orders. Monitoring and enforcement will only increase, so this means for all companies that is time to move from words to actions in terms of CSR and compliancy and set up stricter internal monitoring and compliancy rules. Recent scandals such as with GlaxoSmithKline paint a clear picture of what can be the consequences if this is not done.
Foreign companies are easy targets
The tax agency has also intensified control in order to increase revenues, and are known for specifically targeting foreign companies, expats and Chinese national with foreign incomes. Also this is an area where many expats and local managers have had little reserve to do some creative filing as guanxi with local tax authorities were good and control hardly there. Regulations have become stricter and monitoring is increasing in all areas and foreign companies are easy targets for government agencies to start with and score some points.
Companies with a presence in China such as a representative office, WFOE or Joint Venture will also need to ask themselves whether their activities are still in accordance with the activities for which the permit is issues, and whether they are initiating activities that fall outside the scope of allowed activities of a representative. In this area also enforcement has become stricter.
An additional problem of the current drive for reform is that, although the goal is to create unambiguous rules, in reality at present often there is still room for interpretation, as not every that is currently being implemented in rapid succession has been thoroughly thought through. An example is the newest immigration law reforms which has led to quite some confusion as to which visa-category should be applied to a certain situation. That however doesn’t change the fact that control is increasing. A number of foreign multinationals have been raided and have seen interns deported because they were there without the right papers.
Therefore companies can face considerable risk if they not take all of the above in to account, ranging from considerable fines, deportation, suspension of activities, passport confiscation, even to incarceration.
Public Administration in transition
To summarize, we can say that China’s public administration and its legal system is in a state of transition. The old China in which rules were vague, monitoring infrequent and contracts had little use because they could not be enforced, and public officials could only be moved either through bribes or Guanxi, has been disappearing for a while now, but this process has accelerated rapidly since Xi Jinping took charge. Having good Guanxi with local governments and agencies will always remain important but it is no longer an excuse or means to circumvent or ignore the laws
This means that doing business in China will gradually become easier and more transparent, but also that the risk of not complying with laws and regulation is a lot higher than before. For many companies this means a change of culture is required in the way business is conducted in, and with, China. For every company with a presence in China, this is therefore the moment to really scrutinize activities, internal guidelines, certificates, CSR-policies, bookkeeping and contracts.