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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.

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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.
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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

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Food Safety Modernization Act : The Breakdown (Part 1 – The Facts) 3/24/2011

food safety modernization actAs the Food Safety Modernization Act starts working its way through the implementation process, I thought it would be most helpful to post a breakdown of the act and what it means to importers and manufacturers of consumable products. As you will see, the Act is very new, but will definitely have a large impact on the regulations of the food industry and hence, the level of  security in our food safety system. Read on for more details.

Note: There are two more parts in this series to come!

S. 510 FDA – Food Safety Modernization Act (FSMA)

Background

  • U.S. consumers enjoy imported foods from more than 150 countries.
  • Previous food safety laws did not provide the FDA with necessary funding/staffing to properly regulate and inspect America’s food supply.
    -Less than two percent of all imported food was inspected in 2010. The latest food safety scare in China involves tainted pork, read the article here.
    -Approximately 600 foreign food facilities were inspected in 2010.
  • The U.S. Centers for Disease Control and Prevention estimate that there are approximately 76 million foodborne illnesses each year in the U.S.
    -Those illnesses cause more than 300,000 hospitalizations and 5,000 deaths annually.
    -Those illnesses also cost the country $152 billion annually.

The Approval of the New FSMA Law: December 2010

  • The 2010 Food Safety Modernization Act passed the Senate and the House last winter and was signed into law by President Obama on December 22, 2010.
  • The new law is considered the biggest change in food safety oversight in 70 years.
  • The two main outcomes of the law are as follows:
    1. The FDA will be allowed to force companies to issue recalls when they suspect food may be contaminated. (Activated Now)
    2. The law greatly increases the FDA’s ability to perform inspections on both foreign and domestic manufacturing facilities.

Food Safety Modernization Act Overview

What are the 5 major elements of the law?

  1. Preventive controls- For the first time, the FDA has a legislative mandate to require comprehensive, prevention-based controls across the food supply.
  2. Inspection and Compliance- The law specifies how often FDA should inspect food producers.  FDA is committed to applying its inspection resources in a risk-based manner and adopting innovative inspection approaches.
  3. Imported Food Safety- For the first time, importers must verify that their foreign suppliers have adequate preventive controls in place to ensure safety, and FDA will be able to accredit qualified third party auditors to certify that foreign food facilities are complying with U.S. food safety standards.
  4. Response- For the first time, the FDA will have mandatory recall authority for all food products.  FDA expects that it will only need to invoke this authority infrequently since the food industry largely honors the requests for voluntary recalls.
  5. Enhanced Partnerships- The legislation recognizes the importance of strengthening existing collaboration among all food safety agencies—U.S. federal, state, local, territorial, tribal and foreign–to achieve our public health goals.

FSMA By the Numbers

Cost: $1.4 Billion – over next 4 years

Necessary Staffing: Over the next 4 years, the FDA will be hiring 2,000 new inspectors.

Inspection Schedule: The bill requires the inspection of 50,000 foreign and domestic food production facilities by 2015.

  • Inspections are to be completed by either the FDA or state, federal or local agencies acting on the FDA’s behalf.
  • Projected Foreign Facility Inspection Breakdown by Year:
    2011
    : 600 inspections
    2012
    : 1200 inspections
    2013
    : 2400 inspections
    2014
    : 4800 inspections
    2015
    : 9600 inspections

For your reference, you can read the full text of the act here.

Read part two of the series: Food Safety Modernization Act: The Breakdown (Part 2 – The Impact)

and part 3 of the series: Food Safety Modernization Act: The Breakdown (Part 3 – The Next Steps)

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Spring Canton Fair Update 3/17/2011

Canton Fair - SpringIf you are planning on attending the 109th Canton Fair this Spring in Guangzhou, make sure to check out this great little guide I found on their website with all of the dates and information necessary to navigate your way through the huge expo grounds.

It has information on a lot of things like travel and hotels, but also has information on how to attend the fair. You have to get an e-invite and that can be done easily on their website through their BEST tool or Buyer E-Service Tool.

Phase 1: April 15-19, 2011 from 9:30-18:00
Phase 2: April 23-27, 2011 from 9:30-18:00
Phase 3: May 1-5, 2011 from 9:30-18:00

For a better run down of all the activities and a video, see our earlier blog post 2011 Spring Canton Fair Dates & Information.

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When is Chinese New Year 2012? 3/1/2011

chinese new year 2012The start of the 2012 Chinese New Year is January 23, 2012. The celebration typically begins on New Year’s Eve with a large party in which family members that have moved away return home to celebrate with traditional food, games and story-telling. The festivities last two weeks and end on the 15th day with the Lantern Festival.

The traditional Chinese Calendar is based on lunar activity and is always the first day of the first lunar month. Because it is based on the moon’s activity, it typically falls on a different day every year.

A good rule of thumb for determining when the next Chinese New Year will fall, is to find the second new moon after the winter solstice. Winter solstice is the shortest day of the year and always falls on December 21. The second new moon after that will mark the next Chinese New Year.

This next Year, 2012, is the year of the Dragon. The traditional Chinese zodiac is comprised of a 12 year cycle of 12 different animals related to the Chinese Calendar. People born during the year of the Dragon are said to be brave, honest and trustworthy. The last year of the dragon was 2000.

Want to learn more about the history of the Chinese New Year? View our previous Chinese New Year post with more about how to celebrate and where to go!

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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

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Test Your China/US Knowledge 1/31/2011

China Knowledge QuizThis week’s Time Magazine had an interesting short quiz testing readers’ knowledge of China, as well as the United States. Do you know all the answers?

1. When did China become the second largest economy?
a. 2010
b. 2009
c. 2008
d. it hasn’t yet

2. Since 1999, the proportion of researchers (out of all employed persons) int he U.S. has risen 8%. How much has the proportion of researchers in China increased?
a. 11%
b. 50%
c. 102%
d. 111%

3. In 1994, china’s secondary-school enrollment rate was 48%. What is it now?
a. 65%
b. 96%
c. 51%
d. 76%

4. The average trade balance as a percentage of GDP in the U.S. is 6%. What is it in China?
a. -5%
b. even
c. 7%
d. 14%

5. In 1995, China was 14th in the world in thh publication of science and engineering papers. Where does it rank now?
a. 1st
b. 2nd
c. 3rd
d. 4th

6. In what year is China projected to overtake the U.S. in number of patent applications?
a. 2011
b. 2015
c. 2020
d. 2025

How did you fare? Here are the answers:

1. A; 2. D; 3.D; 4.C 5. B; 6. A

Source Time Magazine: January 31, 2011 Issue

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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.

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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.

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