Foreign Companies in Sober Mood says AmCham Shanghai President

Nearly 80 professionals turned out for a sold out Hong Kong networking event jointly hosted by AmCham Shanghai and AmCham Hong Kong. The program portion of the evening included remarks from Chamber President Kenneth Jarrett, Steven Chan, Managing Director and Regional Head of Regulatory, Industry and Government Affairs at State Street Asia, and Andy Leung, Director of the Indirect Tax Division at Ernst & Young.

Jarrett said foreign companies in China feel challenged from a variety of directions, including operational as well as China-specific challenges. The mood among the foreign business community in China has become more sober, he said, as companies feel there has been slow progress on economic reforms and market access issues. There is also concern that in some sectors, China is looking to replace foreign suppliers with domestic companies, such as technology suppliers to the banking, insurance, and medical devices industries. But amid a slower-growing China, rising costs of doing business and growing competition, foreign companies are learning to adapt and remain committed to the China market. Unique opportunities still exist in China, noted Jarrett, and companies recognize the market is too important to ignore. Most companies remain profitable and enjoy growing revenues, although at levels lower than in years past.

Chan of State Street said Hong Kong’s focus for financial services regulation is on maintaining the city’s status as an international financial center. Key areas for regulators include overseeing global asset management activities, global reforms and mitigation of operational risks, particularly cyber security. As China continues to open its markets, Hong Kong is positioning itself to support China’s capital market development, a future bonds connect channel, financial reforms and RMB internationalization. Ahead, Chan identified opportunities for Hong Kong in Fintech, support for China’s ongoing financial markets development and from talent relocations stemming from the ramifications of Brexit.

According to Leung of EY, China’s VAT tax reform, which was rolled out nationally in May in place of the previous business tax system, has actually resulted in a rising tax burden for some companies. While the claim is VAT decreased the overall tax burden by $600 billion since the start of a 2012 pilot program, some companies find it challenging to adjust to the new system because of confusion over tax crediting. Adequate communication over how much credit can be claimed under VAT remains an issue. Leung suggested companies be better equipped with regards to financial modeling, forecasting methods and accurate pricing of goods along the value chain.

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