Law Conference 10 Dec 2102 (Final)

Keeping up with the Needs of Foreign
Investors and
Businesses in China
Presented by Aloysius Wee
Managing Principal
Dacheng Wong Alliance LLP


Rise of China
as a World Player


China – A Land of Opportunities
 Second Largest Economy in the World
 A large population – 1.3 billion and rising
 A growing middle class
 Fast rate of economic growth in most cities
 Internal competition for resources
 Fastest rate of growth for new millionaires
 Rising superpower


China – Changing Landscape

• Political Changes
•Greater presence in the world stage
•A louder voice in the UN
•A stronger military presence in the South
China Sea
•A more aggressive engagement with ASEAN
countries over disputed territories
•A more aggressive engagement with Japan
over disputed territories
• More engagement in Africa and Pacific
Islands
Dacheng Wong Alliance
LLP

Liaoning - China’s first aircraft carrier

• Central Government – New Leadership
• New President
• New generation of leaders in key ministries
and positions
• Expectations of new policies to drive China
for the next 10 years
• Restructuring and merging of ministries
and government departments in an attempt
to streamline the administrative machinery
• impact will be a period of settling in and
uncertainty for investors
LLP

China’s Ex-president – Hu Jintao

LLP

China’s new president – Xi Jinping

LLP

China’s new first lady – Peng Liyuan
LLP


•City Government – Change of Leadership
• District Government – Movement
• the impact of these changes will be a change in
leadership at the local level, relationships or guanxi
have to be built again or re-established
• there will be a period of uncertainty given that
there will be mergers in the ministries which will
have impact at the local level
• there will be a period of trying to understand the
new policies of the Central Government and how to
implement these policies
LLP

• Economic Changes
• Move from 3rd largest to 2nd largest economy
• China has to grapple with hot money
• China has to deal with and an overheated property
market, interim measures in place but cannot be
long term solution
• China has to deal with employment issues

• Move from manufacturing to higher value
manufacturing and services
• How to attract such FDI given rising costs and
competition from ASEAN
LLP

Legal Changes
• Usually driven by political and economic objectives.
With the new central government and the proposed
streamlining of ministries, there will be anticipated
changes in the legislation to give effect to these
changes.
• Legal changes can be by way of new legislation
which can be retrospective in nature
• Legal changes can be by way of interpretation of
current legislation or amendments to current
legislation
• Legal changes can be by way of administrative
changes and application of discretion
• This category is the most difficult to deal with
as discretion is involved
LLP

Opportunities
 Infrastructure Projects – roads, rail, townships and industrial
parks development in second and third tier cities which offer
good investment opportunities

 Services Industry – finance, hotel management, asset
management

 Green & clean industry – waste treatment, sustainable power
generation – wind and solar (however now with possible US and
EU imposition of duties may not be viable)

 Aerospace Industry – China is aspiring to sell its first commercial
airliner within the next 24 months, air space will also be opened
up for private use and an anticipated industry in private aircraft
and helicopter sales and leasing


Opportunities
 Many Chinese cities and provinces have come to
ASEAN to procure investments into their cities.

 China moving away from manufacturing to higher
value activities.

 Largest factory in the world moving to largest value
added economic center.

 Chinese companies are coming out to invest overseas

 Chinese companies are acquiring companies overseas

Year of Growth
…after many years of continued
growth


China’s Actual Use of Foreign Direct Investment
(2003-2011)
Year Actual Use of Foreign Direct Investment (billion)
2003 53.51
2004 60.63
2005 72.41
2006 69.47
2007 82.66
2008 92.40
2009 90.03
2010 105.74
2011 116.01
http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1


China’s Actual Use of Foreign Direct Investment
(2003-2011)
140
Actual Use of Foreign Investment

120

100
（billion）

80

60

40

20

0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
year



Year of Growth
…after many years of continued growth
 FDI will continue to increase from 2012

