ownership of property upon the termination of the contract term of the CJV, the sharing of risks and losses, etc are set.
The Chinese company usually provides the labour, land use rights and factory buildings, while the foreign company brings in the necessary technology and key equipment, as well as the capital. http://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Mainland_China/types_of_mainland_business_organisation/index.shtml E Established in accordance with the Sino-Foreign Equity Joint Venture Law and associated implementation regulations.
A limited liability entity with legal person status (the company can sign contracts and sue or be sued by the others and the investor or partner is not personally liable for the debts that the company might make in the future) .
Jointly invested in and managed by foreign and Chinese partners.
Involved parties each contributes capital in cash or other forms (equipment, right to use land and office or factory premises)
In general, the foreign company invests no less than 25% of the total investment
Takes a shareholding in accordance with the percentage of equity that the party has invested.
Each shareholder is entitled to receive dividends in proportion to its own equity share Sino-Foreign Equity Joint Ventures: http://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Mainland_China/types_of_mainland_business_organisation/index.shtml http://www.chinaorbit.com/china-economy/china-joint-venture.html http://www.chinaorbit.com/china-economy/joint-venture-in-china.html While an EJV is always a legal person, and thus a limited liability company, a CJV can be a legal as well as a non-legal person. The latter option is not very common though because it would mean that the partners of the joint venture would be personally liable for any losses the company might make in the future.
In an EJV the distribution of profits has to take place equivalent to the ratio of the capital contributions made by the parties, while the distribution in a CJV can take place according to the parties' wishes. A CJV is thus a lot more flexible than an EJV.
In a CJV a party may, besides contributing registered capital, provide cooperative conditions, e.g. market access rights. Equity Vs. Cooperative Joint Ventures: http://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Mainland_China/types_of_mainland_business_organisation/index.shtml http://www.chinaorbit.com/china-economy/china-joint-venture.html < Every company in China must have a stated registered capital. This amount is provided in the Articles of Association of the company and is also noted on the company register. Beginning in 2006, this company register is available to the general public. The registered capital includes all of the components of the initial investment in the company, including its start up cash, contributed property, and transferred intellectual property. Where the registered capital is small, the entire amount must be contributed immediately upon formation of the company. If the amount is large, it may be contributed in installments. There are a number of schedules for the percentage and timing of large amounts of registered capital. It is a crime to state a registered capital amount and then fail to contribute. The purpose of registered capital is to provide some notice to creditors of the capital adequacy of the company. Because of this, Chinese regulators take very seriously the rules regarding registered capital.
Registered capital is an initial investment that is intended to be immediately used in operating the company. It need not just sit in a bank and never be touched. It can be used to pay salaries and rent, to purchase product, or for any other normal start up operating expense. Registered capital may include contributed real and personal property used in operating the business. Many foreign investors think registered capital is some sort of security deposit that they can never utilize. This is not true. On the other hand, some foreign enterprises believe they can simply withdraw their registered capital after the Chinese company begins normal business operations. This also is not true. Once the capital is contributed to the Chinese company, it can never be withdrawn for anything other than paying company expenses.
The only way to get funds from the Chinese company out of China is by repatriating profits or by liquidating the Chinese company. Both of these methods will work, but they both require paying Chinese taxes and meeting other requirements under Chinese law. Investors should also note that the RMB is not a freely convertible currency. For companies that will earn RMB income, the issue of conversion to U.S. dollars or other foreign currency should be carefully considered and a failure to abide by Chinese law all the way along the process will likely lead to an inability to get money out of China at some point down the road.
The real question is what the Chinese authorities will consider as adequate capitalization for the specific project. Of course, that answer varies by type of business and location. For example, it is very expensive to operate a business in Shanghai. On the other hand, it can be very inexpensive to operate the same business in a rural area of China. It is expensive to operate a capital intensive business like manufacturing, but relatively inexpensive to operate a knowledge based consulting business.
