1. Doing Business in China: Update and Opportunities
July 20, 2006
Andrew M. Pan
North American Representative Office of Shenzhen, China (NAROS)

2. Agenda China Trade and Economic Developments
China Economic Update
Domestic Market Momentum
New Economic Plan
Regulatory and Tax System
Emerging Market Opportunities
Manufacturing
Procurement
Service and Distribution
Acquisition of SOE
Industrial Zones
Shenzhen: A Story of China’s Success

3. China Trade and Economic Developments

4. Economic Update China’s economy grew 9.9% in 2005
China’s GDP US$ 2,279 billion– world’s 4th largest
Foreign direct investment (FDI) – US$ 60.3 billion
Foreign trade volume – US$ 1,422.1 billion
Foreign currency reserve – US$ billion
Total household savings in banks – US$ 1,838.1 billion
Source: China State Statistics Bureau, 2005

5. Domestic Market Momentum
Recent survey conducted by PwC
Survey of 1,410 CEOs from 45 countries
Projected overseas investment ( )
55% of respondents will invest in China (vs. 36% in India, 33% in Brazil)
75% of respondents are attracted by China domestic market opportunities
48% are attracted by lower manufacturing costs
Source: PricewaterhouseCoopers

6. American Chamber of Commerce Survey: Number One Goal for China Business5%
62% 3%
Serve as regional headquarters
Produce goods or services for other (non-China, non-US) market
Export to China
Produce goods or services in China for the US market
Produce goods or services in China for the China market
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
11%
14%
Others
Q: No.1 goal of the US investment in China?
A: China domestic market opportunities.
(62%+ 11% = 73%)
Recent Trade and Economic Developments Update
China export sales and US-China trade balance
China foreign exchange reserve and development on RMB appreciation
Commitment to TWO time table and domestic market deregulation
Tax reform and tax incentives might be phased out
100% = 345 companies

7. New Economic Development Plan
China’s 11th 5-year Socioeconomic Development Plan ( )
Establish a “harmonious society”
Coordinate growth among different regions
Stimulate development of the agricultural sectors
Facilitate healthy growth in urban areas
Transform from export-processing to higher-technology-content products
Convert from a manufacturing driven economy to a more diversified domestic services economy
Targets by end of 2010
Double 2000 GDP per capita by 2010
Reduce energy consumption per GDP unit by 20% from 2005 level

8. China Regional Economy

9. Regulatory and Tax System
Forms of Doing Business in China
Direct Investment Forms
Equity Joint Venture (EJV)
Contractual Joint Venture (CJV)
Wholly Foreign-Owned Enterprise (WFOE)
Investment Holding Company (CHC)
Joint Stock Company
Indirect Investment Forms
Direct purchase and sales
Toll/Contract manufacturing
Licensing
Financing
Representative offices
Foreign Investment Enterprise (FIE)
Foreign Enterprise (FE)

10. Foreign Investment Regulatory Framework
Principal Laws Applicable to Foreign Investment
(Company Law, Wholly Foreign-Owned Enterprise Law,
Equity Joint Venture Law, Contractual Joint Venture Law )
Industry Regulations
Government Department
Regulations
Economic Zone
Regulations
“Catalogue on Guiding Foreign Investment ”
“Administrative Measure for Foreign Investment in the Commercial Sector”
… ...
“Foreign Investment Enterprise Income tax Law”
“Rules of the PRC on Foreign Exchange Control”
… …
“Administrative Measure for Free Trade Zone”
“Administrative Measure for Export Processing Zone”
… …

11. China Taxation and Incentives
Corporate Income Tax rate is 33% (Central + Provincial)
Tax incentives and holidays
Manufacturing tax incentives
High technology incentives
Special Economic Zone incentives, e.g.
Shanghai 24%, Pudong 15%
Guangzhou 24%, Shenzhen 15%
Tax incentives and holiday rates are not applicable to service and domestic distribution income
Value Added Tax (VAT), Business Tax etc. often apply
Transfer pricing has become an emerging issue