 China is not short of money, in fact it is curbing hot
money

 Chinese local companies are facing credit crunch
and need funding

 Institutional Funding is not cheap in China and
hence rise of private funding

Inward Investment (EU)

2012
2009 2010 2011
（Jan-Oct）
Number of
newly
established 1578 1688 1743 1418
enterprises
Actual use of
foreign
investment 5.992 6.589 6.348 5.236
(billion)



Inward Investment (The United States)

2012
2009 2010 2011
（Jan-Oct）
Number of
newly
established 1588 1576 1497 1128
enterprises
Actual use of
foreign
investment 3.576 4.052 2.995 2.704
(billion)



Inward Investment

 EU as a trading bloc has significant investments in
China, larger than the US but with crisis in Greece, Spain the
outlook for further FDI looks like it will slow down.

 The US too has significant investments in China but with
tensions rising as China assumes the other superpower
role, there is a likelihood of investments slowing down. There
is also a strong anti China lobby and issues of dumping that
are often brought up by the US , eg solar panel industry


Inward Investment (10 Asian Countries /Regions)
2012
2009 2010 2011
（Jan-Oct）
Number of
newly
established 18321 22058 22302 15852
enterprises
Actual use of
foreign
investment 73.148 88.179 100.517 78.028
(billion)

Hong Kong, Macao, Taiwan, Japan, the Philippines, Thailand,
Malaysia, Singapore, Indonesia, ROK

Inward Investment

 ASEAN and China’s Asian neighbors now account for the
largest number of companies to be set up in China as well as
the largest amount of FDI.
 Some issues with Japan which may impact Japan FDI into
China as well as pull out or scale down of investment of
Japanese companies already in China.
 Greater incentive for ASEAN investment with the DTA
between ASEAN and China.
 Growth will be potentially from ASEAN countries.


Inward Investment

 In the 1980s there was the coining of the term, Asian Tigers
which referred to the emerging economies of Singapore,
Taiwan, Hong Kong and South Korea.

 In this age, we do not see these economies playing any
significant part in the world economy on their own but now
relying on China the sleeping dragon that has awaken.


Outbound Investment
The journey of a thousand miles begins with
one step

…a Chinese Proverb


China’s Outbound Investment
(2008-2012 Jan-Sep)

Year Outbound Investment (billion)
2008 31.30
2009 32.87
2010 36.27
2011 40.75
2012 52.52

http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1


China’s Outbound Investment
(2008-2012 Jan-Sep)

60.00
Outbound Investment (billion)

50.00

40.00

30.00

20.00

10.00

0.00
2008 2009 2010 2011 2012 2013 year



Outbound Investment
（2008-2012 Jan-Sep）

Countries / Overseas Invested Outward Direct
Regions Companies Investment
(billion)

2012 126 2941 52.52
2011 129 2526 40.75
2010 118 2426 36.27
2009 112 1612 32.87
2008 112 More than 1500 31.30



Outbound Investments
 Chinese companies beginning with State Owned
Enterprises and then private owned companies
have started to invest in more countries and in more
industries then ever before.

 Investments may be in the form of acquiring
shareholdings in foreign companies.
 Bank of China holding shares in 5 banks

 ICBC has plans to purchase the shares of The Bank of East
Asia Limited, Standard Bank Argentina, ICBC (Thailand)
Limited and ICBC (Canadian) Limited


Outbound Investments
 Mergers and acquisition
 Chinese companies have in the past depended on technology
transfers but in recent years have gone for outright acquisition
of foreign companies and using their brands

 Lenovo buying up IBM’s PC business. Since the acquisition,
Lenovo has grown into an international brand.
 Geely automobiles buying up VOLVO.
 Joint ventures and collaboration
 FAW-Volkswagen Automotive Co. Ltd is a Chinese joint
venture between the First Automobile Works (FAW) and
Volkswagen Group
 Xian-Janssen Pharmaceutical Ltd is a Chinese joint venture
between Johnson & Johnson and a group of Chinese
pharmaceutical companies

Outbound Investment
(Geely’s Purchase of Volvo)

• Geely was named as the preferred buyer of Volvo
2009.10.28 Cars by Ford.

