Chinese roads are very chaotic and dangerous. I am writing this as I wait for my car to be
serviced, something that normally takes an hour, which is just enough time for
me to get a bite to eat, pickup the car and return to the office. This time, however, they tell me it is a
major service because I have clocked up 250,000km. So I am in the waiting lounge with the TV
blaring and people yelling into their mobile phones. It seems an opportune time to say something
about driving in China and how it relates to doing business.
I have many decades of driving experience in all sorts of conditions and I
like to think that I know the rules. That
may be true, but the rules here are certainly not the ones in the book; strict
adherence to those will see you dead within minutes. Given time, the traffic is readable. Behavior falls into patterns and after a
while it all becomes second nature, but alertness and caution are essential. Any lapse will likely have disastrous
consequences.
After years running a business here, I have realized that the situation on
the roads is analogous to the situation in business. Looking at the statute books it is not all
that different from home, but in terms of understanding how business is
actually done, the rulebook is not much help.
Chinese business people have a general understanding of the rules, but
they honour them in the breach more often than in the observance. They know what they can get away with and, in
order to remain competitive, they go around the roadblocks, run the red lights
and take short cuts wherever they can.
If they have the connections and can get away with it, then that is what
most people will do.
The accounting and taxation rules are not unlike those at home. From a lawyer’s perspective the landscape is
much the same. But just like the roads,
there is the law and there is practice, and strict adherence to law without taking
into account how things are actually done will send you broke fast. For example, in order to deduct business
expenses, it is necessary to get VAT receipts.
The problem is that many businesses that provide services essential to
running a factory are not even registered, let alone operating according to the
taxation laws. They do not issue tax
receipts. Because un-receipted
expenditure cannot be deducted from income, this creates phantom profits that
are, naturally, subject to taxation. One
must have a good taxation accountant to manage this. It probably does not do to look too closely
at how this is done, but the fact that our accountant controls an auditing firm
no doubt helps.
