As we welcome in the Year of the Wood Snake in 2025, we enter into a period of wisdom, transformation and renewal. The snake – a symbol of intelligence, intuition and creativity – invites us to reflect on our journey and plan for a prosperous and secure future.

Why Legacy Planning Matters

Legacy planning is more than just arranging your finances; it’s about safeguarding your family’s future, ensuring continuing prosperity and passing down your values alongside wealth. In a world of uncertainties, legacy planning offers stability and control over how your assets are managed and distributed. The Wood Snake’s themes of protection, renewal and strategic thinking remind us of the importance of methodical preparation in securing our legacies.

The Role of Trusts in Legacy Planning

Trusts are among the most powerful tools in legacy planning. They not only protect your assets but also ensure that they are used according to your wishes. Here’s how a trust can embody the characteristics of the Wood Snake:

• Wisdom and Knowledge – trusts are tailored financial arrangements that provide clarity and certainty as to how wealth is managed, ensuring informed decisions for generations to come.
• Protection and Security – just as the snake encourages the creating of safe spaces, trusts shield assets from legal disputes, creditors and unforeseen financial risks.
• Transformation and Renewal – a trust can adapt to changing family dynamics, economic conditions and legal environments, ensuring its relevance over time.
• Strategic Action – trusts allow for deliberate, well-timed disbursements that align with your family’s goals and needs, mirroring the snake’s thoughtful and measured approach.

In Chinese culture, the Wood Snake represents more than just a zodiac sign – it is revered as a divine messenger and a protector of sacred places. Its unique ability to shed its skin symbolises renewal and transformation, making it an ideal inspiration for individuals and families to let go of old habits and adopt new strategies for wealth management and legacy planning. With this in mind, we will explore three recent case studies of trust solutions adopted by high-net-worth individuals (HNWIs).

Case Study 1: Discretionary Trusts – The Wong Family Trust

Background

The Wong family – Mr and Mrs Wong and their two children – wanted to establish a trust to manage their family wealth, which includes liquid investments and life insurance policies. They were particularly concerned about maintaining investment control over the trust assets and ensuring that their children would benefit from the trust upon reaching adulthood.

Establishment of the Trust:

1. 1. Trust Deed Creation – Sovereign drafted a trust deed that outlines the terms of the trust, including the roles of the trustee and the beneficiaries. Mr Wong also drafted a letter of wishes that provides important guidance to the trustees on the trust asset distribution to the beneficiaries.
   2. Reserved Powers – Mr Wong, as the trust settlor, included specific reserved powers in the trust deed, which enable him to retain control over investment decisions.
   3. Protector – Mrs Wong was appointed as the ‘protector’ of the trust, which provides her with powers to:
      • change the trustee, if necessary.
      • change the beneficiaries and their respective distributions
      • amend the trust terms to adapt to changing family circumstances or laws.

Implementation

The trust was funded with family assets, including two life insurance policies and a USD5 million diversified portfolio of assets, which included stocks and bonds held in a private bank account.
Mr Wong, as the settlor, retained certain rights, such as the ability to direct the trustee on specific investments.

Benefits:

• Control – Mr Wong was able to maintain significant control over the trust assets, ensuring that the investments aligned with the family’s values and goals.
• Protection of assets – the trust helped protect family assets from potential creditors or legal disputes, especially the children and future generations in the event of divorces.
• Tax efficiency – the trust structure provided potential tax benefits, allowing for more efficient wealth transfer to the next generation.

Outcome

As the children reached adulthood, they began to receive distributions from the trust according to the guidance set out in Mr Wong’s letter of wishes. The large lump sum from the life insurance pay-out and income from the low risk investment portfolio were able to provide the Wong’s children with a good standard of living. Mr Wong had the peace of mind knowing that the trust will be able to meet the family’s evolving needs, while providing for his children’s future.

Conclusion

The Wong Family Trust exemplifies how the Hong Kong Reserved Powers Trust can be utilised to balance control with flexibility, making it an attractive option for families looking to manage their wealth and ensure the long-term financial security.

Case Study 2: Private Trust Company (PTC) – The Lee Family Purpose Trust holding a Private Trust Company

Background

Mr and Mrs Lee wanted to establish a long-term structure to manage their wealth and ensure the continuity of their family business. Having spoken to Sovereign, they decided to set up a Purpose Trust in Hong Kong that would also hold a Private Trust Company (PTC) in Hong Kong.

This would enable them to maintain control over their family assets while also benefiting from the flexibility and efficiency of the trust structure.

Establishment of the Trust:

• Trust Deed Creation – the trust deed set out the purpose of the trust, which included managing family investments, protecting family wealth and ensuring the sustainability of the family business.
• Private Trust Company Formation – the Lees also established a Private Trust Company in Hong Kong to act as the trustee of the family trust. This PTC allowed them to retain direct control over trust management and decision-making processes.

