Establishing Business in China

17/03/2015
There are some key points that any who wants to establish a business in China must take into account. In this Blog we will analyze the main factors and steps to be followed:

  1. Sectors open to foreign investement. One  important issue is that direct foreign investment is not permitted across the board in China.  If you are planning to invest in China, the first step is verify whether and under what conditions your activity is open to foreign investment. The «Foreign investment industrial guidance catalogue»  classifies foreign investment in business as encouraged, restricted, prohibited or permitted. With this in mind we will know if our business is welcome or not in China.
  2. Destination of Choice. Even though Shanghai, Beijin and Guangzhou  are the major business, goverment and industrial centers, the business opportunities there are quite a few at the current time. Now the competition between companies in Shanghai or Beijin is huge, and a new business here must be carefully studied  if you want to succed. The new policies of the goverment are focused on less developed regions like Xinjiang, Chongqing, Sichuan or Yunnan, where new business have greater acceptance. In this regard,  the «Central-western catalogue»  lists activities and sectors in which foreign investement is encouraged in central and western regions, having preferential treatment under different policies.
  3. Forms of business establishment: Before you register with the government, you have to decide what type of business entitity to register. Ther most common for foreign business are Representative Offices (ROs), Joint Ventures and Wholly Owned Foreign Enterprises (WFOE). A Representative Office is the easiest way to enter the business with low costs. It is the strategy adopted at first stage of investment in a new country.  Actually, a RO limits the scope of your business since you cannot deliver any service or product and you cannot generate revenue. It is just there to represent your offshore entity to show you up and build your brand name.  A Joint Venture  requires a partnership with a Chinese citizen, in other words, you buy  shares of an established company in China through a partner that has  experience in China. It is the only strategy to enter the market in a short period with a local partner, but in fact is not the best alternative to follow. Finally, a Wholly Owned Foreign Enterprise ( WFOE) is a limited liability company owned by one or more individual or corporate foreign investors. The liability of the investors is limited to their subscribed registered capital. It is the most common choice for new foreign investments and give business owners the maximum quality control. On the other hand, a WFOE is much more complicated to set up and takes more time to get approval from the government, requiring also a minimal capital investment that you must put in a Chinese bank.
  4. Other major issues: The importance of developing a five-year plan business is crucial since once the govertment approves it, you will be able to operate only within its gidelines. Also, it is very important to find a liaison or representative to register your business, no matter how informed you are, and which will help you also to organize the necessary documents. Finally, be aware of trademark your intellectual property since intellectual property violations are a big issue for foreign investors in China.

 

And last but not least, take it slow. Chinese people like to take their time, doing business in a certain manner for thousands of years. Don´t even start to think that you are going to change it  😉

 


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