The Blog:

China’s 12th Five Year Plan is Formed 4/7/2011

China's five year planLast month, China’s newest Five Year Plan (FYP) was developed at the Annual Sessions of China’s National People’s Congress. At the center of the 12th FYP is possibly their most ambitious energy goal to date. The new plan calls for a reduction of energy intensity by 16 percent over the next five years. As the goal is quite bold, it is possible considering that during the previous FYP, China managed to reduce energy by 20 percent.

Other goals of the FYP include a plan to reduce pollution and reduce China’s dependency on fossil fuels. China is aiming to reduce carbon dioxide emissions by 17 percent and to increase the use of non-fossil fuels from 8 percent (current state) to 11.4 percent in 5 years.

When it comes to implementation, China has decided to encourage development and foreign investment in industries that will increase their ability to move towards these green goals. They will be executing programs to support growth in the high-end manufacturing industries such as clean energy, various service industries and environmental protection.

Of course, there are supporters and opponents of the newest FYP. Supporters of the plan include environmental protection groups and clean energy groups who are encouraged by China’s step towards a greener country. Some opponents say however, that the plan could be too ambitious and that some of the other goals included in the plan may be conflicting with their green initiatives; such as the target to build upwards of 40 new airports over the next five years.

Ambitious or not, achievable or not, changes are on their way for foreign investors and where different incentives will be placed in the upcoming years.

Tags: , , , , , , .
No Comments. Join the Discussion.

Interview – Imports and the Food Safety Modernization Act 4/5/2011

We found this very useful FDA interview on the provisions applied to importers under of the Food Safety Modernization Act. David Elder, the Director of Regional Operations from the FDA, covers the steps being taken for implementation.

Interesting Points from the video:

  • 15 percent of food consumed in the United States is imported.
  • Importers must verify that their suppliers are conforming with the FDA’s standards.
  • Import Verification Guidance documents must be published by the FDA by January 2012.
  • The FDA must have an Accreditation System in place by January 2013.
  • Comments from industry professionals will be allowed as new provisions are posted.
  • Products and suppliers that not not pass FDA inspection can be refused entry into the U.S.
Tags:
No Comments. Join the Discussion.

Food Safety Modernization Act : The Breakdown (Part 2 – The Impact) 3/24/2011

Did you miss Part One?… Food Safety Modernization Act: The Breakdown (Part 1 – The Facts)

Now that we have the background of the law covered, let’s dive into what this means to us and how it can impact our food sources and supply chains.

How will this law make imported food safer?

New authorities under the Act include:

  • Importer Accountability Importers must verify that their foreign suppliers have adequate preventive controls in place to ensure safety.
  • Third Party Certification – The FDA will be able to accredit qualified third party auditors to certify that foreign food facilities are complying with US food safety standards. In preparation for the FDA audits, our partner company FactoryAudits.com offers comprehensive Food Safety Assessments that analyze your facilities’ HACCP plan implementation, chemical control processes, pest control processes, sanitation risks and hazards and much more.
  • High Risk Foods – The FDA now has the authority to require that high-risk imported foods be accompanied by a credible third-party certification as a condition of admission into this country .
  • Additional resources – Foreign inspections will receive additional resources to complete necessary inspections.
  • Food Refusals The FDA now has the authority to refuse entry into the US of a food that has refused or failed U.S. inspection.

What is required to become a certified facility?

  • The FDA is in the process of developing a proposed rule that will establish science-based minimum standards for the safe production and harvesting of fruits and vegetables and will address soil amendments, worker health and hygiene, packaging, temperature controls, water, and other issues.
  • Food facilities will be required to implement a written preventive control plan, provide for the monitoring of the performance of those controls, and specify the corrective actions the facility will take when necessary. Don’t get caught unprepared: these seafood processors were not following the food safety rules and now they are warned and red flagged to clean up their act.

The time line is dated from the date of the enactment (January 2011). The following items are to be completed by the FDA no later than the corresponding times. (According to the law at this point in time.)

FSMA Timeline

Tags: , , , , , , .
No Comments. Join the Discussion.

Vietnam & India Sourcing: Advantages and Disadvantages 3/2/2011

China India Flags

So you are already sourcing from China…have you ever thought of sourcing from India? What about Vietnam? Are buyers trending away from China? What are the advantages and disadvantages of sourcing from other developing countries like these? Let’s explore!

A survey was recently released by Global Sources reporting on how China’s increasing labor costs and the fluctuation of the yuan have impacted buyers’ sourcing strategies overseas.