The Chinese regulators usually consider all of these issues. To complicate matters, each local regulator has its own basic standards on what constitutes adequate capital for certain types of business activities. These numbers are not published, but when asked they will almost always be provided. They can only be determined through direct contact with the regulator and only after providing a clear explanation of the project. The local regulator virtually never considers the statutory minimum in making a determination regarding adequacy of capital. Rather, the local regulator will determine what it believes is an adequate amount of capital based on all the circumstances. Once the investor has a clear idea of the outlines of a project, it is usually a good idea to engage an attorney to contact the local regulator to see what their response will be to the proposed amount of investment. This initial screening can save a lot of time if the investor's idea of the proper amount of capitalization is dramatically different from that of the local regulator.
In determining what constitutes adequate capital, one needs to consider the peculiar situation in China that building rents are virtually always paid in advance, that payment for products for sale are virtually always paid in advance, and that a reasonable advance reserve for salaries is also required. Thus, the initial start up costs are much higher than in a location like the United States, where credit and time payments are more common. In addition, the foreign investor needs to take into account the risk aversion of the Chinese regulator. The Chinese regulator will not approve a project that looks risky or under-funded. The regulator has no incentive to do this, especially for a 100% foreign owned entity.
The government sometimes permits the minimum capital to be paid in installments over up to two years, though the first installment must be at least 15% of the total amount required and it also must be at least the statutory minimum for total capital. The capital contribution can be made in money, equipment, intellectual property, or other transferable property, but the monetary contribution must be at least 30% of the total capital amount. The government will appraise the value of any non-monetary contribution and our experience has been that it will come in fairly low in its valuation.
We frequently see two big mistakes being made by foreign investors when it comes to their putting in the required minimum capital. Foreign investors hear that assets can be used as a contribution towards the minimum capital requirement, so they go ahead and ship certain assets over to China, with the expectation of then using those assets towards minimum capital. The problem with this approach is that unless the proper authorities have been notified and granted their approval in advance of the shipping, the assets you just shipped to China will not be applied towards minimum capital, and you will have a huge problem on your hands.
The other common mistake we see is the foreign investor putting a value on its assets (including its intellectual property) and assuming the Chinese regulators will put the same value on those assets in determining the contribution towards minimum capital. The Chinese regulators will require their own appraisal (at your expense) l of anything other than monetary contributions towards the minimum capital requirement, and those appraisals tend to come in low, particularly for IP. Minimum Capital Requirements for WFOE: http://www.chinalawblog.com/2009/12/how_to_start_a_business_in_chi_1.html D a limited liability company wholly owned by the foreign investor(s)
The registered capital of WFOE should be subscribed and contributed solely by the foreign investors(s)
does not include branches established in China by foreign enterprises and other foreign economic organizations WFOE: http://www.pathtochina.com/reg_wfoe.htm S Caution
Process
Pros
Cons
Capital
Cooperative JVs
Equity JVs
Definition
Comparison
Best Case I have not worked for foreign companies in China. I have worked for Chinese consulting forms on tourism plans. I have also directed major projects with an environmental theme that have been funded by the Canadian International Development Agency. I have also been involved with universities in a variety of capacities and have interacted with government personnel of various types in China.

It is my impression that the Environmental Impact Assessment Process is not taken very seriously. It is under the authority of SEPA who, I believe, would like to see a better job done. However, it is not the most powerful agency and therefore EIA is often done superficially, even after (rather than before) approval is given, rather than as a real input into decision making. The emphasis has been and continues to be on economic development with a much lower priority being given to environmental protection (for a variety of reasons).

Thus, while there may be some rhetoric about environment and sustainability, little is actually done. In fact, there is a tendency to flatten large areas for building purposes (new towns, high tech zones etc.) and only after this is done is the question asked about how things can be done in an environmentally sensitive manner. In such circumstances, it is too late. It is my sense that rather than fitting things into the environment (for example, by leaving some indigenous vegetation rather than planting aliens that need water and care) the emphasis is on 'environmental efficiency' - using the waste from one firm as the inputs of another firm.