• all substantive commercial terms were finalized
2009.12.23 for the sale of Volvo Cars from Ford to Geely.

• definitive agreement was signed at the price of
2010.3.28 $1.8 billion USD.

• The deal was completed after the approval of
200.8.2
2010.8.2 relevant authorities.


Outbound Investment
(Geely’s Purchase of Volvo)

 It is an international merger which is the result of
globalization. A lot of challenges: e.g. culture difference, different
management styles, cost allocation, etc.

 This business is the biggest overseas acquisition by a local
Chinese company. It marks the rising power of China in the world
economy. It also reflects the big aspiration of the Chinese to
expand in the world market. From the other perspective, it
means the world needs to be prepared for doing business with
China.
200.8.2


Expertise
What you need to know to help your clients
 understanding cultural differences

understanding language differences

 understanding guanxi

 understanding legal differences


UNDERSTANDING
CULTURAL DIFFERENCES
 Different venues and ways of negotiations
 Dinner table negotiations
 KTV negotiations

 Chinese seldom say “No”. They may say “Problem
is not big”.

 Chinese may test your credibility before
conducting business with you.

Cultural Differences noticed at the G20 meeting in Toronto ...
The Canadian: Self-absorbed and disconnected from reality. The
American: Businesslike, unwilling to be distracted. The French and the
Italian: "LOOK AT THAT ASS!"

Language Differences
 There is a perceived advantage that Chinese
speaking Singaporeans, Taiwanese, Malaysians are
supposed to have.

 Whilst there is some truth in that. Therein lies the
problem too. We all speak Pu Tong Hua. We
assume that we speak the same language and that
we understand Chinese.

 We forget that that there are intricacies in the
language that are closely related to culture and
that we too can misunderstand the Chinese.

Language Differences
 It is because of such complacency that we too
come across as being arrogant and rash. For us if
we are not able to do something, we would be
upfront and say "No" or "Not possible". There is
nothing wrong with being direct.

 However, the Chinese rarely use the words "Bu Ke
Yi" or "Not possible". Even if they cannot do it they
will say "Jing Liang" or "I will try my best". To us
hearing this, usually there is some comfort, but
coming from the Chinese it would usually be more
often than not a “no” rather then a “yes”.


Guanxi -关系
 What is guanxi? It is in our western
context a more evolved form of
networking. There is nothing
mystical about guanxi but it boils
down to the fundamental concept of
doing business with someone who is
known to you. It is often said in
China, "let’s first be friends then
business partners.”

 Guanxi is about relationship
building and relationship building
takes time. Building up guanxi takes
time.


Guanxi -关系
 Make your own evaluations
 Think medium and long term
 Do not rush into things
 Verify from various sources
 Treat people like how you would like to be treated
 Work towards an equitable and fair working
relationship for long term cooperation


Legal Differences
 China is a civil law system, this is different from
the common law system that we are accustomed
to.
 Administrative departments weld great discretion
and power over interpretation of the laws.
 Relationships and guanxi are important in
litigation cases.
 When dealing with at least one foreign party and
one Chinese party opt for arbitration out of China
but in a jurisdiction that arbitration awards are
recognized for enforcement in China, eg Singapore.
 Important to not only know the law but who is in
the law.

Legal Differences
 It is important to use local expertise in
handling administrative and legal issues.

 GLOBAL NETWORK, LOCAL TOUCH

 Dacheng Law Offices offers our clients a global
reach with offices across China and the globe
and at the same time offering a local touch,
with an understanding of local custom, culture
and language. 38 offices in China, in every
major city with 2000 lawyers.

Thank you – 谢谢

For more information please visit our website,
www.dcwa.sg or contact us at lawyers@dcwa.sg.


Law Conference 10 Dec 2102 (Final)

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