12. Emerging Market Opportunities

13. Manufacturing in China
Take advantage of low cost, skillful labor force and college-graduated engineers, lower manufacturing cost
Incentive income tax rates and other tax holidays
For some products, Chinese government only allows those manufactured in China to enter into China domestic market
Good OEM/ODM capability, covering almost all industrial sectors of consumer and capital products

14. US Companies – China Manufacturing Facilities

15. China Procurement Direct purchase from manufacturers
Access to a larger manufacturer and supplier base
Lower purchasing cost
Better quality control
Better supply chain management

16. Domestic Service and Distribution
WTO opens the door of China domestic and distribution market
Distribution: retail, wholesale, franchising and direct marketing
Banking, consumer lending and insurance
Telecommunication and content driven providers
Freight forwarding, transportation and package delivery service
Customer service
Entertainment: film and TV production, audiovisual products distribution, movie theatres
Construction engineering and consultation
Hotels and restaurants
Education
Professional services: legal, accounting, tax, medical, dental, management consulting and advertising services etc.
Business process outsourcing/offshoring (BPO)

17. Acquisition of SOE
Industries from banking, infrastructures, public utilities to retail chain stores, machinery equipments etc.
A good solution for US companies to expand their China operation without a substantial front-end cash investment
A shortcut for US companies to expand their China operation and enter China domestic market
May allow US companies to access China domestic regulated market segment
Some SOEs are down-sizing/spin off to increase efficiency at a fair low cost
Endorsed by central and local governments with various incentives (case-by-case)

18. Industrial Zones
Industrial zones provide various incentives and opportunities for US companies with different business models
Special Economic Zone (SEZ)
Economic and Technological Development Zone (ETDZ)
Free Trade Zone (FTZ)
High-Tech Park
Export Processing Zone (EPZ)
Bonded Logistics Zone (BLZ)
Bonded Port

19. Shanghai Bonded Logistics Park

20. Shenzhen: A Story of China’s Success

21. Shenzhen in Greater China

22. Shenzhen and the Pearl River Delta

23. Shenzhen in 1982
Shenzhen Today

24. Facts and Figures City founded in 1979
Became China’s first SEZ in 1980
About 10 million population, average age about 30
Only city in mainland China borders on Hong Kong
GDP in 2005 USD 61.5 billion, ranks 4th among all mainland China cities
Average GDP growth rate over 25% per annum from 1980 to 2005
Export in 2005 USD 115 billion, ranks the 1st among all mainland China cities for 13 consecutive years
Hong Kong, US and EU ranks the top 3 trade partners
FDI in 2005 USD 3 billion, total USD 40 billion since 1980

25. Facts and Figures
120+ Global Fortune 500 companies have operations in Shenzhen
The home for Shenzhen Stock Exchange and the regional financial center in Southern China
Shenzhen Port-the 4th largest container terminal in the world, 16.2 million TEUs in 2005
Shenzhen International Airport-the 4th busiest airport in China
The corporate headquarters for Huawei, ZTE, China Merchant Bank, Ping’an Insurance and many other local China big private companies
10+ five-star hotels, 10 world class golf courses. Mission Hills Golf Club is the biggest golf club in the world

26. Features and Characteristics
Major Industries
Traditional consumer products manufacturing
Technology products manufacturing and R&D
Imp./Exp. trade city in mainland China
Logistic center for Southern China, especially Pearl River Delta
Regional financial center
A young, vigorous migrant city with the culture of creativeness and entrepreneurship
A coastal city with excellent infrastructures and utilities
China’s first SEZ with the most open market economy and a pro-business government
Much lower operation cost compared with Shanghai, Beijing and Hong Kong
One of the best living cities in mainland China (air quality, green space, foods and entertainment)

27. NAROS and Our Services Set up in 2001 Based in Los Angeles, CA
Shenzhen’s only investment and trade promotion office in North America
Our FREE services:
Provide China general/business information
Consult on China business policies and incentives
Facilitate business setup and transaction
Build up Chinese government connections
Support daily operations

28. Thank You! Please contact NAROS for more information.
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