Are you interested in doing business in China and want to know what it entails? here is a complete guide to starting a business in China for foreigners.
Almost all Fortune 500 companies are well established in China; from Apple, Microsoft, Oracle and Google to Nokia, HP and Facebook. With a population of over one billion and a rapidly growing economy; China is by far the second best place to host and start a business.
Why start a business in China?
China is a unique country with many positive factors supporting business at all stages. growth. China is the most populous country in the world; with a population of over 1.35 billion. China is located in the eastern part of the Asian continent, and Beijing is its capital and center of power.
The other key municipalities in China are Shanghai (China’s largest city), Tianjin Chongqing, and China is also overseen by Taiwan, Hong Kong, and Macao. With China being the most populous country in the world, China is also the third largest country in the world in terms of area.
The Chinese economy is one of the fastest growing economies in the world and the country has attracted foreign investors since its economic growth. There are a host of factors behind the growing number of foreign entrepreneurs found in the country, chief among them being China’s inherent ease of manufacturing and its huge product-driven consumer base. Additionally, China’s overall financial stability has made it an attractive option for those looking to start a business overseas.
Over the past decades, China’s economy has experienced incredible growth, making the country the second largest economy in the world. After the start of economic reforms in China in 2078, China became the global manufacturing center, where the secondary sector (including industry and construction) accounted for the largest share of GDP.
Often referred to as the global factory, China is the world’s largest manufacturing and merchandise exporting economy. China is also the world’s fastest growing consumer market and the second largest importer of goods. Since 2016, China has been the second largest trading power in the world and has played a leading role in international trade.
Here are some of the great things you can get in China; cheap and reliable technology, cheap and highly productive labor, fertile land and good weather, etc. China is also the second country in purchasing power parity with the rest of the world.
The Chinese economy is diversified in the sense that all key sectors of the economy are really flourishing. Agriculture sector, manufacturing sector, technology sector, oil and gas sector, automobile industry, tourism sector, pharmaceutical industry, don’t name it, is not very popular compared to the main countries of the world.
Without a doubt, China is considered one of the best countries in the world to grow your business, and it’s no surprise that almost all of the Fortune 500 companies have a presence in China. So here is a guide that walks you through the many procedures required to start and run a business in China. China.
4 things to do before you start Starting your business in China
- Find a guide
As a foreign investor, China will usually be a strange land to you, so you’ll need someone to help you navigate the waters. This doesn’t guarantee smooth navigation, of course, but will help you avoid a lot of pitfalls along the way.
For a guide to be most useful to you, it must be a local business or partner. Your partner will satisfy your communication need in the country. You will need to choose your guide wisely because China cannot be trusted too easily. A reliable partner can help you build a good foundation before you make any plans.
Relationships are known to be very important to Chinese people and you need to develop them. It is a task that can be daunting if you don’t speak the language, which is why you really need this guide. In addition to counseling, you should understand Chinese culture and language as needed, as it will help you cope with difficulties.
- Find a way to adapt to the corporate culture
The labor market and working methods in China are indeed different from other countries. For example, China experiences tremendous turnover as the Chinese change jobs quickly for better pay elsewhere, and the most talented employees continue to prefer large companies to startups.
Empowering your employees, understanding and participating in the business process is essential to overcome this obstacle. Transparency should also be respected, as it is not a strength of many Chinese companies.
Again, no matter how you adjust, you still have to come to terms with the fact that you are an outsider. For example, it does not make sense for a Westerner to attack a market where his personality will not be a plus, since the Chinese sometimes do not trust foreign companies that open up in certain sectors.
So you have to accept the fact that you are a foreigner and use it to your advantage and focus on markets and applications where it is seen as quality. Your guide will advise you further on this.
- Go mobile
Most of the Chinese population is super digitally connected and therefore spends a lot of time on the internet. Your business must take this into account and must have an online connection. Think of e-commerce in front of a traditional store, invest in online communication and advertising rather than traditional media (TV, press, radio, etc.), and go mobile. Chinese people really like their cell phone.>
- Get a working strategy
Another thing to consider when intending to do business in China as a foreigner is strategy.The right strategy to enter the Chinese market will help you increase your chances of business success, help you gain business. time by understanding a completely different culture, will save you unnecessary costs. , quickly get an idea of the market with affordable prices.
