China in 2015 will look much like China in 2014, only “more” so. If you are doing business in China, you should be on your guard for the following six things in 2015.
1. China will increasingly crack down on foreigners in China without proper visas. This is more likely to impact you if you are from Africa or the Middle East, but we are hearing of increased problems for Americans and Europeans too. China’s economy is slowing and going after foreigners is a good way for the government to win friends among its own citizenry.
2. China will increase its efforts to root out and shut down illegal and unregistered foreign businesses. China has especially stepped up its enforcement against American and European companies that operate in China but have an entity in Hong Kong without one in the PRC. This has become so common that we are starting to think that Hong Kong is providing some information to the PRC. Providing jobs to Chinese citizens will not let you off the hook on this one; if you are doing business in China, you need a China entity.
3. China will increase its tax collection efforts. This has been going on for years now and if you are doing business in China already I am guessing that your response to this is “yeah, so.” In particular, China has stepped up its transfer pricing efforts and so if your China operations are not making a healthy profit, be prepared for the government to impute healthy profits to it. If you do not already have a good China accountant, get one. Now.
4. Litigation is increasing. The idea that Chinese companies and employees do not sue was never true and it is becoming even less true every year. Chinese companies are getting aggressive in threatening to sue their foreign counterparts both in China and even in the United States. If you fire or lay off your Chinese employee without first getting a signed settlement from them that actually works, your chances of being sued are great.
5. China’s crackdown on corruption, particularly as against foreigners, is real and is not going to go away. Many Chinese lawyers have become aware of the rewards offered to whistleblowers by the U.S. Department Justice and the SEC and they are hustling for clients. Are you confident that none of your employees will turn you in for a multi-million dollar reward?
6. The number of scams against foreign companies will increase and continue to get more sophisticated. Your defense is to conduct due diligence before doing your China deals.
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