Keeping up with the Needs of Foreign Investors and

Businesses in ChinaPresented by Aloysius Wee

Managing PrincipalDacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

Rise of China as a World Player

Dacheng Wong Alliance LLP

Second Largest Economy in the World A large population – 1.3 billion and rising A growing middle class Fast rate of economic growth in most cities Internal competition for resources Fastest rate of growth for new millionaires Rising superpower

China – A Land of Opportunities

Dacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

• Political Changes• Greater presence in the world stage

• A louder voice in the UN• A stronger military presence in the South China Sea• A more aggressive engagement with ASEAN countries over disputed territories• A more aggressive engagement with Japan over disputed territories• More engagement in Africa and Pacific Islands

China – Changing Landscape

Liaoning - China’s first aircraft carrier

Dacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

• Political Changes• Central Government – New Leadership

• New President • New generation of leaders in key ministries and positions• Expectations of new policies to drive China for the next 10 years• Restructuring and merging of ministries and government departments in an attempt to streamline the administrative machinery

• impact will be a period of settling in and uncertainty for investors

China – Changing Landscape

Dacheng Wong Alliance LLP

China’s Ex-president – Hu Jintao

Dacheng Wong Alliance LLP

China’s new president – Xi Jinping

Dacheng Wong Alliance LLP

China’s new first lady – Peng Liyuan

Dacheng Wong Alliance LLP

• Political Changes• City Government – Change of Leadership• District Government – Movement

• the impact of these changes will be a change in leadership at the local level, relationships or guanxi have to be built again or re-established• there will be a period of uncertainty given that there will be mergers in the ministries which will have impact at the local level• there will be a period of trying to understand the new policies of the Central Government and how to implement these policies

China – Changing Landscape

Dacheng Wong Alliance LLP

• Economic Changes• Move from 3rd largest to 2nd largest economy

• China has to grapple with hot money • China has to deal with and an overheated property market, interim measures in place but cannot be long term solution• China has to deal with employment issues

• Move from manufacturing to higher value manufacturing and services• How to attract such FDI given rising costs and competition from ASEAN

China – Changing Landscape

Dacheng Wong Alliance LLP

Legal Changes • Usually driven by political and economic objectives. With the new central government and the proposed streamlining of ministries, there will be anticipated changes in the legislation to give effect to these changes.

• Legal changes can be by way of new legislation which can be retrospective in nature• Legal changes can be by way of interpretation of current legislation or amendments to current legislation• Legal changes can be by way of administrative changes and application of discretion

• This category is the most difficult to deal with as discretion is involved

Infrastructure Projects – roads, rail, townships and industrial parks development in second and third tier cities which offer good investment opportunities

Services Industry – finance, hotel management, asset management

Green & clean industry – waste treatment, sustainable power generation – wind and solar (however now with possible US and EU imposition of duties may not be viable)

Aerospace Industry – China is aspiring to sell its first commercial airliner within the next 24 months, air space will also be opened up for private use and an anticipated industry in private aircraft and helicopter sales and leasing

Opportunities

Dacheng Wong Alliance LLP

Many Chinese cities and provinces have come to ASEAN to procure investments into their cities.

China moving away from manufacturing to higher value activities.

Largest factory in the world moving to largest value added economic center.

Chinese companies are coming out to invest overseas

Chinese companies are acquiring companies overseas

Opportunities

Dacheng Wong Alliance LLP

Year of Growth…after many years of continued

growth

Dacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

China’s Actual Use of Foreign Direct Investment(2003-2011)Year Actual Use of Foreign Direct Investment (billion)

2003 53.51

2004 60.63

2005 72.41

2006 69.47

2007 82.66

2008 92.40

2009 90.03

2010 105.74

2011 116.01http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1

Dacheng Wong Alliance LLP

China’s Actual Use of Foreign Direct Investment(2003-2011)

2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

20

40

60

80

100

120

140

year

Act

ual

Use

of F

orei

gn In

-ve

stm

ent（

billi

on）

http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1

Year of Growth…after many years of continued growth

FDI will continue to increase from 2012

China is not short of money, in fact it is curbing hot money

Chinese local companies are facing credit crunch and need funding

Institutional Funding is not cheap in China and hence rise of private funding

Dacheng Wong Alliance LLP

Inward Investment (EU)