If my interpretation is correct, then Chinese EIA continues to be a hiollow process. There is interest in getting environmental accreditation (e.g. ISO) of various kinds that can be used as a label. However, I do not see much commitment to the real implementation of EIA. Thus, I am not sure what a competent international firm could do unless they could help to save money through stimulating greater efficiencies. Competent assessments take time and money and I see no evidence that China is willing to commit the resources or wait for the results in the rush to 'develop'. The exception may be where international accreditation may be involved (e.g. UNESCO World Heritage sites) where sophisticated plans may be required as a part of the designation process but, once approved, the commitment to implementing the plans may not be there.

It seems to me that there are two related issues:
1. How can EIA in China be improved? I believe that this requires greater commitment on the part of Chinese authorities. However, you will know that Chinese government authorities, and companies tied to them, make a great deal of money from various forms of development. Thus, improvements to the system require more interest in implementation on the part of those in power rather than better legislation or even enhanced skills. Also, government officials gain few "brownie points" from protecting the environment but a lot for various forms of growth;
2. How can foreign companies become involved? No doubt, foreign companies could enhance understanding and documentation but only if the commitment is sufficient to hire them and listen to their recommendations. My experience in tourism planning is that there is little interest in environmental matters. The emphasis is on the identification and development of possible attractions. My attempts to raise issues about water availability, waste management, rehabilitation of derelict areas, land reclamation etc. have usually been met with deaf area. There is a desire to have international involvement of someone like myself because it provides the appearance of having informed external input. However, this is a charade for suggestions are likely to be ignored and one often does not know what is in the final plan - because it is not a public document, one is not sent it and it is in Chinese (and I do not speak Chinese). Plans and EIA documents are difficult to access.

Why would I participate in a charade? Certainly not for the money, which is miniscule. However, it has enabled me to see a lot of China and get an idea of how things work (and do not work). It has been a learning experience for me which has been extremely valuable in my academic work in Canada.

Geoff Wall
Professor of Geography and Environmental Management
University of Waterloo One group that I have visited, that is connected with NUFE in Nanjing is http://www.larkworld.com/ which is a consulting group that operates across China.
Otherwise, I’d say all the big firms do business in China. But I know it’d been very tough to get a) paid for services (rather than for technology or product), and b) to be paid at Western rates (>$100/hour) which is very pricy in China.
I divide the consulting world as follows:
- Big accounting firms
- Engineering firms
- Specialist enviro firms
- Boutique companies

Steve Young
Associate Professor
School of Environment, Enterprise and Development
University of Waterloo Shunjun Yan became the Deputy Commissioner of Shanghai Environmental Protection Bureau (EPB) in 1997 and had been a key decision maker and influencer in selecting environmental contractors till his retirement in April 2008. It is reported that all bribes are from the environmental industry. Most of the bribery is from private enterprises. The prosecutor accused YAN of receiving bribes for a grand total of 864,000 Yuan, 20,000 US dollars and 4000 euros.
Case 2 - Environmental Resources Management (ERM) Shanghai Office Head is a long time acquaintance of YAN’s and is a former professor at East China Normal University. With YAN’s “help”, ERM Shanghai won several major contracts, and with became the first foreign owned company to receive a Class B and then Class A license to provide environmental assessment nationally. With this, ERM entered into several very profitable sectors such as mining and dredging, providing environmental assessment services. During the Hang Zhou Bay Environmental Assessment project, YAN arranged ERM to participate and receive a 1,300,000 Yuan contract. To payback the business arrangements, ERM Shanghai Office Head sent $20,000 US Dollars to YAN’s daughter who studied in the U.S. in 2005; and gave YAN 4,000 Euros as “pocket money” when YAN was on business travel in Germany. Sept 26, 2009 Former Shanghai Environmental Protection Bureau Deputy Commissioner bribed millions of Yuan Great corruption at the County Management level where most projects are bribed. There is a famous court case where a 35,000 RMB project was rewarded but 28,000 RMB was used as bribe (only 7,000 to do rewarded project).
Therefore, at the County level, many major projects will be put on hold when turnover at management occurs. The next County leader (Xian Zhang) will likely not understand the terms and conditions or even the goal of those bribed projects.
This is often why transactions are in cash and the local officials' family are abroad in the UK or US for easy ship jumping. There may be so great frequency and amount in transactions that money is weighed and not counted.