Over 380 buyers were surveyed and more than 50 percent of respondents said they have seen higher prices as a result of the yuan’s appreciation. But are they changing their strategy? The answer is yes… somewhat.  More than 50 percent of buyers say they are planning to step up their sourcing from India and Vietnam sometime in the future. (It did not indicate whether or not they plan to decrease their China sourcing however.)

The truth is: Vietnam and India are becoming increasingly attractive for foreign enterprises due to their low-cost and abundant labor supply.

What does this mean to American companies?

Places like Vietnam and India could be a viable option for your company if you specialize in low-end products. Industries that are labor intensive can also be successful in these countries due to the large labor pool (bigger than China’s) and the low cost of labor. Industries like textiles (clothes, shoes, sheets etc) have been successful at increasing savings by moving production to countries like India where the workforce is robust and there is a large percentage of English speaking workers (20% higher than China’s workforce). Also, India’s income tax will decrease this year in order to be more competitive with China.

Although the numbers do indicate an uptick in sourcing from these developing countries, do be forewarned: This is not the ideal plan for everybody. India and Vietnam are still in their youth, and fall short in a number of critical manufacturing areas in comparison to the United States and China. The traditional means to becoming a manufacturing powerhouse no longer stand alone. Not only will a country need to be strong in labor, energy and materials, but the country will also need to have a strong-willed work force with innovative thinkers.

Another critical aspect that must be taken into consideration is the different countries’ logistics infrastructure.  The logistics infrastructure in China for example is much more developed and sophisticated than in India or Vietnam.  We typically find that sourcing from China is much more efficient because of the hundreds of billions of dollars invested over the last 20 years in roads, highways, ports and airports.  With that being said, if quick turn-around and reliable, timely shipping and receiving are a must for your business, China might be a better choice.

China India Vietnam
Total Airports 502 352 44
Major Ports 130 12 14
Railways 77,834 km 64,015 km 2,347 km
Roadways 3,583,715 km 3,320,410 km 171,392 km

It is to be noted however, that although India has the third largest road network in the world, about 2.6 million km or almost 75 percent of their roads are considered rural. Travel by roadway in India is also often times considered dangerous; people do not abide by traffic laws, roads are bumpy and uncared for and traffic is intensely crowded. In fact, the National Highway make up only 2% of the nation’s roadway length, but handles about 40 percent of the roadway traffic.

Beyond logistics, the 2nd most common issue when looking beyond China is your raw material supply chain.  As nearly every major industry’s supply chain has shifted to China over the last 20 years, so have the raw materials companies/suppliers.  When evaluating a move away from China, it’s important to understand whether or not your source of raw material is available in your next destination.  If you don’t, you very well may end up finding out that while you are benefiting from cheaper labor elsewhere, you are offsetting those savings by your increased logistics and duties costs as you ship your raw materials in from China.

China also excels at supporting large-scale investment projects – something that Vietnam and India struggle with due to their infancy in the manufacturing arena as well as the large government bureaucracies that you must deal with.  If a company wanted to expand and build a new facility to ramp up production in China, it could take 6 months, whereas in India it could take 2 to 3 years.

In conclusion, China is still the manufacturing powerhouse for most, and will remain so for quite a few years to come.  However, we are likely to see a shift in the type of manufacturing China is involved in. They are now encouraging investments in high tech industries and research and development enterprises. Their goals is to move towards a more sophisticated manufacturing region that can garner higher wages and eventually propel more and more people into the coveted middle and upper classes.

We would love to hear how your company’s overseas buying strategy has changed (or hasn’t changed)!

Sources:

http://www.globalsources.com
http://www.2point6billion.com/news/2011/02/17/china-india-compared-by-al-jazeera-8606.html
https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
http://online.wsj.com/article/SB10001424052748703800204576159410421853214.htmlhttp://www.business-in-asia.com/ports_in_vietnam.html
http://understand-china.com/?manufacturing=logistics-4

http://indiatoday.intoday.in/site/Story/110495/Cover%20Story/wealth-does-not-create-roads-rather,-roads-create-wealth.html

Tags: , , , , .
No Comments. Join the Discussion.

10 China Facts You May Not Have Known 2/2/2011

China Facts Skyline and Flag
1.       China is the second largest economy in the world.

2.       China is the largest exporter in the world.

3.       China is the second largest importer in the world.

4.       China currently accounts for nearly 10% of world trade.

5.       The United States’ 2010 estimated GDP is $14.7 trillion.

6.       China’s 2010 estimated GDP is $9.8 trillion.

7.       The Chinese government indicated in January that its companies signed contracts worth $45 Billion with American businesses. This increase in United States export business is expected to support an estimated 235,000 U.S. jobs. (The Boeing Airplane order for 200 planes is the largest portion of this deal, valued at $19 Billion.)

