Understand the package

Dealing with Indonesian banks as suppliers of financial services may be a challenge. Lets presume English is not an issue, as many big banks do speak English. Finding a proper words and expectation to be met is matter of discuss and personal meetings.

You always need you bank to be on your side, your banker to understand what u as company do and why u do that. It has to a personal relationship, as you would benefit from it on both sides. Understanding what bank would like to do, what is banker penalises or where the bonuses come from is crucial. And not every banker is the same. His/her interests, motivation and expectation influence the success.

I never took bank as a one shot supplier. Especially on foreign markets. Why is that?

1. Banks and bankers have great connections.
2. Banks has its goals and experience.
3. Banks can do miracles if you listen to them.
4. Banks can save u in bad times
5. Banks can help to release the pressure on work force
6. Bank can increase motivation for your management
7. Bank can let you to protect your assets
8. Bank can postpone your liabilities
9. Bank can make u profitable
10. Bank can decrease the costs of your operation
11. Bank can make your shareholder happy

I look forward to it :)

China rails - destination Europe

China opens this month a railway from Yiwu to London, or by other words it connects Chinese network to English one. It is a breakthrough as the whole journey takes 2 and half week (boat around 5 weeks). Whole journey is thought Kazakhstan, Russia, Belarus, Poland...

It will be amazing to see the costs both towards England from backwards. Currently being around 5 USD a kilo I would like to see how much will quicker train be. It also changes the trade landscape, as trade will follow Silk road instead of traditional road by boat. Economies like Singapore, Shenzhen, Shanghai, Egypt may suffer as a considerable amount of budget depends on it. And it also affects banking and finance, as there will be different flow of capital following the new routes.

Difference by two and half weeks would decrease a cash flow need for companies and bring better response-rate to product-quality-development costs ratio. Following my calculation if the transportation of goods costs makes around 10% of the price of the goods from China (example from toy industry by boat) than a quicker way may be allowing the purchase managers to pay more for new mean of transportation (ceteris paribus). Expected increase may be in the range of %s though.

It might bring the issue with taxes and dues paid and being return (GST China issue). Also it might be interesting to see what will happen on borders in Poland, as the tax office there could have different approach to goods than Hamburg has (or UK port). There is also almost no big forwarder focusing on a trains from China with almost no infrastructure around the track.

New social programs in India (Jan 2017)

New social programs introduced on 31st December 2016 in India

EUR/USD vs. CNY/USD (last 6 months)

Observing the recent (6 months) development of CNY and EUR to USD (source finance.yahoo.com) we can see, that CNY (Chinese yuan traded inside China, where CNH is Chinese yuan traded outside China) is depreciating less than EUR (4,69% to 6,74% per 6 months). It is still not substantially proved, than Chinese government is reacting on lower performance of the economy, as it is more probable, that it is only holding a position between two biggest export partners - US and EU (holding wast majority of export).

India - Mr. Modi is being social

Recent (Jan 2017) upgrades from India are interesting. After cutting down a huge junks of money did the government decide to provide social packages to poor Indians. To receive money for a new born children. This was unimaginable before! Maybe we will see the most capitalist country in the world to become more social democrat, where the demonetized untaxed money from rich did turn to money for poor. I look forward to follow for more....

Equity & Loand from foreign mother company in China

To send money for your company in China on a registered bank account it is needed to have a permission. If your investment is smaller than 2 MM USD you would probably be pushed for 30/70 ratio, where 70% is a loan and 30% has to be in form of equity.

What does it mean in reality I

In reality it means that every 70 from your 100 has to be frozen in China for very long, will a big probability till u will stay in China with your company. This money is frozen and even they will earn money, you will need to pay
a) income tax
b) dividend tax
c) extra fee for a SAFE to get allowance to withdraw the money from China
d) be audited

This everything can pile to 50%. And it is even harder, as you will many times get an offer to rent an office without tax for 10, with tax for 12 plus a rolling eyes and push by local people why u want to pay tax. So in the end u decide to pay 10 but without invoice. I would need to look deeper in the issue, as it seems that supplier is just moving his/hers tax burden from him/her to you. That would be ok and it will avoid your problems with tax office, accounting and monitoring of costs. On the other side it creates additional problem with cash flow and logically the local management will push you to accept no invoice costs.

What does it mean in reality II

It means that on 70% of the money you will need to grow your business in China u will need to pay 50% additional tax, so u will need to earn 105 just to get your 70 and be on black zero.

This means that China is pushing for:
a) low inflow of foreign money to China, as it will be cheaper to finance your company from Chinese money
b) harder life for foreigners as it hopes the money can stay in China even it will no be properly taxed
c) investments in low development costs project. projects with big R&D costs need investments in years to get it's returns and than they will be highly taxed.

On the rest 30%, provided as a loan you will need to get permission by SAFE too to withdraw them. SAFE will follow up and give you the guidelines when u can withdraw and how. For sure they would like to see following:
1. if you received the loan before u have to invest it. and only if investment is successful u can pay money back. In other words u would need to pay income tax and withdrawal tax for this 30%. Costs for this might also reach 40% and it shall be easier to get money back. I am afraid that in the end there is no big difference between a loan obtained from another country or equity. Only that loan may with withdrawn quickly and little cheaper.

This makes enterprising in China harder for foreigners. Also it gives additional advantage to local people and therefore decrease the pressure of effectivity.

What can China do not to collapse in 2017

Following the development on Chinese market it is possible we will see bigger pressure on a local economy to restructure, to cut off non-performing state companies or expensive production costs.

Possible scenarios:
a) depreciation of RMB to new values and using the advantage of it for the gathering of additional foreign currency and not allowing local companies to hold foreign currency

b) increase of the interest rate on the market with a motto: We want people to safe more, borrow less

c) continue monetary easing, what comes to point a)

d) open the regulation on job market and decrease the rights of the employees - as they are pretty high now

e) introduce a new tax code to tackle black money - extremely up to Indian solution

f) purchase the debt from the big banks - additional monetary easing (partly happening in 2016)

g) increase the minimal reserves on banks and thus to decrease lending

h) invest in new projects like railways and long connecting roads, like ChengDu - Silkroad or ChengDu Myanmar to get to Indian ocean

i) restrict more the outflow of the cash from China

j) IPO government owned companies and than partially buy bad debts

k) introduce new banknote - 1000 RMB

m) decrease amount of foreigners in the country

n) others

Success in China

Following principles:
1. China is a develop country. Therefore sentences like: "China is different, it did not reach that development point" .... are just a game. An average worker in China is earning the same or more than in Europe. It might be up to 1000 EUR (6000 RMB).

2. Dont jump before u know how to jump out. Jump in slowly and after first jump in try to get jump out quickly. Many time what was promised work different and more expensive.

3. Money is not the key. Doesnt mean you invest 1000 u will get better service than by investment of 100. Understand and fight. Chinese like it and respect it.

4. Apologize even you right. Keep friend and dont loose him. Better to know one, than start 100% rely on second one.

5. Business is life, but life is not business. Be ok to say no, be ok the other party to loose and be nice.

6. Chinese try to keep as much foreign currency as they can.

7. Chinese want second nationality. It is for a case of different money they dont want to show.

8. National companies loose money, dont pay debt and do what they feel is politically correct. Therefore do not jump in cooperation directly with them as foreigner. They will always have a way to tell you sorry....

9. Understand basic misunderstandings (colours, habits, life expectations).

10. Talk a lot. Have a Skype every time u can.