But the effective methods are to get early advice in your business in the Chinese market, to have a local presence to get accurate information, to avoid common mistakes made by foreign brands with limited knowledge of the Chinese market, And much more. It is definitely essential.
3 questions to answer before starting a business in China as a foreigner
a) Is your business idea open to foreign investment?
Many key industries welcome foreign investors to China, but the reality is that not all industries do. The very first thing to do as a foreign investor in China is whether your potential industry is open to foreign investment.
Sectors such as health, education, and automobiles, etc., remain closed to foreign investment, although the country plans to open automobile production. Therefore, it is important to first know the evolution of your industry in the Chinese market. Find out how much leeway you have and whether your product is suitable for the market.
b) What type of business structure would you create?
This question is very important because they represent certain business structures accessible to foreign investors, and each has its own advantages and disadvantages. Generally, the choice of how to structure your business will depend on the weight of the initial investment. Here is a list of some of the main structures available to foreign investors:
All-Foreign Enterprise Business Structure (WFOE) is a limited liability organization that has a shareholder or investment organization and enables foreign business owners to manufacture, sell, distribute and provide products and services in China without needing to cooperate with the Chinese. Company.
The procedure leading to its creation is cumbersome and the minimum capital required can be very important in the commercial function. When registering with the WFOE, foreign companies usually have three options:
- WFOE Consulting Service: This entity enables a business owner to provide consulting services and activities to clients in China on behalf of a foreign investor
- Trade WFOE: With a commercial WFOE, foreign companies can wholesale and retail, they can import and export, they can buy goods in China, and sell and distribute .
- WFOE Manufacturing: This structure allows foreign companies to assemble and process equipment or products in China. Structures should be used depending on the type of business you want to start.
- Joint venture
This structure requires a Chinese partner. A joint venture is a special form of company registration in China, where there is both a mainland and a foreign party. When China began to open up to foreign investment, JVs were the primary way for foreign companies to enter the Chinese market, and they did so by partnering with a local Chinese company to form a joint venture. .
Business owners can use a reliable online currency exchange service to minimize attorney fees or any associated costs when expanding their business in China.
- Representation
Opening a representative office is a fairly straightforward way for a foreign company to have a limited presence in China, but there are strict restrictions on what it can do. For example, he cannot hire employees directly or even collect money. So, with such a structure, it is impossible to sell any products or services or even make a profit. Thus, there is a structure to present and communicate information about the main business in China.
c) How will you finance the business?
This problem is also critical. You need to answer the above question before talking about cost, as the cost will be very different and important if you create a WFOE. Therefore, you need to budget for the costs of the whole operation after choosing the structure of your business.
If you do not have cash, know that you must seek funding in your country. Several agencies around the world provide assistance to help entrepreneurs develop abroad. In the case of France, there are government aids and guarantees such as “Pret export Bpifrance” or “Assof Prospection COFACE”. You need to research your country to find out if there is such an opportunity for you, if not, you need to look for loans.
d) What taxes apply to your business?
The fiscal environment in China is constantly changing, particularly with the 2007 law. Today, income tax is 25%, but there are differences depending on the sector of activity or the place of sale. You will need to find out about the tax rate applicable to your business so that you know in advance what you are getting into.
Starting a Profitable Business in China as a Complete Guide for Foreigners
1. Have a Viable Idea: The very first step in starting a business is to create a viable and potentially profitable idea once implemented. Next, you should do some research and interview with people in the niche you want to get into.
2. Choose the field of activity and the structure of your company
It is very important to compare your type of business against the list of prohibited industries in China to ensure that you are choosing the right company. You can also browse the Foreign Business Incentives Directory to see what types of incentives you may be eligible for.
In terms of scope, you need to make sure you have a good balance between being too broad and too limited. Businesses covering large areas are usually denied permits, while disabilities can lead to future problems if you work outside; and the Chinese government will always know that you can trust it.