Implementation

The purpose trust was set up to hold the shares of the PTC, which in turn managed various family assets, including investments, real estate and the family business.

The purpose trust was set up without specific beneficiaries but focused on the overarching goals of wealth preservation and business continuity.

Benefits:

• Control – the PTC structure ensured that the Lee family retained control over trust management, allowing them to make decisions that aligned with their family values and goals.
• Flexibility – the purpose trust provided flexibility in managing assets without the rigid requirements of traditional beneficiary-focused trusts.
• Asset protection – by placing assets within the trust, the Lees protected their family wealth from potential creditors and ensured that their business could continue to operate without disruption.

Outcome

With the trust in place, the Lee family successfully managed their investments and business operations. The PTC allowed for seamless decision-making regarding asset management, while the purpose trust ensured that the family’s long-term goals were prioritised. The structure facilitated smooth transitions in leadership as the next generation began to take on roles in the family business.

Conclusion:

The Lee Family Purpose Trust, holding a Private Trust Company, exemplifies a strategic approach to wealth management and family business continuity. This structure enabled the Lees to maintain control over their assets while providing flexibility and protection, demonstrating the advantages of using a purpose trust in modern estate planning.

Case Study 3: Charitable Trusts – The Chan Charitable Trust

Background

The Chan Charitable Trust was established by Ms Chan, a successful businesswoman, with a vision of address critical social issues in Hong Kong, particularly focusing on education and poverty alleviation.

Establishment of the Trust:

1. 1. Trust Deed Creation ¬– Ms Chan engaged a Hong Kong lawyer to draft a trust deed outlining the charitable objectives of the trust, the governance structure and the role of the trustee.
   2. Charitable Objectives – the trust was created with specific purposes, including:
      • Providing scholarships for underprivileged students.
      • Supporting local non-profit organizations that focus on community development.

Implementation

The trust was funded entirely by Ms Chan’s personal contributions and the payout of her life insurance policies, ensuring that the trust remained aligned with her vision and values. It did not accept external donations.

A board of trustees was established, comprising individuals with expertise in philanthropy and community development, responsible for overseeing the trust’s operations and ensuring transparency.

Benefits:

• Tax benefits – as a registered charitable trust, the trust enjoyed tax exemptions on its income, allowing it to maximise its resources for charitable purposes.
• Long-term sustainability – the trust was structured for long-term sustainability, enabling Ms Chan to plan for ongoing support of its charitable activities. The trust’s activities improved the lives of many individuals and highlighted the importance of philanthropy in addressing local needs.

Conclusion

By establishing clear objectives and maintaining control over funding through personal contributions and insurance payouts, Ms. Chan was able to maximize the trust’s impact and contribute meaningfully to society.

Step into the New Year with Sovereign

At Sovereign, we believe in empowering individuals and families to take control of their financial futures. The Year of the Wood Snake offers a unique opportunity to embrace wisdom and strategy in your wealth management and legacy planning. We can assist you to transform your wealth into a legacy that endures down through the generations.

We offer expert guidance and tailored solutions to ensure your wealth is managed and preserved in the most effective way possible. Contact us and start your journey towards a prosperous and secure future today.

The post Make protecting your legacy a priority at Lunar New Year appeared first on The Sovereign Group.

Foreign direct investment (FDI) into the Chinese mainland increased 11.6% year-on-year to CNY102.28 billion in January, according to the Ministry of Commerce (MOC), the first double-digit increase for the same period since 2016.

The MOC reported that FDI into the Chinese mainland had increased 14.9% YoY to a record high of CNY1.15 trillion in 2021 and this momentum was sustained into 2022 as global capital flows accelerated. Foreign investment in the service industry increased 12.2% YoY in January, while the inflow to high-tech industries surged 26.1%.

Foreign investors were reassured by the country’s stable economic fundamentals, improved business environment and new foreign-investment law, said Zhang Jianping, a researcher at the MOC’s Chinese Academy of International Trade & Economic Cooperation.

China has strengthened efforts to further open the economy. A shortened negative list for foreign investment came into force on 1 January, with restricted sectors cut to 31 from 33 a year ago, while manufacturing restrictions in pilot free trade zones were also reduced to zero.

Looking forward, while the pandemic will still weigh on the global economy, experts believe China’s FDI inflow can maintain the impetus this year despite the high comparable base in 2021 and the possibility of softened transnational investment activities around the world.

MOC spokesperson Shu Jueting has said China will further expand its high-level opening-up, enhance its services for foreign-funded firms and projects, and make more efforts to optimise the business environment in 2022.

