Rule No.1: There are no Rules

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.