Due to corruption, accidents of state companies such as the railway never report cause or true number of casualties.
The same case is true for private mining companies. Depending on how big an accident is, the owner will go into hiding in another country until the press has died down. If the event is extremely big then he may wait 1 to 2 years until he paves his way (with bribes) back to China and to operating the mine.
To show just how far bribing may take a business, here is an extreme example: there is a dye factory that operates WITHIN a jail in order to avoid environmental standards. It may not be seen from the outside. Corruption knowledge of Natasha Groundwater The Fangshan water authority in Beijing is investigating a report that one of the capital's sources of drinking water may be polluted.
The authority sampled water from different parts of the river as part of its investigation.
Sterilization equipment is in all nearby villages, and affected regions are provided with emergency-use water. According to the report, more than 340 wells in 181 villages are affected. August 7, 2012 http://english.mep.gov.cn/News_service/media_news/201208/t20120807_234452.htm The water quality of a river in Hunan has recovered from a benzene spill on August 4th with precautionary measures implemented to prevent further leaks.
About 200kg of crude liquid benzene leaked from a chemical storage facility in the city of Zixing with 60kg leaking into the river.
The storage facility belonged to Zxingkesheng chemical Co and it is only 30m from the Baoyuan river. The company's operations had been suspended for 2 months prior to the spill. August 12, 2012 http://www.chinadaily.com.cn/china/2012-08/12/content_15668332.htm Hefty Investment to Protect Plateau Lake China has approved a conservation program for an inland plateau lake in Qinghai province
According to the program, approved in early August, $68.3 million will be invested over 3 yrs to protect the environment of the Keluke Lake on the Qinghai plateau, the provincial envl protection department said.
The lake, located in the northeast of Qaidam Basin, Haixin, is the only freshwater lake as well as a major water conservation area in Qinghai.
The lake covers 57.4km^2. Local industrial development and population growth in the Tsaidam area and over-fishing in recent years have caused pollution in the lake as well as wetland degradation.
The newly approved project has 8 smaller programs including sewage treatment, wetland conservation and desertification control. http://english.mep.gov.cn/News_service/media_news/201208/t20120801_234185.htm August 1, 2012 Problem of low fine for violating the law has not be resolved. Current max. fine is 200,000 yuan ($31,500).
In some projects, a policy is implemented where one violation could cause a halt to projects in the whole region.
In October, 257 apps for EIA were submitted & 234 apps approved.
There are 1,162 EIA agencies in China with 40,000 technical staff of which 9,000 are engineers.
During the 11th Five-Year Plan, more than 100 agencies and 40 EIA related staff were punished for inappropriate actions/unqualified staff.
Ministry to conduct inspection of those agencies in the next 3 years. http://www.globaltimes.cn/NEWS/tabid/99/ID/685013/Trapped-between-economy-and-environment.aspx Nov 21, 2011 Interview with Director of EIA Department Fake brands, labels, and products are very common in China. But when a renowned large multi-national company enters into the China market, values of the company tends to 'dilute' in Chinese operations.

Case 1: the German consulting company ERM
According to the website, the Chinese branch was established in 1994 and the first privately owned and operated international environmental consultancy in China. It employs 110+ people in four offices: Shanghai, Beijing, Chengdu, Guangzhou. 80% Chinese with overseas experience/education, 20% expat. In 2007, ERM awarded a Class A EIA license by the Ministry of Environmental Protection in preparing EIAs for some of the largest/ most complex development projects. However, they were caught for bribing environmental officials in order to win projects.