The ministry will guide more foreign capital to invest in emerging fields, including advanced manufacturing, modern services, high-tech, energy conservation, environmental protection and the digital economy.

Part of the country’s FDI impetus will also come from the central and western regions, which saw FDI inflows up significantly by 46.2% and 42.2%, respectively, in January. Foreign businesses investing in those areas can have much lower operating costs and enjoy various policy supports, such as tax breaks.

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RCEP is a free trade agreement among the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. This is the first time that China has signed up to a regional multilateral trade pact. The deal excludes the US, which withdrew from a rival Asia-Pacific trade pact in 2017.

The 15 member countries account for about 30% of the world’s population and 30% of global GDP (USD26.2 trillion) as of 2020. It is also the first free trade agreement among China, Japan and South Korea, three of the four largest economies in Asia. India indicated in November 2019 that there were several issues preventing it from joining RCEP and has since confirmed it is not able to sign.

The trade pact is expected to eliminate about 90% of the tariffs on imports between its signatories within 20 years of coming into force, and establish common rules for e-commerce, intellectual property, government procurement, competition, and small and medium-sized enterprises. However, it has been criticised for ignoring labour, human rights and environmental sustainability issues.

RCEP was conceived at the 2011 ASEAN Summit in Bali, Indonesia, and negotiations were formally launched during the 2012 ASEAN Summit in Cambodia. The treaty was finally signed on 15 November 2020 at the virtual ASEAN Summit in Vietnam.

RCEP surpasses the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11, an existing trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, which came into force on 30 December 2018.

TPP11 evolved from the Trans-Pacific Partnership (TPP), which never entered into force due to the withdrawal of the US. Then President Donald Trump pulled the US out of the TPP shortly after he took office.

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The regulations, which are part of the Chinese Communist party’s drive to make raising children and education more affordable and combat a looming population decline, bans companies that teach school curriculum subjects from making profits, raising capital or listing on stock exchanges worldwide, and prevents them from accepting foreign investment.

The document, which was leaked a day early, sent shares in the three largest US-listed education companies – TAL Education, New Oriental Education and Gaotu Techedum – crashing, losing 76%, 76% and 75% of their market value in a week. Analysts at Goldman Sachs forecast that the size of China’s tutoring market would collapse 76%, to USD24 billion.

After-school tutoring had been booming in China, accelerated by the growing demand for virtual teaching during the Covid pandemic and intense competition for entrance into China’s top universities. For the 12 months to March 2021, TAL and New Oriental’s shares rose 38% and 39% respectively, while Gaotu’s shares rose 155% to a market cap of almost USD30 billion.

The guidelines include 30 measures on education sector reforms designed to promote the healthy development of students, improve education quality, alleviate financial burdens on parents, and institute law-based governance of the education sector, as well as restrict private investment – both domestic and foreign. These include:

Regulating off-campus for-profit tutoring and training centres

• Regional governments no longer permitted to approve new off-campus tutoring centres providing core/compulsory education. Existing ones must become registered as non-profit institutions.
• Local governments must distinguish between training centres in sports, culture and art, and science and technology, and consult relevant departments to set standards for each category.
• Tutoring at weekends, public holidays, and winter and summer vacations prohibited.
• Tutoring centres in core education prohibited from going public or being listed for financing. The guidelines call for the ‘excessive’ capital in training centres to be controlled, and to ensure that financing is primarily used for operational costs.
• Specific ban on foreign investment in such firms via mergers and acquisitions, franchise development, or the use of variable interest entities (VIEs). Those currently in violation must take steps to rectify.
• Hiring foreign teachers and other staff must follow relevant regulations and firms may not hire staff based outside China to carry out tutoring activities.
• Online lessons should be no more than 30 minutes, with intervals of at least 10 minutes between lessons, and should end by 9pm.
• Regional governments must review online tutoring centres for approval under the new guidelines. If they do not meet the updated standards, their registration and Internet Information Service Business Licence will be revoked.
• Content management – the guidelines call for greater supervision and management of tutoring centres and to issue domestic teaching materials. Foreign teaching materials are banned.

Reducing the homework and study burden on students

• Schools to set up management structures to coordinate homework assignments, ensure compliance with national standards and create evidence-based homework strategies according to age and learning goals.
• Schools should not assign any homework to students in grades one and two, aim for an average maximum of 60 minutes of homework for grades 3 to 6, and an average maximum of 90 minutes for junior high school students.

Promoting physical and mental health

• The guidelines encourage schools and parents to ensure students use their spare time responsibly. They recommend students complete homework they were unable to finish at school, get physical activity, read, moderate their use of electronics and go to bed on time.
• Parents encouraged to communicate with children and pay attention to their mental health; boarding schools to take responsibility for students’ after-school spare time.

