At the conference organised for the Aerospace industry on 15th September at Toulouse, Julie Laulusa, the co-managing partner of Mazars in China, gave us her vision for the sector and the main points to address in developing its activity in China.
Julie Laulusa, Partner in China
1/ You have participated in this conference, at the round table for the “International bouncing back and redevelopment”. What is your vision today of the Aeronautical field in China?
The trends in the market today lead us to believe that in around 10 years China will be number one in the global Aeronautical market. With this in mind, it is important to highlight that the Aeronautical sector is today at the heart of China’s growth initiative, joining seven “high tech” industries strategically announced in the 12th Five Year Plan, and now fully expanding.
The expansion, includes, the airports development(with 231 by the end of the plan compared to the 175 today), the increase of air traffic to 460 million passengers by 2015 (in 2010, 267 million were counted), the development of 150 seaters, single-corridor Chinese C919 planes, to be certified and delivered as from 2016 and that of the Chinese business planes. Furthermore, taking into account the country’s geography, the opening up of airspace for low-flying planes is also in progress.
Aeronautical development is a strategic move for China; as a result the activity is under high government supervision and in particular monitoring by the CAAC (the Civil Aviation Administration of China).
2/ What advice would you give to aeronautical businesses wishing to develop in China?
The fact that the aeronautical industry is under highly regulated in China, is the first thing I would bring to the attention of any business wishing to develop its activities in the country.
Above all, all businesses wishing to implement or develop their activities in China should refer to the Foreign investment catalogue to define, the legal structure according to their activity (production, maintenance, distribution…). Let’s note for instance, that production can only be conducted under a joint-venture structure. In any case, a foreign company would not substitute to a Chinese company with a similar expertise, except that in case of a common interest for the two companies, or for providing a well-defined specific ‘know-how’.
Secondly, I would name the choice of partner and geographical location. In China, a proper due diligence on potential industrial partners are particularly important. It is noted that, in the Aeronautical industry, choosing blue chip partners will be one of the successful factors to ensure the permanence of the investment in China.
The geographical location is also a decisive criteria. This should be chosen in regards to the type of business model that the company would like to conduct. Today in China there are three nature of Free Trade Zones – FTZ- (a relatively small zone and detached from the rest of the country on a geographical map, whose objective is to attract exporting industries through offering them particularly favourable commercial conditions compared to the rest of the host country. The FTZ notably allows for instance, importing goods without proceeding to the VAT and custom duty payment)): Bonded Free Trade Zone, Export Processing Zone and Bonded Logistic Park Zone.
Finally, particular attention on the foreign exchange control and payments rules. It is important to note the following principle: “financial flow should be synchronized with the physical flow”. In other terms, if a French company supplies or produces in China, delivering directly to Europe, without going through a logistic company in a Free Trade Zone, this transaction will not be permitted as, the ruling entity should be the country (or entity) which receives this delivery. Furthermore, depending on the location of the structure, the currency used for payment differs: in China, the payment is made in foreign currency within the Free Trade Zone, in CNY outside of Free Trade Zones; outside China, the payment should only be made in foreign currency (exception is made for certain countries such as Russia, Brazil or other Asian countries having specific agreements with the Chinese government).
3/ Mazars today position itself as an expert in the Aeronautical sector in China; what is your expertise today?
We assist a large number of foreign companies in their establishment or in implementing their projects in China. The expertise we could provide is:
Advice in defining the best strategy for their establishment;
The structure to be adopted according to their business scope as well as the choice of a geographical location;
Due diligence of their potential partner before enter into any potential cooperation ;
Audit of statutory accounts as well as the consolidated accounts under the Group’s accounting principles ;