China is fast becoming the go-to place for foreign investors. Its cheap and skilled labor force, political stability, imposing infrastructure, immaculate supply chain, and stable currency make it perfect for foreign investors.
This article will tell you 14 things you must know before starting a business in China.
Categories for Foreign Investment
Choosing your Business Venture
A Well-Thought-Out Strategy is Essential.
Preparing the Essential Documents
Verifying the Partner in Joint Venture
Seek Help from a Market Entry Consult Agency
Understanding Exchange Controls
Understand the Chinese Business Culture
Navigate the Chinese Labor Laws
14 Things You Must Know Before Starting a Business in China
Here are the 14 things you need to know before starting a business in China:
1. Categories for Foreign Investment
The Industries for Guiding Foreign Investment catalog regulates foreign investment in the country. It is updated after every three years.
Foreign investment is divided into four categories:
Prohibited industries
The People’s republic of China bars foreign investors from investing in 28 sectors that include:
- The manufacturing of weapons and ammunition,
- Social survey,
- Wholesale and retail of cigarettes, and,
- Other tobacco-related production.
Restricted industries
The industries included in this category are subject to different limitations. Thirty-five industries are in this category, including:
- Insurance companies,
- Railways,
- Public transport,
- Aviation,
- Graphite exploration,
- Power,
- banks, and,
- Security.
Encouraged industries:
This industry encompasses 348 industries, and they are:
- Food,
- Information technology, and,
- Production of agriculture machinery, etc.
Permitted Industries
All businesses that don’t fall into the first three groups are permitted.
Some major industries previously on the government’s “negative list” have lifted their limitations. Another group of industries off-limits to foreign investors is called a “negative list.”
For example:
- Elimination has been lifted on manufacturing/printing of the publications, but the controlling stake is by the communist party. Controlling stakes mean 50 percent of shares will be held by the communist party of china.
- Construction and operation of power plants are allowed, but the communist party will have controlling stakes.
Gradually the economy is opening up more. Foreign investors interested in investing in industries included in the negative list should keep an eye on the favorable environment for business. And also seek the approval of the Ministry of Commerce of China.
2. Choosing a Suitable Location
You need to understand that starting a business in China is and will always be a good decision. But before you do, it is advisable to do some homework before choosing a particular city. Fifteen percent of the population of the country lives below the poverty line. Not all cities are prosperous or suitable for any business.
If a company desires to venture into tech, Beijing may be considered as it suits tech companies. Big cities like Shanghai, Chongqing, etc., are more business friendly.
The Free Trade Zone of Shanghai allows foreign investors to invest with fewer taxes. Renting offices is easy and of higher quality than in other cities. So, depending on your area of business, you should choose the perfect city.
3. Choosing your Business Venture
It would be best to reflect seriously on the business venture you want to register. There are other business opportunities, but most Foreign investors open three kinds of businesses in China, which are
- Wholly foreign-owned enterprises – Most international investors who establish businesses in China often go for wholly foreign-owned enterprises (WFOEs). The primary benefit is more authority over business operations for the proprietor. The registration time is long and complicated, and a certain amount of capital must be deposited in a Chinese bank before starting the company. The deposit depends on the nature of your business.
- Joint ventures – This is a partnership between a foreign company and a Chinese company or citizen. But most business owners don’t like joint ventures because their ideas or ways of doing business often clash with their partners’.
- Representative Offices – The Representative office (RO) is known as Liaison Office too. In China, it represents an already existing overseas company. ROs are easy to open in China and may not incur many costs. However, it carries some operational limitations. Although ROs are not profit-generating entities, they still could be taxed depending on location, business plan, etc. Due to restrictions that apply to its operations, it can operate for only two years. An RO can only be converted into something other than a Wholly Foreign-Owned Enterprise or a full-fledged business. If so, the RO must cease to exist, and only then can a foreign company register WFOE.
4. Minimum Business Capital
After selecting a business model, the next step is to have the minimum registered capital. It is the number of capital shareholders will pay to foreign-invested enterprises registered in china. Although the government has removed it for WFOEs, the only upfront cost is the fee incurred on registration.