Improving after-school services

• Schools should guarantee after-school services, encourage students to participate in them voluntarily, and create plans to improve quality.
• After-school services should be run by teachers, retired teachers, social workers or volunteers.
• Schools to offer and improve free online learning services. Local education departments should develop free-to-use online learning platforms and encourage students to use them.

Other measures

• Directives to improve and standardise the quality of education across regions, develop better evaluation techniques and increase the quality of teaching.
• Decrease tutoring centres over time, particularly those with low operational standards.
• Tutoring centres cannot hold offline or online training for preschool students, including foreign language education.
• Restrict tutoring centres from advertising, including banning media, new media, public spaces and billboards from displaying advertisements.
• Off-campus tutoring centres should strengthen their party-building work and welcome the participation of party committees.
• Greater inspection and supervision of schools and education departments.

In announcing the rules, China’s education ministry said: “In recent years, a large amount of capital has poured into educational training … adverts are everywhere, bombarding the whole of society … It has destroyed the normal environment for education.”

Taken together, we expect these measures to have a significant negative impact on edtech companies and their ability to maintain previous levels of profitability. Investors should be ready for further volatility because China looks set to continue to implement reforms on its tech sector.

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The procedure for applying for an APA in China generally involves six steps:

• Pre-filing meeting
• Letter of intent
• Analysis / evaluation
• Formal application
• Negotiation / signing
• Implementation / monitoring.

The new streamlined procedure will consolidate the letter of intent, analysis / evaluation and formal application steps into one, and eliminate the pre-filing meeting step altogether. This will have the effect of condensing the whole process into three steps.

The latest China APA Annual Report, released in October 2020, shows that China signed 101 unilateral APAs from 2005 to 2019, accounting for 57% of all APAs signed. On average, 52% of new unilateral APAs were entered into within one year and 89% within two years.

However, the 2019 statistics showed that this process had slowed down. Of the 12 unilateral APAs, including one renewal, signed in 2019, only 17% were signed within one year and only 50% within two. This was due to limited resources and a significant increase in applications.

Under the new streamlined application procedure, the processing schedule for a unilateral APA will be nine months. The tax authorities will conduct an analysis within 90 days of receiving an application and, if accepted, will negotiate and sign the APA within six months.

To qualify for the simplified procedure, an applicant must have related-party transactions of more than RMB40 million (approximately USD6.2 million) for the three years before the tax year in which the tax authorities accept the case. Applicants that have failed to maintain transfer pricing documentation or have been subject to a transfer pricing or tax-related investigation will also not be accepted.

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In the announcement, Vice Commerce Minister Wang Shouwen said the new batch of pilot FTZs demonstrated China’s “firm determination to accelerate the formation of a new development pattern through a higher level of opening-up”.

FTZs are areas designated by the government where a series of test policies can be trialled. Each FTZ caters to a specific industry and benefits from several types of incentives such as reduced tax rates, expedited administrative procedures and relaxed investment restrictions. If successful, these policies can then be replicated and rolled out on a national level.

China set up its first FTZ in Shanghai in 2013 to attract more foreign investment and promote trade and regional integration. Since then, the country has added 20 zones, including those in such diverse areas as the coastal provinces of Fujian and Guangdong and the inland provinces of Shaanxi and Sichuan.

Just as the Shanghai FTZ was a pioneer in respect of China’s ‘negative list’ approach to foreign investment, FTZs have since been a testing ground for new economic policy and often reveal China’s long-term policy objectives. The latest FTZs, for instance, support China’s stated aim to shift away from export-manufacturing to a new ‘dual circulation’ strategy that is focused on domestic demand and technological self-sufficiency.

FTZs now account for a significant portion of China’s foreign trade and investment. Through the first seven months of 2020, Chinese FTZs contributed USD400 billion (13.5%) in foreign trade and attracted more than 3,300 new foreign enterprises, accounting for USD13.3 billion (16.8%) of foreign investment in China.

FTZs offer several types of incentives for foreign investors whose firms fulfil certain conditions, such as:

• Reduced corporate income tax (CIT) between 15% and 9%
• Payment of CIT in instalments
• Individual income tax subsidies for qualified high-end talents
• Duty-free import of machinery and equipment
• More streamlined customs clearance processes in respect of declarations and payments

The FTZs also have relaxed policies for foreign-invested enterprises in specific industries or capabilities, for example, for logistics and pharmaceuticals that are not widely available in China.

