Today, China companies are increasingly leading industry fields. The 14th Five-Year Plan 2021-2025 set forth China’s objective to become a leading innovation country by 2035. For Italian companies, the modernised China presents both new investment opportunities and compliance risks.
Moving forward from low-cost manufacturing, China is focused on attracting high-quality foreign investments, especially in industries which support the technological and eco-sustainable movement in China. Equally, regulation reforms in the last years coupled with the digitalisation of business administrative and taxation procedures require greater management in legal and financial compliance. Companies seeking to enter the China market shall be aware of not only the changing market trends, but the current legal and financial obligations for foreign investors. Overall, companies should implement an essential China checklist before entering China to ensure the business can thrive and scale in China.
Webinar Focus China
At Horizons Corporate Advisory, we have navigated clients through the regulation reforms and collaborated with the Industrial Federation of Canavese (Italy) this Summer to present an insight. Through a joint webinar “Focus China: the new foreign investment landscape” hosted on 17th June 2021, our experts provided the essential China checklist for Italian investments today.
Dr. Lucia Myriam Netti, Regional Partner in Horizons Italy – Head of the Group’s consulting activities in Europe, and Dr. Pier-Domenico Peirone, Executive Director of Pathways (partner of Horizons Group), were called to lead the webinar. The webinar attracted over numerous local Italian companies from various sectors including packaging, textiles and mechanics with plans to enter the China market.
The successful collaboration also paved a long-term partnership between Horizons and the Industrial Federation Canavese. Specifically, Dr. Gianfranco Franciscono, Head of the Economic Service of Industrial Federation Canavese comments on investing in China.
“We are well aware that investing in a China business project today is the most promising. However, it is never free from risks -the risk shall never be an impediment. On the contrary, the risks are evaluated in a rational way, it can be managed and leveraged sucessfully. Starting your business in an attractive market such as China, we want to provide companies with information and suggestions for the correct approach and expansion strategy.”
China: current investment landscape for Italian companies
“Despite the ongoing pandemic, China did not abdicate the role as economic leader -especially in the manufacturing sector. In 2020, China GDP grew 3%, whilst the rest of world contracted. For Italy, China is an important trade partner, with a commercial exchange of 44 billion euro – noted Dr. Patrizia Paglia, President of the Industrial Federation Canavese.
“In the uninterrupted flow of trade relations with China, the sectors include not only traditional Made in Italy brands fashion, agri-food and mechanical engineering – Dr. Paglia continued – but also innovative companies working environment and sustainable energy. For example, smart urbanisation, infrastructures and transport and space technology. As a result, the current investment landscape is increasingly broadening and offer opportunities for companies to seize with the adequate legal and financial tools to both protect the investment and comply with the local regulations.”
The essential China checklist
Dr. Peirone explains in the webinar “expanding to China today opens very different perspectives compared to the previous years”. The digitalisation and speed in China offer Italian businesses new perspectives to enter the market, however companies should understand the legal and financial responsibilities and activacte the legal protection, before speeding ahead. In the below, we provide three aspects of the essential China checklist.
Pre-investment stage: trademark and patent protection
Companies should ensure trademark and patent are registered in China before entering the China market. Dr. Netti pointed ‘Despite the preconception in Italy (rooted in prejudice), intellectual property rights (‘IPR’) is strongly recognised in the Chinese Law and enforced. However, many Italian companies do not proactively protect trademarks and patents with the provisions of the Chinese Law.”
For more information on trademark protection, Horizons Partner and IPR Head Dr. Angela SU Qi discusses the IPR reforms in the article Dr. Angela Su, Horizons Partner and IPRS Head, provides insight on trademark protection for the foreign community in Shanghai
Working with Chinese companies: cultural nuances in contracts
The word ‘contract’ in Chinese is written with the two characters 合同 (hétóng). 合(hé) means to join and 同 (tóng) means to be the same together. Therefore, the two characters combined signifies the parties to the contract are unified with the same objectives. Contract Law defines a contract as an agreement between equal parties and emphasises that the parties shall be of equal footing.
“At Horizons, we encounter many contracts drafted without the mandatory clauses – notes Dr. Peirone – or drafted in English. In such cases, without taking the reasonable steps to ensure the contacts have be drafted properly and accordingly to the Chinese Law, the contract may not provide significant protection during a contractual dispute.”
For more information on contracts in China, Horizons penned an article on the Do’s and Dont’ of Contracts in China.
E-commerce; legal and tax obligations for Italian businesses
“In China, online sales are achieving absolute success – explained Dr. Netti – Already sales have increased by 27.5% in 2020, rising by 21.0% in 2021 and accounting for 52% of retail transactions – demonstrating China leading e-commerce sales.”
For companies selling products through Chinese online retail platforms, there are both legal and tax obligations to observe. Specifically, many companies neglect the withholding tax obligation for the income generated in territory of China. Equally, E-commerce Law adopted on 1 January 2019, requires companies selling online to be legal entities in China and strengthens consumer protection by forbidding fictitious deals and fabricated user comments.
For more information on withholding tax and the E-commerce Law in China, please see the articles China business: cross-border withholding tax 101 and China’s first e-commerce law to go into effect from 1 January 2019
Whilst, there are ample opportunities in China for Italian and other companies, legal and tax responsibilities cannot be neglected. Many companies may be tempted to find cost-saving alternatives, but this often lead to larger risks and costly fees. As Dr. Netti mentioned in the webinar, succeeding in China requires an understanding of the laws and regulations in China, if you do not have professional experts in China, it’s impossible to navigate through the legalities or protect your investment.
If you have questions or would like to know more about the corporate services available to you from Horizons, please contact us at +86 21 5356 3400 or email firstname.lastname@example.org.
This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com.