Courting The Dragon
Page 2 of 2
Be aware of the central government's role
China - unlike the U.S., where federal and state jurisdictions are clearly delineated - has a unitary system of government. A deal struck at the provincial level isn't always safe from changes in policy and regulation at the central level. The machinations of Chinese power structures aren't generally transparent to Westerners.
For example, current restrictions require foreign companies and foreign-invested enterprises to use Chinese middleman companies to get imported products to the consumer. American service companies face restrictions but, where permitted to operate, are required to take on a joint venture partner. While the recently signed bilateral trade agreement (Congress' acceptance yet to be granted) will, over the next five years, lower the bar for American companies doing business in China, such requirements currently remain a legal obligation.
Minimize the risks
Such information is typically gathered through an informal network of contacts, guangxi, which all companies quickly learn they'll need to survive. Information garnered through these connections may be accurate but often lacks needed detail and always costs dearly in time. From a financial manager's perspective, the reliability of information field managers glean through their network is always in doubt.
While China has scored great progress in making an increasing number of relevant rules and regulations publicly available, internal policy statements and notices continue to be issued at all levels of government. As AmCham China points out, these unpublished regulations function as law, despite the fact they're often not publicly available.
Exercise due diligence
Bottom line: There are great rewards to be won in China. But caution is very much in order.
Ercel Baker is chairman of Baker Group International Inc. and its subsidiary, China ProDiligence Inc., in Vancouver, Canada. China ProDiligence has an exclusive representational arrangement for North America with a company, established with the support of Chinese authorities, created to compile pertinent information from the various state sources that hold it. Baker can be reached at (800) 360-9568, or visit www.prodiligence.com.