The current list of China FTZs comprises:

• Shanghai (2013) – International trade and finance, incorporating the Waigaoqiao Free Trade Logistics Park, Yangshan Free Trade Port Area, Pudong Airport Comprehensive Free Trade Zone Shanghai Jinqiao Economic and Technological Development Zone and Zhangjiang Hi-Tech Park.
• Guangdong (2015) – International trade and finance, incorporating the Nansha District, New Area and port in Guangzhou, the Qianhai District, Development Zone in Shenzhen and the Hengqin District, New Area in Zhuhai.
• Tianjin (2015) – High-end manufacturing, information technology (IT), R&D, logistics, international trade and financial services, incorporating Tianjin Airport Economic Area, Tianjin Dongjiang Free Trade Port Zone and Tianjin Binhai New Area Central Business District.
• Fujian (2015) – International trade and finance, incorporating the cities of Fuzhou, Xiamen and Pingtan.
• Chongqing (2016) – New tech, high tech, biotech, logistics and legal and arbitration services, incorporating Liangjiang New Area, Xiyong Area, Guoyuang Area port and Chongqing Liangjiang New Area People’s Court.
• Sichuan (2016) – IT, comms, logistics, financial services, high-end manufacturing, logistics in Chengdu city.
• Shaanxi (2016) – High-end manufacturing, logistics, financial services, e-commerce and agricultural technology in cities of Xi’an and Xianyang.
• Henan (2016) – High-end manufacturing, medical, R&D, design, e commerce, service outsourcing, tourism, cultural and creative services, incorporating cities of Zhengzhou, Kaifang and Luoyang.
• Zhejiang (2016) – Petrochemical and shipping, artificial intelligence (AI), fintech, life sciences, smart logistics and e-commerce development, incorporating cities of Ningbo, Hangzhou and Jinyi.
• Hubei (2016) – International commerce and trade, financial services, logistics, R&D, biomedicine, high-end manufacturing, e-commerce, data and cloud computing, incorporating cities of Wuhan, Yichang and Xiangyang.
• Liaoning (2016) – Port and shipping, advanced manufacturing, IT, e-commerce, finance and new technology, incorporating cities of Dalian, Shenyang and Yingkou.
• Hainan (2018) – International trade and finance on island / province of Hainan.
• Jiangsu (2019) – Trade and investment, logistics, AI, IT, financial services, advanced manufacturing, healthcare, leisure, tourism, business support, big data, port and shipping logistics, incorporating cities of Suzhou, Nanjing and Lianyungang.
• Shandong (2019) – Shipping logistics, financial services, advanced manufacturing, exchange market, AI, IT, healthcare, green-tech and biotech, incorporating Qingdao Free Trade Port Zone and cities of Jinan and Yantai.
• Hebei (2019) – IT, life science, e-commerce, biotech, logistics, high-end equipment manufacturing, aviation, logistics, port and shipping services, incorporating Xiongan Area, Zhengding Area, Caofeidian Port Area and Daxing Airport Area.
• Heilongjiang (2019) – IT, high‑end equipment, biomedicine, financial services, energy, food cultivation, logistics, tourism, healthcare and import processing for materials, incorporating cities of Harbin, Heihe and Suifenghe.
• Guangxi (2019) – Financial services, new manufacturing, logistics, digital services, culture and media, international trade, electronics and biomedicine, incorporating Qinzhou Port Area and cities of Nanning and Chongzuo.
• Yunnan (2019) – High-end manufacturing, aviation logistics, agriculture, biomedicine and health, IT, international trade, e-commerce logistics, ‘green’ food processing, tourism, medical and financial services, incorporating cities of Kunming, Dehong and Honghe.
• Beijing (2020) – Fintech, financial services and service trade innovation.
• Anhui (2020) – AI, robotics, integrated circuits, fintech, and smart cars and appliances, incorporating cities of Hefei, Wuhu and Bengbu.
• Hunan (2020) – AI manufacturing, quantum computing, renewable energies and green tech, biomedicine, agritech and e-commerce, incorporating cities of Changsha, Yueyang and Chenzhou.

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Step 1: Investigate before you invest
You will need to research if there is a market for your product and clearly define that market. You must gather data and then verify it with reliable professionals.

• The Chinese market changes rapidly and innovates fast. Do you know the current state of play? Have you been in touch with potential business partners, clients, suppliers, distributors or competitors?
• Price is an important factor. Is your product likely to be competitive?
• What is your USP in the Chinese market? How will your product be distinguished from competitors?
• Choose the right moment to enter the market. Chinese embrace innovative products and technologies but also look for a track record of success. Is your product already successful in the EU/US markets?
• What is the best location for your business – close to market, close to suppliers or are you looking to take advantage of tax incentives in specific regions.

Step 2: Legal and fiscal checks
You will need to draw up a comprehensive business model, which will depend on market factors, legal requirements and your strategic choices. This model will set out the best structure and location for your business, the amount of investment required and the projected growth with clearly defined targets.

