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The
Australia-China Chamber of Commerce and Industry of New South Wales ACCCI
Business Letter No. 3 31 October 2000 |
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 CONTENTS Foreign Investment In China
After WTO Membership Jean-Marcel
Malliaté, Total Career Management Telephone: (02)
9518 7314; facsimile: (02) 9518 7024 Part 1
(in B-Letter
No. 2), began with the comment that “negotiations consist of
learnt skills that are part of a universal process of achieving specific
outcomes” and ended with 7 key elements for the avoidance of conflict. Part 2 contains Jean-Marcel’s suggestions
for structuring negotiations. Step
1: Discussion The
parties need to discuss freely their thoughts and express their needs and
objectives. The principal purpose of this
as a first step is to generate good feelings about the negotiating
process. For cross-cultural
negotiations it provides an opportunity to establish language links, an
appreciation of cultural differences and a clear interest in the viewpoint of
the other party. Consideration should be given early
in the negotiations to recognising and accepting each party’s willingness to
change. In order to be able to
process information about change, it is first necessary to decide if there is
a need for change. Such a need is
difficult to define, and is therefore difficult to detect. It is generally becomes apparent when the
negotiations fail to produce satisfaction in meeting either party’s
objectives. A clear view of those
objectives will therefore speed this process of recognition and acceptance. Step 2:
Preparation Each
party must assess the information gathered during the discussion. Thorough analysis is often required,
especially when cultural differences exist.
Making use of positive experiences can facilitate preparation. Examining one’s own honesty, needs, and
desires often makes a good starting point.
The
process of preparing ends when both parties are able to meet at the table,
but it is more effective if it allows the assessment of information to be
projected into the negotiation. This
will enable changes to be managed more effectively. Step
3: Offering a proposal The
proposal requires consideration of many facts and this varies in intensity
and quantity between cultures. The
overall process of proposing, obtaining and providing can be viewed as
crossing a bridge. This process is
completed when each party is satisfied and that will require meaningful
dialogue from the point of entry to the “bridge” until an outcome is
achieved. The proposal often defines
the point of entry and is therefore very important to the overall
process. The way
the proposal is phrased can have an effect on the dialogue. For example, proposing a quick gain for
extraordinary profit may well cancel the negotiation with one culture but it
may inspire another. Much depends
upon the other’s party’s expected time-span for the relationship. A brash, arrogant proposal often returns
brazen reactions, which distort and may even destroy the dialogue. The proposal must be clearly
understood. “Get it in writing” is
generally the standard thought in relation to proposals, and “Get it
witnessed” is often recommended. “Get
it in front of a good lawyer is my experience when dealing” as often referred
to in the press when dealing with “Foreign Devils”. The objective of all of these thoughts should be to clarify the
proposal and thus to prevent false steps along the “bridge”. Step
4: Bargaining towards agreement The final step is where each party
considers what is important and what is not important. This determines which concessions are
granted and which are not. The
objective is of course to move the process toward agreement, but failure in
bargaining will move it the other way. The
agreement can be reversed, after it is reached, by many critical components,
such as local, state, national and international legalities. Social and cultural rules and beliefs are
important to the post-agreement phase.
Will the agreement be negated or minimised? Will re-negotiations be required? Bargaining
is therefore multidimensional in the sense that it must include more than
what can be obtained from the other party. It must also include what the agreement provides and how
it will provided. For more information on
negotiations and conflict resolution, contact Jean-Marcel or his associates
at the numbers listed above. |
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FOREIGN
INVESTMENT IN CHINA AFTER WTO MEMBERSHIP China’s
expected entry into the World Trade Organisation has generally been hailed as
a vehicle of opportunity for investors and as a challenge for Chinese
enterprises. Exactly where the
opportunities are, and where the challenges are stronger, remains
uncertain. A recent comment by Bruce Murray,
resident representative at the Asian Development Bank’s Resident Mission in
Beijing illustrates this: It is
difficult to gauge accurately the economic pros and cons of WTO membership
for China. However, one thing is
clear: over the long term, China's accession to the WTO and the commitments
to cut tariffs, liberalise trade and investment and open up domestic sectors
for foreign participation will lead to significant efficiency gains. (From a speech delivered on 7 September
2000, reprinted in ChinaOnline [http://www.chinaonline.com] on 18 October
2000.) Information on both the
opportunities and the challenges is likely to emerge slowly. Waiting until a sufficient amount has
accumulated to remove most of the uncertainty will probably result in missed
opportunities. Progress reports, even
if they are incomplete and somewhat fragmented, may at least give assurance
that the stream of information has not been interrupted. Where to
invest -- in traditional industries or high-tech industries? As we
mentioned in previous E-Letters, China is rapidly advancing up the technology
ladder. During the nine months of
this year, China exported US$25.98 billion of high-tech manufactured
goods. The growth rate of 53 per cent
exceeded the 33 per cent increase in other exports (ChinaOnline, 30
October 2000). Chinese authorities are clearly
encouraging continued growth in these exports. Preferential policies are to be established in special export
