China slips in business rankings despite trade liberalisation

Foreign exchange issues and access to credit are improving in China, but much needs to be done in the area of construction, according to a report produced by the World Bank and the International Finance Corporation.

In Doing Business 2010, mainland China is listed at number 89 in the world for ease of doing business. This is three places lower than last year, despite a notable regulatory improvement relating to foreign exchange.

“China relaxed restrictions on foreign exchange prepayments for exporters and deferred payments for importers, making it easier for smaller companies to carry out international trade transactions,” the report says.

The report notes other benefits that China offers for importers and exporters: the country boasts the world's third-cheapest shipping cost per container for both export and import (at US$500 and US$545, respectively), a few places ahead of Hong Kong in both cases.

But perhaps the area where China fares worst is in construction, particularly the ease of dealing with construction permits; it is the world's fourth most difficult jurisdiction in which to do so, presenting a daunting 37 procedures to get through (compared with only seven in Hong Kong).

It is also becoming easier to obtain credit in China. Doing Business notes that 20 months after the People's Bank of China's Credit Reference Center created an online registry for receivables, over 74,000 lending transactions using receivables as security had been recorded, for an estimated cumulative total of over Rmb5 trillion (US$732.2 billion).

“More than 52% of these transactions involved small and medium-size enterprises,” says the report.

China is the world's seventh-cheapest jurisdiction in which to claim for enforcement of contract (11.1% of claim) and offers very strong minority investor protection, scoring maximum points on the World Bank's disclosure index. The report also recognises China's efforts to improve conditions for smaller businesses by including reforms of business regulation in its economic recovery plans.