China has a fascination with big companies and famous people. Conferences, articles and surveys love to talk about the Fortune 500 companies and stars like Bill Gates. Even in the foreign chambers of commerce over here I sometimes feel there is a bias in favor of the big MNC (multi national companies). Some chambers such as the European Chamber (EUCCC) are starting to pay more attention to the plight of SME (small and medium enterprises). The Amcham meanwhile considers SME are just interested in visiting panda resorts or something (did not get that one!), never mind the daily problems that affect poor us SME. Except for the Britcham and the UK Embassy, nobody cared about our e-mail problems (see earlier posts).
In the past months – by “coincidence” during the vacation period when many expats are gone – the government came with some troubling new regulations. At least the EUCCC looked into the matter and will organize a seminar about it on 26 September – to discuss about the new regulations for offices in so-called residential buildings and for restrictions on foreigners to buy real estate. Few foreigners realize what is going on and how it could have a dramatic impact on their operations. The main issue is – nobody knows for sure what will happen next year.
So, what is going on?
1. Purchasing apartments
In short: foreigners are no longer allowed to buy apartments or villas, except for their own use and if they have been here for one year. They only can buy one. Questions remain: what happens if they want a larger one, or in another location, what if they leave the city? There are some partial indications but it does not answer all doubts. Before, one would say: if you are so positive about China, why don’t you prove it and buy your own place? Well, we did, we actually bought two. OK, we don’t have enough money to buy one more but…
The reason behind it: the government wants to cool real estate speculation. Actually it will have little or no effect on the market because large foreign companies still have a way to continue investing in the hot real estate market. Who will be left out: the small guys, the SME and individuals who want to fully commit to China. Like the ones who want to buy their place to live and work, investing for the future in their modest SME operations.
Yes, some foreigners (Hong Kong & Macau people and overseas Chinese in particular) are speculating. But their impact is minor according to real estate specialists.
2. Licenses for offices in residential buildings: no more
Now comes the best part. Offices are no longer allowed in “residential buildings”. While that may make sense in a normal country, keeping in mind the high rentals here, many SME opt for SOHO solutions or simply having a small office in a residential compound – cheaper than in an office building. The other advantage for SME: they can work 24/24 and 7/7 what is not possible in most office buildings – no more aircon after office hours and in weekends. SME tend to work hard to survive and many are in consulting or similar services. Their clients ignore weekends. We can for sure acknowledge that…
According to some figures, about 60% of the existing offices in Chaoyang District – the most sought after part of Beijing for offices – are located in such buildings. Oops.
Worse, not to say perplexing: also restaurants are also banned in those “residential buildings”. Now that is going to be a problem. Most restaurants and similar are in the lower floors of residential buildings. A lot of Macdos will have to worry.
Now, the totally vague regulations say – who is already there can stay – but – there might be a “review”. On what grounds the “reviews” will be carried out, nobody has a clue.
As for now, new registrations are refused. But what will happen next? Anyway, the rules again penalize the SME – here both Chinese and foreign. They will have to spend exorbitant rental rates – they cannot spend USD 2,000 per month for a small office of medium standard. To give an indication: office rentals are something like 20 USD/month per GROSS square meter for a reasonable location and quality.
China loves the Microsoft and alike. SME: think again before setting up operation in China.
For more details, courtesy of the law firm ADAMAS, see the (edited) brief.