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COVER STORY: Foreseeing Tianjin and China's business future, Insights from Kelvin Lee, Director of Tianjin Office, PwC
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Foreseeing Tianjin and China's business future

Insights from Kelvin Lee, Director of Tianjin Office, PwC

By Annie Ly

BT 201601 040 12 Cover story A47V5040The future of the business world can be unpredictable as the world economy continues to fluctuate and change. However, many plans for reform and development in China throughout the new year hold a wealth of opportunities for businesses from a range of sectors and industries across the continent.

This month, we sought the insights of Kelvin Lee, Leader of the Tax and Business Consulting Department and Director of the PwC's Tianjin Office and regular contributor to Business Tianjin's Tax column on the future of business in China and Tianjin, and his thoughts on the broader economic trends he sees emerging for 2016. Kelvin's career in business and tax advisory spans over 20 years across many locations internationally, including Hong Kong, Beijing, Guangzhou and now Tianjin. His wealth of experience has given him a unique understanding of the business market in China and Tianjin specifically, including insight into the work of both multinational and domestic enterprises. We find out more about his views on some of the biggest reform and development projects set to make waves in China's business market in the new year.

PwC has one of the best reputations worldwide for business advisory. What does it mean to you to be part of the so called 'big four' group of global consultancy firms?

I've been working for PwC for 20 years. It was not my first job. I previously worked in finance for a US company but I was more interested in a tax job, so I changed to join PwC. Since joining, I have found that it is a great company that allows a lot of freedom for development and thinking, hence why I have remained with this company for such a long time.

When it comes to the area of consultancy and advisory, what is the key to success for being a top consultant in your field?

The most critical thing to being a good advisor is to share the client's concern. You need to think about the end goal and then develop solutions that fit well with the client's needs. Some might think that consulting is an easy job which may involve sourcing the tax laws or regulations and dressing this up in the PwC logo. Indeed the tax laws and regulations will always be there as an element, but how can you leverage this to help your client? It is important to understand your client's needs to make them feel they are valued.

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In some cases, the ultimate solution may not be very complicated. But, it is highly important to take on a pragmatic approach to form practical solutions to resolve these issues. Based on my experience, in many cases, it's just a matter of communication - whether that is communication between the client and the relevant authorities or communication between members of their own organisation. The role of a good advisor then is to act as a coordinator to smooth out the entire transaction. In the business world, communication is very important. Often, disputes arise from miscommunication. In many cases, you can resolve the client's concerns by enhancing the communication.

You have worked in different places in China, such as Hong Kong, Guangzhou, Beijing and Tianjin. What differences have you found between each city regarding the business environment?

The business environment in China has evolved a lot. In Hong Kong, it was very easy for me to adapt because I was born in Hong Kong. It is also a very international city with a mature market that is managed by a well-established system. As a businessman or consultant in Hong Kong, it can be quite easy due to the business environment's efficiency. A downside may be that it is already a mature market and so perhaps room for development is smaller.

Although Guangzhou is close to Hong Kong, the corporate culture is still very different. The Guangzhou business environment might be described as very Chinese, whilst Hong Kong is more Western in style. Although you may be able to speak Cantonese in both areas, there are still clear differences. However, compared with Northern China regions, Southern China's business culture is more commercial.

Beijing is the political centre and relatively speaking, the business environment can be a little more rigid, but there lies a lot of opportunity there for big companies. Having strong networks is very beneficial for business in a place like Beijing which is why many multinationals flourish in the capital. It's a very logical trend. If as a multinational company you are going to do business in China, you must have a strong foothold in the capital. Especially if you want to do big projects, Beijing is a must.

Although close to Beijing, Tianjin's focus remains on being a manufacturing hub due to its status as a port city. Currently, the Tianjin government is working hard to promote the service industry in the city. I think this move is the correct one. Tianjin has already been successful in building up the manufacturing sector, but the service industry development would be a natural evolution. The government is therefore putting more emphasis on this and so far, we have seen some good progress in this area.

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What are some of the developing business sectors in Tianjin that will have the most potential for growth in 2016?

Internet companies, service industries and some finance companies have been developing well in Tianjin. Although we cannot make a direct comparison with cities like Shanghai, Tianjin has already seen a lot of progress in these areas. Other areas which have strong potential for growth is in education, not even just in Northern China, but throughout China. The domestic demand for high quality education is huge. Tianjin has a lot to offer here. There are already some very reputable universities, which gives the city a very good competitive edge.

The Tianjin Pilot Free Trade Zone (PFTZ) is the unique area in north China actively promoted by central government, in order to form a distinctive reform area. What advantages do you expect international corporations could get from this decision?

BT 201601 040 10 Cover story Highlight 02The Tianjin Pilot Free Trade Zone (PFTZ) is modelled on the Shanghai experience. Back in April and May 2015, many people in Tianjin were unaware of what the Free Trade Zone was and so I have since been giving briefings about what the Shanghai arrangement is doing. The PFTZ has three main functions: to give a little more flexibility for foreign investment in certain industrial sectors, to give a slight relaxation of foreign exchange control and also relaxation on customs restrictions. Overall, these reforms are trying to improve the efficiency of the economy.

These reforms come at a time when China is trying to convert its economy from a manufacturing economy to a service economy. In the service sector, efficiency and quality is vital to keep clients happy.

BT 201601 040 13 Cover story A47V4994What are some of the main tax or business issues companies operating in China are currently facing?

The biggest challenge will be that economic growth is currently not as high as previously before so businesses will need to adapt to this reality by converting their strategies. Based on our experience with our clients, low-end manufacturers are tending to leave China because competition has been leading them to select different places with cheaper labour costs. For high-end manufacturers, businesses are still attracted to China, partly because of the market force. Investors have to upgrade themselves to keep up. Another pulling force is the local demand for quality goods. People in China are demanding higher quality products and services. In recent times, the low cost element means less to clients.

How will the outbound investment from China to other Asian markets, Europe, USA affect Chinese companies in the following years?

In the last few years, there has been a lot of outbound investment. Part of the reason is because central government has encouraged domestic businesses to do so. National policies such as the 'One Belt One Road' plan encourage domestic enterprises to go abroad. The other reason is that the expansion of production capacity in recent years has outpaced the domestic market growth, so they must seek new markets to invest their extra capacity. It's also due to the natural business evolution for multinationals to expand out to new markets.

What is your opinion on the new Jing-Jin-Ji region? What do you think about the opportunities for businesses looking to operate in the new Jing-Jin-Ji region? What will Tianjin's role be?

Tianjin can play a few roles. It will still maintain its traditional role as the main logistic hub because it is a port city. In terms of manufacturing, I don't expect there will be a big development in this area because the Jing-Jin-Ji plan is supposed to decentralise those developments which are overcrowded in some cities like Beijing or Tianjin. As a result, some manufacturing may be shifted towards other cities in Jing-Jin-Ji region.

Tianjin to a certain extent may take up some of the service functions from Beijing. Currently that market is very overcrowded in the capital so I think that the Central Government will try to push some of the service functions towards Tianjin. Tianjin has experienced a lot of rapid growth in the last 15 years, so the development trend already has a firm foundation. The city is ready to take on a more sophisticated function beyond mere labour in a factory.


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