Dezan Shira & Associates AGM Reveals Shift in China Policy

December 4, 2010 Posted by China Briefing Reading Time: 4 minutes

Dec. 4 – The foreign direct investment practice Dezan Shira & Associates have just concluded their four-day-long Annual General Meeting with members of the firm flying into Beijing from each of the firm’s 10 China offices, plus country managers from India and Vietnam. Commenting on the practice development, Alberto Vettoretti, managing partner for China, observed that “the global supply chain is shifting” and the practice needs to adapt to new market conditions in China and across Asia.

While the firm’s billing in China showed a healthy increase, the China business registration division, comprising of legal services related to corporate formation in China, has slowed down and is coming under increasing pricing pressure from local consultants. However, clients are buying more sophisticated services such as transfer pricing, tax structuring and restructuring services, while payroll is a growth market. India, meanwhile, is showing a large increase in corporate formation, boosted by the increasingly favorable investment climate, opportunities in infrastructure development, a sizable domestic market, and tax reform that is expected to decrease corporate income tax liabilities from 45 percent to 30 percent by the middle of next year. Vietnam is also showing an increase in billing.

The firm will invest significantly in IT during 2011, including the development and acquisition of software platforms to provide enhanced administration services to clients, including payroll, HR and business licensing and administration. Chris Devonshire-Ellis, the firm’s principal, commented that overall the China market is slowing down and this is impacting on the types of investment entering the China market, but the medium term prognosis for FDI and opportunities for foreign companies will remain positive for those refocusing on domestic sales opportunities, although it may take some time for other investors to adapt. However the overall business environment in China has shown some trends of protectionism and an increasing militancy among Chinese workers generally over expectations and some unwillingness to perform as well as would have been expected in the past. While the firm’s own staff has remained loyal and hard working, a trend of labor unrest is developing on a national basis and this is impacting upon certain clients. Labor law disputes, he suggested, will become more common, and the productivity of Chinese workers is starting to fall.

Significant growth is expected in India for 2011, and the firm is engaged in an aggressive recruitment campaign there that will see more employment requirements in India for the firm than in China during 2011, and a need to evaluate the market potential in Pune and Hyderabad has now arisen with the possibility of investment in these cities for 2012. Overall, continuing growth for the practice will come from a continuing policy of geographical expansion throughout Asia, which over the next five years should see the practice establish operations in most Southeast Asian countries. Growth from existing clients is also expected in the form of selling more services and products to them, especially in the IT related services sector.

Offices are planned to be established in Southeast Asia for 2011, probably Singapore, and also in China, with some debate concerning the destinations. Suzhou, Chengdu and Xiamen are all under consideration as possible locations for new Dezan Shira & Associates facilities, while an office based in the United States is expected to be established in 2012.

Commenting on the overall investment picture for 2010, Devonshire-Ellis mentioned that although the U.S. and E.U. markets have been flat, growth opportunities in Asia mean that the firm has performed rather better than their American or European counterparts during the year, based mainly on Asia being a hot investment destination. The overall global investment market still remains “weak” although improvement is expected for 2011. The drivers for 2011 will be enhancing services through the development of new products to sell to existing clients, rapid growth in India, and an increased geographical presence. China will show an increase in billing opportunities, although new FDI inflows are expected to slow.

There will also be changes within the editorial team responsible for the production of web sites such as China Briefing, with the acquisition of more technical based research personnel to provide more complicated and updated matters as concerns China’s legal, regulatory, investment and tax environment, including more data gathering on a national basis. This would also be implemented for India and emerging Asia as the China and regional markets grow more sophisticated in their make-up and reform.

Devonshire-Ellis stated that although the firm has shown growth in all offices, some areas of the practice, such as new business registrations in China, were slowing down, but simultaneously the same services were increasing in India and Vietnam. The recognition that different markets would perform in different ways was the key he said to understanding regional diversity and for planning and preparing for expectations and opportunities in each office.

Services required in China are becoming more technical and tax based, and the firm needs to alter part of its makeup and services offered to adapt to the changing professional services market in China. The requirements of foreign businesses in China are becoming more complex than ever before, he added, while the low end incorporation work will become increasingly the domain of local law firms and consultants.

The development of new services, regional growth throughout Asia and investments in IT based solutions will be the three pillars the firm will use to move itself forward over the next decade, he stated.

The firm uses its annual meetings to finalize operating budgets, implement marketing and operating strategies and protocols, and provide for a unified approach across all markets in Asia.

Dezan Shira & Associates are members of the Leading Edge Alliance of global accountants and auditors. Total 2010 worldwide billing for the alliance is expected to show a small increase to US$2.6 billion.

Dezan Shira & Associates provide foreign direct investment, legal, due diligence, tax and operational advice to foreign investors across China, India and Vietnam. The firm also provides accounting and payroll services. For more information please email the practice at info@dezshira.com or download the firms brochure here.

Dezan Shira & Associates 2010 management team: Back row, L-R: A. Virk, country manager, India; Hoang Thu Huyen, country manager, Vietnam; Alberto Vettoretti, managing partner, China; Chris Devonshire-Ellis, principal and founding partner; Fabian Knopf, German desk; Sam Woollard, international marketing director; Olaf Griese, regional partner, Shanghai Front row, L-R: Richard Hoffmann, senior legal associate, Beijing; Rosario Di Maggio, regional manager, Guangzhou; Sabrina Zhang, national tax partner, China; Adam Livermore, director, payroll services.