Environmental Analysis of Shanghai (China)

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| | | | | |Type of Government: |Stability of Government: | | | | | | |Communist party |Relatively high | | | | | | |Dominant rule of single party: |Powerful central government that| |Characteristics |i.e. central policy guidance |majorly regulates the market | | | | | | |Chinese Communism-‘’new |High level of protection for the | |Meaning |Capitalism’’? |domestic businesses from the | | |Vertical relationship |government |

Environmental analysis of Shanghai (China)

Political and Legal Factors:

Government analysis:

Taxation

Foreign companies that wish to invest in China are responsible for following tax payments:

❖ Income Tax (3% local income tax; 30% income tax rate= 33%)

❖ Business Tax : 3%

❖ Property Tax: annual rate of 1.2 % after 20 % is deducted.

Tax year is a calendar year but there is a possibility for foreign company to adapt it to its own fiscal year.

Advantage:

❖ Foreign companies that are based in the area of Shanghai or Pudong airport pay reduced tax rate of 15 %.

❖ According to china regulations in case a foreign company that isn’t fully established in China is subjected to the 20% withholding tax on its income. However in Shanghai the rate falls to 10 %.

Disadvantage:

China raises the minimum wage up to 21% in 2011

❖ As reported by ‘Shanghai Municipal Government’ starting from April 2011 all enterprises and other organisations must take into the account that the monthly minimum wage of workers has to be equal to RMB 1,120 to RMB 1,180 (≈125-132€ per month)

Recent Laws and developments:

Positive:

❖ On the 23rd of October 2011 the ‘Chinese Foreign Trade Enterprise Service Network’ was introduced by Ministry of Commerce People’s Republic of China in order to assist Business Fair.

Negative:

❖ According to recent government regulations, social security costs should be paid by employers of foreign companies.

❖ Foreign companies are banned to provide internet mapping services in China.

Trade barriers:

The successful entrance of China into the World Trade Organisation (WTO) in 2001 has put a huge impact on China’s economy and many trade barriers have been removed.

China’s retail market is divided into a lot of small and medium-sized retailers, for example in 2008 the number of small retail businesses in China reached 549,000 on average with 15 employees each.

Risks:

❖ strictly regulated market; uncertainty in strict Chinese business laws; bureaucratic barriers

Opportunities:

❖ Foreign companies that wish to settle in China are entitled to the work permit, business class and Chinese visa that grant companies with opportunities to track their business development.

Intellectual property rights:

❖ Trademark Law

In China the international trademarks are not recognized therefore to register a foreign company the organisation must register its trademark and submit a copy of State Administration of Industry and Commerce, otherwise there is a huge risk of losing their brand. It will only be approved if there is...
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