Case 2: Carrefour, French grocery store
Produce labeled organic were found to be fake. Examples of Canadian Businesses in China Mining Steel Through its wholly-owned subsidiary Microcoal International Inc., Vancouver-based Carbon Friendly Solutions Inc. (CFS) has signed a memorandum of understanding (MOU) with China’s Hebei Iron and Steel Group Ltd., an iron and steel producer in China. The MOU sets out project terms to develop a large-scale industrial facility. HBIS utilizes approximately 9 million tonnes of coal per year to produce steel. Microcoal technology has been developed to reduce input costs, optimize operational performance and decrease the environmental footprint. Microcoal is focused on upgrading coal through the use of their patented technology. CFS provides solutions for companies, organizations and individuals looking to reduce or offset their global warming impact caused by greenhouse gas emissions while including the generation of carbon credits for sale in the global voluntary and compliance markets. Carbon Friendly Signs MOU for Industrial Plant with China’s Hebei March 26, 2012 New Pacific Metals Corp. of Vancouver announced that it has entered into an arm’s length non-binding Memorandum of Understanding (MOU) with Fujian Henyuan Mining Co., Ltd. of China to acquire a 75% interest in the LMC silver-gold-lead-zinc property in China’s Fujian Province. The property consists of an exploration permit for an area of 1.54 square kilometres and a 300 ton-per-day flotation mill plant. New Pacific Metals will pay, upon signing of a definitive agreement, approximately C$33 million to acquire a 75% interest in the property. New Pacific Metals is a near-term gold and silver production mining company engaged in the exploration and development of gold poly-metallic properties in the Yukon, Canada. New Pacific Metals Enters into MOU for 75% Interest in China Property February 29, 2012 http://www.asiapacific.ca/news/new-pacific-metals-enters-mou-75-interest-china-property http://www.asiapacific.ca/news/carbon-friendly-signs-mou-industrial-plant-chinas-hebei Energy Export Development Canada announced it has provided China Everbright Environmental Energy (CEEE) with US$10 million to finance the development of a series of solid waste-to-energy plants with clean technologies. EDC’s involvement is predicated upon the potential for Canadian supply and services into the various projects, and the interest demonstrated by CEEE for Canadian expertise in the clean technology sector. EDC’s participation is part of a larger US$100 million commercial bank tranche in an Asian Development Bank loan facility to China Everbright. EDC is an export credit agency helping Canadian exporters and investors expand their international business. China Everbright Environmental Energy is a division of China Everbright International Limited which is a Hong Kong-headquartered company that focuses on green environmental protection and alternative energy. EDC Offers US$10 million to Develop Waste-to-Energy Plants in China January 25, 2012 http://www.asiapacific.ca/news/new-pacific-metals-enters-mou-75-interest-china-property Chemical McVicar Industries Inc., a Toronto-headquartered electronic components and chemical company focused on investments and acquisitions of businesses in China, announced that it has won an open bid auction to acquire Anhui Linghua Co. Ltd, a China-based chemical company, for C$6 million. Anhui Linghau Co. , established by Zhejiang Huzhou Linghua Co. Ltd., is located in the Xiangyu Chemical Industrial Park in Anhui province. Anhui Linghau Co. will provide land for McVicar’s three subsidiaries in China and further expansion of its chemical business in Anhui. EDC Offers US$10 million to Develop Waste-to-Energy Plants in China August 02, 2012 http://www.asiapacific.ca/news/mcvicar-industries-acquire-chinese-chemical-company-anhui-li Toronto-based GobiMin Inc. announced that it has completed the disposal of the Balikun Coal Project in China after receiving a final payment of US$7.6 million. GobiMin received a total consideration of US$30.4 million including proceeds of the disposal, repayment of the loans for the Balikun Coal Project. GobiMin is engaged in the exploration, development and exploitation of mineral properties in China. GobiMin completes disposal of Balikun Coal Project in China September 26, 2011 http://www.asiapacific.ca/news/new-pacific-metals-enters-mou-75-interest-china-property Water BioteQ operates a water treatment plant at the Dexing Mine, an active copper mine in China, in a 50-50 joint venture with Jiangxi Copper Company. The plant applies BioteQ’s ChemSulphide® process to treat wastewater produced by mine drainage from waste dumps and low grade stockpiles, removing dissolved copper and ferric iron, and producing treated water that is re-used at the mine site. BioteQ operates the plant on behalf of the joint venture. Vancouver-Based BioteQ treating Chinese Mine Tailings http://bioteq.ca/operations/dexing-china/ Toronto-based Sparton Resources Inc. announced that its 74% owned subsidiary, VanSpar Mining Inc., has entered into an exclusive option agreement for an 80% interest in Jiangxi Rentian Mining Co. Ltd of China. Rentian’s mining rights and assets include two licenses for a vanadium processing plant in China’s Jiangxi province. Sparton Resources Enters into Agreement to Acquire 80% Interest in China Vanadium Project April 12, 2011 http://www.asiapacific.ca/news/sparton-resources-enters-agreement-acquire-80-interest-china Businesses are impacted financially by the environmental and social protests against polluting operations. Ex. high resistance from local residents may decrease stock prices by 10% a shown by the Shifang protest in Sichuan According to the draft amendment to the Civil Procedure Law, "legally registered organizations and social groups" are entitled to file lawsuits in instances in which polluting the environment or other behavior infringes on the public interest. This gives greater power to the people, most of whom have no voice. Greater environmental coverage will likely result from this law. Due to how common bribery is in Chinese business, landing projects with governments (municipalities, counties, crown ventures) may be very difficult.

