THE FOREIGN INVASION
In an exclusive survey of nearly 700 CFOs and senior managers around the world, CFO Asia and Deloitte Touche Tohmatsu, the international consulting company, found that interest in China continues to soar despite fears that Beijing might not meet all its WTO commitments. Here are the survey's main conclusions.
By Carla Rapoport

Obstacles

The regulatory environment stands out as foreign investors' major concern following China's entry into the World Trade Organization (WTO). Of those not yet invested in China, Asian respondents were far more concerned about the regulatory environment than those in Europe and the US. Beyond regulatory concerns, those already in China listed non-implementation of WTO commitments and the economic outlook as their major worries. Those yet to invest listed political stability as their second concern.

Risk

Overall, respondents rated fraud and piracy as the greatest areas of risk to post-WTO operations. However, of those already operating in China, losses due to outstanding receivables was a greater concern, followed by foreign exchange volatility. Those not in China ranked political unheaval as the greatest risk following fraud and piracy.

Taxation

Although the WTO does not specifically address taxation, the two principles of non-discrimination and transparency will reform the Chinese taxation system. The government is currently working on a major restructuring of the taxation system which will, among other things, unify the dual track enterprise income tax system and shift the value added tax from production to consumption. Some preferential policies will remain, but will be opened to domestic businesses. Geographical incentives will most likely shift to industry incentives.

While survey respondents were skeptical about the implementation of WTO reforms, CFOs should gradually be in a better position to assess their corporate tax situation as these reforms take place.

Advice

Foreign investors will no longer have to deal with internal, unpublished changes to law in China. With the WTO commitment to transparency, all rules and changes to legislation will be published. Still, respondents will need advisors to help them tackle the Chinese market. The most sought-after advice for all survey respondents was legal interpretation and regulatory compliance (72 percent and 64 percent respectively).

Carla Rapoport is managing editor of CFO Asia.