3. Choose an agency or law firm to help you through the process
Setting up and running a business in China is difficult and difficult for a foreigner. If you think you can do it on your own, you need to think again. Trusting a professional who not only speaks fluent Chinese but is also knowledgeable in legal and financial matters should be one of the first things to do. You can find these agencies online or with references.
4. Enter your location
Choose the right location; it can make all the difference in the success of your business. First of all, get to know the big cities. Shanghai, Beijing and Guangzhou are major commercial, government and industrial centers. The very nature of your business may require you to locate in one of these great cities. For example, if you’re a tech company, Beijing might be for you.
The Chinese government provides subsidies and discounts to stimulate investment in certain regions of the country. Look at suppliers and distribution centers, customer bases, export / import logistics, regional and local tax breaks and staff residences.
Sometimes your location depends on whether you are selling a product or providing a service. When choosing a location in China, you will usually need to consider transportation needs, logistics, source of raw materials, government restrictions, etc.
Once you have settled in the area you will need to find an office as you will need proof of lease to register your business. Whatever space you choose, make sure it is zoned for the type of business you plan to open.
5.Choose a business unit
Before registering with the government, you need to decide what type of business object to register. The most common foreign companies are joint ventures, representative offices, and wholly foreign-invested enterprises, and each of these has been explained above.
A joint venture requires a partnership between a foreign business owner and a Chinese citizen. While joint ventures may seem like the safest route, experts warn them. Critics say the most common joint venture problem is nothing more than a classic case of the same bed, different dream syndrome. In addition, the probability of failure is very high.
Dealers are easy and inexpensive, but they severely limit what you are allowed to do in China. A dealer exists simply to represent your offshore legal entity. In other words, you can’t provide any services or products, which means you can’t generate income either. Representation gives you little more than the opportunity to show your face and build your brand.
The most common type of legal entity is a foreign company known as WFOE. Over 75% of U.S. investments in China are known to be 100% owned by U.S. companies these days because it gives business owners the ultimate in quality control.
WFOEs are quite difficult to set up. It takes longer to get government approval and it does require the minimum investment you need to make in a Chinese bank, although the amount can vary widely depending on the nature of your business and where you are. you install.
6. Development of a business plan
A detailed five-year business plan is essential because once the government approves it, you can only act according to your plan. If you start offering a product or service that is not part of your business plan, the Chinese government can easily shut down your business.
The same goes for where and how you work. Therefore, you need to make sure that your business plan is as broad as possible to allow the business to run freely. If it should be wide, it should also be specific.
Make sure to include your location, expected revenue, description of the product or service, expected headcount, budget requirements, etc. in your plan.You may need professional help to develop an acceptable business plan that does not put your business in place in the future.
7. Find a connection: no matter your level of knowledge; Your business still won’t get far without the help of a representative who will register your business. There are many organizations in the United States that can help you navigate the complex application process.
Contact the Chinese-American Business Council or the Commerce Department of the Chinese Consulate. It is also advisable to contact the US Commercial Service office, which can direct you to local counters throughout China. All of these resources should be able to recommend a reliable international corporate lawyer to you.
Beware of local Chinese sales agents who charge $ 800 to translate a business application. There is a very low chance that your business will be registered if you use them. Perform a thorough background check or talk to other US business owners to find out who they used to register.
A qualified representative should be able to tell you where you need to go to register, whether it’s local, provincial or national government, and should speak up as soon as you are there. You need someone who has discussed this area several times before, and you absolutely need Chinese speaking people to come and meet with local authorities.
8. Put your documents in order
The documents you will need to start your business in China include:
- registration certificate, educational documents (or equivalent documents) certified by the Chinese Embassy or Chinese Consulate.
- (2) Copies of the passports of each investor certified by the Chinese embassy or consulate abroad.
- Bank statements from each investor’s bank confirming good reputation.
- (2) Copies of the passports of the director of the parent company, the legal representative of the Chinese company and the head of the Chinese company (if applicable).
- (6) 2 “x2” photos of the Chinese legal representative accompanied by a short CV or CV.
- Share capital.
- Fields of activity.
