There is a good deal to criticize in this comment, but much to praise.

Chinese business executives who deal with Americans think no differently. One who deals with Chinese, especially in business, would be foolish to dismiss this comment -- instead, one should make it a topic of study. We will come back to it in our discussions this fall, to discuss its implications, its truth and the false perception that it harbors.

Regardless, Americans take notice. You (we) must go the extra distance simply to catch up. The extraordinary success of Zhang's Opening Ceremony lends credence to his criticism.

August 18, 2008

Work in China Job Sites -- Podcast

Looking to work in China? Listen to a brief introduction to a China job site.

Work in China Job Site -- NewChina Career

Several years ago, I was surprised to hear from a number of friends at the midpoint of their careers who expressed the desire to work in China. A number of them were, as we say, "on the beach," but the suntan lotion had dried up. A few had significant international experience, some had none. All of them needed to work.

(A handful asked how quickly it would take them to become fluent in Mandarin. Two to three years of intensive study will bring you to the barest of minimums and most likely not even conversational ability. For those who speak Mandarin, there are more opportunities, of course, unless you wish to teach English.)

I applaud the courage to search elsewhere for work -- born of necessity -- but valorous nonetheless. Doron Vermaat, Managing Director of NewChina Career, has asked me to blogroll his site, which is a job search site for China, Now, I have never myself used this website, and I don't know Doron personally, but I've surfed it. For those readers who wish to work in China, here is a site which is, as Doron writes, "100% free for job-seekers."

Readers who've had positive experiences with other China job sites are welcome to write about them in our Comments section directly below this post. (Please don't use this as an opportunity to plug your product -- I will delete comments that do so.)

August 14, 2008

Asiabizblog Announces Podcasts to Return in Fall

Asiabizblog announces that its informative and popular podcasts will return to the Web this fall, in English and Mandarin. You'll also notice we've widened our margins and increased the text size for easier viewing.

Reach Out and Touch Someone: China's Metals Traders Touched by U.S. Agency Fine

China's international reach for precious commodities extends as far as Cuba, lately earning the Minxia Non-Ferrous Metals Company a substantial Office of Foreign Assets Control (”OFAC”) fine. (Not this far more delightful Minxia.)

How is it that a Chinese metals dealer has been ordered to pay $1.5 million to the US Treasury?

Our story begins with a fairy tale island, white beaches nestled in lapping warm waves of a clear blue sea. [Ok, so my descriptive muse has overdone it a little...] Playboys and celebrities once danced to a Cuban Rhythm. They still drive 1959 Bel-Airs there, because that's the last year American autos could be imported. The American embargo of Cuba began in the depths of ancient time and, unbelievably, continues to this day, viz. the Cuban Assets Control Regulation (31 CFR 515), etc.

The excellent ExportLawBlog takes up the story:

Minxia Non-Ferrous Metals is a subsidiary of China Antimony Chemicals Co., Ltd., which, in turn, is a subsidiary of China Minmetals Non-Ferrous Metals Co., Ltd., which is, in turn, a subsidiary of the giant Chinese metal conglomerate China Minmetals Corporation. This climb up the corporate ladder may reveal what had OFAC in a snit about Minxia’s trades — namely, the $600 million joint venture between China Minmetals Corporation and Cuba to exploit Cuba’s large nickel supplies. China is one of the largest consumers of nickel which is a key component of stainless steel, and nickel is Cuba’s largest export — plenty there to get OFAC in a tizzy. In fact, the Bush administration announced a crackdown on nickel exports in July 2006, claiming that they constitute more than half of Cuba’s foreign income.

Sadly for the Chinese, if this was the cause of the fine, the Chinese interest in the nickel joint venture was recently bought out by Venezuela in what may not have been an arms-length, consensual transaction.

Make sure you click over to the ExportLawBlog page for this item to get the links, generously provided by its editor.

August 7, 2008

The China Downturn Bandwagon

Hmmm... Now everyone is jumping on the China downturn bandwagon.

Textile exports fell 4.2 percent in June from the same month last year, a serious blow to an industry that employs millions of people. Overall export growth in June was 18.2 percent, down from May's 28 percent rate.

Note the change in overall export growth means that there has been a decrease in the rate of increase, but that exports continue to grow.

August 6, 2008

German Companies Planning to Pull Production Out Of China

Der Spiegel reports that one out of five German companies has ceased or is planning to cease production in China due to rising costs.

"The big story here is that globalization is for real -- and China is no longer what it was," says Ronald Haddock, a vice-president at consultant Booz Allen Hamilton...