8.       Before this year, the last time that an American President hosted China’s president for a dinner was 13 years ago during the Clinton administration.

9.       In 2009, China’s economy was one third the size of the United States’ economy.

10.   China’s population is approximately 4 times the size of America’s population.

*Note: Ok, so number seven is only about America, but I wanted to show the comparison. The facts listed above are to the best of my knowledge the most accurate as of today. There is no guarantee they will stay true in the future.

Sources:
1. http://www.nytimes.com/2010/08/16/business/global/16yuan.html
2. http://www.cbc.ca/world/story/2010/01/10/china-exports.html
3. http://www.chinadaily.com.cn/business/2011-01/29/content_11937210.htm
4. http://www.china.org.cn/business/2010-11/19/content_21378120.htm
5. https://www.cia.gov/library/publications/the-world-factbook/geos/us.html
6. https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
7. http://www.whitehouse.gov/the-press-office/2011/01/19/fact-sheet-us-china-commercial-relations
8. http://news.yahoo.com/s/ap/20110118/ap_on_re_us/us_us_china_state_dinner
9. http://www.state.gov/r/pa/ei/bgn/18902.htm
10. https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

Tags: , , , , , , .
No Comments. Join the Discussion.

New China WFOE Taxes 1/19/2011

China Currency - WFOE TaxBeginning on December 1st 2010, all Wholly Foreign Owned Enterprises (WFOEs) in China will now be taxed the exact same as all other Chinese businesses. The two taxes that were formerly only charged to Chinese businesses, are now being added onto the tax bill of all WFOEs.

The two new taxes for WFOEs are:

1.       The Urban Maintenance and Construction Tax

2.       The Educational Surcharge Tax

This is the result of the so-called “national treatment” movement, which is a direct result of China joining the World Trade Organization (WTO).  One of the requirements for the WTO is to give all foreign and domestic businesses the same fair treatment.

In China, however, this means that the advantages and privileges that had initially been given to the WFOEs will no longer apply.

When China started to open its doors to foreign investment, both the central and local governments instituted a multitude of incentives to attract foreign capital. Such incentives included the “duty free for 3 years” program and certain tax reductions were given for five years to some companies. They also set up different kinds of incentives based on the city and provincial regulations in which WFOEs could utilize additional incentives.

It would not be a stretch to say that some of the WFOEs came to China specifically for these privileges. Even for the companies who had to invest in the Asian market, the incentives were most likely among the top things to consider when decided where to set up shop, because the saved money trickles down to additional profit.

Everybody who moved to China for the incentives knew that they wouldn’t last forever. The incentives began disappearing about five years ago as the 3 year free tax and 5 year tax reduction policies vanished. They first disappeared from the provincial development areas and now you would be hard pressed to find certain incentives even in the big development areas.

In addition, as part of China’s “green movement,” they are now introducing more incentives for the development of sustainable, eco-friendly companies and industries. This also means however, that the more labor-intensive industries will not be able to set up companies as easily, especially those who put off large amounts of pollution as a byproduct of production. China is now favoring the high tech industries and R&D enterprises that will bring forward thinking individuals with high levels of education into the country.

The “National Treatment” movement and the additional taxes have brought some negative sentiment among businesspeople towards their bottom lines. The additional taxes will actually not be much for most businesses, however this does indicate that China is changing, and moving towards the high tech industries and those focusing on green innovation.

This shift suggests a change in paradigm for China; when the former plan was to get as many companies to invest as possible, to the new idea of encouraging fewer companies of higher quality to invest. Don’t get me wrong, there are still plenty of incentives available out there, however you should not only focus on where you can find the best investment incentives but how you are going to compete in a strengthening marketplace with strong quality products at competitive prices.

Tags: , , , , .
No Comments. Join the Discussion.

New China Rep Office Regulations for 2011 1/12/2011

Attention companies and business owners with Rep Offices in China (and those thinking about setting one up)…China’s State Council recently announced the new regulations for their representative office structure. The regulations were put in place to “strengthen” the structure of foreign owned ROs. However, the regulations are tightening down on activities that ROs are allowed do and enforcing more strict penalties. But don’t worry, Rep Offices aren’t for everyone and a lot of companies benefit from converting to a WFOE or FICE  because of the greater flexibility that they offer.