- 8 proposed names of Chinese companies in China.
- Office address in China including (2) copies of rental agreements, real estate title deeds and owner identification.
- (4) Copies of the power of attorney.
If your WFOE is involved in production, you will also need:
- Targeted and prospective investments
- Operational structure and number of employees
- Land use permit
- Environmental assessment report
- Product information
- Production size
- Detailed list of used equipment
- Business plan
- Environmental protection measures
- Requirements for site utilities such as water and electricity consumption
9. Request for approval
In China, your business must be approved by two separate divisions: the Ministry of Commerce and the State Administration of Industry and Commerce. And your documents must be submitted in Chinese.
Your approval depends on your area of expertise, especially in a “limited” industry. Typically, if there is a problem in your area, one or both organizations will ask you to change it. Your approval may be refused entirely.
If your business is in the “promotion” sector, you will also need approval from the National Development and Reform Commission. Your request may take up to 90 days and is subject to additional verification, which may extend the deadline.
10. Obtain a trademark for your product or business
Many foreign investors will tell you that intellectual property infringement is a big problem in China. Many American manufacturers believe that because they have the brand at home it will stay in China, and in the end they paid dearly for the idea.
In China, the first person to register a trademark owns the rights to it, whether or not they are the first to use the trademark.
So, know that you risk wasting money and time for the benefit of people who will not hesitate to cash in your ignorance. So, you need to make sure that your product has a brand, regardless of its popularity in your country and that you have already been marked as a product in your country.
11. Register and open a bank account
After receiving your approval, you must register with the China Industry and Commerce Administration (AIC) and apply for a business license within 30 days. You will need a new set of documents to obtain a commercial license, including:
- Application form
- The chart
- Certificate of Approval
- Company name approved by AIC
- Commercial licenses for all investors
- Letter of reference from the company’s bank
- List of directors, officers, supervisors and legal representatives
Note that additional documents may be required, but this list will usually cover you. After obtaining a business license, you can open an account with a Chinese bank.
If you are dealing with a bank that has no relationship with banks in your country, it will be difficult for you to keep track of your money. So please make sure your bank in your country and your bank in China have some kind of suitable relationship
12.Other possible approvals / registrations you will need
Besides opening a bank account and depositing share capital, here is a list of some of the approvals (or registrations) that you need to get after getting your business license:
- Company PSB (Public Security Bureau) approval
- Registration with the tax office
- Customs registration
- Registration with SAFE (State Administration for Foreign Currency)
- Hire an accountant (China ledgers are required)
13. Tax considerations
Below are the taxes you may be required to pay when running your business as a foreign investor in China. Please note that others may be included.
- Corporate tax: around 25%, but variable
- Sales tax: sales tax, between 3-5%
- Tariffs
- VAT: around 17%
- Personal income tax
14. Hire your employees
Hiring staff in China is a tricky process, especially when it comes to hiring managers. Don’t assume that just because English speaking people are perfect, they can do business the right way.
While language skills are very useful, it is much more important to have a smart businessman in this role who will run the business the way you want.
You can try to contact HR consultants and recruiting agencies in China, or search for Chinese citizens or Chinese citizens who studied in America. Note that good talent doesn’t come cheap, so if you want the best you have to be prepared to pay them what they’re worth.
Once you have trusted managers, they can help. hire the rest of the staff. You need to sign contracts for your employees so that you don’t have any issues with them when you leave.
The challenges of doing business in China
As the Chinese economy continues to grow, the country can be tough on small businesses, especially foreign companies. In fact, the World Bank’s latest annual ranking ranks China 78th out of 200 countries for ease of doing business, showing that foreign entrepreneurs looking to start a business in China face many hurdles.
While these obstacles are real, they can certainly be alleviated if the investor knows his way. So here are the vast challenges you will face when starting a business in China.
- Language difference
- Cultural difference
- Find manufacturers who are technically capable of producing your quality standard
- Timing and loyalty
i) Starting a business in China, especially as a foreigner, can be quite unpredictable . Therefore, in addition to your main budget, it would be helpful to set aside some extra budget to pay for unforeseen expenses such as government fees, fines, agency fees, gifts, etc.
