China: Reducing Barriers for Foreign Investors and Partnerships

Foreign firms and individuals will be allowed to form partnerships in China under new rules that legal experts say will make it easier for overseas investors to set up in the country.

The State Council, or cabinet, said the new rules will reduce bureaucratic red tape for foreigners wanting to start a business in China.

Lawyers said the rules would mostly benefit foreign companies in the services sector, such as restaurants and consultants.

The rules, which come into effect in March 2010, are designed to "stabilise and expand" foreign investment in China, the State Council said in a statement posted on its website this week.

They will "simplify bureaucratic procedures ... for foreign companies or individuals to set up partnerships within China," the statement said.

Foreign companies and individuals will be allowed to register their operations and will not need to seek the approval of the Ministry of Commerce.

"It will have a great impact on foreign investors. The rules offer an additional investment vehicle," said Zou Ji, a Shanghai-based lawyer with Allen and Overy.

China currently allows foreigners to invest in China through joint ventures or wholly owned foreign enterprises and are required to stump up a certain amount of cash, depending on the industry, Zou said.

Under the new rules "there is no clear requirement that investors have to contribute cash," she said.

Huang Kai, a Beijing-based lawyer with Lutong United Law Firm, said: "If I do not have much money and just want to open a restaurant, now I can choose to go with a partnership." It will be interesting to see what role the partner plays in this agreement and whether there are restrictions on elligibility of suitable partners.

The rules do not apply fully to private equity funds.

But Zou sounded a note of caution, saying: "You never know how they are going to enforce or implement these in practice. From the face of it there seems to be more flexibility."

Credit Crunch Drives Short term strategies

One of the most powerful and persistent arguments against spending money on risk management is the 'hope for the best' school of management that hide behind the casual observation that most companies survive from year to year even if they don’t do any formal business risk management.

Consider this against the current downturn caused by the banks taking enormous risks for a considerable period of time and fortunately getting away with it, until now. Indeed, both staff and shareholders of banks benefitted enormously from the increased short-term profits that were generated; but this was never a sensible or sustainable way to do business.

Given the catastrophic consequences of this criminal disregard for risk there is now much debate on how banks, and individual bankers, can be encouraged to take a longer-term view including:

• Changes to remuneration packages, especially cash bonuses;
• Ensuring that directors having a better understanding of the risks to which the bank is exposed; and
• Institutional shareholders becoming more active.

Many of these debates will need to include and address the promotion of more effective risk management in all industry sectors.

Obviously incentivising employees appropriately and educating directors about business continuity management, resilience and risk, are important. Ultimately, most employees and directors will still have relatively short term or near horizon views (of the order of 3 – 5 years) compared to the longer time-frame of catastrophic events.

As has been graphically illustrated by the current crisis, it is the long-suffering investors and shareholders who sustain the big losses when risks are not managed effectively. So, improving the understanding of operational risk amongst institutional investors is paramount to the future success and stability of organisations.