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doing business in China

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Long-term investment projects require a thorough understanding of all attributes of doing business in that country, including import/export restrictions, labor relations, supplier financing, tax rules, depreciation schedules, currency properties and restrictions, and sources of short-term and long-term debt, to name a few. China is currently the focus of investment and market penetration strategies of multinational firms worldwide including Acme. Your supervisor has asked you to gather information on some of these factors that your company or any MNE would want to consider when doing business in China. (This is the primary focus of this assignment.)
As you begin your research, you realize your company would make a significant profit from doing business in China. You also discover that policies on employee welfare, labor relations, etc. are the antithesis of what your CEO firmly believes. Do you include this information in your report, or just provide the strategic information you were asked to gather? (Please respond to this ethics question in a paragraph or two).

http://www.tdctrade.com/chinaguide/index_e.htm

http://www.business-china.com/invest/
http://www.executiveplanet.com/business-etiquette/China.html

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https://brainmass.com/business/wto-and-gatt/doing-business-in-china-82517

Solution Preview

Let us take each topic one by one:

Import/export restrictions:

According to the New Foreign Trade Law amended in April 2004 in China, import goods and technologies are divided into four categories, namely prohibited imports, restricted imports, free imports, and goods under tariff-rate quota management. Among these, import goods under quantitative restrictions are subject to quota management and licensing control while restricted technology imports are under licensing control. In principle, free imports are not subject to any restrictions. However, due to the need to monitor import goods, the foreign trade department under the State Council has introduced the automatic licensing system on certain free import goods and has published a catalogue on them. For the import of technology classified as free imports, registration and contracts filing formalities are required.

For the import of goods and technologies subject to quota and licensing control in general trade, it is necessary to obtain prior approval of the foreign trade department under the State Council or the foreign trade department in conjunction with other relevant departments under the State Council. For the import of commodities subject to automatic import licensing, the consignee should apply for automatic licensing before customs declaration and obtain prior approval of the foreign trade department or their appointed agents.

China has also revised certain documents governing the administration of imports by FIEs in accordance with its WTO commitments. FIEs importing items subject to quota and licensing control for investment purpose or own use, or for manufacturing products for domestic sale, or for domestic sale in China directly, should apply for the required import quota, import licence or automatic import licensing. FIEs importing within their investment limit raw materials, parts and components for investment purpose or own use, or goods subject to automatic licensing, are not required to obtain an Automatic Import Licence. Commodities imported for processing trade subject to licensing control are exempt from import licence, with the exception of refined oil products, classified chemicals, poisonous chemicals and CD-ROM manufacturing equipment.

China imposes restrictions on the export of certain commodities. These include domestic resources that might be depleted and are in short supply or need conservation in China, and goods destined for countries or regions with limited market capacity and whose exports therefore need to be restricted. Goods under export restriction are subject to quota and licensing management while technologies under export restriction are subject to licensing control. For commodities subject to export quota control in general trade, it is necessary to apply for an export licence by presenting the export quota certificate. For the export of commodities subject to export licensing, it is necessary to apply for an export licence by presenting the export contract. However, FIEs exporting items subject to quota management and licensing control must first obtain approval from the Ministry of Commerce before applying to the relevant department for an export licence. For the export of commodities whose export quotas are obtainable through open tender, utilisation with compensation or bidding without compensation, application for the licence should be made after a successful bid has been made and the quota amount confirmed.

Currency properties and restrictions:

The official currency of the People's Republic of China (PRC) is Renminbi (meaning in Chinese: "people's currency"). The People's Bank of China, the PRC's monetary authority, issues the Chinese currency. The official ISO 4217 abbreviation of China's currency is CNY, but it is also abbreviated as "RMB". Colloquially, the Chinese currency is also called Yuan and Kuai.

During the previous decade, Mainland China's Currency was pegged to the U.S. dollar at 8.28 RMB. On July 21, 2005, it was revalued to 8.11 per U.S. dollar, following the removal of the peg to the U.S. dollar. The revaluation resulted from pressure from the United Stated and the World Economic Council.

The People's Bank of China also announced that the Renminbi would be pegged to a basket of foreign currencies, rather than being strictly tied to the U.S. dollar, and would trade within a narrow 0.3 percent band against this basket of currencies. China has stated that the basket is dominated by a group of international currencies including the U.S. dollar, euro, Japanese yen and South Korean won, with a smaller proportion made up of the British pound, Thai baht and Russian ruble.

From 1994 until July 2005, the policy on currency has been to peg informally the value of the renminbi against the value of the United States dollar. This policy was praised during the Asian financial crisis of 1998 as it prevented a round of competitive devaluations.

In 2003, this policy came under criticism by the United States. The fall in the value of the dollar caused the value of the renminbi to fall also, making mainland Chinese exports more competitive. This led to some pressure on the PRC from the United States to increase the value of the RMB in order to encourage imports and decrease exports. This is a policy that some feel would preserve manufacturing jobs in the United States. The G7 and European Union are ...

Solution Summary

According to the New Foreign Trade Law amended in April 2004 in China, import goods and technologies are divided into four categories, namely prohibited imports, restricted imports, free imports, and goods under tariff-rate quota management.

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