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MAY2005|AMCHAMCHINABRIEF|13SPONSOR:GrandHyattBeijingRESTAURANT:NobleCourtMENU:Chef’sdailysoup/DimSum-steamedricerollwithslicedmandarinfish,bakedbarbecuedporkinpuffpastry,pan-friedbeancurdrollfilledwithshrimpandchives,steamedglutinousricewithchickenanddriedscallopinlotusleaf/Maindishes–wok-friedshrimpwithbellpepperandcashewnutsinchilisauce,steamedchickenwithgingerandspringonioninsoyasauce,deep-friedporkribswithcrispygarlic,braisedbeancurdwithblackmushroomsandvegetables/friedrice/eggtartNOTE:NobleCourtfeaturesCantonesecuisineandoffersexecutivelunchmenus,MondaytoFriday.Hours:11:30a.m.to2:30p.m.;5:30p.m.to10:00p.m.AmChammembersenjoya10percentdiscountuntilJuly1stonNobleBrunch,withfree-flowChampagne,weekendsfrom10:30a.m.to2:30p.m.byJIMBOYCESupersizingSMEprospectsWANGWEIPowerLunchAspartofitsWTOcommitments,ChinapassednewdistributionruleslastDecembertoopenupretailing,wholesaling,franchisinganddirectsellingtoforeigninvestors.WeinterviewedMATTHEWJ.ESTES–AmChamBoardofGovernorsmember,RetailandDistributionForumchairmanandBabyCareLtd.CEO–abouthowtheseruleswillimpactforeignSMEsinChina,thenation’sIPRenvironment,andU.S.concernsaboutjoblossesandthetradedeficit.14|AMCHAMCHINABRIEF|MAY2005MAY2005|AMCHAMCHINABRIEF|15HowdoesChina’sbusinessenviron-mentforU.S.small-andmedium-sizedenterprisesdifferfromthatforlargemultinationals?InthepastSMEsreallydidn’tcomehereexcepttosourcecheaperproducts,butChina’sdomesticmarkethasbecomemoreappealingbecauseofitsgrowingsizeandstatusintheworldmarket.Chi-nahasabetteroperatingenvironmentsincejoiningWTO,improvingservicefirms,moreexperiencedlocalandforeignstaff,andanincreasinglytransparentmar-ketwithmorebenchmarks,sincemorecompaniesareenteringandthisallowsthemtoseewhatisneededtosucceed.Theonlynegativetrendisincreasingcom-petition.China’snewdistributionrulesrep-resentakindofbreakthroughforSMEs.Thebiggestchallengeforthesesmallercompaniesiseconomyofscale.Unlikebiggercompanies,theydon’tcomeinwithahugewarchestanddon’thavehead-quartersaroundtheworldforsupport,sotheyneedmuchmoreefficientoutsourc-ingandpartnering.InChina,thiswasimpossibleunderthepreviousdistribu-tionrulesbecauseanSMEwouldhavetobuildanentirefactoryandstartproduc-inghereattheverybeginningofitsbusi-ness.SincecompanieswerenotsurewhatwouldsellinChina,itwasahugeriskforasmallcompanytoputupthatkindofinvestment.Underthenewrules,SMEswillbeallowedtoimportaportionoftheirgoodsandthisisexcitingbecausetheycangetinvolvedintheChinamar-ketwithmuchlessrisk.Howhavecompaniesfaredsofarunderthenewdistributionrules?TheprincipleofwhatneedstobedoneislaidoutinWTOquiteclearlyandifit’sachievedinpracticepeopleonthewholewillbehappy.However,thenewrecipeforhelpingSMEsinChina.MatthewEstesprovidestherecipeforhelpingSMEsinChina.regulationspassedonDecember11,andsofarnocompanieshavebeenapproved,althoughtheiceisbreakingandweexpectafairnumbertoreceivedistributionlicens-es.Actuallythisissueisagoodexam-pleofAmChamworkingtogetherwiththeU.S.government.WehavebeenmeetingwiththeU.S.EmbassyandForeignCom-mercialServicetocreateaconsolidatedpositionondistribution.WhentheChi-nesegovernmentfellbehindscheduleonimplementingthenewrules,lettersweresentbythedeputytraderepresentativeandU.S.ambassadortotheChinesegov-ernment.OnMarch17,ateamledbysen-iorrepresentativesfromtheU.S.EmbassyandForeignCommercialService,AmChamPresidentCharlieMartin,andmyselfaschairmanoftheRetailandDistributionForummetwithDengZhan,deputydirec-torgeneraloftheMinistryofCommerce’sDepartmentofForeignInvestmentAdmin-istration.Thegovernmentrealizesitislatewiththeapprovalsandsaysitwillhappensoon.Itismakingprogress,butneedstofinalizeallofthedetails.Whatiscausingthedelay?Therearedifferentdelaysfordiffer-enttypesofcompanies.Newentrantsarelookingforclarityinthelaw–toknowwhattherulesare,howtoapplyforalicense,andhowtogetapproval.ButmostAmChammembersarealreadysetupinChinaasmanufacturersandarelookingtoexpandtheirbusinessscopetoincludewholesaledistributionandretail.Thisismorecomplicated.Asmanufacturers,theyreceivetaxpreferencesandthegovern-mentistryingtoclarifyhowtodealwiththisbecausetherearenosuchpreferenc-esfordistributors.DengZhantoldusthatifacompany’sbusinessisatleast70per-centinmanufacturing,thatis,lessthan30percentindistribution,itcanstickwithitspresenttaxstructure.Butthoseabove30percentwouldneedtoapplyasawhole-WANGWEI14|AMCHAMCHINABRIEF|MAY2005MAY2005|AMCHAMCHINABRIEF|15资料salerorretailer.Aretheseexactlythetermsindustrywants?Probablynot.Butaretheyacceptable?Formostcompanies,yes.Thekeyisgettingthatclarityinthelawandthenpassingitonthroughthemanylay-ersofgovernmenttothepeopleprocess-ingapplicationsatthecityandnationallevels.Howdoesthisplayintothelargersce-narioofU.S.-Chinatraderelations?TwoofthebiggestconcernsinWash-ingtonintermsofChinaarejoblossesandthetradedeficit–theseindicatorsareincrediblymeasurableandoneveryone’shotplate.TheresolutionformorejobsandbettertradenumbersistogetmoreU.S.SMEstosuccessfullydobusinessinChina.ThebigcompaniesareallcomingtoChinaandWTOismakingiteasierforthem.ButifyoulookattheU.S.,whoemploysthebulkofthepeople?SMEsprovi