Corporate fright at seemingly unstoppable upwardly moving human resources cost, the rapid turnover of highly trained workers, the insufficiency of energy supplies coupled with fast rising demand, the slight appreciation of the RMB and a revulsion by many consumers in the West at the prospect of seeing their local shops stocked entirely by Chinese -- all contribute to the "China no longer is what it was" phenomenon. Elsewhere on this blog, I have suggested as much, viz., a decrease in the increase of the rate of at which Chinese goods find their shores in the US. Even so, read this:

Chinese companies, too, are increasingly outsourcing production abroad, Eddy Henning, the head of corporate banking at Deutsche Bank in Beijing, told the newspaper. "Someone who just wants to produce T-shirts is more likely to go to Vietnam or Africa," he said.

As energy prices make container transport unprofitably expensive for heavy products, some furniture manufacturers in North and South Carolina in the United States have brought back production from China. But has the tide turned back to the countries that have lost their manufacturing? Not likely:

In only four years, from 2002 to 2006, the value of furniture production in China has nearly tripled in value, from just under $20 billion to just under $60 billion. As production has increased, China's furniture exports have experienced a similar boom. From 1997 to 2006, the value of furniture imported to the US from China has increased more than nine-fold, to hit $14.4 billion in 2006. The percentage of US furniture imports from China rose from 32% in 2001 to 50% in 2005. Due to a weaker currency and state regulations, Chinese manufacturers can produce finished products at much lower costs. In fact, the average wage of a Chinese furniture production worker is only four percent of the average wage of a worker in the U.S. This fact combined with China's modern, high-tech plants make them a huge threat to the stability of the industry in North Carolina.

One wonders whether the German companies profiled by Der Spiegel are smaller companies which should never have been in China in the first place. The Chinese export engine continues to hum. Visit the ruins of the American manufacturing industries throughout the US and one will see what it really means to pull production.

August 5, 2008

Event Reminder: Chinese Income Tax Online Seminar

While it may be true that tax collector is one of the two oldest professions, no pejorative comment affects the fact that tax collection, wherever it may occur, will put its hand in one's pocket and scrounge around for even loose change. The multinational, whose pockets are considered fertile territory for treasure hunting, feels the touch of many-fingered hands of all nationalities.

Thus, when a national tax code changes dramatically, as in the case of China's new corporate income tax, not only does the multinational itself encounter often obscure changes in reporting requirements and the amount of tax it must pay, but its effect upon the tax law of other nations in which the multinational reports taxes can be complex and ill-understood.

For example, the IRS has issued new guidances on how non-US companies controlled by US persons can achieve deferral of income tax. Specifically with regard to American businesses operating in China, how does one rationalize Chinese and American corporate tax regulations so as to minimize the total tax paid to both? What is the effect of the changes to the tax regulations upon transfer pricing? Should US subsidiaries operating in China conduct themselves in a certain way with regard to third-party subcontractors so as to ensure minimization of corporate tax, both in China and the US?

To answer these important questions, Strafford Publications has announced the following online audio seminar to be presented on Thursday, August 7, 2008 at 1:00–2:40pm Eastern:

China's New Business Income Tax
Shielding Non-China Income From the Expansive Enterprise Income Tax
Plus: The Impact of IRS Contract Manufacturing Regs for U.S. Operations in China
A Live 100-Minute CPE & CLE Teleconference with Interactive Q&A

Speakers:

Peng Tao, Of Counsel, DLA Piper, New York.

Melanie Chen, Managing Director of China Group, UHY Advisors, New York

Alan Granwell, Partner, DLA Piper, Washington, D.C.

For more information and to sign up for what promises to be a seminar of great interest to corporate management, their attorneys and accountants, click this link.

August 4, 2008

Family Ties and the Chen Liang-yu Scandal

Chen Liang-yu (陈良宇) was Shanghai Party Secretary (上海市委书记) until removed in 2006 following an alleged scandal involving Social Security. [In Chinese.] Was the Social Security scandal the fundamental reason for his removal?. His swift rise to the Politburo in 2001 as a protégé of Jiang Zemin and the Shanghai faction preceded an even swifter fall following the presidency of Hu Jin-Tao in 2003.

Whether or not Chen Wei-li (陈维力) was a fundamental participant in his father's corruption or the innocent son of a guilty man, it is clear from this discussion that the simple fact of his family connection to the accused was an important bargaining chip upon which prosecutors relied to induce "a good attitude" (良好态度) in both men in the courtroom and most likely with the prosecution's investigation. [In Chinese.] If it is true that $400 million was appropriated from the Social Security program as alleged -- and, who knows, it may have been a lot more than that -- how much has been returned? Little mention {none...) has been made of that aspect of this case. Where did all those great gobs of money really go?

