China Briefing 2016 Highlights Key Regulatory Updates and Effective Risk Management Approach

October 10, 2016

Businesses that stay on top of China’s economic reforms and have an effective approach to risk management would be in a much better position to seize business opportunities in the world’s second largest economy. This was the main takeaway for attendees at our China Briefing 2016 seminar on 15 September 2016.

Frequent Regulatory Updates
Businesses should always be ready for frequent regulatory updates in China, said Tan Lee Lee, Director of Business Advisory at our China subsidiary, SBA Stone Forest. In October 2013, the Chinese government started reforms of commercial laws and regulations, such as cancellation of the minimum requirement for registered capital and annual inspections of enterprises.

In May 2016, it announced that a new ‘5-in-1 business licence’ would replace the ‘3-in-1 business licence’ with effect from 1 October 2016. The previous ‘3-in-1 business licence’ integrates the organisation code and tax registration certificates. In addition to these, the new ‘5-in-1 business licence’ acts as the social insurance registration licence and statistics code registration certificate.

“Apart from reducing incorporation costs and shortening incorporation time, the government’s regulatory reforms also benefit enterprises by providing access to a nationwide database for statistics and more transparent and accurate information to mitigate trade risks,” Lee Lee said.

She added that besides staying on top of regulatory changes, businesses that expand into China should be clear on their entity’s purpose, short and medium term goals, as well as the business scope and model. They should also have robust internal controls and invest in the right resources to be successful.

Other important areas that she discussed included incorporation procedures involving special licences, how businesses may take advantage of benefits from China’s free trade zones, as well as labour and tax regulatory updates. In particular, a key development is the replacement of the business tax with the new value added tax regime in all sectors since 1 May 2016.

A corporate advisory and public accounting partner can help foreign enterprises to set up in China and support them in managing their compliance and other business needs, Lee Lee said.

Managing Risk in China
Businesses face several challenges when managing risk in their China operations, including a lack of trust between local and foreign partners, regulatory differences between countries, and culture gaps.

“While such challenges are not unique to China, they underscore the need for better and more effective supervision of overseas operations,” said Sovann Giang, Senior Director of Risk Advisory at RSM. “The headquarters should play an active role in supporting, controlling, supervising and monitoring the overseas subsidiary in China.”

Senior executives who lack risk awareness can greatly reduce the effectiveness of risk management, especially when they do not believe in the risk management process and think it is too “compliance-focused”.

“Businesses should not focus only on implementing the so-called ‘best framework’ and tools,” Sovann said. “The ‘best framework’ and tools would not be effective if there is a lack of independence and no clarity of roles and responsibilities in the risk management organisation structure. Ownership and responsibilities to track, control and mitigate risk must also be clear.”

Organised by SBA Stone Forest, the event was held in Singapore with the theme ‘Economic Reforms in China — Seizing Business Opportunities and Managing Risk’.