• After selecting the most suitable corporate structure, you will need to form and register your local company in China.
• Is your product/activity on the latest edition of the Chinese government’s Special Administrative Measures on Access to Foreign Investment (‘National Negative List’)? This list is updated every year. It is currently prohibited, for example, to invest in the development and application of human stem cells and gene diagnosis and treatment technologies. It these sectors it will not be possible to set up a Wholly Foreign Owned Enterprise (WFOE) but you can enter a partnership with a Chinese company (JV) or, in some specific cases, it may be possible to take advantage of the special pathway for drugs and devices to enter China through the Bo Ao Lecheng International Medical Tourism Pilot Zone in Hainan Province.
• Protect your IP – If you plan to do business in China, it is essential to know how to use, guard and enforce the rights you have over your intellectual property (IP). The most important way to avoid problems when defending IP rights in China is to be prepared.

Step 3: Plot your regulatory pathway
Pharmaceutical and medical technology companies must identify the correct regulatory pathway for a specific product with the National Medical Products Administration (NMPA), the Chinese agency for regulating drugs and medical devices. A part of the State Administration for Market Regulation (SAMR), the NMPA’s responsibilities include drafting laws and regulations for drugs, medical devices and cosmetics, as well as establishing medical device standards and classification systems.

• First, check for any special regulations for specific products in Free Trade Zones, like the Hainan Free Zone pathway for drugs and devices. These may permit your business to enter the Chinese market with a European or US-registered product and start sales directly.
• Chinese Contract Research Organisations (CROs) provide a wide array of services to clients ranging from drug discovery to clinical trials. The demand from subsidiaries of foreign companies in China has increased since China joined the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use in 2017, which has allowed clinical data generated from trials in China to be accepted for drug approval applications in other countries on the council.
• Choosing a CRO is a crucial and complex process and should be evaluated cautiously. Developers need to look for partners who deliver reliable outcomes with comprehensive data and add support to their research. Before you choose a CRO, you should ask the following questions:
  • Can the CRO offer exactly the services that my business needs?
  • Does the CRO have related experience and a good track record of similar projects?
  • Is the CRO financially stable?
  • Does the CRO have an experienced team to deliver qualified results?
  • Does the CRO have the required infrastructure for a trial?
  • Does the CRO have a robust quality assurance system?

Step 4: Set up your corporate structure
In Step 2, analysis was undertaken to identify the most appropriate corporate structure for your business model, financing and regulatory category. Now is the time to establish this structure and there are a number of decisions that will have to be made.

• If a Joint Venture (JV) is the only legitimate structure available for your specific product or service, or if a JV is considered to be commercially preferable, then rigorous research and due diligence will need to be undertaken to find a suitable partner.
• A JV is essentially a limited liability company that is created via a partnership between a foreign-invested enterprise (FIE) and Chinese investor(s), who will share the management, expenses and profits of the JV.
• Once a qualified and reliable partner has been identified, attention must be paid to the JV contract and Articles of Association, which will set out govern the specific obligations and rights of the JV parties, the principles of the organisation and methods of operation, and will serve as the ‘real’ shareholders’ agreement between the parties.
• Both documents need to be in written forms and must be signed by all partners. Sufficient time and resources, including legal counsel, will be needed to ensure that both the contract and Articles are effective and robust. You should never rely on legal opinions provided by the other parties.
• If a WFOE is the preferred structure, then the establishment process will vary depending on the chosen activity – service WFOE, manufacturing WFOE or trading WFOE – and its associated business scope.
• In 2014, China’s Company Law was amended to do away with the fixed minimum capital requirement for WFOE registration. However, a sufficient amount of registered capital is key to running a successful business in China and the Ministry of Commerce (MOFCOM) and the Administration for Industry and Commerce (AIC) will review the proposed capital level of a WFOE.
• A company’s registered capital can be in the form of cash, land, plant and equipment, intellectual property, or any such asset up to 20%, and does not have to be injected in a single transaction. The amount of registered capital should be based on the funds that a WFOE will actually need before it is cashflow positive in China, which will be different for every WFOE.4
• The best practice to choose the right level of capital investment is to draw up a comprehensive business plan. Accurate financial projections will assist in calculating how much capital the business will need for its operations in China.
• Keep the timing in mind. We often see that the establishment process can take six months or longer. This is not necessarily due to the government procedures but because so many decisions have to be made. This takes time, so you must be realistic.

Step 5: Hiring local staff and/or appointing foreign personnel
WFOEs and JVs are able to hire both local employees and foreigners to work in China. Any business seeking to build a strong base in China will inevitably confront the question of how ‘local’ an approach to adopt, particularly when it comes to management. Foreign firms implement a wide variety of strategies, from flying in supervisors from head office for a transition period to train up local staff, to instituting a permanent expatriate management layer.