Below is a breakdown of the new regulations for ROs:

Main Points:

  • Representative Offices (ROs) will now need to provide audited accounting information twice a year.
  • ROs cannot conduct profit activities. Enforcements of this rule will increase with the penalties clearly defined. Possible penalties include fines up to five times the amount owed and possible jail time for amounts above 10,000 RMB.
  • The tax structuring has changed:
    – ROs are now liable for deemed profit rates of a variable 15 to 30%  (up from a fixed 10%)
    – ROs cannot apply for tax exemption (could do this occasionally in the past)

Who this affects:

  • ROs currently established in China
  • Future ROs to be established

When it comes into effect:

  • March 1, 2011

Bottom Line- A Rep Office is not for you if your business needs to be able to:

  • Directly buy and sell
  • Have your own import/export license and
  • Legitimately trade in China

If you fall into the above scenario, you will need to convert to a Wholly Foreign Owned Enterprise (WFOE) or Foreign Invested Commercial Enterprise (FICE), depending on what type of business your are running. A great description of what it takes to set up a WFOE and FICE can be found here at our partner site, Understand-China.com.

Converting to a FICE or WFOE will require you to close the RO (if you already have one established) but portions of the closing process can be combined with opening the new structure when properly planned out.

Tags: , , , , , , .
No Comments. Join the Discussion.

China Pumps up the Orange Business 1/4/2011

china orange productionA new study has been launched by the Florida Citrus Commission to study China’s growing stake hold in the orange juice and citrus businesses. As part of China’s initiative to “Develop the West,” a national effort has been launched to coordinate and increase citrus production. China already leads the “fresh citrus” export market according to the executive director of the Florida Department of Citrus. In the last decade, China has ramped up fresh citrus production by 170% (including oranges and pomelos/grapefruits).

Orange juice is a commodity of specific concern for Florida production because of China’s previous success at dominating the apple juice market. In the early 1990’s, China launched a national effort to expand apple and apple juice production. They began about even with the U.S., owning nearly 20% of world apple production. China now produces seven times more apples than the United States and owns about 50% of global apple production. China supplies the majority of the world’s apple juice exports and two-thirds of the American apple juice market.

China’s share of the global citrus production has increased 900% between 2002 and 2007. However they are still less than 1% of the global market. Only time will tell if the OJ surge will be as successful as the apple initiative. Let us know what you think. Will China be successful in the global OJ marketplace?

Reporting Source

Tags: , , , , , , .
No Comments. Join the Discussion.

How to Get Your Money Into China 1/3/2011

So you have decided you want to invest in China and play your hand in one of the biggest economies in the world. What next? Setting up a business in China is a long process that requires meticulous record keeping, persistence and ingenuity. But don’t worry; it is possible! And if you are in the right spot at the right time, very profitable.

China’s protective nature of the RMB makes getting money in and out of the country somewhat of an art. But if you have the right plan of attack in place, you will not be baffled.

Once you know what location is right for you, based on your customer and/or your supplier base, you have to conquer the task of getting your money into the country to start up the business. After all it takes money to make money right?

First, make sure you know what type of business you will need to set up: a WFOE, Rep Office, Joint Venture or Partnership Enterprise. Our firm decided on a WFOE because of the flexibility, the ability to conduct profit-making activity and the protection granted by the government (equal to that of Chinese businesses). Each business is different however, and a rep office might be the right place to start for your company. Check out our partner company’s resource on Incorporating a Business in China for a nice start.

You need to know that there are limits on the amount of capital each business can invest in the country. The amount you plan to invest and the industry that you play in determines what regulatory agency must approve your investment and for how much. Once your investment gets approved then you will be issued a business license. Then you must gain approval to convert your investment into RMB by China’s State Administration of Foreign Exchange. This however can throw a stick in your spoke if you are not prepared.

Here is the catch: you can only get approved to convert your investment after you open a local bank account. But you can’t get a local bank account until you have approval to invest. The good news? There are multiple ways to get around this.

If you have someone that you trust in China, it may be a good idea to leverage their connections (and bank account) to get started. Or, you can also open what is called a pre-investment bank account, where companies are allowed to spend up to $100,000 to set up their business and gain investment approval. This money can also be applied toward your approved investment capital needed to open the doors. Whatever your decision, make sure your money is safe and if you have any doubts, there are professionals that can help you through every step of the process.

Resources:
Great New York Times Article

RMB Currency Converter

Tags: , , , , .
No Comments. Join the Discussion.

Wheat Prices Rise as China’s Need Increases 12/20/2010

Wheat prices rise- china food inflationAs reported by Bloomberg this morning, wheat prices have increased the most in two weeks due to speculation that China, will import more wheat in efforts to curb food inflation. China, the world’s largest producer and consumer, is on track to import 4.45 million metric tons, of wheat or 500,000 more tons than last year.

As food prices continue to rise in China, it is predicted that they will work to rebuild their grain stocks  to curb inflation and fears of a food shortage. Wheat is the fourth-largest crop in the United States and was valued at $10.6 billion in 2009.

Full Article

Tags: , , , , , .
1 Comment. Join the Discussion