China Money Network recently sat down with Laurence He, Director, Global Business Development for TMF Group, to reflect on the changes he has observed in this market, and where he sees attractive investment opportunities for global investors.
CMN: What major trends have you seen in BRI investments lately?
Laurence: China’s non-financial outbound direct investment (ODI) saw steady growth in the first half of 2018. Domestic investors made US$57.2bn of non-financial ODI in 3,600 overseas enterprises over 151 countries in the first six months. The investment was up 18.7% from the same period last year. ODI in countries along the Belt and Road rose 12% from a year earlier to US$7.4bn dollars during the first half.
The structure of outbound investment continued to improve, with investment mainly going into leasing and business services, manufacturing, mining and retail and wholesale sectors. No new projects were reported in sectors such as property development, sports and entertainment. By the end of June, China had built 113 overseas economic and trade cooperation zones in 46 countries, with a total investment of US$34.9bn and attracting more than 4,500 companies. The cooperation zones created total tax revenue of US$2.9bn and 287,000 jobs in the host countries.
CMN: What are the most common mistakes Chinese companies make when venturing into Southeast Asian countries?
Laurence: Chinese investors are focusing mostly on core businesses, but they lack a clear understanding of compliance requirements when they expand their business to overseas countries. The main concern of Chinese investors is the speed they can expand into the new markets, however, compliance always takes time and throws up road blocks. Some investors moving aggressively into new markets risk breaching local compliance regulations in their haste to market, potentially putting the entire new venture at risk. They are likely to be fined or even having business licences refused or revoked when the authority discovers these companies do not comply with the regulations. The best way to achieve speedy expansion is to engage a professional corporate services provider like TMF Group, with the local expertise to ensure that aggressive approach does not compromise compliance with local regulations.
CMN: What are the unique compliance challenges facing Chinese companies in the ASEAN countries?
Laurence: The compliance requirements vary among ASEAN countries. These challenges are something that legal counsel, finance and HR professionals facing every day when expanding the businesses into new countries. With regard to entity incorporation, there are requirements to have resident Directors in some countries, such as Singapore and Indonesia. Investors usually do not have resident Directors in the new markets so the challenge is to look for a local person accountable and qualified to act as the Director of the local entity. Also, many banks may require the Directors to have an interview at bank counters to open bank accounts.
However, many investors may have difficulty to fly in to conduct the bank interviews so the process to open bank accounts is always tedious. Not to mention, the KYC requirements are stringent and differ from bank to bank. The accounting rules are also different among ASEAN countries with Vietnam, India, Philippines, and Indonesia ranked as the most complex jurisdictions for investors to follow the accounting rules.
CMN: What advice would you give to Chinese companies operating or planning to operate in ASEAN?
Laurence: Before investing in ASEAN countries, it is important to engage a tax advisor to design an investment structure so that the withholding tax will be reduced when remitting dividends to shareholders residing in the home country. Singapore is a jurisdiction many Chinese investors prefer to set up their investment entities before investing further to the neighbouring countries such as Malaysia, India, Indonesia and Philippines.
Lawyers should always be involved to review business plans and provide legal advices to minimise the business risks. When it comes to operations, it is probably best to engage a global corporate services provider, such as TMF Group, to assist with entity incorporation and administrate the entity in terms of corporate secretary, bookkeeping, tax compliance and HR payroll so that the investors can focus on core businesses to optimise the new opportunities.