Those who declare a capital of 1 million RMB can help speed up the process of their business registration. Other advantages are the governmental benefits of having a temporary residence, help with the legal structure of the business, etc.
5. A Well-Thought-Out Strategy is Essential.
A key to starting a business in China is to set a long-term business plan. When the government approves the business plan, the company must operate within the ambit of the approved plan.
If the company sells a product outside the approved business plan, the government can shut down the company.
The company should give detailed information in the business plan like expected revenue, the number of people to be employed, detailed product description, etc.
The business expert says it would be better to align the business plan with the Five years Economic Plan of China.
6. Preparing the Essential Documents
You must also prepare the whole set of documents needed for your company. The required document may vary from place to place and business to business. The registration authorities go into the details, so make sure you bring every document you think will be relevant.
7. Registration of Trademark
Registering a trademark in China is different from the rest of the world. You might think that a trademark you have in your own country will work in China, but it won’t. In China, you own your trademark rights only after registering them. So, it’s more like a “first come, first served” base.
In connection with the trademark, the government recognizes the following:
- The symbols and logos differentiate specific goods or services pertinent to the company/brand.
- Particular words, designs, letters, or unique characters.
- The trademark could also be the color combination associated with your company/service.
8. Opening A Bank Account
It is relatively easy to open a bank account in china. It produces all the required documents like a passport, valid visa, passport size picture, income statement, and residence permit.
Opening a business account is advisable as it allows a person to separate personal and business finances.
Most banks in China offer online business facilities. It is recommended to opt for an international bank that has a linkage with banks of your native country.
9. Recruitment of Staff
A company undertaking business should be meticulous about the hiring of staff. Foremost among hiring is to hire an experienced and knowledgeable manager. Language could be a barrier in china. That is why it is better to hire a manager who is schooled outside china, preferably in English.
Another option could be to reach out to human resource consultants. Once a good manager has been hired, the manager can ease the rest of the hiring for you. It would help if you had a dedicated contract and an employment manual for every employee you hire.
10. Verifying the Partner in Joint Venture
Suppose you are eyeing a partnership with a Chinese company or citizen; it is essential to check the background of your prospective partner thoroughly. Scamming is a global phenomenon not restricted to a particular country. Carelessness in dealing with a partner can’t be excused and may negatively affect your business.
11. Seek Help from a Market Entry Consult Agency
The Chinese business market yields a return, but it is complex for a new foreign entrant. Suppose you are confident about your business initiation and know about the Chinese business environment; it is still advised to seek the help of a market entry consulting agency.
A consulting agency knows the local laws and regulations and can take the business through cultural differences.
12. Understanding Exchange Controls
The exchange control policy has to be correctly observed. After receiving a business license from a foreign-invested company, the company must be registered with the State Administration of Foreign Exchange (SAFE). Afterward, a Foreign Exchange Registration Certificate is issued. When opening a foreign capital bank, the said certificate will be required.
Moreover, the SAFE must be informed when the foreign investor intends to increase capital investment.
13. Understand the Chinese Business Culture
The business environment in China is different from other countries. Once you’ve done everything, you need to start a business, take your time getting contracts, and expect to make money immediately.
The path to success in business in China is to wait patiently. Making business relations takes time in China.
17. Navigate the Chinese Labor Laws
Labor in China is cheap, but the labor laws may require more work for foreigners to steer through.
Labor contracts should be carefully dealt with. Understand the contract’s legal language, the employer’s responsibilities, social security, compensation, etc. The law regarding probation periods and leaves of employees must be considered too.
Get in Contact with Us
Starting and running a business in China is more accessible than many people make it out to be. Just like in other countries, China has its ups and downs, so once you have that all dealt with, your business should go smoothly.
The first thing you have to work on is your documents. China takes documents very seriously, so ensure you have everything the government has asked for. Second, focus on building good relationships with local businesses and potential clients. There is no need to focus on making profits immediately. Just take things slowly but steadily.
Contact us today to kickstart your entry into the vibrant Chinese market! We offer a wide range of services to meet your individual business needs.