The diversity of the workforce can be a challenge for businesses. Language barriers, cultural nuances and value divergence can easily lead to unintended misunderstandings and low efficiency. Cross-cultural communication serves as a lubricant to mitigate frictions, resolve conflicts and improve overall efficiency.

Step 6: Implementing Quality Management
Leadership is one of the key principles of quality management (QM), the effectiveness and efficiency of the system is dependent on the leaders communicating the purpose and aims of QM within the company. You will need to stay in touch continuously. Some useful practices for doing business in China would include:

• Verifying documents – always checking the authenticity of any documents, such as business licence or certificate of incorporation, that are provided by partners, suppliers or customers;
• Visiting companies – it is strongly advisable to visit a partner’s factory in China to check if it has the required capacities and quality assurance measures, and to strengthen co-operation;
• Sales agreement – these should include detailed information on quality and compliance requirements and should be in Chinese language and signed by legal representatives from both parties to ensure legal enforceability;
• Effective communication is essential to avoid conflict or misunderstandings with staff, partners, suppliers or customers;
• Test before shipment – you should always check goods before the shipment, especially when they are shipped overseas;
• Translator – you should always have a fluent Chinese speaker with you at negotiations, contracts, visits or audit to prevent loss of information or misunderstandings.

Business Support Services China
Sovereign China has been accelerating the ability of its clients to understand and operate in the China market for almost two decades. We provide a suite of services that is designed to lead foreign investors through the market entry process and stay with them to develop long-term success. From helping clients to understand the market and developing their market entry strategy, through to establishing operations and providing back-office support, we are there from planning to execution. Our services in this area include:

• Due Diligence
• Market Understanding
• Legal Entity Structuring
• HR and Corporate Services
• Accounting and Tax Compliance

https://www.sovereigngroup.com/china/

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Event: Access Biotech China
Dates: 14-15 October 2021
Location: Leiden Netherlands (14-10) and online (15-10)
Website: https://www.hyphenprojects.nl/abc

Access Biotech China (ABC) is a new conference and partnering event focused on helping European biotech companies to access the Chinese Life Sciences & Health sector.

With a huge patient population, strong governmental support for the biotech sector and Chinese investors with a growing appetite for foreign investments, China is becoming increasingly attractive for biotech companies seeking BD partnerships, new markets and capital to finance growth plans. If your company does not have a China focus yet, then join Access Biotech China and take your first steps to develop your China strategy to enter the Chinese biotech sector.

ABC will provide you with valuable insights in the Chinese Life Sciences & Health sector. It will bring best practises to the stage, inspire you to explore the opportunities and help you to avoid the pitfalls made by others. It will connect you with China experts and the right partners to enter or expand in the Chinese market.

The first edition of ABC is planned as a hybrid event with a face-to-face event at BioPartner Center in Leiden on 14 October and a virtual programme & partnering event on 15 October.

More information and registration: https://www.hyphenprojects.nl/abc

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With so many perceived challenges, why, then, do companies still want to do business in China? Sovereign has identified five strategic factors as to why foreign companies should enter the China market, which are as follows:

1. Attractive Market – China’s vast size, growing wealth, changing demographics and economic transformation continue to create opportunities for well-prepared firms. The China market is larger than that of the UK, Japan and Germany combined, and although China’s economic growth contracted sharply in the first quarter of 2020 due to the COVID-19 pandemic, it has rebounded quickly. The IMF forecasts that China will be the only major economy to post positive growth in 2020 and its economic growth will rank among the top economies in 2021.

Example: Canadian coffee-and-doughnut chain Tim Hortons entered China in February 2019 as investors jostle to convert a nation of tea drinkers into coffee consumers. Since then, the company has grown to 200 locations across 10 cities in China, and its loyalty programme has nearly three million members. The firm secured a further round of financing in May to help accelerate growth toward its initial target of more than 1,500 coffee shops throughout China. World Coffee Portal estimates the total Chinese branded coffee shop market exceeds 21,400 outlets, with annual outlet growth of 2.9% over the last 12 months.

2. Pull Factor – Major client is requesting the company to have a presence in China
Your global customer has a presence in China and strongly suggests you do as well. E.g. SOVCN Client which is a large international tire suppler for automobiles.

3. Competitive Threat – Main competitor(s) has a presence in China that could affect your current market position or hinder your ability to expand in the future.

Example: In global terms, McDonald’s has long been at the top of the fast-food pecking order with 36,000 restaurants worldwide, compared to KFC’s 23,000. But in China, the tables are turned. KFC opened its first branch in China in 1987. It now operates almost 6,000 restaurants in more than 1,100 cities across the country and claims 11.6% of China’s fast-food market. McDonald’s came to China only three years later but has only 2,500 restaurants and a market share of 5.6%.

