China – the country with the second largest economy in the world by nominal GDP (just after USA). What is more, it is also the biggest exporter of goods and is a member of international organizations and a party to agreements with many countries such as Australia, New Zealand, Pakistan or South Korea. There are over 1,386 billion people living in China and that puts the country on the top of the list of the countries by population. This number is still growing and it comes from out-of-town people, who decided to start business in China.
Have you ever wonder how it would be to join the group of entrepreneurs in China? If so, we present a simple guide how to start a business there.
1. Find a place to start a business in China
The very first thing you need to consider is a place you want to start your business. In China, there are a few main financial centers: Shanghai, Beijing and Guangzhou, but you do not have to pick the biggest and the most prestigious cities for your work. The destination should be dependable on the kind of your business in Chinese. Before you choose the place, take into consideration some aspects such as:
- local support for foreign businesses,
- costs of land and labor,
- – logistic issues,
- – the number of suppliers,
- – amount of taxes,
- – law restrictions and requirements.
2. What type of business you would like to trade under?
When you decide the city which would be the most proper for your business, there is the time to choose your business structure. You might choose from the main following options:
2.1 Joint venture
This form is a type of partnership between a Chinese citizen and a foreign entrepreneur. For the advantages of the presented option, we should mention some kind of safety – Chinese partner has some experience in doing business in this country, and not only know the regulations, but also cultural customs. The Chinese partner can also handle the registration process and has connections with different Chinese entities, who can become your cooperators or customers.
On the other hand, there are some disadvantages of this structure. Our Chinese partner might have bad relations with suppliers or other market players, and the process of finding the Chinese partner can be time-consuming and needs patience and financial means.
2.2 Wholly foreign-owned enterprise
Setting up a business in China in the form of the wholly foreign-owned enterprise (WFOE) is the most common method where a foreign entity is able to incorporate a limited liability company totally on its own (without a part of Chinese investor) – undoubtedly, it is one of the main advantages of this structure. Moreover, it creates a new legal entity and the liability of a shareholder is limited only to the original investment. Of course, there are disadvantages of WFOE. The decision for this type of business is related to requirements of having a minimum capital investment and you have limited access to government support.
2.3 Representative office
Starting a company in China by the representative office is a low-cost and easy to establish, but also limited method. In this case, your company has a particular office (as the same name suggests) where you can conduct non-transactional operations. It is a good way to build your brand and take care of marketing issues, but for trading actions and profit-making activities, we recommend other options mentioned earlier.
3. Make a detailed business plan
You should organize your ideas and assumption by making a business plan. It should be from a long-run perspective (for five years) and has regard to all possible option your business can be about. Do not forget to include your localization, the number of employees and naturally the description of the thing you would handle it. Write in an easy-to-read way, but try to be professional.
No matter if you want to open a small business in China or you assume that you are going to create a great corporation, the business plan should also include financial issues. The projected profit and loss or assets, even these substantial ones like lands, buildings, and equipment. Keep in mind, that you also have to show your liabilities – debts, loans and so on.
4. Registering a business in China
Registering a business in China depends on the type of business structure you decide to choose. In general, it can be a long process and last about three to six months. For instance, if you want to operate under the representative office, you need to submit the application with the State Administration of Industry and Commerce (SAIC). In WFOE case, you need to show all necessary documentation such as a copy of business scope, propositions for Chinese names, certificate of incorporation, passport copies of investors (certified by Chinese embassy) and letter of authorizations.
WFOE registration procedures are related to naming registration with SAIC, getting tax certificate by Taxation Bureau, opening a bank account and presenting the capital verification report. This process is also connected with paying some fees for incorporation services. For example, the cost of services of a consulting company (which might be really useful due to the knowledge of law and experience) is about 2000 USD.
4.1 Open a bank account
Opening a bank account is one of the conditions you are obliged to meet if you want to set up a company in China. The first thing here is to choose a bank – it could be one of the largest local and international banks which offer business banking services (Hang Seng Bank, ICBC, Citibank Chia, Bank of China). The chosen bank would require some documents according to the kind of business you run. Certainly, you need to prepare a confirmation of registration of the company. Do not forget about documents providing that your business is operational (e.g.
There are two types of bank account that you, as a foreign-invested entity must provide:
- RMB Basic Account – dedicated to day-to-day operations and salary payments. It is often used as an account for tax payments.
- Foreign Currency Account – used for transferring capital in and out of the country and for specific payments.
And as it was mentioned earlier, you can use services of international or Chinese banks. Many foreign investors prefer to open an account with this international one, but that choice is tantamount to more time-consuming processes.
5. Register your trademark!
Foreign investors often miss-registration of the trademark. Remember, that the entity who registers the trademark first and get rights for it, is entitled to handling this product. And we would like to avoid situations when someone uses our ignorance of this process, register our trademark and claim for payment, wouldn’t we?
In this case, fulfill special trademark application. Then, the process of registering the trademark is provided by the State Administration for Industry and Commerce and it lasts about one year. Finally, when all verification actions go well, you will receive a certificate of approval.
6. Be prepared for culture differences
When you get all necessary approvals from all the authorities, pick the proper place for the kind of your business and lease needed premises, you became a legal player in the Chinese market. Now, you are able to hire employees and start making business relations. When we raise a subject of setting up a company in China it is worth to mention about Chinese business etiquette. You need to be prepared for long negotiation processes and pay attention to the topic of conversations or body language. Be upright, formal and try to avoid political topics. Dress in a conservative way for meetings and you would look professional in the eyes of your Chinese interlocutors if you would be able to speak some words in Chinese.
7. How to start a business in China – summary
If you have come up with a brilliant idea for a business in China, you could start actions and make your plan come true. As you know now, the process of opening a business in China needs some time and patience. There are some huge competitors in the market. The biggest companies in China might be impossible to overcome, but there are still plenty of fields you can compete with them. Choose the most relevant business structure, create a specific business plan, gather all necessary documentation and register the company. Brace yourself and even there is a risk to make some mistakes, the Chinese proverb says: “A fall into a ditch makes you wiser”.
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