Dacheng Wong Alliance LLP

2009 2010 20112012（ Jan-

Oct）Number of

newly established enterprises

1578 1688 1743 1418

Actual use of foreign

investment(billion)

5.992 6.589 6.348 5.236

http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1

Inward Investment (The United States)

Dacheng Wong Alliance LLP

2009 2010 20112012（ Jan-

Oct）Number of

newly established enterprises

1588 1576 1497 1128

Actual use of foreign

investment(billion)

3.576 4.052 2.995 2.704

http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1

Inward Investment

EU as a trading bloc has significant investments in China, larger than the US but with crisis in Greece, Spain the outlook for further FDI looks like it will slow down.

The US too has significant investments in China but with tensions rising as China assumes the other superpower role, there is a likelihood of investments slowing down. There is also a strong anti China lobby and issues of dumping that are often brought up by the US , eg solar panel industry

Dacheng Wong Alliance LLP

Inward Investment (10 Asian Countries /Regions)

Dacheng Wong Alliance LLP

2009 2010 20112012（ Jan-

Oct）Number of

newly established enterprises

18321 22058 22302 15852

Actual use of foreign

investment(billion)

73.148 88.179 100.517 78.028

Hong Kong, Macao, Taiwan, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia, ROK

http://english.mofcom.gov.cn/static/column/statistic/foreigninvestment.html/1

Inward Investment

ASEAN and China’s Asian neighbors now account for the largest number of companies to be set up in China as well as the largest amount of FDI.

Some issues with Japan which may impact Japan FDI into China as well as pull out or scale down of investment of Japanese companies already in China.

Greater incentive for ASEAN investment with the DTA between ASEAN and China.

Growth will be potentially from ASEAN countries.

Dacheng Wong Alliance LLP

Inward Investment

In the 1980s there was the coining of the term, Asian Tigers which referred to the emerging economies of Singapore, Taiwan, Hong Kong and South Korea.

In this age, we do not see these economies playing any significant part in the world economy on their own but now relying on China the sleeping dragon that has awaken.

Dacheng Wong Alliance LLP

Outbound InvestmentThe journey of a thousand miles begins with

one step

…a Chinese Proverb

Dacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

China’s Outbound Investment(2008-2012 Jan-Sep)Year Outbound Investment (billion)2008 31.30

2009 32.87

2010 36.27

2011 40.75

2012 52.52

http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1

Dacheng Wong Alliance LLP

China’s Outbound Investment(2008-2012 Jan-Sep)

http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1

2008 2009 2010 2011 2012 20130.00

10.00

20.00

30.00

40.00

50.00

60.00

year

Out

boun

d In

vest

men

t (bi

llion

)

Outbound Investment（ 2008-2012 Jan-Sep）

Dacheng Wong Alliance LLP

Countries / Regions

Overseas Invested Companies

Outward Direct Investment

(billion)

2012 126 2941 52.52

2011 129 2526 40.75

2010 118 2426 36.27

2009 112 1612 32.87

2008 112 More than 1500 31.30

http://english.mofcom.gov.cn/static/column/newsrelease/press.html/1

Outbound Investments Chinese companies beginning with State Owned

Enterprises and then private owned companies have started to invest in more countries and in more industries then ever before.

Investments may be in the form of acquiring shareholdings in foreign companies.

Bank of China holding shares in 5 banks

ICBC has plans to purchase the shares of The Bank of East Asia Limited, Standard Bank Argentina, ICBC (Thailand) Limited and ICBC (Canadian) Limited

Dacheng Wong Alliance LLP

Outbound Investments Mergers and acquisition Chinese companies have in the past depended on technology

transfers but in recent years have gone for outright acquisition of foreign companies and using their brands

Lenovo buying up IBM’s PC business. Since the acquisition, Lenovo has grown into an international brand.