4. Cost Savings – China’s enormous cost advantage over the leading industrial economies may have reduced in recent years, but with its unmatched scale, immense internal market, heavy investments in automation, well-developed supply chains and steady advances in technology-intensive industries, China very much remains the world’s workshop.

Example: SOVCN client who sources and assembles toys for export to Europe.

5. Push Factor – Company’s stakeholders are insisting on a China presence
PE investor requires the company to enter the China to create synergies for their portfolio

Sovereign China has been assisting foreign clients with their China ventures for almost 20 years. We can support your business and give you the best chance of success. For more information about our services, please contact Sovereign China

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Time: UK 9AM – BST, BRUSSELE 10AM – CET, BEIJING 4PM – CST

In our previous webinar, we addressed a number of interesting questions from companies that want to or are already doing business in China. The issues we covered included set-up locations, virtual offices, registered capital injections and others; in fact, there were so many questions that we didn’t have time to explore them all in the allotted time. We are therefore going to host a second webinar, on 1 June, to tackle some more of the issues about setting up and doing business in China. Welcome to ‘Frequently Asked Questions ¬¬– Part 2’

The issues we expect to discuss include:

• How does corporate taxation work in China?
• Can I hire overseas staff?
• Can I use an oversea bank in China or can I control an account from abroad?
• Is it possible or practical to apply global company policies to employees in China?

If you have any set-up, tax, HR or other operational questions about entering or conducting business in the China market, this webinar is for you. You can prepare and submit your questions via the ‘Chat Button’ function during the webinar or submit them in advance following registration.

Moderator
Robbert Gorris, Director, Sovereign China
Robbert works with client companies to provide them with the market entry experience and strategy that they will need to set up in China successfully. He possesses a comprehensive knowledge of Chinese commerce that has been gained from over 10 years’ working closely with SMEs seeking to enter the China market. Before joining Sovereign China, Robbert was General Manager at the Benelux Chamber of Commerce (BenCham) in Beijing, a non-profit organisation representing the interests of companies from Belgium, the Netherlands and Luxembourg in China.

Speaker 1
Mark Ray, Managing Director, Sovereign China
With over 12 years of advisory and consulting experience in Asia and China, Mark has advised hundreds of Fortune 500 companies and SMEs across different industries on market entry, global corporate structuring and compliance. Mark drives the process of setting the correct strategic priorities and goals for his clients who, after consultation, become better equipped to operate in China’s highly complicated and competitive business environment. His prior professional experience encompassed both Fortune 500 companies and government organisations, including the US Department of Commerce, the Federal Home Loan Mortgage Corporation (known as Freddie Mac) and Bank of America.

Speaker 2
Henrry Ren, Accounting Manager, Sovereign China
Henrry is a highly experienced and knowledgeable specialist with over 16 years of tax and accounting consultation service in Singapore and China. As Accounting Manager of Sovereign (China) Limited, Henrry has advised hundreds of Fortune 500 companies and SMEs on accounting, tax, internal controls and compliance matters. Henrry has established a capable and stable service team that assists clients with government liaison and supports back-office operations; helping them to be better equipped to operate in China’s complex and dynamic environment.

Henrry gained a Master of Business Administration from the Edinburgh Business School at Heriot-Watt University in Edinburgh. His previous professional experience spans strategic consulting firm Asecorp China and the East Asia Institute of Management (EASB), one of Singapore’s leading private education institutions.

The post Webinar – China 101 – Doing business in China? Your questions about setting up, taxation, and HR answered – PART 2 appeared first on The Sovereign Group.

As a result, the Ministry of Finance (MOF) and State Taxation Administration (STA) jointly released Public Notice No. 13 (PN 13) on 31 March 2021.

As of 1 January 2021, manufacturing enterprises are permitted to claim a 200% super deduction on eligible R&D expenses actually incurred in the course of R&D activities for Corporate Income Tax (CIT) purposes. Alternatively, if R&D expenses incurred are capitalised as intangible assets, such enterprises are allowed to amortise the intangible assets based on 200% of the actual costs incurred.

PN 13 specifies that the manufacturing enterprises should derive over 50% of annual operating income from manufacturing industries, as set out in the prevailing Industrial classification for national economic activities.

Eligible enterprises can claim the super deduction of R&D expenses incurred in the first half of a year under the provisional CIT filing for the third quarter. They are required to self-assess before applying the tax preference and maintain the relevant supporting documents for future references. Alternatively, they can choose to claim the total amount of R&D expenses in the annual CIT filing to be completed by the end of May the following year.

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