Foreign firms unhappy with China; will they turn to Singapore?

Sept. 15, 2010 - PRLog -- In recent times, foreign firms especially from countries such as US, Europe and Japan have starting voicing their complaints over the growing pain of doing business in China.

According to the recently released 'European Business in China Position Paper 2010/2011' by the European Chamber of Commerce in China, "Less than 3% of EU outbound foreign direct investment (FDI) went to China. This is not because European companies do not want to expand their China operations including in the central and western parts of the country, but rather because they face obstacles or risks in excess of what their boards and stakeholders will allow them to bear. China still remains excessively regulated and less open to competition compared to other major economies." The EU has called for a more open, fair, transparent and predictable business environment.

A Financial Times report cited that German firm BASF's Chief Executive Jurgen Hambrecht complained that foreign companies were forced to transfer business and technological know-how to their Chinese competitors in exchange for market access. Other firms that are outspoken about China's restrictive business environment include General Electric, Siemens and Google. A survey conducted by the European Chamber of Commerce shows a waning confidence in China's regulatory environment for foreign enterprises.

In the wake of these growing concerns senior Chinese officials have declared that China will remain open to foreign investors and plans to open up more sectors to foreign investors in a bid to ensure that it is appealing destination for investment. Chinese officials also reiterated that China's policies were in line with the WTO's regulations. According to Mr. Tong Zhiguang, former vice-minister of Commerce, "China has welcomed foreign investment and I believe the nation will continue to do so by all means, as the nation understands foreign businesses play a key role in pushing forward Chinese development."

Foreign businesses have expressed their skepticism about continuing to invest in China if the foreign investment policies remained unfavorable towards them. This naturally leads to the question of where they would be likely to invest if such a situation were to arise. The natural picks will either turn out to be Singapore or Hong Kong, given the regional dominance and business friendly environments of both jurisdictions.

If one were to compare the foreign ownership policy and company setup requirements/procedure of Singapore and China, Singapore wins hands down. Singapore company setup (http://www.guidemesingapore.com/company-setup/c312-singap...) can be completed in less than 24 hours by simply securing company name approval and filing incorporation documents, both of which can be accomplished online. There is no restriction on the type of business activities foreigners can invest in. Singapore charges a corporate tax rate of approximately 8.5% for profits up to S$300K and a flat 17% for profits above S$300K. GST stands at 7%. On the other hand, China allows foreign investment in only certain sectors; company incorporation takes up to 2-3 months, involving several transactions and is not completely free of bureaucracy; corporate taxes are comparatively higher ranging from 25% to 20% in certain cases; VAT stands at 17% for companies with an annual turnover exceeding CNY 1.8 million, while 6% is the VAT rate for all other companies. Finally, Singapore tops the list for 'Ease of Doing Business' while China was in the 89th spot.

If foreign investors are not convinced of the economics of doing business in China, Singapore may just stand to benefit given the discernible differences in the business landscape of both the countries.

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