zones within existing high-tech industrial parks. These policies include (ChinaOnline, 23 October 2000): ·
closed-customs systems, ·
free hard currency transactions, ·
permission for foreign and private
businesses to establish joint ventures, ·
exemptions of various taxes,
including value-added tax, income tax and business tax, ·
relaxation of import-export
licenses authorisation, and ·
special passports for residents
which allow for easier travel. Before making investment decisions,
however, it is important to consider what “high tech” means in China. Put simply, it is a manufacturing process
that reflects a higher level of technology than most Chinese enterprises
currently employ. The export growth
mentioned above is attributed mainly of consumer electronic products,
including home appliances, new materials and bio-medical products. Many of these products, and their
production processes, may be considered “lower tech” in developed countries. China’s rate of urbanisation, fed
mainly by rural-to-urban migration, is likely to continue for some time, thus
sustaining a steady flow of unskilled labour. Traditional industries will not disappear in China within the
next 10 years. However, based upon
the experiences of other developing nations, this flow will eventually taper
off and tighter labour market conditions will result in higher wage
rates. International competitiveness
in the traditional industries will therefore diminish unless productivity
increases can be achieved through technological change. The authorities are apparently
anticipating this situation and laying the groundwork for a smooth
changeover. Longer-term investment in Chinese
manufacturing is therefore likely to focus on the middle rungs of the global
technology ladder, but continued growth in the traditional industries can be
expected, especially if significant portions of the manufacturing process can
be partly or fully automated. What location to choose – coastal
cities or interior cities? The technology ladder in China is
likely to become increasingly more stratified, with a concentration of
specific high-tech industries in particular cities within the coastal region,
medium-tech industries in the central provinces and more traditional
industries in the western provinces. The municipal government of
Shanghai recently announced that current development plans focus on five
industrial sectors (ChinaOnline, 27 October 2000): ·
electronics, including integrated circuits, telecommunications, computers,
digital audio and video products and software, ·
motor vehicles, including the design and production of motor cars, minivans and
buses, ·
electrical equipment, including power generating and transmitting equipment, machinery for
processing and assembling, automated equipment and electrical transport
equipment, ·
quality steel products, including steel for motor vehicles, shipbuilding
and stainless steel for appliances, and ·
chemicals, including petrochemicals and major synthetic components and
products. Other cities are likely to announce
similar intentions of focusing on specific areas of industrial
concentration. This will not only act
to attract investors who have a similar focus, it will also lead to a
workforce that has the necessary skills. What trends are noticeable? During
the first three quarters of this year, China’s Ministry of Foreign Trade and
Economic Cooperation approved applications for direct investment from a total
of 247 foreign enterprises. Among these, 223 are in the service, trade or
processing industries. They most
probably would not be considered to be globally high tech. The
remaining enterprises, nevertheless accounted for 22 per cent of the total
approved investment, despite representing only 10 per cent of the number of
applications. The
coastal provinces have received the lion’s share of foreign direct investment
in the past, and continue to be more successful. The investment is nevertheless distributed among 160 counties
and regions with large investment syndicates formed to finance development in
the western provinces (ChinaOnline, 27 October and 30 October 2000). When is the best time to invest? China’s entry into the WTO is
likely to occur early next year.
While it will be regarded as an important milestone in China’s
economic development, there will be few, if any, overnight changes. Many regulatory changes have already been
made in line with WTO commitments. For
example, drafts for the revision of China’s major laws for Sino-foreign joint
ventures and cooperative enterprises, as well as for wholly foreign-funded
enterprises were submitted for deliberation to the 18th Session of the
Standing Committee of the Ninth National People's Congress on 23 October
2000. The previous regulations were
developed during periods for which China’s foreign exchange reserves were
relatively low, and required these types of enterprises to: ·
arrange an approximate balance
between enterprise outlays in foreign currencies and enterprise income
denominated in foreign currencies, and ·
purchase in China raw materials, fuel,
parts and other materials or purchase them on the international market using
the enterprises’ own foreign currencies. Both of these regulations are to be
abolished, thus removing the implicit instruction to conserve China’s foreign
currency. Similarly,
foreign-funded enterprises were previously required to “be instrumental to
the development of China's national economy and adopt advanced technology and
equipment, or export all or most of their products". To enforce this, the operational plan of
the relevant enterprise was filed with “the departments in charge and
executed through economic contracts”.
The revised regulations state only “that state encourages the
establishment of foreign enterprises that export products or adopt advanced
technology" and operational plans do not need to be filed. China’s
economic growth for this year is likely to be close to 8 per cent, and may be
even higher in 2001. There may have
been good reasons in the past to postpone investment decisions, and some of
these most probably remain. But
whatever those reasons were, there would seem to be fewer of them now. |
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Send comments to: j.zerby@accci.com.au |
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