Geely automobiles buying up VOLVO. Joint ventures and collaboration

FAW-Volkswagen Automotive Co. Ltd is a Chinese joint venture between the First Automobile Works (FAW) and Volkswagen Group

Xian-Janssen Pharmaceutical Ltd is a Chinese joint venture between Johnson & Johnson and a group of Chinese pharmaceutical companies

Dacheng Wong Alliance LLP

Outbound Investment

Dacheng Wong Alliance LLP

(Geely’s Purchase of Volvo)

2009.10.

28

•Geely was named as the preferred buyer of Volvo Cars by Ford.

2009.12.

23

•all substantive commercial terms were finalized for the sale of Volvo Cars from Ford to Geely.

2010.3.2

8

•definitive agreement was signed at the price of $1.8 billion USD.

200.8.2

• The deal was completed after the approval of relevant authorities.2010.8.2

Outbound Investment

Dacheng Wong Alliance LLP

(Geely’s Purchase of Volvo)

200.8.2

It is an international merger which is the result of globalization. A lot of challenges: e.g. culture difference, different management styles, cost allocation, etc. This business is the biggest overseas acquisition by a local Chinese company. It marks the rising power of China in the world economy. It also reflects the big aspiration of the Chinese to expand in the world market. From the other perspective, it means the world needs to be prepared for doing business with China.

ExpertiseWhat you need to know to help your clients

Dacheng Wong Alliance LLP

understanding cultural differences

understanding language differences

understanding guanxi

understanding legal differences

Different venues and ways of negotiations Dinner table negotiations KTV negotiations

Chinese seldom say “No”. They may say “Problem is not big”.

Chinese may test your credibility before conducting business with you.

UNDERSTANDING CULTURAL DIFFERENCES

Dacheng Wong Alliance LLP

Cultural Differences noticed at the G20 meeting in Toronto ... The Canadian: Self-absorbed and disconnected from reality. The American: Businesslike, unwilling to be distracted. The French and the Italian: "LOOK AT THAT ASS!"

Language Differences There is a perceived advantage that Chinese

speaking Singaporeans, Taiwanese, Malaysians are supposed to have.

Whilst there is some truth in that. Therein lies the problem too. We all speak Pu Tong Hua. We assume that we speak the same language and that we understand Chinese.

We forget that that there are intricacies in the language that are closely related to culture and that we too can misunderstand the Chinese.

Dacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

Language Differences

It is because of such complacency that we too come across as being arrogant and rash. For us if we are not able to do something, we would be upfront and say "No" or "Not possible". There is nothing wrong with being direct.

However, the Chinese rarely use the words "Bu Ke Yi" or "Not possible". Even if they cannot do it they will say "Jing Liang" or "I will try my best". To us hearing this, usually there is some comfort, but coming from the Chinese it would usually be more often than not a “no” rather then a “yes”.

Guanxi -关系 What is guanxi? It is in our western

context a more evolved form of networking. There is nothing mystical about guanxi but it boils down to the fundamental concept of doing business with someone who is known to you. It is often said in China, "let’s first be friends then business partners.”

Guanxi is about relationship building and relationship building takes time. Building up guanxi takes time.

Dacheng Wong Alliance LLP

Guanxi -关系 Make your own evaluations Think medium and long term Do not rush into things Verify from various sources Treat people like how you would like to be treated Work towards an equitable and fair working

relationship for long term cooperation

Dacheng Wong Alliance LLP

Dacheng Wong Alliance LLP

Legal Differences

China is a civil law system, this is different from the common law system that we are accustomed to.

Administrative departments weld great discretion and power over interpretation of the laws.

Relationships and guanxi are important in litigation cases.

When dealing with at least one foreign party and one Chinese party opt for arbitration out of China but in a jurisdiction that arbitration awards are recognized for enforcement in China, eg Singapore.

Important to not only know the law but who is in the law.

Dacheng Wong Alliance LLP

Legal Differences It is important to use local expertise in

handling administrative and legal issues.

GLOBAL NETWORK, LOCAL TOUCH

Dacheng Law Offices offers our clients a global reach with offices across China and the globe and at the same time offering a local touch, with an understanding of local custom, culture and language. 38 offices in China, in every major city with 2000 lawyers.

Dacheng Wong Alliance LLP

Thank you – 谢谢

For more information please visit our website, www.dcwa.sg or contact us at lawyers@dcwa.sg.