For example, it might take months just to get a government operating license for your location, during which time you will still have to pay rent and utilities without any income. Along with paying operating costs while waiting to start a business, you can also get ridiculous payments from developers if you open an office or store.
So if you are planning to spend $ 200,000 to start a business in China, you had better prepare at least an additional 50% of your budget to cover all incidental expenses.
ii. In China, laws and regulations are very detailed, but it is often difficult to follow them . It takes strong relationships with various government agencies to navigate and achieve the goals, i.e. get approval. The inherent bureaucracy and inefficiency that is sometimes observed in government systems creates business opportunities for Chinese intermediaries.
These agencies usually have good relationships with government officials, sometimes open family and friends of officials, and are able to make things faster and easier for a fee. Of course, you can ignore these middlemen and go the straight and legal route, but you have to be very patient and have a high level of tolerance.
iii. Likewise, you should notice that if you finally hit a million chances and finally succeed, the Chinese will copy your product and even do better than you . They will make the same product and do it cheaply; and, as a rule, he will have a much better business and political relationship to outdo you.
This is one of the reasons why it is generally suggested that foreigners starting a business in China should focus more on a service-oriented business rather than on products that can be easily copied. You can definitely give it a try if you have a ton of money to advertise your product and grow your business before your product gets copied.
But if you don’t, your best bet is to focus on building a business that provides services. Not only are the Chinese generally poorer when it comes to copy service companies, but there is also a general consensus among the Chinese themselves that foreign services are superior to Chinese.
How to overcome the difficulties of doing business in China
- Prepare: Read books about Chinese people, their corporate culture and relationships to help you understand your Chinese partners / partners.
- Look for reliable Chinese partners to help you with your work.
- If possible, contact a translator
- Evaluate your suppliers or production equipment and make sure it meets your standards
- Don’t trust product samples. Invite an inspector to oversee your manufacturing process.
Understanding Chinese Culture
Before setting foot in China to do business, it is advisable to know and understand how Chinese culture works. By knowing the environment, as well as the values of its inhabitants, you will have a better chance of succeeding in business.
China, like any other country, has its own norms and religion, and while these two factors are not as important for other nationalities, they are in fact important, if not critical, in the daily life of Chinese people, so you should always accept this is a note as it can actually affect your business.
It’s easy to understand that you don’t just have to study the traditions and customs in China; You should also study how business works in China. There are different conditions for doing business in the world, and while some countries have firm and understandable practices, Chinese companies prefer to be flexible and flexible, and these traits are proving to be very effective.
Plus, learning to do business in China also means that you are actually there; and make friends with the people there. Not only will you have to get rid of all the principles of foreign affairs, but you should also avoid planning only to do business; because local influence will always be an important factor.
You should also consider looking for a Chinese partner who will not only be able to show not only their nationality but also their business and management background. Besides, it is not enough for you to find yourself a business partner in China, you must also have local employees so that they can contribute in some way to the economy; and it will definitely look good on a business profile.
Working with the Chinese government
An important factor to consider when doing business in China is to strive to be on the good books of the government. The Chinese government plays a very important role in foreign business and investment; and that’s why having the necessary papers and important permits should always be a priority to avoid hassle. When it comes to these things, businessmen should always know that no monkey business is allowed in China; not at all.
And while there are other countries that have always thrived in regards to their business industries, you do not always expect the same in this beautiful country of Asia. While China bolsters its solid reputation as the “ next big thing ” when it comes to economy, that doesn’t guarantee a quick buck.
As with almost any business in this direction of the world, it takes time. Patience and resourcefulness will be the most ideal traits you should have when considering starting a business in China.
However, you should not discourage this, because although it will take time, doing business in China will nonetheless be satisfying and rewarding. So why wait for them when you already know how to do business in China? How about real involvement in this business?
Conclusion
Starting a business in a foreign environment is difficult; not to mention it’s extremely difficult for foreigners like China, but that doesn’t mean you shouldn’t go. You just have to focus on your strengths. Focus on what you are doing well and tailor the formula to China’s requirements.
