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​Chinese companies need to assess risks while doing business under BRI

Xinhua Financein www.cfbond.com
2018-06-05 13:39

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Chinese companies have gained opportunities doing projects abroad under the Belt and Road Initiative (BRI), while they also faced challenges and risks during the process.

The trade volume along the BRI countries amounted to 7.37 trillion yuan in 2017, an increase of 17.8 percent year-on-year, among which the exports were 4.3 trillion yuan, up by 12.1 percent and imports were 3.07 trillion yuan, up by 26.8 percent.

The new investments for 2017 were 14.36 billion dollars, a decrease of 1.2 percent year-on-year while the Chinese funds mainly flowed into Singapore, Malaysia, Laos, Indonesia, Pakistan, Vietnam, Russia, the United Arab Emirates, and Cambodia.

The total construction contracts amount was 144.32 billion dollars last year, and overseas investments were 8.8 billion dollars regarding Chinese companies’ merger and acquisition of foreign companies.

When Chinese companies are expanding their businesses abroad, they have to deal with some uncertainties and risks that may not occur domestically, for instance, political, economic, environmental, cultural, legal and administrative risks.

Zhou Ying, the taxation advisory partner from Deloitte, an international professional service provider, told this journalist that in the past, the Japanese branch was at the most strategic position as Japanese invest mostly abroad. Meanwhile, a lot of foreign companies have invested in the Chinese market, while nowadays, China is seeing a growing number doing overseas business, which has provided more opportunities for Deloitte China. Therefore, the Chinese subsidiary now contributed more to the global profitability of Deloitte as a whole.

Taxation risk has been one of the most challenging issues when domestic companies are going abroad. Taxation rules are different from their home country. Overseas countries usually have more complicated levy systems. Foreign companies lack channels to obtain information on local taxation rules as well as evaluating underlying risks. They need to make sure they did not dodge taxes while optimizing their tax planning. “The earlier we manage the risks, the less costs we will have for risk management,” said Zhou. Before companies go abroad, they’d better be fully aware of the local regulations and taxation rules, including turnover taxes, individual income taxes, and tariffs among others, to evaluate whether the project will be profitable in the future. Local tax department will keep a close eye on the foreign investments which means negligence may result in fines, she added.

Private companies partnered with state-owned companies to diversify the risks. Meanwhile, they sought for brokers to find appropriate insurance companies to protect themselves from risks. The challenges for private companies came at the construction standards, said private entrepreneurs. Most of the countries may have different construction standards. Many places enforced European rules for construction. For instance, raw materials like steel, if local authorities carried stringent construction standards, they can be barely found in Chinese markets. Pre-negotiations are essential in these cases.

Moreover, currency exchange is another concern. Some African countries may have no foreign exchange reserves, which means companies, have to bear with the high inflation rate in these countries.
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