For some background on the scandal itself, see this page. [In Chinese.]

July 21, 2008

Event: China's Corporate Income Tax -- Online Seminar

Last year, Chinese legislators enacted a new corporate income tax, effective January 1, 2008. Just before the close of 2007, the state Council approved regulations regarding its implementation. A number of circulars, attempting to further clarify the law and regulations, have issued since the law has become effective. Compared with American tax law, it's Chinese counterpart isn't nearly as voluminous. That doesn't make the job of the accountant or attorney any less difficult because the law itself is, typically, rather a lot less specific and its implementation often haphazard.

The goal of tax equalization -- which Chinese regulators have promised since the 1980s -- between domestic and foreign corporate taxpayers will, in principle, vanish at a rate of 25%. That said, certain firms may transition to that rate over the course of several years. In addition, the law exempts certain industries -- agriculture, forestry, for example. -- and provides a variety of incentives, including a 15% tax on certain high-technology companies. Some of the tax concepts introduced by the corporate income tax law are new to the Chinese environment -- giving one pause as to how they might be handled by administrators. The new law also deals with transfer pricing, a withholding tax on dividends and a thin capitalization rule, which may tend to work against overseas investors.

The main difficulty, as with all Chinese law, is its generality, leading to a good deal of confusion as to the law's implementation and application to one specific situation.

Strafford Publications has announced the following online audio seminar to be presented on Thursday, August 7, 2008 at 1:00–2:40pm Eastern:

China's New Business Income Tax
Shielding Non-China Income From the Expansive Enterprise Income Tax
Plus: The Impact of IRS Contract Manufacturing Regs for U.S. Operations in China
A Live 100-Minute CPE & CLE Teleconference with Interactive Q&A

Speakers:

Peng Tao, Of Counsel, DLA Piper, New York.

Melanie Chen, Managing Director of China Group, UHY Advisors, New York

Alan Granwell, Partner, DLA Piper, Washington, D.C.

For more information and to sign up for what promises to be a seminar of great interest to corporate management, their attorneys and accountants, click this link.

Private Equity Funds in China -- Boom or Bust or Just Beginning?

One has heard of the promise of private equity investment in China at various times since the early 90s. What is really going on?

BusinessWeek, which curiously seems to mistitle its articles often, implies a boom. Shaun Rein's article implies great potential, but no boom yet. Adduced in favor of that proposition are the following:

...the continued optimism and growth of China's middle class in spite of inflation and the global downturn, the increasing global competitiveness of domestic Chinese firms that need expertise and capital to expand internationally, the tightening of credit from Chinese banks, and the decline of China's stock market.

Echoes of the past. Why is now any different?

Other observers are rather less positive, but seem to see a somewhat rosy future indicated by the defections of high-level Temasek and Goldman people, who have decided to set up their own shop, often in "cooperative" competition with their former employers.

One Beijing-based attorney put it to me this way (I'm paraphrasing here):

"Of 10 investments, nine will fail miserably, but one will make everything back and then some. Quite a lot more than then some. Everyone is chasing the 10th deal."

The investments to which he referred were, to most corporate investors, minor, each well under $10 million. But what about the big investments, which preoccupy the minds of private equity investors? Rick Carew writes:

Although smaller than the multibillion-dollar deals struck in North America and Europe, stakes in Chinese companies can be lucrative. A consortium led by Carlyle Group invested $740 million in China's third-largest life insurer, China Pacific Insurance (Group) Co., ahead of the insurer's IPO.

Post-IPO, the 17.3% stake is valued at around $4 billion, though the stock has declined this year alongside other China shares. Still, deals have been slow to come because of Beijing's worries about foreign capital and criticism that Western buyers got overly favorable terms for state assets.

China has withheld approval of a Carlyle deal to invest $375 million in a Chinese construction machinery company for three years. Carlyle has cut the size of its proposed stake repeatedly to get a deal done, to no avail.

July 16, 2008

Recent China-related Enforcement Activities of the Bureau of Industry and Security

Many small and mid-sized manufacturers in the United States are unaware that their exports may be subject to Export Administration Regulations (EAR). The implementation of those regulations is overseen by the Commerce Department’s Bureau of Industry and Security (BIS), and enforced through that bureau's Office of Export Enforcement (OEE). BIS is joined by several other federal departments with various responsibilities in the area of export control.

Not only are dual-use products -- items with military and commercial uses -- subject to the EAR, but many solely commercial products as well. Does your export require a license? The answer to that question is not necessarily straightforward, given the complexity of the regulations, which have been strengthened since 9/11. However, the importance of reviewing your export in light of the EAR cannot be understated.

