The challenges faced by FIEs doing business in China fall into two broad categories: Regulatory and Cultural.

Governmental and regulatory challenges

Foreign Exchange – Since 1996 the Renmibi has been freely convertible on the current account, meaning that importers and exporters can now access foreign exchange freely. Business activities requiring foreign exchange such as paying for imports, labour and services from abroad, repayment of interest on foreign debt, and repatriation of profits to a foreign company’s home country, however, are still subject to audited financial statement, statutory reserve, and tax clearance requirements. Capital account transactions covering direct investment, international loans, and securities remains tightly controlled, and will only gradually become less restricted, despite China’s liberalization of the forex market.

Financing – Obtaining local financing is another challenge faced by FIEs in China who must satisfy several criteria to borrow locally. FIEs also compete with local state-owned enterprises, and these entities will normally be given priority access to credit. Whether an FIE receives local financing will depend on the nature of the operation, and whether it generates local-currency or export revenues, and on how the financing is used. in 2006, regulations came into effect ostensibly leveling the playing field between foreign invested banks and local banks. Foreign banks then will also provide another means for FIEs to obtain financing.

Operational and cultural challenges

Apart from the obvious language barriers and differences in cultural perspectives when doing business, one of the biggest challenges faced by FIEs is the weak application of the rule of law. Many rules and regulations which have been enacted can seem unclear compared to those of countries with a more developed legal systems and for those laws that are sufficiently lucid, enforcing them is often a problem.

Protection of IPR is a case in point, with the Chinese IPR laws being equivalent in many ways to those found in Europe, however, enforcement of these laws once infringement of an intellectual property right has been discovered can be difficult depending on the experience and legal knowledge of the local court. However, as is a common theme, things are improving, and all FIEs should register their IPR in order to improve their chances of protection. 

This article was created on: 2017.07.31