Events in Hong Kong and the trade war with the US mean China is never far from the headlines these days. Despite the volatility, many north west businesses still see China as a great opportunity for growth, especially as they look beyond Brexit and explore new international markets.
At the same time, the appetite among China-based businesses for investing in the UK remains strong – in November Jingye announced an agreement to buy British Steel. The business environment in China is changing and becoming more favourable for UK companies.
Stephane Grand, managing partner of SJ Grand Financial and Tax Advisory, which has offices in Beijing, Shanghai, Shenzhen, and Hong Kong, discussed the changing landscape during a visit to Manchester organised by HURST, which included a China Traders Dinner with regional business leaders.
Stephane specialises in providing financial and tax advice to foreign firms doing business in China, including those with established operations and those buying or selling assets. He has nearly 30 years’ experience of operating in the Chinese market.
He said: “I am usually a pessimist about business in China. I have been for quite a time. With a slowing down of the Chinese economy and trade with the US, and the unrest in Hong Kong, the country is not in a great situation at the moment. “A lot of American companies, in particular, are reconsidering their investments or even their entire presence in China.
“The Chinese government has been forced to react, as they need international investment to avoid a major recession that could cause social instability and jeopardise the system. “Things are finally changing, and there are grounds for optimism.”
Stephane said regulations which will take effect from January will create a legal framework for real change in the business environment for foreign companies.
“They will finally be treated equally alongside Chinese companies. Until this point, foreign investment has been treated differently. Businesses have had to go through a complex process to establish a company in China,” he said. “They have had to jump through a lot of hoops to gain approval, and the process of incorporating a company has taken about 60 days, which has not been helpful.
“The Chinese government has promised to make repatriation of profits easier and to take out some sticking points which have hindered wholly-owned subsidiaries of foreign companies in China. “In addition, the rate of corporation tax will come down again in 2020 following a reduction last year.
“The environment for business is getting a whole lot better and the changes should help to reassure companies which source products from China or have offices or factories there.” Stephane said he believes the Hong Kong protests will ‘not end well’.
“Hong Kong has already lost its reputation as a safe place in which to do business, with billions of dollars of capital moved to Singapore in reaction to the unrest,” he said.
“The Chinese see Hong Kong as a bridge between their country and the West. The level of violence is escalating and the Chinese government has a choice of quelling the riots by force or by negotiation, but it’s not going to end well. “However, I don’t think even if we see tanks rolling down the streets that there will be a lasting impact on Hong Kong as a platform for foreign direct investment in China, as a trading platform or in its banking operations.”
Meanwhile, Chinese interest in the UK shows no sign of waning. Stephane pointed to a recent poll of Chinese business leaders which showed 47 per cent believe Britain will become a better investment target after Brexit.
This could be because the Chinese perceive an isolated country as being less powerful than a group of nations. The weak pound and tax reductions could also be factors.
HURST partner and head of practice development Simon Brownbill said he expects China to become a more important market for our clients, while at the same time Britain will become increasingly attractive to China-based companies.
Simon said: “China has, for a number of years, been the number one market for clients looking to source low-cost, high-quality products and this shows no sign of abating. Increasingly, clients are firming up their presence in the country with offices and dedicated factories.
“At the same time, we are seeing the local property marked buoyed by Chinese investment, and increasingly we are seeing China-based acquirers looking to buy UK trading businesses for strategic purposes.”
For more information on doing business in China, or for any specific queries, please feel free to contact Stephane directly by clicking here.