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China’s Foreign Company Double Standard: How To Fight Back
Last week, China government news agency Xinhua announced that the government would be cracking down on foreign company tax avoidance. To anyone familiar with doing business in China, the Chinese government singling out foreign businesses should come as no surprise; the only surprise should be that it would announce that openly.
Foreign companies doing business in China are under a government and media microscope. Both the Chinese government and the Chinese media hold foreign companies to a higher standard than their Chinese competitors. Behaving badly in China just because the local competition does so is not an acceptable defense.
American companies generally approach compliance issues in China in one of the following three ways, going from worst to best:
1. On the bottom rung are companies with the attitude that “it is so fun to ignore the laws in China and to act like I am a Chinese company, and I pity the naive foreign companies that don’t realize how things ‘are really done’ in China.” This sort of company typically gets shut down in a year or two.
2. In the middle rung are the American companies that believe that “we can just leave it up to our Chinese partner or our Chinese employees on how to handle things in China because they have to know better than us how to deal with things there.” This sort of company seems to believe that everyone in China knows everything there is to know about what foreign companies must do in China to remain in legal compliance. This sort of company typically gets shut down in a few years, or gets smart and changes and survives.
3. At the top rung are the American companies that do all that they can to handle China without self-immolating. These companies are the majority, and the percentage of these companies seems to increase every year.
To remain on top of your compliance and ethical issues, you should constantly be asking the following four questions
1. What do our local competitors do to get business and what of that should we — as a foreign company — not be doing?
2. What would this particular employee or that particular Chinese counterparty do if they had to choose between compliance and doing the deal?
3. What can we do better to ensure compliance?
4. Is there any way we can use our strict compliance standards to our competitive advantage?
You must constantly make your compliance principles clear to your employees, both in writing and with live presentations. You need to always be emphasizing that compliance is essential to your company’s health and reputation. Your employees must know — really know – that if they are ever forced to choose between compliance and doing a deal, they should choose compliance.
If your profits in China depend on your operating on the compliance margins, you should figure out now how to change or you should start formulating your exit strategy. As China’s economy continues to slow, the pressure on foreign companies will continue to accelerate.
You just have to read the paper for proof of this.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2014/12/chinas-foreign-company-double-standard.html
