Risk Assessment and Essential Steps on Doing Business in China

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Risk Assessment and Essential Steps on Doing Business in China.



To Understand the Risk and Reward First

The investment rewards in China will undoubtedly be huge, but to make the most of them, any intelligent investor should have a clear understanding of the risks involved. A detailed analysis of the China risk is well beyond the scope of this article, but understanding the basic layout provides a solid foundation. Also understand that risks should not deter investment - the U.S. was quite risky in 1900. Instead, risk should be understood so it can be properly accounted for.

China is still a communist country. So despite all the free market principles that China has faithfully adopted, as a communist nation the rules that govern a public company in China are different than here in the U.S. Chinese stocks trade on the Shanghai Stock Exchange and the Hong Kong Stock Exchange. Both of these exchanges have similar listing requirements that you would see in U.S. stock exchanges.


Companies have to report timely financial statements, have audits performed and meet other requirements of size and capitalization. Beyond that, the accounting rules differ, and that is where things can get murky.To be sure, attempts are being made to bring Chinese accounting standards more in line with U.S.



Six Essential steps on assessment the risk managements


Strategic thought on assessment the risk managements are stated as follows.

Six Essential steps

• To understand the local laws and regulations, and follow up on changes.
• To respect local cultures and find trustworthy advisers with good local wisdom.
• To enhance the corporate governance; trust local management, but with appropriate guidance and monitoring from headquarters.
• To emphasize a transparent control environment with smooth information flows.
• To introduce enterprise risk management mechanisms that will build lines of defence into the organisation.
• To plan ahead when moving money into or out of China.

The following statements are important for decision makers and should be taken into consideration on investment risk assessment on doing business in China.