To that end, I've devoted today's post to several China-related enforcement actions from the BIS website, which make for pretty interesting reading. More on export control law -- especially the topic of “deemed export” about which I've written here -- in future posts. I have dealt with China export issues and welcome inquiries from companies dealing with that and related issues.

WMD and Missile Proliferation

Industrial Furnace to China – On October 4, 2006, William Kovacs, president of Elatec Technology Corporation, was sentenced to 12 months and one day imprisonment, three years’ supervised release, and 300 hours community service in connection with the export of an industrial furnace to a proliferation entity of concern in China. On May 28, 2004, Kovacs and Elatec pled guilty to charges that they conspired to violate U.S. export licensing requirements in connection with this export. Elatec’s export license application for this transaction had previously been denied by BIS due to missile technology concerns. An associate, Stephen Midgley, separately pled guilty on January 10, 2005, to falsely stating in export documents that the furnace did not require an export license when the goods were shipped to China. Midgley was sentenced to one year probation, 120 hours community service and a $1,500 criminal fine. BIS assessed Midgley a $5,000 ($4,000 suspended) administrative penalty as part of an agreement with Midgley to settle charges related to this unlicensed export. OEE and ICE jointly conducted this investigation.

Nickel Powder to Taiwan – On October 11, 2007, Theresa Chang was sentenced to three years’ probation and to pay a $5,000 criminal fine. On June 21, 2007, Chang pled guilty to one count of making false statements related to the export of nickel powder controlled for nuclear proliferation reasons to Taiwan without an export license.

Thermal Insulation Blankets to China – On May 17, 2005, Vladimir Alexanyan, owner of Valtex International, was ordered to pay a $12,000 criminal fine, was sentenced to three years’ probation, and was ordered to refrain from any international activities or trade for the term of his probation. Valtex International was ordered to pay a $250,000 criminal fine. In February 2005, Vladimir Alexanyan and Valtex pled guilty to export violations and false statements in connection with the attempted export of satellite/missile insulation blankets to the Chinese Academy of Space Technology in Beijing. BIS had previously rejected Valtex’s application for an export license for these items. The goods were seized in San Francisco before their shipment from the U.S. BIS assessed Alexanyan an $88,000 administrative penalty and Valtex a $77,000 administrative penalty to settle charges related to this attempted unlicensed export. Both Valtex and Alexanyan are also subject to five year denials of export privileges to China. Further, Valtex agreed to implement an export management system. OEE and ICE jointly conducted this investigation.

Computer Chips with Guidance System Applications to China – On October 6, 2004, Ting-Ih Hsu, a naturalized U.S. citizen and president of Azure Systems, Inc., and Hai Lin Nee, a Chinese citizen and an employee of Azure, were sentenced to three years’ probation for false statements in connection with the illegal export of low-noise amplifier chips to China. The defendants falsely described the goods as “transistors” in export documents. These goods have application in the U.S. Hellfire missile. OEE and ICE jointly conducted this investigation.

Unauthorized Military Use

National Security Controlled Items to China – On May 1, 2006, criminal sentences were handed down against four former employees of Manten Electronics in connection with their illegal exports of millions of dollars worth of sensitive national security controlled items, with applications in radar, electronic warfare and communications systems, to state-sponsored institutes in China. Weibu Xu, aka Xu Weibu, aka Kevin Xu, was sentenced to 44 months’ imprisonment and two years’ probation. Hao Li Chen, aka Ali Chan, was sentenced to 30 months’ imprisonment and two years’ probation. Xiu Ling Chen, aka Linda Chen, was sentenced to 18 months’ imprisonment and two years’ probation. Kwan Chun Chan, aka Jenny Chan, was sentenced to six months’ home confinement and two years’ probation. OEE, the FBI, and ICE jointly conducted this investigation.

Attempted Export of Encryption Modules to Taiwan – On March 7, 2006, Ching Kan Wang, President/owner China May, Inc. of Hollywood, Florida was sentenced to prison for one year and one day. Wang pled guilty to conspiracy to violate the IEEPA for his role in attempting to acquire sensitive communication encryption modules for export to Taiwan without the required BIS export licenses. OEE and ICE jointly conducted this investigation.

National Security Controlled Electronic Equipment to China – On January 18, 2006, Ning Wen, operating Wen Enterprises, was sentenced following his conviction at trial on September 21, 2005 to 60 months’ imprisonment, two years’ supervised release and a $50,000 criminal fine for conspiracy to illegally export more than $500,000 worth of controlled electronic components to Beijing Rich Linscience Electronics in China. On December 21, 2005, Hailin Lin was sentenced to 42 months’ imprisonment and a $50,000 criminal fine; and on July 25, 2005, Jian Guo Qu was sentenced to 46 months’ imprisonment (later reduced to 22 months), and two years’ supervised release for their roles in these exports. OEE, the FBI, the Internal Revenue Service, and ICE jointly conducted this investigation.