One should also keep in mind that bribery does not stop at the business world. Ex. any serious medical services or operation REQUIRE large pocket money. Like business in Canada, business in China is all about connections. Guanxi (connections) is the determining factor for whether companies make it or not. Only through connections and referrals can you be sure that you can trust the other party. However, once these connections are established, the Chinese parties may prove to be extremely loyal. "Foreign Expertise" adds value and may seem attractive for a Chinese company. (However in many cases, international certifications and standards are just for show. Your actual services may not valued. Or your technical expertise is valued but once the Chinese business learns the know-how, they may discontinue business with you) Be aware that as a foreign company, you may be required to take your Chinese clients on 'technical/business tours' in Canada. In reality, these clients are not interested at all in how you run your business but rather, they want to be entertained: taken to casinos with pocket money, to restaurants and so on. This may be seen as networking expenses but be realistic and acknowledge that your clients could have these expectations. Cultural issues: In Chinese etiquette, sharing food (from the main shared dish to your client's plate) is a sign of respect and friendliness, pouring tea is a sign of respect, obedience or apology and more. Chinese business people will pour you drinks and demand you drink however many. Turning it down means disrespect. Do your homework and make sure to have someone who can entertain and understand local customs at such functions. Racism exists. Expect to be treated different (may be positive or negative). Ex. when shopping, there are 'local prices' and 'foreigner prices' where the western price could be double that given to a local person. There may be prejudices against 'foreigners' but keep in mind that the same applies within the country. There are many stereotypes (taken seriously) that applies to Chinese people from different provinces/parts of the country. People from Hong Kong often despise mainlanders. People from Shanghai are known to be two-faced and extremely money-driven. While people from the Shandong province are known to be very loyal, blunt, and trustworthy. People from certain provinces are known to be liars. Although these are stereotypes, they may still prove to be useful as a precaution. As mentioned below, the fact that PECG is a foreign company helps attract clients. However, if the Chinese clients want to have high ROI and established good rep, they may prefer to go for a larger, more established multi-national company. This is reason why Guanxi (hurdle to the left) is so important. As noted by Geoff Wall of University of Waterloo, environmental compliance/ initiatives do not win a lot of brownie points. To make matters worse, municipal/ township level management are rewarded financially based on how much their local economies produce. As a result, these local officials will develop and build regardless of the environmental impacts. Large Multi-Nationals 'Changes' in China Bribery as the Norm Hidden Responsibilities & Costs Culture, Customs and Racism Development Vs. Environment Guanxi - Connections Size of PECG As Canada as one of the world's more stringent EA laws and processes, Chinese regulators may see the Canadian PECG as a 'best case' provider. In addition, EA processes in China are enforced more strongly. Ex. the halted railway project in Heilongjiang province. Through a call to a consulting firm for foreign businesses in BeiJing, Natasha's dad found out that a 'fake address' can be made in order to prove that a company has a lease/working location. The process seemed like a common practice. Leasing Requirements LOOPHOLE China History- Harvard Lecture Notes http://www.chinalawblog.com/
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