Over the past few months I have written many posts that have analyzed economic indicators around the world. In each case, Asia continues to look like the bright spot in a very shaky global economy. This will be the first part in a series for giving an overview of the financing needed and options for starting a new business in the main Asian hub cities starting today with the first part of Shanghai. Other cities to be covered over the coming weeks will be Hong Kong, Taipei, Bangkok, Singapore, and Tokyo.

Shanghai is the financial heart of Mainland China and currently ranks 5th as a Global Financial Center. Choosing how you setup your business in Shanghai is an important strategy that needs to be considered for the long term, including the possibility of your business failing. There are 5 types of business entities to choose from. Today, I will cover the first 2 (Representative Office & Hong Kong LLC) :

1. Representative Office:

This option is used only for non-profit making businesses, organizations, or offices. It is illegal to issue invoices or collect money for your services [under this business entity]. A Representative Office can only be involved in non-operational activities, which are activities that do not produce profits or income. These include public relations activities that relate to the company’s products or services, market research, and domestic procurement and investing.

China requires that a company has been established at least 2 years prior to opening a Representative Office in China. Setup costs are relatively low, but you must purchase top end office space and costs to close your business are high.

2. Hong Kong LLC:

For profit making businesses, forming a Hong Kong LLC is one avenue of choice that features lower taxes and easier regulations. Hong Kong operates under the “one country, two systems” rule, and will continue to do so until at least 2047. As a result, establishing headquarters in Hong Kong will mean that your company will be under the rules and regulations of British law. Taxes there are very straight forward, just 16.5% of profit. Shanghai has a multi-tiered tax system that varies for types of business and location that ranges from 15-33% with exemptions and sweeteners.

You can also transfer as much capital as you want in and out of Hong Kong since there are no foreign currency controls. In the long-term, a Hong Kong-registered company can make restructuring pretty painless compared to one registered on the mainland. Time involved for restructuring could be only a week in Hong Kong versus up to two months on the mainland. Startup costs are relatively cheap. The costs involved for new business incorporation is no more than 5500 RMB or about $850 USD.

These two options are very straight forward. The other three are more detailed and complicated. I will cover each of the three in separate postings. Check back in 2 weeks for an overview of setting up a Foreign Investing Partnership Enterprise in Shanghai!!


By: Matt Flax - Senior Business Advisor at DragonGate.Asia

As we head to the last half of August, many countries have now published economic figures for the first half of 2011 ending June 30th.

Back in May I looked at World GDP growth and not surprisingly found that the Asia/Pacific region was leading the world.

In fact, the region was compensating for lackluster growth in Europe and the US. Two weeks ago, I looked at slowing manufacturing around the globe for July signaling a possible economic slowdown for the second half of 2011.

After poor manufacturing reports around the globe, the last two weeks of news from the US and Europe has included some stomach churning results. World financial markets have looked like a rollercoaster ride at an amusement park. Consumer confidence in the 70% consumer driven US economy fell to lowest reading ever since 1980. Even lower than during the depths of Global Financial Crisis in 2008 and 2009!!! Consumers shutting their wallets was a driving factor combined with a housing market collapse that sent the US economy a cliff in late 2008 and early 2009.

If consumer confidence is lower now, what does that foretell for the rest of 2011?

In Europe, the debt crisis that started last summer in Greece had spread to Portugal and Ireland by the beginning of this summer. All three being relatively small economies in the European Union. Over the past couple of weeks symptoms have spread to Italy and Spain, the 3rd and 4th largest economies in the EU. On top of that, French banks are reported to have great exposure to Italian and Spanish debt. France is the 2nd largest economy in the EU.

Many Asian economies derive a lot of their growth from exporting to large EU and US markets. Post financial crisis I have written much about these economies growing without much growth in the EU or US. The question now becomes will these economies be able to stay on the growth side if the EU and US return to periods of economic contraction? First half Asia GDP data shows that growth is slowing with a couple of key Asian economies close to contracting or contracting.

What is the first half picture in Asia?

Those marked in red are economies that slowed in the 2nd quarter from the 1st quarter, which is most. Indonesia and Japan showed no change. Japan of course continues to try to rebound from its March disasters. The two glaring examples are Singapore and India, with Singapore’s economy slowing to almost a complete halt. At the depths of the Global Financial Crisis Singapore’s economy contracted by -8.40%.

Seeing export dependant Singapore and India slow down considerably is a disturbing sign for the 2nd half of 2011. US GDP has been anemic in the first half with growth accelerating slightly from .8% in the 1st quarter to 1.3% in the 2nd quarter. Europe is expected to report that it moving the other way going from .8% in the 1st quarter down to .3% in the 2nd quarter. At this moment Vietnam and China are still doing well. The 2nd half of 2011 may show if the Asian economies have decoupled themselves enough from the US and Europe.


By: Matt Flax - Senior Business Advisor at DragonGate.Asia

The summer of 2011 has not been short of ominous news about possible economic storm clouds forming over the world’s largest economic areas. Europe has been dealing with its ongoing debt crisis. The United States has had its hands full with raising its debt ceiling to finance further borrowing. China has been dealing with higher than liked inflation and fear of a property bubble bursting slowdown. And Japan has been struggling to emerge from its natural disaster triggered slowdown. The latest cloud to move overhead is manufacturing. As we enter August, manufacturing is slowing or in some cases contracting around the world.



A reading above 50 indicates an expanding manufacturing sector and a reading below 50 indicates a contracting manufacturing sector.

All of the economic areas listed had lower readings in July than they did in June except for Japan.

This shows that these areas excluding Japan manufacturing even if expanding weakly in the USA and Europe or more briskly in India. Japan’s manufacturing is emerging from the massive supply chain disruptions in wake of the natural disasters in March.

Manufacturing is a very telling indicator for the overall economy. JP Morgan issues a global manufacturing figure each month as well. At the end of the first half of 2011, the global figure is a weak, but expanding 50.6. How concerned should we be? At the start of 2009 in the depths of the Global Financial Crisis, the global figure was about 35. So, I am only cautiously concerned at this point. Three major drags on manufacturing that have been causing a lot of uncertainty are subsiding. Japan is on the upswing after its horrific disasters. Europe has come to an agreement on restructuring Greek debt. And, the United States has come to an agreement to raise its debt ceiling. That said, China is still battling inflation and its overheated housing market.

The United States and Europe will continue to restructure their economies in wake of the Global Financial Crisis and be tough markets.

Asia again looks to be the safe place to invest and sell products.

China and India combined have about 30% of the world’s population, economies that are still growing quite fast, consumers who are increasing their purchasing, and are large exporters. This last point is very important. With Europe and the United States continuing to struggle it makes sense that China and India would see manufacturing contract. The key in the world’s largest markets by population is to sell more domestically.

Manufacturing can be a leading indicator for an economy’s growth or lack of. These figures show that businesses and people across the globe were ordering and buying less in July, the first month of the 2011 3rd quarter. We will not know until October if July was the beginning of negative growth in the currently barely growing economies of the United States and Europe.

China and India continue to look like the best place to expand your business or start a new one. During the Global Financial Crisis, China was able to keep its economy expanding, all be it at the slower pace (World GDP Analysis). India manufacturing is holding up better than most countries right now. These markets may be a safe haven if another global economic storm forms.


By: Matt Flax - Senior Business Advisor at DragonGate.Asia