Satellite and Radar Technology to China – On September 28, 2005, Zhaoxin Zhu of Shenzhen, China was sentenced to 24 months’ imprisonment and three years’ supervised release for conspiring to purchase controlled satellite and radar technology for illegal export to China. Zhu negotiated with undercover federal agents to purchase a variety of sensitive goods, including traveling wave tubes with satellite and radar applications, for export to China. OEE and ICE jointly conducted this investigation.

Low Noise Amplifiers to China – On August 17, 2005, Univision, operated by Zheng Zheng, was sentenced to a $1,000 criminal fine for false statements in connection with the export of low noise amplifiers, controlled for national security reasons, to China without obtaining the required license from the Department of Commerce. On June 28, 2005, Zheng was also sentenced to a $1,000 criminal fine for this violation. OEE and ICE jointly conducted this investigation.

False Statements on Export Documents; Microwave Amplifiers to China – On August 22, 2007, Norsal Export and its President Norman Spector agreed to pay administrative fines to settled charges that between November 9, 2000 and January 9, 2003, Norsal and Spector each committed forty-four violations of the Export Administration Regulations by exporting microwave amplifiers to the China with knowledge that violations of the EAR would occur in connection with the items. BIS also charged that the parties filed false Shipper’s Export Declarations in support of the unlicensed exports. To settle the charges, Norsal agreed to a $462,000 administrative fine, all of which will be suspended for a period of one year, and then waived, provided that no future violations of the EAR occur. Spector also agreed to an administrative fine of $462,000, of which $442,000 will be suspended on the same terms, and $22,000 is due in payment. In addition, both Norsal and Spector have been subjected to a twenty-five year denial of export privileges. In February 2005, Spector International, dba Norsal Export, was sentenced to a $57,000 criminal fine in connection with providing false information on Shipper’s Export Declarations regarding unlicensed exports of microwave amplifiers with potential radar applications and controlled for national security reasons, to China.

Deemed Exports

Video Amplifiers to China/National Security Controlled Technology to Chinese Nationals – On July 25, 2005, Charlie Kuan, former president of Suntek Microwave, Newark, California, was sentenced to 12 months and one day imprisonment and two years’ supervised release for failure to obtain required export licenses for shipments of detector log video amplifiers (DLVA), items controlled for national security reasons, to Chengdu Jeway Microwave Telecommunications, a company controlled by the Chinese government. Suntek, which was also charged with failing to obtain export licenses under the deemed export provisions of the EAR, was sentenced to a $339,000 criminal fine. BIS additionally assessed administrative penalties of $275,000 against Suntek, $187,000 against Kuan, and 20 year denials of export privileges against both parties in connection with these violations.

National Security Controlled Technology to Chinese and Ukrainian Nationals – In November 2004, BIS assessed Fujitsu Network Communications, Inc. an administrative penalty of $125,000 as part of an agreement with Fujitsu to settle charges related to unlicensed deemed exports to foreign nationals. In particular, BIS alleged that Fujitsu failed to obtain the export licenses required for transferring commercial digital fiber-optic transmission and broadband switching technology to Chinese and Ukrainian nationals. The applicable technology is subject to national security controls.

National Security Controlled Items and Technology to China – In September 2004, BIS assessed a $560,000 administrative penalty against Lattice Semiconductor Corporation as part of an agreement to settle charges of unlicensed exports of extended range programmable logic devices and technical data to China and the deemed export of controlled technology to Chinese nationals. The items and technology are controlled for national security reasons.

National Security Controlled Technology to Chinese and Iranian Nationals – In April 2004, BIS assessed New Focus, Inc., an administrative penalty of $200,000 as part of an agreement with New Focus to settle charges related to unlicensed deemed exports to foreign nationals and other exports. In particular, BIS alleged that New Focus failed to obtain the export licenses required for transferring technology to two Iranian nationals and one Chinese national who, in the course of their employment in the U.S., were exposed to national security controlled manufacturing technology. BIS also alleged that New Focus failed to obtain the required export licenses for shipments of national security controlled amplifiers to the Czech Republic, Singapore, and Chile.

July 8, 2008

Library of Congress Includes Asiabizblog in its Historic Internet Collections

Asiabizblog is honored to have been selected by the United States Library of Congress for inclusion in its historic collections of Internet materials related to Legal Blawgs.